Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

When $400 Emergency Pushes You Over The Edge

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The Federal Reserve reported that 40% of Americans couldn’t meet a $400 emergency without borrowing.  A significant slice of them couldn’t pay it at all.

So, a Bloomberg economist devoted his column to deconstructing how the press and political figures, in his opinion, misused that finding.

My God.

The guy was too caught up in quibbling about how the numbers were summarized to grapple with the human story beneath the numbers.

He took comfort in the fact that only 12% couldn’t borrow $400.

Emergency borrowing

What about those who could pay $400 by borrowing?

  • Where are they if another $400 emergency comes along?
  • If they didn’t have $400, what has to give in their budgets to pay back the $400 that they borrowed?

Payday lenders charge an average of 400% interest for a two week loan.  While touted as a vital service to low income communities without access to bank loans, payday lending is too often nothing more than financial quicksand. 

Access to high-cost credit: Federal Reserve study on its effect

Borrowing from family and friends has its own social perils. And it assumes that family and friends are better off than the borrower.

From where I sit in Silicon Valley, a huge swathe of America is living on the financial edge.

The shear cost of day to day living consumes their income and their energy.  Too often expected to individually fund health care, college and retirement, they find even multiple jobs, or the gig economy doesn’t allow a financial cushion.

What a waste of economic expertise to focus on the use or misuse of numbers and not address why so many are financially vulnerable.

 

10 Must-Know Things About Money Judgments

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judgment at law

What does it mean when a judgment is entered against you?

It’s not the end of the world, but it has serious financial repercussions.

Here are 10 critical things you need to know about legal judgments.

 

    • cup-1010916_640_optJudgment picks a winner in a civil lawsuit.

      A judgment picks the winner in a judicial contest.  It is the determination of which side prevails, how much money is owed from the judgment debtor to the judgment creditor.

    • sheriffs-star-160082_640_optA judgment creditor can use  law enforcement to collect

      Having won a judgment, the creditor can levy bank accounts, garnish wages, and install a receiver in a business in order to collect the debt.  The creditor can make you show up in court and testify about your assets and their locations.

[Read more…]

Has Your Social Security Number Been Suspended?

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social security scam

 

The latest variety of tax scam picked the wrong target when they called my fellow bankruptcy lawyer Wayne Silver.

Your social security number has been suspended, claimed the caller.

Having no identity is scary. What’s a guy to do without a Social Security number?

It’s sad that we are reduced to needing a number to validate who we are.  But without a Social Security number, an American is virtually no body.

And that’s what the scammer counted on when he called Wayne, and doubtless thousands of others.

The phone message claimed that because of “suspicious activity” on his Social Security number, it was being “suspended”.

If Wayne wanted to know more about the situation, he could call the number provided.

And the situation must be urgent, because the scammer called 5 times in 24 hours.

Social Security numbers don’t get suspended

None of what the scammer claimed was true.  Except that they wanted Wayne to call so they could GET his social security number, or scare him into sending them money directly.

Wayne is hardly your average consumer.  He’s a veteran bankruptcy attorney and white collar crime litigator.  So, he wasn’t scared.

He called me into his office to listen in.

But lots of people are scared by these scam calls.

IRS lists latest identity scams

The IRS put out an update to its list of scams.  This supposed “suspension” of your Social Security number topped the list.

My rule of thumb is that no one who calls you claiming to be from the government is real.  The government is essentially wedded to paper.  They NEVER make first contact with an individual by phone.

Hang up, confident that your Social Security is safe, at least from someone on the phone.

More

Elders fall victim to their phone

Pay up or go to jail: another scam

Debt Buyers Barred From California Courts

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old debtZombie debt may have met its match.

California law now bars the door to the courthouse to a debt buyer holding a claim beyond the statute of limitations.

 Civil Code § 1788.56.  That’s been the law since January, 2014 as to debt acquired after that date.

What’s a statute of limitations

The statute of limitations draws a line, based on the age of the debt, beyond which a creditor may not get a judgment on that debt.  But the critical weakness in California’s statute of limitations is that the person sued had to answer the lawsuit and claim its protections.

The burden was on the person sued to appear and defend.

Too often, the debtor didn’t know that and the collector got a judgment on debt that should have been unenforceable.

Who’s locked out of court

No longer, as to purchased, charged-off debt.

If the party holding the debt bought it from someone else, after the original creditor had charged the debt off of its books, the buyer can’t file suit on the debt after the statute runs.

And a check of reported appellate cases in California in the five years since shows no cases appealed under this statute.

What it doesn’t tell us is what’s happening at the trial court level.

Since this statute was intended to deal with the kind of suit where the consumer never appeared in court and the debt-buyer won by default, there’s not likely to be an easily located record.

But, there’s more to the law than just a bar to filing suit.

Required information about debt

A debt buyer may not even contact a person about a consumer debt unless the debt buyer has in its possession

  1. Proof that it is the sole owner of the debt
  2. Balance of the debt at charge off and a breakdown of charges added since charge off
  3. Date of default or last payment
  4. Name, address and account number used by the original creditor
  5. Name and address of the account debtor from the original creditor’s records
  6. Name and address of all entities that purchased the debt after charge off

Scope of consumer protection

These new provisions became part of California’s Rosenthal Fair Debt Collection Act.  These additions are to be called the Fair Debt Buying Practices Act.

Effective January 1, 2014, they apply to debt bought or sold after that date.  At first, you may be left to guess whether a debt buyer calling about old debt is subject to these restrictions.

To be covered by the FDBPA, the debt must be part of a package of charged-off debt.  Old debt that slips into a portfolio of largely claims that have not been charged off is not subject to this act.

That mystery term, charged-off, gets a statutory definition:

"Charged-off consumer debt" means a consumer debt that has
been removed from a creditor's books as an asset and treated as a
loss or expense.

A debt may be charged off of the original creditor’s books and still be legally enforceable, if the statute of limitations hasn’t run.

Courts must demand proof

Another ground breaking provision requires that no judgment be entered, even if the debtor didn’t answer the complaint, unless the collector has supplied a sworn statement as to compliance with the elements of the FDBPA. Civ. Code 1788.60.

The collector must also provide a copy of the contract sued on, authenticated by a sworn statement.

This will be interesting to watch as, often, even the original creditor can’t produce a copy of the contract.

Who will be available to the debt buyer to vouch for the contract? And will the courts monitor robo-signed affidavits?  And impose consequences for lying?

Damages for violation

A debt buyer who violates the statute is liable for actual damages caused by the violation, including the amount of any judgment obtained against the individual;  statutory damages of no less than $100 and no more than $1000; and reasonable attorneys fees and the costs of the suit to enforce these rights.

The debt buying trade press forecasts that the California standards will be applied to all portfolios of old debt sold by businesses.  No more, they say, of getting just the account debtor’s name, address, Social Security number, balance and account number on a computer disk.

Brave new world

The Fair Debt Buying Practices Act is a worthy step forward in preventing abuse by purchasers of zombie debt.

I’m particularly encouraged by the provision outlawing filing suit on debt that is time barred.  I hope to see a like provision applied to debts still in the hands of the original creditor.  Otherwise, the application of the statute of limitations are restricted to those individuals savvy enough to file an answer to the suit.

More

Zombie debt

Action plan if you are sued

When discharged debts rise from the dead

Image courtesy of Flickr and Lendingmemo.com

 

Doing The Means Test Yourself

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test-361512_1280_optI keep encountering posts on internet bankruptcy boards from individuals who have “filled out the means test” and then proceed to announce their conclusions.

Given the uncertainties in the legal community about how to apply the means test, I can’t imagine a non lawyer learning anything reliable from trying to do this themselves.  As a certified bankruptcy specialist, I end up thinking, and rethinking, treatment of income and expenses on the means test.

Yet the results of the means test determine whether you get to choose which chapter of bankruptcy you want to file, or how much you have to pay if you file Chapter 13.

Means test rat’s nests

The tricky issues include how to deal with income from non filing spouses; from roommates or extended family members; shared custody situations; changing income issues, and how to handle business expenses for the self employed.

One bankruptcy appellate panel recently decided that the judges who drew up the form did it wrong!  That really helps.

You have to parse out income “received” but not “derived” during the look-back period and figure out how to report children where custody is shared.

Then there is the dispute on the deduction side about ownership allowances for paid-for cars; operating allowances for older cars; debts associated with property you’re surrendering, and just what part of your telecommunication expenses go on the form.

And how do you treat the costs of delayed health care needed in the future?  Do you divide that cost over the life of a Chapter 13 plan, or over 12 months, or….?

Can you swear to that?

I cringe when I ask a client to sign this form, as they cannot possibly validate all of the entries on the form, given the complexities of the law.

While I won’t say “don’t try this at home”, I am certain you should draw no conclusions about the means test and your eligibility for Chapter 7 based on your efforts to take the test.

Get an experienced bankruptcy lawyer involved.

Read more

Means Test Misunderstood

Means Test Is Paper Tiger Here

Means Test In Chapter 13

Image courtesy of Pixabay.

Cheapskate’s Guide To Asset Protection

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protecting assets

 

We’ve been looking for ways to protect our possessions since the beginning of time.

The tools change, but the goal is the same: defend what’s ours against others.

Today, the whole asset protection industry is built on keeping your wealth and stiffing your creditors.  The gurus of asset protection, at least, get rich with elaborate schemes;  I’m not sure about their clients.

For most of us, it can be simpler than interlocking partnerships and off shore accounts.  We have neither millions to protect nor lifestyles that expose us to huge risks.

Yet if you drive a car, own a business, or have visions of a start up, what you own may be on the line if something financial goes wrong.

So, here are five tactics from the cheapskate’s guide to asset protection, low cost and well within the law, for average folks.

1.  Save smartly for retirement

Built in to every tax advantaged retirement product is protection against creditors.  Federal law found in ERISA requires that qualifying plan have an anti alienation clause that keeps creditors from levying on your retirement account.

Protection against creditors is baked in to traditional pension plans; government retirement plans; 401(k)s, 403(b)s; and their kind.

IRA’s aren’t protected by federal law, only by state exemption law.  In California, individual retirement arrangements are only protected to the extent necessary for your support in old age.  There is an exception for amounts rolled over from an ERISA qualified retirement account.  Those funds retain their protection from creditors.

Just saving money or investing on your own, with a mental label that the account is earmarked for retirement doesn’t cut it if a creditor gets a judgment against you.

What does it mean to have a judgment against you

If you are self employed, explore your pension options.  You may be able to deduct the cost of contributing from your business profits, to your double advantage.

So, the first step in cheapskate asset protection is to maximize your retirement savings in recognized retirement vehicles.

2.  Carry insurance

The most common threat to the worldly accumulations of the average person is the auto accident.  Cause serious injury with your car, or even be injured yourself by an uninsured driver, and the bills can be huge.

For this, we have insurance.

Insurance creates a fund from which those claims can be paid, without resort to the value in your home or your investment account.

Some of the saddest stories I’ve encountered as a bankruptcy attorney have been the little old ladies with paid for homes driving (and crashing) with only minimal liability insurance.

3.  Incorporate

A basic principle of the high priced asset protection schemes that you can adapt at minimal cost is incorporation.

A corporation is a separate “person” in law. The corporation is not necessarily liable for the debts of its stockholders.

And vice versa:  you as the stockholder aren’t automatically liable for the debts of the corporation.

Incorporation as protection for the business

So, a separate entity can confine risk of failure or liability to that entity.

4.  Don’t guarantee debts

It’s hard enough limiting your exposure to your own creditors.  If you want to up your game in the asset protection world, don’t make yourself liable for the debts of others.

Usually it’s family that sparks the desire to guarantee a debt or co sign a loan.  It seems harmless to lend your credit to someone you’re close to.

But remember, the lender wants a guarantee so you can be made to pay if the primary borrower doesn’t pay.

And if you guarantee a debt, you are just as liable as the borrower himself.  In the law of guarantees, there is usually no “primary borrower”;  both of you are on the hook.

In my view, student loans are the greatest, everyday threat to the well being of the middle class.  We all want an education for our kids or grandkids, but at what cost?

Protect your assets, and say no to guarantees.

5.  Avoid community property

While the details vary from state to state, community property is usually liable for the debts of either spouse incurred during marriage.  In California, the community property is also liable for the debts that the spouses bring to the marriage.

So a creditor of one spouse can reach both halves of the community property.  The actions of either spouse, deliberate or not, expose all the assets acquired during marriage.

Basics of California community property

Agree not to have community property, through a prenuptial agreement, or even a post nuptial agreement, and the creditor of one spouse can only reach that spouse’s property.

Likewise, hold any inheritances that either spouse receives separate from the property of the marriage.  That confines the exposure of that asset to the debts of the one lucky enough to inherit.

Check state law for the requirements for an enforceable agreement between spouses.  If it’s worth doing, it’s worth doing right.

There you have it:  five cheap ways to protect what you have from those who’d take it from you.

You Can Make Debt Collectors Stop

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stop debt collectors

You can make debt collectors stop.

You have a solid 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.

If you live in California, that letter will not only stop professional debt collectors, it will stop the  creditor itself from nearly all contact about the debt.

Understand, this right doesn’t make the debt go away.  It doesn’t keep the creditor from suing you.  It keeps them from using all their weapons to get you to pay without suing you.

Suing you is time consuming and expensive to the collector.  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

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 a judgment against you is worthless.

So, throw in any relevant facts such as your age, employment, health, or family situation that support your contention 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

 

7 Keys To Keeping Your House: Chapter 13 After You File

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keep the house

Filing Chapter 13 bankruptcy stops the foreclosure.  It gets you a protected legal environment to address the problems with your mortgage.

You heave a sigh of relief.

But the fight to keep your house isn’t over, just because there’s a stay.  You’ve just gotten through the first round.

You need to stay on your toes for the balance of the match to emerge with your house safe at the end of your bankruptcy.

Here’s what you need to know.

Mortgage lenders get special consideration

In the bankruptcy context,  the mortgage lender gets privileged treatment.

Anglo Saxon law, from which US law is drawn, has long given particular protection to the claims of property owners.  After all, it was those who owned property who wrote the laws.

The mortgage lender gets that special treatment because the lender’s lien is a property interest in your home.

That lien entitles the lender to regular payments;  if payments aren’t made, the lender can ask for relief from stay to foreclose.

The exception is if the value of the collateral is less than the total of the liens ahead of the lien in question.  Think:  underwater second mortgage.

Follow these 7 keys for keeping your house AND getting a discharge in Chapter 13.

1.  Regular mortgage payments required

Most Chapter 13 plans provide that the trustee pays the arrears on your mortgage, while you make the payments that come due after filing.

Make the payments- that means property taxes and insurance as well.

Too often, homeowners get fixated on paying the arrearages on their mortgage that they overlook, or struggle, with the ongoing payments.

Court are intolerant of borrowers who want the protection of the bankruptcy stay, but don’t take seriously their obligation to pay the monthly payments that come due after filing.

That intolerance spills over into dismissal of  Chapter 13 cases without a discharge when debtors fail to make current payments.

2.  Look for other liens

Chapter 13 isn’t limited to fixing problems with mortgage liens.  Your plan can either avoid altogether or reduce the amount of tax or judgment liens,

Make sure that you check the public record to see if any avoidable liens have attached, unnoticed, to your home.

If you find liens, your plan can cut them down to size.

3.  Pursue modification

Your best bet may be to agree with the lender on a modification of your mortgage.  Nothing in Chapter 13 stops the parties from considering modification.

Northern California bankruptcy judges have decreed that negotiations for a modification do not violate the automatic stay

Frequently, the modified mortgage either folds the arrears into the loan balance, to be paid over the life of the loan. Or, modification designates a portion of the amount owed as not bearing interest, but payable at loan-end or sale.

A modification that cures the arrears may eliminate the mortgage arrears portion of a Chapter 13 monthly payment, thereby increasing the chances of success.

4.  Review the lender’s claim

In order to be paid in a Chapter 13, a creditor must file a proof of claim.  For mortgages secured by the debtor’s principal residence, a detailed attachment is required.

The mortgage attachment must account for payments and charges to the loan from the date of the first, uncured default.

The POC also contains an analysis of any escrowed taxes and insurance, and the adequacy of the monthly payment to pay those expenses.

Dig into these numbers and see if they match your payment records and whether they are otherwise complete.

There’s lots of data there, some of it correct and some woefully wrong.

5.  Keep records of  your payments

Too many mortgage servicers fail the fundamental task of accepting your payments and crediting them properly.

The method of accounting changes with bankruptcy:  payments made after filing are supposed to be credited to a separate accounting for your loan, while the pre bankruptcy record stands alone

Servicers don’t always do that.  Payments sometimes sit for months on someone’s desk, undeposited.

I tell clients to pay with paper checks on their accounts and send the payment by a method that gets you a receipt upon delivery to the servicer.

It’s a hassle, I know, but you end up with a record from your bank that the check was cashed, and you have proof that it was delivered.  The added expense is nothing to the cost of your attorney having to track down the facts showing you paid.

6.  Read payment change notices

If your monthly mortgage payment changes after you file bankruptcy, the servicer must send you a Notice Of Payment Change.

The change may be driven by an interest rate change or a change in the cost of escrowed taxes or insurance.

Even though it comes on a court form, and looks dense, you’ve got to read it and adjust your post filing payments on your mortgage accordingly.

If you’re uncertain, ask your lawyer.

7.  Exploit case-end rules

When you’ve made your last payment to the trustee, bankruptcy rules require a notice to the mortgage servicer about the state of your loan balance.

If the lender claims that either the pre-bankruptcy claim hasn’t been paid in full, OR, that there are unpaid amounts arising after you filed, they must file a reply.

This call-and-response procedure flushes out any difficulties that show in the lender’s books, and provides a mechanism and a judge to sort things out.

The goal is to exit bankruptcy knowing exactly where you stand on the home loan.

Make sure this happens in your case.

If you change your mind

Things change over time.  If you find that keeping the house no longer fits with your financial future, tell your lawyer immediately.

The confirmed Chapter 13 plan obligates you to make the payments you promised as well as obligating your creditors to stand down.

There’s nothing wrong with changing your mind, so long as you change your Chapter 13 plan to match.

Far too many debtors recently get to the end of the case and get their cases dismissed, without a discharge, because they stopped paying on the mortgage and didn’t alert their lawyer.

 

The Real Causes of Bankruptcy

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The commentator who equated debt problems with irresponsibility nearly caused me to melt down, right in my office.

Irresponsibility, he said!

The idea that people who find themselves with bills they can’t pay got in that mess through flighty behavior  or self absorption is sooooo wrong.

Mindless spending is seldom the cause of bankruptcy in my experience.  Occasionally, yes;  routinely, no.

The need for bankruptcy is more often tied to

  • Job loss
  • Ill health
  • Business failure
  • Supporting multiple generations of family
  • Divorce

Credit card balances  are usually tied to basic living expenses, recent studies show.

The gig economy hasn’t helped.  Without employee benefits and regular work hours, workers find themselves responsible for providing insurance, tax withholding and without sick days or retirement plans.  And gig earnings seldom cut it for very long in the Bay Area.

The real cause of bankruptcy

In fact, I see people in my bankruptcy office because they followed the time-honored advice we give to each other.

They bought a house.

They started a business.

They cared for their extended family.

They robbed Peter to pay Paul rather than renege on their debts.

And, at some point, it all caught up with them.

Often, the problem looks like a tax problem and it’s IRS collection action that brings them to bankruptcy.

But the more likely cause is the fact they reduced their tax withholding to create cash to meet other obligations.  Or they paid their employees with “net checks” and didn’t pay over the employee’s tax withholding in order to nurse the business along a bit more.

Or, they are supporting  both adult, underemployed children and aged parents.

Then there’s the curse of home ownership.  During the Great Recession, created by manic buying of homes made possible by toxic loans, I often advocated for letting the house go as being an impossible financial burden.

But 10 years later, with home prices recovered and then some, I’m starting to see the up side of struggling to keep a home.

Rents are increasing as fast as home prices:  let the house go and you’ll pay nearly as much in rent, get none of the tax advantages of home ownership, and have no protection against continuing increases in rent.

Renters are even more vulnerable than those with overly costly homes.

It’s complicated

It’s cliche, but it’s true.

Every story is a bit different, but from where I sit, too many of us are just plain lucky that our economic fragility hasn’t caught up with us.

More

Debt settlement is a fraud

The three times when bankruptcy is justified

Credit heals

 

How One Family Settled Huge Debt For Pennies

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debt settlement
When he started the Chapter 13 trek, he owed $370,000 in personal loans and credit cards.

As he completes his plan, he will have settled that debt for three cents on the dollar.

No tax is due on the forgiven debt and no listed creditor can legally come back to try to collect the difference.

And that’s why I love Chapter 13 bankruptcy.

Chapter 13 in the real world

I’ve talked here lots about how Chapter 13 is structured, how plan payments are calculated, and all the nifty things Chapter 13 can do for those with bills they can’t pay.  It’s sometimes dry and dense, but you see how it works.

But here’s how it worked for one real family now completing their plan.

They confirmed a Chapter 13 that resolved their debt for 3% of what they owed when they filed.

They got five years to pay that 3%, interest free.

The payments through their plan cured any pre bankruptcy arrears on their house, in full and without interest or penalty.

They were protected from the taxing authorities while they cured delinquent property taxes.

And in our insane real estate market in the Bay Area, their home appreciated about 50%.  Appreciation that is theirs, rather than their creditors’.

Plan payment driven by asset value

Not all unsecured creditors are as lucky as the creditors in this case, who got something on their claims, even if it was only three cents.

Because the couple had some stock and other assets that weren’t exempt, their plan had to guarantee unsecured creditors a share of the $11,500 value of those non exempt assets.

Based on their income and the infamous means test, general unsecured creditors wouldn’t have gotten anything.

So, the take-away is that just what you have to pay in Chapter 13 is decided by the interaction of the kind of debts you have; the income that the law says is available to pay those debts; and the value of your non exempt assets.

But seen from the top of this mountain, Chapter 13 is powerful.  And the view of life after bankruptcy is stunning.

More

Life after bankruptcy

How Chapter 13 plan payments are calculated

Little known alternative to bankruptcy

 

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

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