Northern California Bankruptcy Lawyer

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Why File Bankruptcy? It’s Your Life Expectancy

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paying debts

Old debt has a way of sucking the air out of today’s budget.

You can’t make repairs to your car or see to needed health care or accumulate an emergency cushion because you’re still paying for stuff you bought long ago.

Worse, old debt blights your old age.

Few of us have sufficient income to both pay off the old debts and set aside money for our old age.

It comes down to a choice, for many of my clients facing a budget that doesn’t work: pay the old debt over a long time or get a fresh start that enables saving for retirement.

Ditching the debt

As a culture, we are committed to keeping our personal promises to pay. Promises matter.

Clients find the thought of bankruptcy painful; they have usually worked very hard to make the minimum payments and feel profound responsible for repaying their debt.

“It’s my debt and I want to repay it,” is a frequent refrain.

My retort is: how much do you have saved for retirement?

All too often, the answer is “Nothing”.

I think the conclusion from that question and answer is obvious, and becomes more obvious the larger the debts and the older the speaker.

Time is short, life is uncertain, and old age is costly.

The choice comes down to:  pay off debt as you promised, or provide for your old age.

How your choices add up

Assume that your credit card debt is $20,000, the interest rate on the card is 18%, and the minimum payment is 2.5%.  (For most people meeting with a bankruptcy lawyer, both the total debt and the interest rate I’ve used here are low, but they’ll do for this exercise.)

Paying the minimum payment and adding nothing to the balance in the way of new purchases or penalty fees, it will take 37.5 years to pay the balance down to zero.

Interest over the life of the repayment period would be nearly $30,000 .

What you have at the end of 37 years is a warm glow of self satisfaction and a paid-off debt.

Fund your old age

If, instead, you made the same payments required to pay off that credit card (approximately $50,000) into retirement savings at 6% for 37 years, you would have $315,874 in cash to fund retirement.

So which would you rather have after 37 years of paying: nothing or $315,874?

I honor the instincts of the client who wants to repay their debts; I simply challenge the wisdom and feasibility of doing so.

Not all of my clients have 37 more years of working life. Few of them can expect a future free of job loss, ill health, divorce, or other bumps in their financial lives that may interrupt their ability to make the payment every month.

When bankruptcy law was changed in  2005 to make it more complicated and more expensive for consumers, there was lots of pontificating about average folks taking “personal responsibility” for their debts.

I suggest that perhaps taking “personal responsibility” means saving to be financially self sustaining at the end of one’s working life.

More

Your house as your retirement fund

Retirement funds are safe from creditors

Image courtesy of Sally and Flickr under a Creative Commons license.

Surefire Steps To Avoid Bankruptcy

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Naked_Hike-wikimedia-ebdow-cropped

Most people would rather parade naked down Main Street than file bankruptcy.

Bankruptcy makes them feel exposed, defeated, ashamed.

If you don’t want to go there, you can order your life so you don’t ever need bankruptcy relief from debts you can’t pay.

I’ve figured out the formula that assures that you’ll never met me in my professional capacity.

My five easy steps to avoid bankruptcy [Read more…]

California Garnishment Now Provides Greater Protection Of Wages

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california garnishment lawWorkers making close to the California minimum wage got additional protection from wage garnishments under a change in the law effective in 2013.

With the annual increases in the state minimum wage, in 2019 California law now protects an employee’s weekly net wages up to 40 times the state minimum wage, currently $11 to $12 per hour.

The prior formula  limiting a judgment creditor to 25% of a debtor’s after tax wages remains.  But the amended law caps a wage garnishment at the lesser of the two calculations.

A judgment creditor isn’t absolutely entitled to the amount figured under these formulas, however.

If the judgment being collected is for a debt other than support, a judgment debtor can seek a reduction in the amount of the  garnishment from each paycheck to the extent necessary for his support.  CCP 706.051.

Garnished-now what?

The only run of the mill creditor who can garnish your wages is a creditor who has already sued you and won a judgment.  That judgment entitles the creditor to levy bank accounts and garnish wages for 10 years or until the judgment is paid in full.  More about judgments.

The judgment accrues interest at 10% simple interest per year.

Two questions arise:

1.  Can you meet your current living expenses on the money left after a garnishment?

2.  Is this judgment just one part of a bigger debt problem?

The dangers of doing nothing are greater than just the other bills that don’t get paid while your wages are garnished.

Too often, the reduction in available cash puts your car or housing payments in jeopardy.  And, it probably pays a debt that is dischargeable in bankruptcy, as most unsecured debts are, while non dischargeable debts like taxes, student loans or child support go unpaid.

Here are some ideas on who to pay with the money remaining.

Your wage garnishment action items

See an experienced bankruptcy lawyer.  You want to know two things.

  • Can you petition the state court for a smaller garnishment? and,
  • Does bankruptcy make sense in light of the bigger picture of your income and expenses?

A bankruptcy will stop a wage garnishment. And, you may be able to recover the money taken from your check from the creditor as a preference.

If bankruptcy is an appropriate response, there is no point in paying the judgment creditor for another pay period.  Pick up the phone and get some advice.

More

How to interview a bankruptcy lawyer

Wage garnishment survival guide

   Bankruptcy’s effect on judgments

Bank Account Safe From Credit Card Debt

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credit card offsetPossession is 9/10th of the the law, we’ve always been told.

With overdue Bank of America credit cards, my client worried that her new deposit at B of A would be seized by the bank to pay the cards.

After all, the bank would have possession of the commission check and a common law right to set off the deposit against the credit card debt.

Not to worry.  There’s a federal law  that protects bank accounts from credit card debt.

Credit cards can not offset

Federal Truth in Lending regulations explicitly prohibit a bank who is a card issuer from appropriating your deposit account to pay your debt on a card it issued.

(d)Offsets by card issuer prohibited.

(1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder‘s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.

All you need to know about judgments

12 CFR 1026.12 goes on to make clear that if the card issuer gets a judgment, this provision doesn’t insulate a deposit account from a judgment levy.

Nor does it keep the bank from depleting your account if you’ve agreed to pay the card automatically by electronic transfer.

Credit cards exception to common law rule

Offset, or setoff, (they seem to be interchangeable terms) means to net out what one party owes another against a debt that runs in the other direction.

Merriam Webster defines it  this way:

the reduction or discharge of a debt or claim by setting against it a distinct claim in favor of the debtor or party who is the object of the first claim (as in a lawsuit)

This principle is a mainstay of common law.

So, the Truth in Lending provision creates a statutory exception.

Bankruptcy discharge prohibits set off

At the end of a bankruptcy case, the provisions of the bankruptcy discharge prohibit a creditor from offsetting a pre bankruptcy debt against money the creditor owes you.

Section 524 of the Bankruptcy Code reads

(a)A discharge in a case under this title—

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived;

So, if you discharged a personal loan from Bank of America, say, the bank cannot take your post bankruptcy deposits into your account to pay for the discharged debt.

All’s well

With federal law in mind, my client was able to deposit her check into her bank account, secure in knowing the bank couldn’t apply the money she needed to live on next week to pay overdue bank-issued cards.

And her bankruptcy case will wipe out the credit card debt altogether.

Is Your Choice Of Bankruptcy Chapters Really Dictated By Your Stuff?

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Through my Twitter feed came a link to the pro’s and con’s of filing bankruptcy from the business section of the Chicago Tribune.

Good chance to see how non lawyers see my world, I thought.

Bankruptcy was all about protecting “stuff”, said the writer, and the choice of chapters is driven by the kind of “stuff” you had.

Chapter 13 is for people who have equity in their property;  Chapter 7 is for people who have little and can’t meet their basic expenses, the article went on.

I could quibble about the dichotomy that’s set up that Chapter 7 filers have nothing and Chapter 13 filers have more. (Often, it’s the other way around).

I  further contest  the implied suggestion that the Chapter 7 discharge is broader than Chapter 13.  (It’s not.  In fact, the Chapter 7 discharge is a bit narrower.  It’s just quicker.)

But my real beef is the characterization that bankruptcy is about your stuff and how to keep it.

Not so, in my view.

Bankruptcy is about people, not possessions

Bankruptcy is all about protecting lives.  Sometimes it’s about giving up “stuff” and getting back your life.

Your old age is strongest reason to file bankruptcy

It’s about not paying forever for bad luck or bad choices.  It’s about freeing up money to provide for your future.  It’s  about freeing up mental energy to do something beyond juggle too-little money, subject to too many creditor claims.

Considering bankruptcy is a chance to evaluate what’s really important and what’s possible.

Sometimes, stepping back tells you the house is worth struggling for.  Sometimes, in the big picture, the house is really a dead weight on the important parts of your life.

Bankruptcy is about starting over, or reorganizing.  It’s about recognizing reality and doing something about it.  It’s about being an activist to take back your financial life.

Stuff be damned.

More

Hold or fold?  is bankruptcy the right choice?

Life after bankruptcy

 

@cathymoran

Image courtesy of mojmir_ch.

Does Bankruptcy Discharge A Judgment In California?

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Nothing gets a person into a bankruptcy lawyer’s office quicker than being served with a lawsuit.

The prospect of losing a lawsuit and having a judgment entered against them terrifies.

Callers are frantic to see if they can file bankruptcy before judgment is entered.

They worry that once a judgment is entered, their options in bankruptcy vanish.

Not so.

The debt underlying a California judgment remains just as dischargeable as it was before the case was filed.

And,  a judgment in California does not automatically become a lien on the defendant’s property.

It takes another step in California for a money judgment to become a lien.  And as long as there is no lien, the debt is unsecured and  potentially dischargeable in bankruptcy.

Discharge turns on kind of debt

Contrary to what some dishonest debt collectors will tell you, judgments are just as dischargeable in bankruptcy as the underlying debt is.

Whether an unsecured debt can be discharged in bankruptcy looks at  the nature of the debt, not whether a court has ruled on the merits of the claim.

So,

  • Child support is non dischargeable, whether or not there is a judgment.
  • Debts incurred by fraud are non dischargeable in bankruptcy, if the creditor can prove fraud to bankruptcy standards.
  • Credit card debts honestly incurred are dischargeable, judgment or no.

Liens change everything

What does change the dynamic is an abstract of judgment or a notice of judgment lien.

These documents do create a lien on the judgment debtor’s assets.

Recording an abstract of judgment creates a lien on real property in the county in which it is filed.  A notice of judgment filed with the California Secretary of State creates a judgment lien on personal property located in the state.

If the lien cannot be avoided in bankruptcy, the judgment creditor has obtained an advantage.

What my friend Jay Fleischman’s post about civil judgments in New York and their bankruptcy implications points out is the way state law impacts the operation of federal bankruptcy law.

The rights that each party in a bankruptcy case brings to the bankruptcy case originate in state law.

It also demonstrates why lawyers are licensed in each state and why my California law license does not entitle me to practice bankruptcy law in New York.

And why bankruptcy is not a do-it-yourself project.

More

When you’re served with a lawsuit

Three debts bankruptcy doesn’t discharge

Everything you need to know about judgments

Wage garnishment survival guide

Who are the really scary creditors

Image in the public domain, courtesy of Wikimedia.

Do California Seniors Need to File Bankruptcy?

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Rocking chair on the deck - Antigua, Mar 2010California, it turns out, is a great place to retire.

Not because of the cost of living, certainly.  In spite of the cost of living.

Because California exemptions are very generous to those of retirement age.

Those exemptions effectively make many indebted seniors collection-proof.

How exemptions protect seniors

Exemption laws come from the idea that, even if you owe money to creditors, a certain level of income and assets are protected from collection.

  • If you earn a wage, California law caps the amount of your wages that can be garnished at 25% of your after tax paycheck.
  • Pension income cannot be levied, before or after it’s paid to a retiree.
  • IRA’s are exempt to the extent necessary for support
  • The California homestead is $175,000 for individuals over 65
  • Social Security is exempt everywhere

It’s not hard to see that a California senior with home and retirement income might have nothing that a creditor with a judgment could reach.

That doesn’t mean that creditors will stop trying to collect.  They can bug a retiree, using shame, fear, and annoyance to get them to voluntarily pay a debt they owe.

But there may be no way for the creditor to compel payment of its claim at the present.

Is bankruptcy necessary

So, one of my tests for do you need to file bankruptcy  looks at whether bankruptcy would allow you to keep something that you might otherwise lose to a creditor who gets a judgment against you.

If the answer is yes, bankruptcy may be appropriate.

If the answer is no, it may be different.  If that creditor-with-a-judgment can’t tap your bank account or intercept your pension check, functionally, bankruptcy doesn’t make your situation any better.

You’re safe from your creditors.

Is bankruptcy helpful

But life isn’t all about money.  Peace of mind has a value not measured in dollars and cents.

For some seniors, the fact that they owe money they can’t pay is a source of stress.  Even when they know that the pushy, threatening collector can’t take anything from them, they lose sleep and emotional security.

Bankruptcy might have a benefit to those stressed out seniors, not because it’s necessary to preserve their assets, but because it’s necessary to for their peace of mind.

Bankruptcy and the next generation

Lots of elders are intent on leaving something financial to their heirs.

I hear it repeatedly from those getting along in age:  they want to leave their home to their kids.  They want to keep paying on a life insurance policy, even though no one is dependent on them for their care.  They are stretching themselves financially to give some value to their heirs.

Here’s where bankruptcy makes it possible to leave an inheritance to the next generation.

The exemptions that are available in bankruptcy are not available to a probate estate.  Probate will protect the homestead if there is a surviving spouse.  No surviving spouse who  needs the home to live in, and the home may be sold to pay the elder’s debts before anything goes to the offspring.

Most revocable trusts direct the successor trustee to pay the debts of the person who has passed away before distributing the trust estate to the beneficiaries.

Neither probate nor revocable trusts make it possible to avoid judgment liens that attach to homes.  Bankruptcy does.

So, by eliminating debts and perhaps liens as well, a senior intent on leaving a financial legacy to their survivors maximizes their gift by wiping out their debts during their life time.

Not a bad thing, perhaps.

More

Passing a home to kids without probate or risk

Image courtesy of Ed Yourdon and Flickr.

Means Test As Three Dimensional Chess

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means test

Means test issues in bankruptcy extend far beyond how much income you have. The allowable expense deductions for your life after filing bankruptcy count, too.

After an hour long initial consultation with a client, these complexities became clear when the client tagged the means test with incredible clarity.

It’s like playing three dimensional chess

Pretty good assessment of the mess Congress made when it “reformed” bankruptcy law.

We were juggling the means test interaction between unfiled tax returns, a business downturn, and payments to an estranged spouse not yet ordered by a court.

  • how much was owed to the IRS
  • would the voluntary support of an estranged spouse qualify as a means test deduction
  • what’s the impact of living with parents on the housing deduction
  • how would spousal support be treated for the current year’s taxes after the recent tax changes
  • is it better to wind down the existing corporation and start over

The client demonstrated further savvy by holding this exploratory meeting with a bankruptcy attorney before there was a crisis.

He had time to make the spousal support officially court ordered.  The tax returns would tell us whether there were priority taxes that skew the means test.

We could analyze the choices and just what the means test would mean if he elected Chapter 13.

It felt good to applaud a client.

Timing is everything in bankruptcy

Timing for a bankruptcy filing extends beyond the means test. Bankruptcy law looks backward from the date of filing to fix the rights of the person filing and the rights of their creditors.

When you file affects

  • Exemptions 
  • Discharging taxes
  • Tax refunds
  • Clawbacks of money transfers 
  • Eligibility to file bankruptcy 
  • The amount of your Chapter 13 payment

There’s an entire post here on Soapbox analyzing those bankruptcy timing issues.

For right now, let’s just speak up for planning ahead.

More

Drive in bankruptcy

Unfiled tax returns are a life sentence

Don’t do stupid things before seeing a bankruptcy lawyer

Why we don’t offer a free lunch

Debt Actually Makes You Stupid

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5175015713_3641d60dde_zIt’s easy to tell ourselves that getting into debt was stupid.

Maybe, maybe not.

Lots of debt happens without making bad decisions.  Think of medical bills. Natural disasters.  Divorce.

But regardless of how you got in debt, there’s more bad news.

Just being in debt makes you stupid.

Stupid, as in, your IQ goes down under the stress of being in debt.

Stupid, as in, you are likely to make poor choices about other life choices in addition to money.

Stress suppresses intelligence

Researchers at Harvard, Princeton and the University of Warwick found that financial worries impeded not just thinking about money issues, but also spatial and cognitive tests.

People worrying about having enough money to pay their bills tend to lose temporarily the equivalent of 13 IQ points, scientists found when they gave intelligence tests to shoppers at a New Jersey mall and farmers in India.

Image courtesy of Flickr and Manuel Scheikl.

Fear keeps folks from bankruptcy relief

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filing bankruptcy

Those who aren’t living the American dream of upward mobility and financial security seem to think that’s a matter for shame.

Perhaps the second most frequent question would-be clients ask me is whether the fact that they filed bankruptcy will be

  • in the paper,
  • disclosed to their employer, or
  • discovered by their family or friends.

[The answer is that it’s unlikely.]

They are paralyzed by what they perceive as shame in not being a financial success in a world that too often confuses money with virtue.

The bankrupt are better off

A couple of objective observations are in order.

  • A university study of some years ago found that one in seven American families would be better off if they would file bankruptcy.
  • Second, millions American families have filed bankruptcy.

Chances are very good that several of the families around my petrified client have filed bankruptcy, unbeknownst to them.

The study about being “better off” resonates particularly with me, as I see individuals struggling to pay credit card debt, where the interest has tripled when a payment was late, while at the same time, they have no emergency cash reserves, no retirement savings, and no health insurance.

While their choices are noble, they aren’t wise.

These people live on the financial edge so that the credit card companies get their minimum payment.  They go without health care, an emergency fund, and even without food to honor their commitments.

I tell my questioner that bankruptcy is a matter of public record, so anyone who wants to find out who has filed can do so.

But, I ask, have you recently read the news of individual bankruptcy filings?

Such is not the fare of papers where I practice.  With some thought, they begin to realize how insignificant the fear of exposure is next to the financial realities of their situation.

The human creature is pretty amazing that it will live with the constant stress of overwhelming indebtedness rather than risk that others learn of its pain.

It doesn’t have to be that way.

More

Debt is unhealthy

Debt makes you stupid

What’s life really like after bankruptcy

 

 

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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