Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Stupid Moves Before Seeing A Bankruptcy Lawyer

By Leave a Comment

before bankruptcy

Don’t tidy up your financial affairs before consulting a bankruptcy lawyer.

Your current mess may present opportunities to plan your bankruptcy for a better outcome.

You may waste money or lose bankruptcy options when you make last minute changes to your situation without understanding how that situation plays out in bankruptcy.

You’ll have the widest set of options for a fresh start if your lawyer sees the situation as it is today.

What looks to you like complexity and disorder may look to your bankruptcy lawyer as opportunity and advantage.

The high cost of financial housecleaning

My heart sinks when a new client tells me that they’ve just paid off the loan their parents made them before seeing me.

Why your bankruptcy lawyer shouldn’t fight for you

Or borrowed against their retirement to fund debt management.

Or paid off the taxes so that all the remaining debt is credit cards.

For different reasons in each instance, those actions complicate a bankruptcy or squander assets that could have been saved in bankruptcy.

Payments to family

Paying off a loan from family seems instinctive.

We want to take care of those closest to us.  Sometimes, paying off help from family is driven by the desire to hide a bankruptcy from them.  Sometimes, it’s the desire to make sure they get whatever assets you have before you submit to the scrutiny of a bankruptcy trustee.

But more likely, paying off a debt to an insider (that’s bankruptcy lingo for close relatives, real or business related) hurts more than helps.  The bankruptcy trustee in a Chapter 7 can sue insiders who get paid during the 12 months before the bankruptcy filing to recover the money.

The theory of recovering preferences is to make a fair distribution of your assets to all creditors, not just the ones you favor.

Often, the exemptions that are available in bankruptcy will allow you to keep more money than you expect.  You can repay that debt to Mom after the filing, when it has no adverse consequences to Mom. The California grubstake (or wild card exemption) protects about $28,000 in any kind of property, in addition to other exemptions for specific kinds of property.

So, hold on to your checkbook, until we’ve talked.

Settlements before bankruptcy are wasted

The saddest thing I’ve seen recently was the family that soldiered through a five year debt settlement program before we met.  They had paid tens of thousands of dollars to creditors, but didn’t realize that not all their debts were included in the plan.

We had to file bankruptcy for them despite their heroic efforts to pay their debts.  They got no credit or advantage from the money they spent retiring credit cards while their property taxes and student loan debts fell into default.

The better situations are when clients ask if they should accept a settlement offer from a collector before filing.  There, at least, I get to ask what benefit they get from paying that money, money that could otherwise go to funding an IRA or paying down student loans?

In general, your bankruptcy is no simpler or cheaper or less damaging if you have a few creditors as opposed to many creditors.   If the situation requires bankruptcy, reducing the number of creditors or amount of the debt doesn’t benefit you at all.

Tax debt has its uses

While it isn’t generally thought to be a good thing to owe money to the tax collector, it may be an asset if your income is above the median for your state.

The means test is a formula that is supposed to weed out those families who make too much money to file Chapter 7. One of the ironies is that one of the allowed deductions in figuring whether you have too much income to file Chapter 7 is that you can deduct taxes you owe from the income.

It’s the same with mortgage arrearages and property taxes on your home.

These debts are useful deductions in getting a client into the bankruptcy chapter of their choice.

Pay it off before we meet and I have fewer tools to shape the means test.

Put down that broom

So, resist the temptation to clean up your finances before you meet with a bankruptcy lawyer.  Don’t sweep debts under the carpet or out the door before you understand the bigger picture.

Make any advantageous changes in consultation with your lawyer.

More

What your lawyer can’t tell you

The secret alternative to bankruptcy

Cheat sheet for interviewing a bankruptcy lawyer

 

Image courtesy of Flickr and Spengy. 

 

Credit Reports Heal

By Leave a Comment

band-24298_1280 (1)_optWill filing bankruptcy hurt my credit? Probably.

Should that hit to your credit keep from filing bankruptcy?  Not by a long shot.

Incredibly, I encounter people drowning in debt who think their credit report is more important than their financial health.

Their thinking seems to be that credit, once damaged, is never the same.

It’s not so.

A blow to your credit is not permanent nor even long lasting.

Your “credit”, or really, your worthiness for new credit, is almost a living, breathing thing.  It can suffer a blow and recover.

Credit hit is like a cut

Whether you choose debt settlement, debt management or bankruptcy, the solution will damage your credit, in the short run.

Think of the damage like a wound.

The wound bleeds, it exposes the rest of your body to infection.  It hurts.

Think of bankruptcy as antiseptic.  Douse the wound with antiseptic to kill infection and promote healing and it hurts…but the hurt fades.

Over time, the wound closes and scabs over.  It isn’t painful most of the time.

When it’s healed, there’s a bit of a scar.

Over time, even the scar fades.

Debt is chronic disease

When your debts are beyond paying off in the normal course, it’s like a disease you can’t beat.  Persistent symptoms, sometimes progressively worse, other times just ever-present.

Debt saps your energy, consumes your thinking and limits your opportunities.

If your debts are such that you’ve considered bankruptcy, your credit worthiness is probably already compromised.  Would any creditor lend you more money at a reasonable rate?

If not, your credit may not be doing you any good at present.

Your balance sheet is what counts

A credit report is a limited history.  As time passes, the oldest history falls off the report to be replaced with the snapshot of today’s finances.

If you use bankruptcy to wipe away your old debts, your balance sheet (assets minus liabilities) improves on the spot.

The bankruptcy filing shows on your credit report, in the rear view mirror, for some time.  But its significance to lenders fades the farther down the road you get from filing.

But with your old debts gone, even right after you file, you no long look like someone who already has as much debt as they can handle  or more.

Take steps to get financially healthy and your credit will recover too.

More

Your right to credit reporting after bankruptcy

Tips for real estate loans after bankruptcy

Life after bankruptcy

Image courtesy of Flickr and RambergMedia Images under a Creative Commons license.

What Small Business Needs From Government

By

business challenges

 

This post was first published 10 years ago, in the midst of the Great Recession.  I continue to think about the real challenges of running a small business and the balance needed between simplicity for the business owner and protections for the public.  More below.

Senator McCain this morning on Meet the Press reprised the Republican view of the approach to stimulus:  tax cuts for small businesses.

I thought about the small businesses I had seen in the past couple of weeks.  Not one of them was paying income taxes, and their expenditure on payroll taxes was small, because they’d cut back on  employees.

For the very small business, I don’t see taxes as the culprit.

Everywhere you look you see the impact of credit cards on the economy.  Often it’s suit by American Express that brings a small business owner to my office.

Or the businessman makes a list of their credit card debt and the interest rates after the recent round of increases and realize that they can never pay off the debt at 28% interest.

Credit card merchant fees are a much bigger piece of the small business expense picture than are taxes for most of my clients.  Each merchant pays a percentage of each credit transaction to the card issuer.   7-Eleven store owners are petitioning  Congress for regulation of the fees charged merchants  by the card issuers .

I’m certainly not an economist and don’t have a Moran Plan for reinvigorating the economy, but the people I see in trouble aren’t there because of their tax burden.

Small business wish list

Ten years later, my wish list for entrepreneurs is greater simplicity on the administrative side of the business.

Perhaps fewer jurisdictions to deal with and regulations that the average Joe can understand and follow.  Less need for hired professionals to keep the business out of trouble.

Looking around in 2019, the regulatory changes we’re seeing don’t seem to be helping Mom and Pop businesses.

More

Pitfalls to avoid for small business

Your money needs a prenup

Myth of the business credit card

The Trouble With Your Social Security

By

Social Security call

The caller says your Social Security file is incomplete and without more information, your assets, as well as your benefits, will be frozen.

Pretty terrifying if you depend on Social Security checks.

Only, it’s not true.

The caller isn’t from Social Security.

Social Security can’t freeze your assets.

Social Security doesn’t do business by phone.

But scammers love the phone and they love trusting folks and vulnerable elders.

The caller is a thief

The guy, or the automated voice, on the phone really wants you to hand him your information so he can steal money.

It may be your money he wants to steal, if he gets your banking information.  Or, he wants to steal someone else’s money by pretending to be you.

Scammers also use the IRS cover because the IRS is feared;  just another way to get your attention.

The scammers use the Social Security cover story because Social Security impacts almost every American adult.  And, Social Security is trusted.

Through the magic of hacking, they even display the real Social Security phone number.  But it’s only real on your phone’s caller ID.

The other real thing is the threat to your financial wellbeing.

Only scammers make calls

The “fact” that your first contact about a supposedly dire situation comes by phone is a giveaway that the caller is a scammer.

Real government employees write letters.

They write, and write, and write.

They explain the problem.  They suggest what needs to happen next.  And none of their fixes involve providing critical identifying information over the phone.

They make a record that way that they’ve played by the rules.

When scammers call

Your strategy is simple:

clam up,then

hang up.

Tell them nothing.

But do tell the feds.  You can report the crooks online at   https://oig.ssa.gov/report .

If you continue to be worried about your Social Security account, call the real Social Security at 1-800-772-1213 or online at the SSA’s website.

Keep your personal information personal and private.

More

When the IRS is coming to arrest you

Debt collectors exploit elders via phone

Weapons of a debt collector

 

 

 

5 Things To Do When You Have Been Sued

By

process server badgeThe ring on the doorbell was a process server.

Bingo!  You’ve been sued.

Now what?

Breathe deeply and work your way through this five step check list.  Then I’ll suggest some options.

Scout the territory

1. Look at the caption:  It identifies the parties to the suit.  It’s right below the centered name of the court involved.  The Plaintiff is the person filing the suit:  they have a comPLAINT for which they want the court’s help.

Do you recognize the plaintiff as one of your creditors?   If you don’t recognize the plaintiff, does the complaint explain how the plaintiff comes to assert someone else’s claim against you?

2.  Find any verification:  Attached to the end of the complaint may be a verification.  This is a sworn statement by someone with personal knowledge of the facts that the facts set out in the complaint are true.  If there is no verification, you can file a simple form called a general denial if you want to contest the suit.

3.  Mark your calendar:  In California, you have 30 days from service of the complaint to file an answer.  If you don’t file an answer, you are sure to lose the suit.

4.  Check whether suit is timely:  The statute of limitations in California is four years.  The four-year clock begins tickling when there was last activity on the account, a purchase or a payment.  If it’s been more than four years since you either paid or charged on a credit card, you can win the suit simply, if you file an answer.

5.  Read the prayer:  The prayer is at the end of the complaint, though maybe not the last page.  Determine how much money is at stake, and whether there is any claim that you have committed fraud.  The consequences of letting a fraud complaint go to judgment are much more serious than just a suit for money.

Plan of attack

Once you’ve taken those five steps to figure out who is suing you and what it takes to oppose the suit, you need to decide what to do.

Do nothing

If you do nothing, chances are real good that the plaintiff will ask the judge to enter your default, stating that you haven’t answered.

When you don’t answer a properly served complaint, the court system assumes you agree that you owe the money.  Sooner or later, the court will enter a judgment against you.

Everything you need to know about judgments

A judgment entitles the creditor to use the power of the government to get its money.  In the Golden State, it means the creditor can levy bank accounts, file a judgment lien, and garnish wages.

A judgment is enforceable for 10 years.

File an answer

If you contest the suit by answering, you at least slow the creditor’s march to getting a judgment.  If you have a good defense, you may actually win.

The California court system provides information and resources for those representing themselves without a lawyer.  But as the Alameda County court’s site says:  You cannot come to Court and tell the judge that you are not a lawyer and do not understand what you are supposed to do.  

If you are going to be your own lawyer, you are charged with knowing what a lawyer knows.

Filing an answer at least gives you a position from which you can negotiate a settlement.  Consider whether you have any resources with which to fund a settlement.  How is it possible to pay the debt now when you couldn’t pay before?

Find global debt solution

Whether or not you have a defense to this suit, the filing of a lawsuit should be a red flag for you.

  • Is this suit the tip of the iceberg?
  • Is this creditor just one of many who are poised to sue you?
  • Will a piecemeal approach to your debts really get you anywhere?

It may be time to see a financial counselor or a bankruptcy attorney.  Even if you don’t expect to file a bankruptcy case, a bankruptcy lawyer deals with debt issues all the time and can help you assess your options.

Look at your calendar: you have 30 days in which to plot your course before you are at risk of having a judgment entered.

Make a plan, now, before the 30th day.

More

California protections from debt buyers

Wage garnishments in California

Are California judgments dischargeable in bankruptcy

Image courtesy of nles.com. 

At Risk of Repossession? How To Keep The Car & Pay Less

By

car repossessionIf you are one of the  7 million Americans living in fear that your car will be repossessed, consider how Chapter 13 bankruptcy can save your wheels.

Losing your car can accelerate a torrent of nasty financial consequences.

No car, no way to work.

No work, no income.

So, what can a Chapter 13 bankruptcy do to put you back on the road?

Stop repossession

All chapters of bankruptcy impose an injunction on creditor efforts to collect debts, or enforce liens, automatically when you file.   That automatic stay applies whether or not the creditor knows about it.

So, file bankruptcy and any collection actions taken without court permission are void and legally ineffective.  If they pick up your car after you’ve filed, you can compel its return.

The only exception to the stay applying automatically is if you’ve had two bankruptcy cases dismissed in the past 12 months.  More on multiple dismissals.

Spread out car payments

Chapter 13 allows you to put forward a plan to restructure your car loan.  The remaining payoff balance on your car loan can be spread over 60 months.

Unless your car loan is very new, or the original term very long, that probably lowers what you pay each month through the plan.

Reduce interest rate

You can adjust the interest rate on a car loan paid through the plan to the current day, market rate.  As I write, that interest rate in California is between 4 and 5%.

This power to lower the interest rate is central to a successful readjustment of a high interest car loan.  It’s of little help if your loan is less that today’s market rate.

But Chapter 13 in the states of the 9th Circuit has another trick up its sleeve.

Strip out loan add ons

Part of a Chapter 13 plan can be cutting the car loan down to the portion of the loan that financed the car itself;  you can knock out any part of the loan that paid off an underwater trade-in, or a service contract, or gap insurance.

The 9th Circuit said in Penrod that these additions to the amount financed were not protected by the 2005 bankruptcy amendments that gave special consideration to car lenders.

So, you can pare down the car loan that has to be repaid to just the amount of the loan balance used to buy the car itself, and not all the extras.

Deal with other debts

You don’t just file bankruptcy on one debt; bankruptcy includes all your debts.

Some may be absolutely dischargeable, perhaps without paying anything on them.

Some liens can be wiped out.  Back payments on home loans can be caught up in Chapter 13.

Chances are that there’s more going on in your financial life than just the trouble with  your car loan.

An experienced bankruptcy lawyer can help you look at the big picture and propose a solution to keep you trucking.

More

Your car in Chapter 7 bankruptcy

Is bankruptcy the right choice for you

Interviewing a bankruptcy lawyer

 

 

 

Surefire Steps To Avoid Bankruptcy

By

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…]

How To Write A Contract Without A Lawyer & Make It Stick

By

meeting-handshake-pixabay_optEven in a world where people attempt almost any skilled task with the help of Google, YouTube, or Legal Zoom,  people continue to ask: is this contract legal?

They aren’t asking (usually) whether the subject matter of the contract is permitted by law.

They really want to know: will what I’ve written be enforceable.

What makes it a contract

There are no magic words or phrases that make a contract enforceable by a court.

Enforceability is not acquired by adding “whereas” or “notwithstanding“.

A contract need only establish that one party made a promise to the other for consideration. Consideration is legalese for money.  Or something else of value.

If I promise to join you for dinner next Friday, we have not created an enforceable contract, because there was no valuable consideration exchanged.  My promise was gratuitious.  You didn’t offer me anything but your good company over a meal.

If , on the other hand, I promise to speak at the event you’re planning, for which you’ll pay my  fee, then we have an enforceable contract.  I will appear and speak, and you will pay.

If either of us fails to do what we’ve promised, a court will attempt to give the injured party the benefit of the bargain.

So here are four tips on drafting a contract that does the job.

Contract1.  Write out the entire deal

The biggest failing of DIY contracts is incompleteness.  They don’t describe fully the performance that is promised.  They miss one of the essential terms:

  • who
  • what
  • where
  • when

If you hope that a judge will enforce a contract, it has to be written such that an absolute stranger to the deal, the judge, can read the contract and know what was agreed.

Too many self-drafted contracts don’t contain enough for a stranger to understand the deal.

Now, contracts with missing terms or ambiguities can be enforced.  The contract is still “legal”.  It’s just that there is a great risk that the missing terms as the judge fills them in don’t match the intent of the parties.

Enforcement of a fragmentary contract is far more expensive than had the contract been complete.

Enforcement of the unwritten terms becomes victim to what each party remembers but didn’t write down.

2. Flush out & write down assumptions

Often, the contracting parties each come to the table with a collection of assumptions about the arrangement.  And each party assumes that the other party shares their assumptions.

Only, until you articulate your assumptions, you can’t test whether you are both, really, on the same track.

The unwritten assumptions form part of the deal.  A good contract lays the assumption out on paper.  If they aren’t shared when you sit down to write the contract,  discussion or negotiation ensues.

The exercise of writing it out becomes as important as the writing itself.

3.  Explore the “what ifs”

Well crafted contracts provide for the rights of the parties if things don’t go just as hoped when the contract was formed.

What if

  • one party gets sick and performance is delayed
  • the materials aren’t available on schedule
  • the product doesn’t perform as anticipated

My rule of thumb is that the more money that is involved, or the more critical the contract is to your business, the more what ifs the contract should address.

If the consideration is $1000, it’s not worth extended negotiating or drafting to deal with remote possibilities.  If it’s a $100,000, it’s worth more to lay out the details.

4.  Provide for attorney’s fees

If you expect to enforce the contract in court if it’s breached, then your contract should provide that the injured party can collect its attorneys fees from the other in addition to any other damages.

Why?

Because the American Rule about attorneys fees says that each party pays their own attorney, win or lose.  That is, unless the contract, or a statute, says differently.

Without a provision that grants the prevailing party the attorneys fees necessary to enforce the contract, it may simply be too expensive to go to court.  Or, the cost of representation may consume the damage award.

Write on

With these principles in mind, you can draft a contract that is certain and enforceable.  Strive for clarity and completeness.

And if this seem too daunting, take your draft to an attorney and pay only for review and repair of your document.

Because, at the end of the day, a contract only works if you can enforce it.

More

How you sign your name to your corporation’s contract

Benefits of incorporating not what you think

Does your business partnership have a prenup?

Image courtesy of Pixabay and Nemo.

Bankruptcy Changes Your Life, Only Not The Way You Think

By

How will filing bankruptcy change my life?

My clients ask all the time.  They imagine the remainder of their life after bankruptcy with neither credit cards nor credit.  Outcasts in our economy.  Shunned by all.  Crippled by bankruptcy.

They can see a scarlet “B” tattooed on their foreheads to mark them forever as Bankrupts.

My short, irreverent answer to that question is that they will sleep better at night.

Other side effects of bankruptcy include a drop off in telephone calls from collectors and shrinkage of the amount of mail they get.

They get smarter; debt makes you dumb.

All true, but probably not the answer they expected from a bankruptcy lawyer.

Life after bankruptcy

At the superficial level, life continues only slightly changed after bankruptcy.

Your credit score probably goes up a bit, in the short run.  Credit is more expensive shortly after bankruptcy, becoming more available and more affordable as time goes on.  With time and a down payment, you can buy a house.

Credit heals

Your ability to borrow too much on student loans endures.

Most important, in my view, is that eliminating debt means that you can take responsibility for providing for your old age.  A frightening slice of Americans have nothing more than Social Security to support themselves as they age.  And age they will, even if they believe they will never “retire”.

An equal number of people couldn’t handle a $400 emergency without borrowing money.

You drive change

The more serious answer has to reflect what brought them to me to file bankruptcy in the first place.

When the driving force was gambling or some other irresponsible behavior, I tell them that I can dig them out of this hole with bankruptcy relief, but positive change for the future requires that they change their behavior.

When the current crisis is  created by events beyond their control, like job loss, divorce or illness, bankruptcy is likely to put their financial lives back on track.

For those in business,  failure is one of the risks that we take when we sign up to be entrepreneurs.  Bankruptcy clears the financial decks so we can go forward with life.

Life after bankruptcy can be what you make it.  Bankruptcy makes it possible;  you color in the details.

More

3 things that keep you from getting out of debt

Bankruptcy myths

What Bankruptcy’s Automatic Stay Doesn’t Stop

By

bankruptcy stay exceptions

The automatic stay is the signature feature of American bankruptcy.

Just by filing a bankruptcy case, a federal court injunction instantly prohibits your creditors  from actions to collect a debt from you or your assets.

But, there’s a whole list of actions that aren’t included in the stay;  we forget that some kinds of lawsuits with a financial aspect get excluded from the stay.

How the stay works

The automatic stay applies in all bankruptcy cases (unless you’ve filed more than two bankruptcy cases in the last year).

Outside of bankruptcy, you have to prove that you are entitled to an injunction that stops some otherwise lawful action.  In bankruptcy the injunction is granted automatically, just because you filed.

The burden is then on creditors to take action to extract themselves from the stay.

The stay has its limits

The list of exceptions is long and many of the excluded actions are very specific and technical. See 11 U.S.C. 362(b).

But there are some biggies there too among the exceptions.

Here are the ones of most interest to the typical bankruptcy filer.

Family law issues

Actions to establish or modify support are not stayed.  Neither are proceedings involving custody, marital status or paternity.

Support can be collected from property that isn’t “property of the estate” without violating bankruptcy law.  And state issued licenses can be suspended for failure to pay support.  That’s subsection (b)(2).

Law enforcement

The stay doesn’t stop criminal prosecutions.  Nor does it stop the enforcement of actions grounded in the public health and safety; that’s called the government regulatory exemption.  More about that below.

Tax administration

Your state tax folks and the feds can legally demand the filing of a tax return; audit returns you’ve filed; and assess taxes they claim you owe.

Government can’t, however, record liens or levy assets to collect a tax you owed when you filed bankruptcy.

Private rights

A landlord under a lease that expired according to its terms before the bankruptcy case was filed can proceed to get possession of non residential property.

Civil contempt sanctions

Collection of court-ordered sanctions for misconduct in litigation is not prohibited by the stay.

The 9th Circuit Court of Appeals recently decided that the public’s interest in making parties to a lawsuit play by the rules outweighed the sanctioned party’s interest in getting complete protection from collection action.  The fact that the sanctions might be payable to the other party to the litigation didn’t change the state’s interest in enforcing its sanction for bad behavior in court.  The case is Dingley.

More

Automatic stay in lawsuits

What litigators must know about bankruptcy

When your ex files bankruptcy

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

Categories