Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Which Bankruptcy Chapter Is Right For Me?

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choose bankruptcy chapter

Seven or Thirteen?

13 or 7?

When you have a choice, how do you decide which chapter of bankruptcy works best?

Usually, the choice is driven by the scope of the discharge and the kind of debts you have.

More kinds of  debts are dischargeable in Chapter 13 and the automatic stay protects you for the 60 month duration of the case.

So why did the client this week choose to walk out of Chapter 7 with fewer debts discharged than if he’d chosen 13?

It’s all about his  future.  And who will get to share in his growing earning capacity.

Chapter 7 over Chapter 13

On the surface, this client seemed a great candidate for Chapter 13, which is my favorite  bankruptcy chapter.

Some of his debts were only dischargeable in Chapter 13;  in Chapter 7, he’d emerge still owing some debts from a divorce.

So why choose the smaller discharge?

Because his earnings were likely to double or triple over the life of a Chapter 13 case.

If that happened, we anticipated that a Chapter 13 trustee would move to modify his payment plan to pay more to general unsecured creditors.

Credit card debt, which would get nothing in a Chapter 7, might well get a substantial repayment from his increased earnings.

He’d pay fewer dollars paying  the non dischargeable debt that survives a Chapter 7  directly than he would paying in a larger slice of his paycheck  to all of his creditors in a Chapter 13 plan.

Chapter 13 after confirmation

Judges approve Chapter 13 plans based on the situation when the bankruptcy case is filed.  The means test looks at recent income.  The liquidation test looks at non exempt assets at filing.

For this client, each of those numbers was modest and a repayment plan would be relatively cheap.

But Chapter 13 involves committing your future income to the supervision of the Chapter 13 trustee.

Now, that supervision is pretty minimal:  it usually means the trustee monitors your tax returns to see in your income has increased.

If there’s a significant increase, the trustee can file a motion with the court proposing increased monthly payments going forward.

The debtor gets to respond with updated expense schedules, and if the parties can’t reach a deal, a judge decides whether payments change.

In the Bay Area, this happens very infrequently.  I’ve seen it less than a half dozen times in 20+ years of doing lots of 13’s.

But it can happen, and for this client, it seemed quite likely that a new job in his usual profession would dramatically increase his income.

Chapter 7 looks at today

If Chapter 13 is a years long process, Chapter 7 is a single event.

The rights of the debtor and the creditors are determined by the situation on the day the case is filed.

If the means test says that Chapter 7 is an option, then the creditors get only what the debtor owns at the filing of the case.

And what the creditors share in is only what’s left after the debtor chooses his exempt property.  Most Chapter 7 cases make no distribution to creditors.

Future income belongs to the debtor.  The Chapter 7 trustee can’t come back a year later and ask for a slice of a larger paycheck.

So, much to my surprise, when we looked at this client’s current situation and his prospects, the more limited discharge was a better deal than Chapter 13.

He’ll get to enjoy a larger share of his future earnings and a fresh start.

More

Cheat sheet for passing the means test

Figuring what you pay in Chapter 13

How to make your divorce bankruptcy-proof

When your ex files bankruptcy

Dividing debts in divorce

 

SBA Loans Collectible Long Past Business Failure

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The SBA has eagle eyes and sharp talons when it comes to collecting from guarantors of business loans.

SBA collection tools are ruthless, efficient and ageless.

So I learned when a client consulted me about a business that had failed 12 years ago.

Yet the SBA had never sued him, nor had it filed a lien on his home.

He reported that every time he changed jobs, however, the SBA just appeared and garnished his wages.

At this rate, his exposure on his SBA loan guarantee will live long beyond the next decade.

Statute of limitations

The United States Code 28 USC 2415 prescribes a six year statute of limitations on lawsuits to collect non tax debts owed to the US.

That six year period is reset with each payment the feds receive on the debt.

Understand the liability of a guarantor

So, the SBA has six years from the last payment made to file a lawsuit against a guarantor for a money judgment.  With a judgment comes a slew of collection tools under the law, including liens  and levies.

But, it turns out, the feds don’t need a judgment to exercise powerful collection actions that usually require a judgment.

Administrative garnishment

Like the IRS, the SBA has a right to garnish wages without ever going to court.

13 C.F.R. 140.11  lays out both the limits on how much of each paycheck can be garnished and the procedure for challenging a garnishment.

Chillingly, the regulation provides that the feds have the right to garnish until the debt is satisfied, or until there is a settlement.  So that’s how the SBA kept surfacing for my client at each new job.

Offset into retirement years

Retirement isn’t a reprieve from SBA debt, either.

The government retains the right to offset any money it may owe you, as in tax refunds or Social Security benefits, to pay the debt. 31 USC 3716.

So, the passage of time will bar the initiation of a law suit that could result in a lien or a right to levy your assets, but the right to garnish wages or offset
mutual debts appears to have no time limit.  A guarantor of the debt of a long dead business may be paying on that debt until the guarantor’s death.

SBA debts dischargeable in bankruptcy

If an SBA borrower isn’t able to reach a settlement of the debt with the SBA, any unsecured debt to the SBA  is fully dischargeable in bankruptcy.

Secured debt owed to the SBA is only secured in a bankruptcy case to the extent that there is equity in the asset after liens senior to the SBA are paid. Thus in a Chapter 13, an SBA lien can be crammed down to the value of the collateral.

In the usual circumstances, the SBA is not protected by the provisions of Chapter 13 that bar modification or bifurcation of debts secured only by the debtor’s home:  SBA debts are almost always secured by the assets of the business for whom the loan was taken out.

More

No tax consequences when SBA guarantees compromised

Is a corporate bankruptcy safe for shareholders?

Thoughts on winding down failing business

Closing Up Shop

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What can you do when it becomes obvious that your  business should wind down?

The hardest part of being in business is recognizing when the business has no future and needs to close.  Yet the overwhelming majority of new businesses fail within 5 years.

So you’re not alone.  In fact, in the face of the pandemic, you’re in great company.

Shutting down an insolvent business presents a tough challenge: honoring the legal rights of creditors while minimizing the damage to the founders and employees.

Not to mention the emotional hit.

Separating the owner from the business

Unless you are a sole proprietor, you and your business are two separate legal entities.

Whether your business operates as a corporation or an LLC, it has its own rights and obligations.  Those rights and obligations  may be different from yours as the shareholder.

For the purposes of this discussion, we’re going to assume the business is a corporation. If you operated as an LLC, the issues are essentially the same as those of a corporation.

  • The board of directors of an insolvent corporation owes its duty of loyalty to the creditors, not the owners.
  • Creditor claims get paid before the shareholder’s ownership claims.
  • Shareholders can be creditors as well as owners.
  • Management can legally pay some creditors and not others.

Keep these precepts in mind once you see the business needs to close.

Bankruptcy or not

There is no clear or universal answer to whether a failed business should file a Chapter 7.

A corporation does not get a discharge in a Chapter 7 case; only a Chapter 11 reorganization erases the debts of a corporation.  And a Chapter 11 is worth the significant time and expense only if the business has a future, or some valuable asset salable only if the business continues until the sale.

So the only purpose a business bankruptcy serves is to liquidate the business assets and satisfy creditors as far as possible.  The unpaid debts will remain enforceable against the corporation for as long as the law allows.

Companies can go out of business without filing bankruptcy: they liquidate their assets and cease operations. Creditors have a right to recover their claims from the assets of the corporation.

If there are no assets, the corporation cannot be further harmed by lawsuits that try to collect from the corporation: a judgment against a company without assets is worthless.

Closing without bankruptcy

It’s perfectly legal and rational to simply close the doors and cease business without involving the courts.

The danger to management in this approach is the tendency of some creditors to assume that the business’s failure to pay means that there is some sort of skullduggery afoot.  Those creditors don’t recognize the legal distinction between the corporation that runs the business and the people who work for and own the corporation.

It becomes easy and reflexive for such creditors to sue the officers as well as the corporation to collect the debt.  The corporation may have no remaining assets but the officers have both assets and future earnings at stake.

While the claim against the individuals may be invalid, the individual has to appear and defend in the lawsuit, or a judgment will be entered against him.

And sometimes, the individuals are liable because the individual guaranteed the debt or even the individual opened the account before the corporation was formed.

Why doing it yourself can work

Personally managing the wind up has advantages, if you are willing to devote the time and energy to the process.

Management can usually get a better price for assets since they know the market, know the asset, and are motivated to get highest recovery.

Outside of bankruptcy, you control who gets paid with the available funds.
You can act swiftly to limit exposure of management or investors by paying first debts guaranteed by insiders, subletting leased space, returning leased equipment, etc.

Creditors are protected from having to give back preferential payments to the bankruptcy trustee.

Assets can be sold to insiders so long as the price is fair.

All desireable outcomes, if it’s possible.

DIY isn’t all roses

But…
Handling the shut down yourself has some down side. DIY may

  • Prevent management from accepting new employment
  • Require cooperation from creditors and lessors
  • Increase likelihood that disgruntled creditor will sue individuals too

Bankruptcy is simple

In Chapter 7, the bankruptcy trustee becomes responsible for liquidating assets, returning equipment, and dealing with creditors, freeing management to turn to other endeavors

The trustee has powers under Bankruptcy Code to sell leases despite anti assignment provisions and to avoid levies and writs of attachment, recovering value for creditors that isn’t possible outside of bankruptcy.

Filing bankruptcy seems to reduce the instance of creditors suing individual managers for corporate debt.

The automatic stay prevents aggressive creditors from diverting cash that could be used to pay taxes, employees, and guaranteed debts or recovering property needed for wind up.

But….
If the bankruptcy trustee winds up the business:

  • Trustee unlikely to get top dollar for saleable assets.
  • Insiders may be prohibited from buying technology, intellectual property or projects in development
  • Trustee’s fees and expenses are paid off the top
  • Trustee can recover preferences to trade creditors and to insiders and challenge pre petition transfers of assets if legally fraudulent
  • Bankruptcy process frequently slow and inexact
  • Claims are paid according to priorities in the Bankruptcy Code

Try some of each

The choice of how to wind up doesn’t have to be an either/or decision.

Management can liquidate assets as far as feasible, and file bankruptcy thereafter to let the trustee mop up.

Step back and look at the issues of timing, asset value, and creditor claims.

If the answers seem complex, consult a bankruptcy lawyer for help weighing the alternatives.

More

Payroll tax trouble

Separating the business from the business owner

Myth of the corporate business card

Reaffirm Your Car Loan: The Bankruptcy Fight You Hope To Lose

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reaffirmation lossIt isn’t often I go into bankruptcy court, hoping to lose.

But when the issue is reaffirmation of a car loan, that’s the strategy.  I desperately want the judge to deny approval of my client’s proposed reaffirmation of his car loan.

And most of my judges will deliver, from the bench, the pitch I’ve made to the client:  you are better off if this reaffirmation is denied.

So, how did we get to this state of affairs?

Like many screwups, it started with Congress.

Or rather, it started with the car creditor lobbyists and their boat-load of money earmarked for Congress.

Bankruptcy reform crashes

In a nutshell, before 2005’s bankruptcy amendments, you could keep your car after bankruptcy so long as you kept making the payments.  Simply filing bankruptcy was not a default on the loan; default that allowed repossession required a failure to pay.

In bankruptcy lingo, the idea was called “ride-through”;  the car loan rides through bankruptcy as if there hadn’t been a default.

Then along come the lobbyists who “convince” Congress that it’s unfair to them to make them keep accepting payments on a car after bankruptcy.  Their complaint was that after entry of the bankruptcy discharge, all they would be allowed to do was auction off the car.  The discharge would prevent them from suing the borrower for any deficiency.

So, the law was changed to make filing bankruptcy an event of default.  The only way to cure that default after filing was to reaffirm the car loan.

Reaffirmation waives the discharge as to the car loan.  Reaffirm, and the car creditor can sue you personally if you stop paying.  Even if you got a bankruptcy discharge.

Best laid plans

What the lobbyists didn’t plan for was sloppy drafting of the law they wanted.

The “reformed” law on car loans required the debtor to enter into an agreement to reaffirm the loan AND  gave the bankruptcy judge the responsibility to approve the agreement as being in the debtor’s best interests.

And that’s where they blew it.

Courts have regularly held that all that is necessary to entitle the borrower’s car loan to ride through bankruptcy was the debtor’s agreement to reaffirm.  The law provided no requirement that the judge approve the agreement to give the creditor the right to sue the debtor after bankruptcy.  See Moustafi.

The debtor gets the benefits of ride-through by just entering into the agreement, even if the judge refuses to approve it.  And without approval by the judge, the car creditor can’t sue the debtor if they stop paying on the car later on.

Rooting for disapproval

You see why I want the court to disapprove my client’s proposed reaffirmation agreement.  Without the judge’s blessing, there is no deal with the creditor, but the creditor is limited to repossession if the agreement isn’t approved because the debtor did what the law required:  agreed to reaffirm.

How much should you spend on a car

The reaffirmation process requires the debtor to provide a post-bankruptcy budget that shows that he can afford the car loan going forward.  Too many debtors have budgets that really don’t have enough money available for the existing loan.  And judges see that.

Judges are further concerned about the gap between what the debtor owes on the car versus what the car is worth today.  If the debtor finds that he can’t make the payments, he is exposed to a law suit for the difference between the debt and the value of the car, PLUS the lender’s costs of suing him.  Ouch.

I really appreciate the judges before whom I practice who take their responsibility to review reaffirmation agreements carefully and patiently explain to my clients why disapproval of the agreement is in their best interests.

And I grin when I lose this bankruptcy battle.  Because my client just won.

More

Redemption: the cheaper alternative to reaffirmaion

Car loans in Chapter 13

Car loans after bankruptcy

 

 

You Can Make Debt Collectors Stop

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stop debt collectors

You can make debt collectors stop.

You don’t have to endure phone calls and threatening letters.

In fact, you have a statutory legal right to be free from harassing debt collection.  All it takes is a letter to the collector.

We’ll show you how to write that letter and exercise your right.

And, if you live in California, that letter will not only stop collection agencies, it will stop the  creditor itself from nearly all contact about the debt.

Right to be free of collector, not the debt

Understand, this right doesn’t make the debt go away.  It doesn’t keep the creditor from suing you.

It does keep debt collectors from using all their weapons to get you to pay to harass you until you pay.

Suing you is time consuming and expensive to the collector. So, they want to harass, shame, or frighten you until you pay just to get them off the phone.

Write a do-not-contact letter

Here’s a template letter invoking your right to be free of collection.

Dear Collector:

Please take notice that I elect to exercise my rights not to be contacted by you about this alleged debt as provided by the federal Fair Debt Collection Act (15 U.S.C. 1692 b.  )

Do not contact me further about this debt except in strict compliance with the law.

Very truly yours,

YOUR NAME

Simple, huh?

California residents have more rights

While the federal FDCPA applies only to collectors hired by your creditor, California’s Rosenthal Fair Debt Collection Practices Act goes further.  It applies the same do-not-contact rules to the original creditor as well.

So, in California, you can add a reference to California Civil Code Section 1788.17, which is where the Rosenthal Act is found.

Make the  creditor give up

You may want to add a paragraph to your letter if there are facts that suggest that there is no point in suing you to collect.

More about your debt collection rights

While, this letter only says they can’t harass you by phone or by mail;  they still have the right to sue you.  You just want to give them facts that suggest that suing you gets them nothing.

So, throw in any relevant facts such as your age, employment, health, or family situation that support your claim that you’ll never be able to pay.

I’m 68 and living on Social Security.

I’m permanently disabled.

I’m the sole support of a handicapped child.

You get the idea.

I suggest that people with tax problems make clear to the collector that paying the taxes comes first.

Make a record

Your case is strengthened by a line that identifies the debt you’re talking about.

It’s also strengthened by sending it to a named individual, preferably the President of the collector or of the creditor. Nothing keeps you from sending copies to the name the collector is using (it’s often not their real name) AND to officers of the collector.

Keep a copy of the letter.  Send it by means that will get you a receipt showing that it was delivered.

Then, if you get communications that are not consistent with the rights you’ve claimed, keep notes about phone calls or copies of letters.  Those documents can support your claim to statutory damages and payment of your legal expenses.

Enjoy peace at home and at work.

More

What to do if you are sued

Do elders need to file bankruptcy

What’s wrong with debt settlement

 

Bankruptcy Alphabet: K Is For Keep

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What you Keep in bankruptcy

The letter K is for the stuff you keep through bankruptcy.

The cartoon image of someone going through bankruptcy has them wearing a barrel instead of clothes.

It’s a funny image but it’s not real.

Most debtors keep far more of their assets than you’d image.

Here’s why.

Exemption law protects assets

The Bankruptcy Code and the law of each state carve out assets that a person can keep, despite owing money to creditors.

That property is exempt, in the language of the law.

The debtor keeps it, notwithstanding judgments or bankruptcy.

Possessions with little value

Some possessions you keep  through bankruptcy simply because they have little or no value.

The bankruptcy trustee’s job is to gather up assets that he can sell to generate funds to pay creditors.

If something has no value in the marketplace, the trustee is not interested.

Put in this category family photo albums, used clothes, junker cars.  It would cost the trustee more to pay someone to pick it up than he could get by selling.

Property with legal entangements may fall into this category: environmental problems, title issues, foreign location.

Assets excluded from bankruptcy estate

Some possessions you keep because they are not “property of the estate” as defined in the bankruptcy code.

Pension plans and 401(k) accounts are the biggies, here.

Because these take the form of a trust with an provision limiting creditor access to the funds, they don’t come into the estate at all.  Creditors, other than the IRS, can’t touch them.

Overencumbered assets

And then there are the assets you keep that have substantial value, but are subject to liens that cover all of the value of the asset.  If such assets were sold, the lien holders must be paid off in full before there would be anything left for the bankruptcy trustee to pay to creditors.

It is usually the existence of liens that allow debtors who appear to have house, cars, vacation property, etc., to sail through bankruptcy without losing anything.  The owner has already bargained away the value in the asset, keeping just legal title and the right to possession.

Keep on keeping on

So, keep your chin up.  You will probably keep far more through a bankruptcy case than you imagine.

Consider that my friend and newly coined California consumer protection lawyer Jay Fleischman thinks “K” is for keys in the bankruptcy alphabet.

Image courtesy of be.mosaic.

Chapter 13 Bankruptcy Disrupted by Coronavirus

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chapter 13 case

Has your Chapter 13 bankruptcy case been turned upside down by coronavirus?

You are not alone.

And attorneys, trustees and judges are all working on adaptations and adjustments that will save pending cases.

Practices and procedures in Chapter 13 vary widely around the country.  What follows is what I see here in the Bay Area and hear from around the country.

Congress takes Chapter 13 action

The CARES Act, passed by Congress on March 27, extends the allowable length of confirmed Chapter 13 plans to seven years. Currently, plans cannot run more than five years.

That presents a problem if your case is driven by the value of your assets or the need to cure mortgage arrears or pay off a car loan.

To qualify for the extended plan duration, the need for a modification of the plan must be traceable to the COVID-19 national emergency, directly or indirectly.

Importantly, only the debtor can move to extend the duration of the plan.  That means that neither the Chapter 13 trustee nor creditors can move to lock you into a longer plan.

So, there’s new flexibility if you have a Chapter 13 plan that was confirmed before March 27, 2020.

Unconfirmed Chapter 13 plans

Suppose, though, that you’ve filed Chapter 13 and the means test “says” you need to pay something to unsecured creditors.  Only the virus emergency says that income is no longer there.

Current law allows the amendment of Chapter 13 plans that haven’t been confirmed to be amended.  I don’t anticipate any judicial resistance to new income and expense schedules that reflect today’s realities.

If your plan payments are driven, not by income, but by the value of your assets, the problem is harder.  The CARES Act provides no relief from the “best interests of creditors” test requiring that creditor get what they would have had you filed a Chapter 7 liquidation case.

If your assets have fallen in value, it may pay to consider dismissing the current case and filing one where today’s asset values control.

Inability to make Chapter 13 payments

Confirmed or unconfirmed, debtors nationwide find themselves suddenly without meaningful income.

Hardship discharges may become easier

The good news is that many others are in the same boat.

In other times, failure to make a monthly payment would trigger a motion to dismiss your case.

Probably, such motions are far less likely in these circumstances.

Plans, confirmed or unconfirmed, can be modified by the appropriate filing in bankruptcy court.

The practical problem is how does anyone reliably project their income going forward.

I see this as an issue that remains to be worked out among all the players.  The courts don’t want to dismiss a heap of cases, only to have to process refiled cases by the same debtors.  I expect there will be accommodations.

For the moment, both courts and trustees’ offices are operating with skeleton crews and no real appetite to toss people out of bankruptcy for non-payment.

Stay tuned.

Rescue payments excluded from income

The amended Bankruptcy Code definition of income now excludes payments made under federal law relating to the pandemic emergency.

This change benefits both those with unconfirmed Chapter 13 cases, and those who file new bankruptcies in the next year.  Governmental help will functionally not be available to your creditors in a bankruptcy case.

Bankruptcy law will revert to the current definitions of “current monthly income” and “disposable monthly income” at the end of a year’s time.

Challenges ahead

Our current economic catastrophe is unprecedented in its suddenness and its scope.  Lots of good minds (and a few not-so-good minds) are pondering work-arounds for family finances.

In the meantime, stay healthy, stay home, and stay strong.  We’ll keep posting as developments appear.

More

See our roundup of posts on the virus and your budget

 

 

 

Bankruptcy Means Test: New Numbers, Little Impact For Bay Area

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We have new numbers! The new income figures for California bankruptcy cases used in bankruptcy’s means test are out.

They become effective for cases filed after April 1, 2020.

The new median income numbers won’t create the same stir as the Powerball jackpot, but they are the starting place for people in need of relief from bills they can’t pay.

The means test divides debtors (the people who need debt relief) into two groups.

Those below the median state income get to file bankruptcy, no questions asked.

Those above the median income have to jump through another hoop, the means test, to determine if a government watchdog will claim their filing is “abusive”.

People above the median still get to file bankruptcy.

The means test just influences which chapters are available and what the debtor has to pay if they elect Chapter 13.

In our experience, a high percentage of people over the median income still qualify for Chapter 7 after they calculate their living expenses.

Bay Area median income

The means test looks at the median income by family size.  The median for families in San Mateo, Santa Clara, Alameda, and Santa Cruz counties is

  • $60,360 for a family of one
  • $79,271  for a family of two
  • $88,235  for a family of three
  • $101,315 for a family of four

For families larger than four, the median is increased by $9000 for each member above four.

While the median income figures are the same for all Bay Area counties, the deduction allowed for housing varies from county to county.  This table shows county by county how much a California debtor can deduct from their income for the cost of housing a family of their size.

If you are above median

Lots of people above the median income pass the second part of the means test with flying colors.

Why it’s a mistake to do the means test yourself

It’s just another form to fill out.  As I explained in another means test post,  the high cost of housing in the Bay Area makes it relatively easy to pass the test.

All Congress managed to do by imposing a means test on bankruptcy is to drive up the cost to debtors for filling out a tedious form.

More

How the means test works

Cheat sheet for passing the means test

Figuring what you pay in Chapter 13

If You Can’t Make Your Car Payment During The Virus Shutdown

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car payments coronavirus

How am I going to keep my wheels while the coronavirus looms?

The fight against the coronavirus has cut off income for millions.  While there’s been broad discussion about mortgages and student loans,  there’s less discussion about rent.

So far, I’ve heard no governmental discussion about how to proceed if you can’t make car payments.

Car loans present particular, prickly problems, distinct from home mortgages and student loans:  the car creditor has a lien and the right to repossess the car if you don’t pay.

The closing of the courts and the lack of paychecks to garnish, which limit other creditors, doesn’t protect the car buyer.

And, there’s no governmental protection (yet) from repossession.

Hurray for Edmonds

Edmonds has assembled information on the announced policy of a long list of car lenders.

Check it out.

As of this writing, their page is dated March 17, with a promise to update it as time goes on.

Universal best practices

Anytime that you’re told to “contact your creditor” during this crisis, don’t rely solely on the phone.

The phone is easy, but I have no confidence in the ability of the lender to track those phone calls or retrieve them when necessary.

Follow up every phone call with a short, written letter, identifying yourself and your loan number, along with the meat of your message.

Keep a copy.

We don’t know how governmental and institutional policies will develop, but you want to be able to prove that you reached out as requested.

What’s to come

What’s different in the coronavirus crisis from other financial downturns is that the pain is huge and widespread.

Creditors and the government will have to develop mitigation strategies that preserve people’s mobility and make it worthwhile to keep paying on existing loans.

We’ll just have to stand by to see what they are.

My expectation is that lenders do not want to repossess a fleet of cars, and they don’t want to further tank their cash flow.

And, where I am, the repo guys are quarantined too.

More as news develops.

When you can’t pay your bills because of the virus

Protections for California homeowners during times of pandemic

California renters get protection from eviction

Tax season postponed

 

When You Can’t Pay Your Bills Because Of The Virus

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virus and money

 

The coronavirus has us locked at home where the  worry demons play unrestrained in our heads.

Money troubles cause us worry, in “good” times.  These are hardly good times.

As more and more of us are hit with shelter-in-place orders that keep us from work and our kids from school, we have even more time to worry about money.

And worry is debilitating.  In normal times, stress kills and the stress of COVID-19 dwarfs our usual worries.

I live and practice bankruptcy law in the San Francisco Bay Area: here,  we’ve been subject to social distancing, strategic shutdowns, and now, shelter-in-place orders for longer than most areas.

So here’s what I know and what I expect as a bankruptcy lawyer about the economic spillover from the fight against this virus.

Focus on the here and now

Staying safe and healthy right now is all that really matters.  Set aside issues of paying existing bills and long term commitments.  Those can wait.

Make food, medicine, and mental health your first concern.

If in doubt about your readiness for a jobless stretch, set aside, for the moment, payments on credit cards, medical bills, and student loans.

If possible, consider paying insurance premiums and car loans.

The very crisis that keeps you from your job keeps your creditors from their jobs, too.  While we’re still getting collection calls at my office, like most collector calls, they are toothless.

You are not alone

We see the usual money troubles as unique to ourselves:  shameful, defeating, personal.

Well hello, this time that isn’t so.  (It wasn’t so before, but that’s another rant.)  Millions of people in this country are facing the same situation.

Which is what feeds my expectation that government will craft remedies that mitigate the damage the country faces. And once those remedies start rolling out, we’ll all have opinions about the fairness and the adequacy of the remedy.

That grousing will give us something more to do.

But collectively, we all see the problem.  The problem is shared.  Your financial struggles will not stand out.

The help that’s coming

Lots of ideas are circulating about protecting families financially and pasting the economy back together.

California reopens signups for affordable health insurance

Right now, most of the solid action I see is at the state and local level.  Most pertinent for my clients, California state courts are closed except for the most essential health, safety and criminal issues.  So there’s not even a court available for creditors to sue you in.

For the longer haul, remedies under discussion include

  • Bans on evictions, foreclosures, and utility shutoffs
  • Restrictions on negative credit reporting
  • Mandated extensions of repayment on existing debt
  • Partial or total forgiveness of student loan debt
  • Low cost loans or grants for small businesses
  • Penalty-free late payment of income and employment taxes

Individual companies have offered free or reduced rate internet access; free online books and courses; on line exercise classes; and the list goes on.

Time will tell just what the collective remedies look like.  But, rest assured,  the crisis demands a fix.

And an election upcoming provides a feedback mechanism if the fix is slow, skimpy or spotty.

Law lumbers

In the best of times, legal actions take time.  So there is little immediate danger to you and yours in holding off payment on unsecured debts.  Don’t worry that the legal ax is about to fall if you miss a payment.

Law suits are expensive for the creditor and are typically the last resort of collectors.  Don’t fret that your unpaid bills will find you in court in the short run.  Where I am, the courts are barely open for much at all.

More concerning are the secured creditors with collection options that don’t require a judge’s involvement.  Think car repossessions and non judicial foreclosures.

If you can’t make your car payment, call AND write the lender and tell them how you are affected by the COVID-19 crisis and ask for relief.  I seriously doubt that, at the moment, creditors have a corporate answer to your request, but ask anyway.

And I never count on a phone call alone to make a record, much less make a difference to a creditor corporation.  Send a letter too and keep a copy.

I expect, but have not seen yet, a policy of tolerance on the part of car creditors.  What would they do with a fleet of repossessed cars? We can hope their repo guys are subject to stay at home orders, too.

As to foreclosures, there are glimmers of action to bar foreclosures while we are fighting the virus.  Residential lenders with loans guaranteed through Fannie Mae and Freddie Mac have been ordered to offer borrowers flexibility.  Stay tuned to see how that works out.

If your loan is not Fannie/Freddie, write the lender seeking relief, and stay watchful for developments.  Again, I don’t think lenders want to end up owning gobs of foreclosed homes.

Reach out and band together

It’s ironic that,  in a time when we’re told to practice social distancing, togetherness is critical.  It may be virtual togetherness, but it is good for our individual health and the strength of our communities.  Take care of your neighbors.

Stay strong, healthy, and hopeful.

More on the coronavirus crisis and money

Mortgage payments during the pandemic

Car payments while sheltering in place

Tax season postponed

California protects renters if…..

 

 

 

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Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700

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