Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

It’s Who You Owe In Bankruptcy

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owl croppedIt’s about WHO you owe,

not so much about HOW MUCH you owe,

when you file bankruptcy.

WHO, WHO, WHO.

If your debt is subject to discharge,  your bankruptcy wipes out all of your debt to a creditor  you’ve listed.  Even if you got the amount wrong or even don’t know how much you owe.

Why we list creditors

It’s all about due process.  Remember from civics class?

Notice of your bankruptcy case is the due process that a creditor must get.

Notice gives the creditor a chance to share in any distribution in a bankruptcy case;  notice gets the creditor gets a chance to contest your right to get a bankruptcy discharge.  A creditor can challenge the discharge of your debt to the creditor if there are legal grounds.

The creditor would lose those rights if he didn’t have notice of the case.

Every creditor listed in your bankruptcy schedules gets notice of the filing of your case from the court clerk.  That same list is used by the court to provide every listed creditor a copy of the order granting your discharge.

Myth

There’s a worry among bankruptcy debtors that only the amount that is listed in the bankruptcy papers will be discharged.

Not so.

The bankruptcy discharge works to discharge all of your obligation to that creditor.  Say you owe the credit union on a personal loan and on a credit card.  Even if you listed only one of those loans, both would be discharged, because the creditor (the credit union) had notice.

Secured liens after bankruptcy

Focus

In preparing to file bankruptcy, spend your energy finding all the entities who might have a legal claim on you.

Don’t limit yourself to the creditors who send you a monthly bill.  Look for debts you’ve guaranteed for others, disputes with business partners or co owners, and even claims by governmental units.

Remember that your credit report does not include all of your creditors

.

It’s OK to estimate what you might owe, or to list an entity and dispute that you owe them anything.

If a creditor gets notice of your bankruptcy filing, they are bound by the resulting discharge.

In the end, it’s all about WHO knows.

More

Why so much paper in bankruptcy

How to interview a bankruptcy lawyer before you hire them

What should bankruptcy cost

Image courtesty of Rronenow and Wikimedia.

Bankruptcy as a life changing event

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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.

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

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.

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

More

3 things that keep you from getting out of debt

Bankruptcy myths

What To Disclose In Bankruptcy Papers

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gecko-wikimedia-cropped.If the headline drew you in, like the Geico gecko, you can complain you’ve been duped.

In bankruptcy, you disclose everything. Period.

Disclosure is the price of the bankruptcy discharge.

Shortchange the system by leaving out inconvenient facts and you risk both the omitted asset and the discharge.

Understand the difference between discharge and dismissal.

A false oath on the bankruptcy papers or transfers intended to conceal assets from creditors are each grounds on which the discharge of all of your debts can be denied, while the trustee recovers and sells the assets.

It’s nasty and comes at a very high price.

Tell the whole truth

The reason for incomplete bankruptcy schedules is seldom an intention to conceal.  It’s the filer’s failure to take disclosure seriously.

People ready to file bankruptcy don’t want to read the questionnaire that prompts them for various kinds of assets they might have. They don’t commit to thinking about how this question might apply to their situation.

Or they assume because an asset has little market value, it’s excluded from the schedules.

Not so. The schedules don’t ask for your significant assets or things you have with value;  they ask that you list what you own.

You would not believe the number of clients whose completed questionnaires tell me they have no clothes.323171462_9528e70afa_z_opt

Yet I’ve never met with a naked client.  They just perform some sort of mental shortcut when we ask about what they own.

Transparent assets

The hardest kind of things for laypeople to “see” as assets are those that are just legal rights, or even, possible legal rights:

  • the worker’s compensation claim,
  • the claim against the landlord,
  • the participation in a class action.

All of those are assets that need to be listed.

Often a trustee will elect not to administer even non exempt assets, because the effort to pursue them is too great compared to the possible return.

But even if the trustee were to administer the claim for the benefit of creditors, the loss to the debtor is usually far less than the value of the discharge of debts  you get  in bankruptcy.

More

What your signature on your bankruptcy papers says about you

Your court appearance in bankruptcy

Who you need to pay after bankruptcy

Image courtesy of Wikimedia and Frank Wouters.

Woman without clothes:  Gisela Glardino and Flickr

What Bankruptcy’s Automatic Stay Doesn’t Stop

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bankruptcy stay exceptions

The automatic stay is the signature feature of American bankruptcy.  Just by filing a bankruptcy case, your creditors are instantly prohibited by a federal court injunction 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.

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

Instead of the usual rule, outside of bankruptcy, where you have to prove that you are entitled to an injunction, bankruptcy grants the injunction automatically, just for filing.  The burden is on creditors to take action to extract themselves from the stay.

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

Out of Luck If You Skip A Creditor?

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add creditor

So, you slipped up and left a creditor out of your bankruptcy schedules.  Can you add an omitted creditor after the fact?

In the fateful words of a careful lawyer, it depends.

Depends on when the amendment is made and what chapter you’ve filed.  And the effect of adding a creditor varies.

Let’s walk through the legal thicket.

Amendment while case is open

At the most basic level, anytime the case is open in the bankruptcy court’s clerks office, you can file an amendment to your schedules.

Adding a name to the schedules gets the new name added to the master address list which parties use to give interested parties notice about the case.

Just because the filing is accepted doesn’t decide anything about the effect of the filing.  But it’s universally true that the sooner an omitted creditor is added, the better for the debtor.

There’s a fee for amending the lists of creditors, currently $30.

Does addition give timely notice?

Getting a creditor on the mailing list doesn’t necessary get them actual and timely notice of the case.

The clerk’s office sends out the notice of the bankruptcy filing at the beginning of the case. The notice of the case sets out the deadlines for creditor action in the case:

  • date of the first meeting of creditors
  • last day to object to discharge or dischargeability
  • bar date for filing proofs of claim

Unless the added creditor gets actual notice, just getting them in the bankruptcy papers may not be enough to bind that creditor to the deadlines in the case.

In my office, then, we amend the schedules, mail a copy of the notice of commencement of the case to the added creditor, and file a certificate of service showing that we gave the new creditor actual notice.

That way, there is no doubt that the creditor got notice.

When important deadlines have already passed

This is when the effect of adding a creditor gets dicey.

If the added creditor misses the first meeting of creditors, there are generally no adverse consequences.

Different story if the added creditor doesn’t get notice in time to challenge the discharge of that creditor’s debt.  As we discussed in our post on Missing Creditors, if there will be a distribution to creditors in the case, a debt not listed survives the discharge.

Further if the added creditor has a claim that may be non dischargeable, the window for bringing an adversary to contest discharge remains open.

If the missed deadline is the deadline to file a proof of claim, often a late filed claim will be allowed on the grounds that the creditor didn’t get notice.

Chapter 13 is unforgiving

While the law makes varying accommodations for an omitted creditor in Chapter 7, the approach to the omitted creditor in Chapter 13 is more rigid.

Almost all courts hold that a creditor who doesn’t get notice of the filing of a Chapter 13 case in time to object to confirmation is not bound by the discharge.  So, skipping a creditor in Chapter 13 stands to hurt the debtor’s fresh start by allowing the claim to survive

Takeaway

It’s worth a lot to get everyone affected by your bankruptcy case actual and timely notice of the case for the broadest possible discharge.

More

Why are bankruptcy papers so much work?

How to review your bankruptcy before you file

Cut Tax Penalties In Bankruptcy

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redwood-pixabay_opt

Get in tax trouble and the penalties often grow huge.

What starts as a manageable problem can soon tower over you.

Breathe deep;  there is a solution.

Chapter 13 bankruptcy can cut tax penalties down to size.

All tax penalties discharged in 13

Old or new, large or small, Chapter 13 discharges all unsecured tax penalties.

In contrast, Chapter 7 discharges some tax penalties.

 Discharged are penalties for taxes that are themselves dischargeable.

Also dischargeable in Chapter 7 are penalties where the transaction or event that triggered the tax occurred more than three years before filing, whether or not the tax itself is dischargeable.  523(a)(7)(B).

That’s good, but if you are eligible, Chapter 13 is better.  All penalties are discharged.

Who can file Chapter 13

Chapter 13 is available to individuals (no corporations or LLC’s), with regular income, whose debts total less than the caps for secured and unsecured claims.

You know if you are a real person and whether you have regular income, so the thing that needs analysis is the allocation of your debts between those that are unsecured (the creditor has no lien on your assets) versus the debts for which there is a lien.

To be a secured claim in bankruptcy, that lien has to attach to an asset that has market value greater than any liens senior to it.

Tax liens don’t go to the head of the line just because they are debts owed to the government.  They fall in line behind any other lien holder who perfected their lien before.

Recent taxes must be paid

Chapter 13 plans are written by the person who has filed the bankruptcy case.  The Bankruptcy Code requires, however, that recent income taxes be paid in full through the plan.

Note that it is the TAX and the INTEREST on that tax that have to be paid during the life of the Chapter 13.

Penalties get treated just like personal loans, medical bills, and credit card debt:  what that class of creditors gets in the Chapter 13 is driven by the means test and the best interests of creditors test.   In most Chapter 13 plans, that’s little, or nothing.

Chapter 13 cuts those penalties down to size.

Tax liens whittled down

toothpicks-pixabay_optThe discussion above deals with unsecured taxes and tax penalties.  The rules change when a tax lien is filed.

At its simplest, a Chapter 7 discharge eliminates the IRS’s ability to levy your bank account or garnish your wages for taxes that have been discharged.

However, the Chapter 7 discharge doesn’t alter any tax lien recorded before the bankruptcy, even if the taxes themselves are discharged.

If the tax liability is discharged, any lien in place will not attach to assets you acquire after your bankruptcy is filed.

More about tax liens after bankruptcy

Chapter 13 does alter tax liens.  (See why I’m a fan of 13?)

Chapter 13 treats as a secured claim only that part of a lien that attaches to real value in the taxpayer’s assets.

Put bluntly, if you don’t have any assets, then the lien is worthless and will be voided at the conclusion of your Chapter 13 plan.

Oh, technically,  the tax lien may attach to your household goods, all right.  But those things have very little market value.

Pay the resale value of your pots and pans through the Chapter 13 plan, and the lien is deemed satisfied.

If you can’t cut a deal with the IRS that eliminates the tax penalties as part of an offer in compromise or payment plan, you have bankruptcy options for tax penalties.

More about Chapter 13

Get rid of credit card balances without paying interest

Why Chapter 13 Plans Fail

How Chapter 13 Works

Images courtesy of Pixabay. 

 

Can I Sell Stuff Before I File Bankruptcy

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insect-in-amberThinking about filing bankruptcy?  

Folk wisdom supplies many “rules” about the time leading up to actually filing bankruptcy:

  • Don’t sell anything
  • Don’t pay anyone
  • Don’t make any money

This kind of thinking will have you frozen in time and space like this insect in amber.

Only, this folk “wisdom” is all wrong.

Here are the real concerns about your pre bankruptcy actions.

Sell stuff for what it’s worth

Bankruptcy law objects if you dispose of assets for less than they are worth.  It’s not the sale that might be objectionable, it’s the price.

When you transfer an asset for less than its real value, there is less for your creditors.  And  Anglo Saxon law since the Statute of Elizabeth in 1571 has prohibited gifts, bargain sales, or sham transfers that have the effect of reducing your assets.

Transfers where you dispose of an asset for less than its fair market value are called fraudulent transfers.

The transfer can be actually fraudulent, where you intended to hide an asset from creditors.  Or, constructively fraudulent.  Those transfers  can be innocent or even benevolent, as when you make a donation to charity.

But, if you got less in return than you gave up, it may be a fraud on creditors.

Fraudulent transfers in bankruptcy

Bankruptcy law frowns on fraudulent transfers.

The bankruptcy trustee is empowered to recover the assets or money transferred within 2 years of the filing from the recipient  if the transfer was fraudulent.

That strips the benefit of the transfer from the transferee.

In many cases, even when a transfer is fraudulent, it isn’t worth the expense to the bankruptcy trustee to recover it.  The benefit to creditors as a group is just too small or too tenuous to make it worthwhile.

But for the debtor in bankruptcy, significant transfers of assets with intent to hinder, delay or defraud creditors constitute a ground to deny an individual a discharge in bankruptcy. 11 USC 7272(2).

Sales for today’s value

You are absolutely free to dispose of assets before your bankruptcy is filed if you get “reasonably equivalent value” in return.  That’s legalese for getting what it’s worth.

Remember, it’s only worth what a buyer will give you for this particular asset, on this day, in this market.

The stuff may be worth far less now than it was when you bought it.  It may be that the market is glutted or the thing is obsolete, worn, or out of fashion.

If you get about what the market says it’s worth, you’re OK.

If you are selling on the eve of bankruptcy, just make sure that you expose the asset to the market.  That may be Craig’s List;  e Bay; Auto Trader or like marketplaces.  Even a garage sale will do.

Keep a record of the steps you took in your sales campaign.

Disclose the transfer in the bankruptcy schedules and the Statement of Financial Affairs.

And if it genuinely doesn’t have any market value, you’re free to donate it or junk it.

More

What not to do before bankruptcy

Image licensed by Anders L. Damgaard  under Creative Commons license 3.0.

Bankruptcy Alphabet: R is for Retirement

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retirement in bankruptcyIn my bankruptcy alphabet, R stands for Retirement.

Retirement plans and IRA’s are safe in whatever chapter of bankruptcy you file.

Your rights in an employer’s pension plan or a union pension plan are not even part of the property of your bankruptcy estate.  The Supreme Court held almost 20 years ago that ERISA qualified retirement plans are beyond the reach of bankruptcy trustees and of your creditors.

Perhaps the only good thing to come out of bankruptcy “reform” in 2005 was a provision that created an exemption available to everyone who files bankruptcy for up to a million dollars in an IRA.  That’s found in 11 USC 522(n).

Note that whether retirement savings are excluded from the estate or included in the estate but exempt, the law protects savings that are formally dedicated to retirement.

But, you cannot simply earmark some asset or investment as your “retirement” savings and have it sail through bankruptcy.  To be protected, the account needs to be part of a legally recognized, tax-deferred retirement vehicle.

Bankruptcy enables retirement savings

One of the most distressing fact patterns for me is the person who insists on paying minimum payments on credit card debt and has nothing left to save for retirement.

If you are both young and not too deep in debt, it may be doable to postpone retirement savings until the debt is gone.

But the older you are or the larger your debt, the more likely that you are creating a problem for yourself at retirement by lining the pocket of the banks today.

I may be like a broken record on this issue, but it is a theme that I pound on:  personal responsibility involves not just paying your debts but also making provision for your old age so you are not dependent on family, friends or Uncle Sam.

A bankruptcy discharge can free up cash flow to make regular contributions to retirement savings.  Think about it if you plan to live long enough to retire.

More

Which comes first: paying debts or starting to save?

Do seniors need to file bankruptcy?

How does bankruptcy work?

 

Image courtesy of Leo Reynolds.

My friend Jay Fleischman insists R is for Redemption.

Ryan Caldwell chose reaffirmation  along with Bill Balena.

Bob Doig votes for repossession. as did Stuart Ing.

 

What Debts Were Discharged In My Bankruptcy?

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One of the hardest questions after your bankruptcy is answering just which debts were discharged.

Eliminating debts was the whole point of filing bankruptcy. You’ve got a court order, but no list.

You and your creditors understandably  expect to find a single document telling them what debts are no longer enforceable and which survive the bankruptcy.

No such luck.

Bankruptcy discharge order

The official form used by most bankruptcy courts merely states that the debtor is granted a discharge. The general information on the second page of the form suggests that you might need an attorney to understand the application of the discharge in a particular case.

That’s because, while the bankruptcy schedules require you to list all of your debts, not all of your debts are dischargeable.

Some debts automatically survive the bankruptcy filing.  Survivors include family support, recent taxes, and criminal restitution.

Debts a creditor can challenge

Other debts may be non dischargeable if the creditor challenges the dischargeability of its debt and wins at trial.

Student loans may be discharged only if the person filing bankruptcy brings an adversary proceeding to establish that repayment creates an undue hardship.

And then, liens generally survive as a charge on the debtor’s property but not a personal liability.

So, it’s complicated.

And the court doesn’t work out all the intricacies before issuing the discharge order.

Who was included in bankruptcy

The basic rule about discharging debts provides that debts are discharged unless there is a statutory exception to discharge listed in the Bankruptcy Code.

The concept of due process (and a provision of the Bankruptcy Code) says creditors get their debt discharged only if they get notice of the bankruptcy.

That’s why saving your bankruptcy papers is so on point.  The schedules and the mailing matrix in your case (and any amendments to them) show who was listed in your case.

Listed creditors are most likely discharged.

Californians get broader discharge

In California, where 9th Circuit decisions are controlling, the Beezley opinion (994 F.2d 1433 1993) tells us that even a creditor who wasn’t listed is discharged in a no asset bankruptcy.

The caveat is that if the creditor has a claim to non dischargeability because of the debtor’s bad acts, the claim survives until the creditor has a chance to challenge the discharge of his debt.

Beezley stands for the proposition that even creditors not listed are discharged in a no asset case.  If everything you owned when you filed bankruptcy was exempt or not worth the trustee’s time to administer, you don’t need to amend your bankruptcy schedules to add creditors that you forgot when you filed.

Other circuits have similar case law, too.

When creditors call after bankruptcy

In this era of debt buyers and zombie debt, most debtors can expect to get a collection letter on a debt that was discharged in their bankruptcy.

Usually what it takes to make a zombie debt collector go away is a copy of the discharge order and a copy of the schedules showing that the original creditor was listed in the bankruptcy.

A creditor who sold off bad debt can’t give the buyer anything more than the seller had;  in this case, the creditor had an unenforceable debt.

So, save your bankruptcy documents. If giving the collector a copy of the schedules doesn’t make the creditor go away, contact a bankruptcy lawyer.

The bankruptcy court stands ready to sanction creditors who blow off the discharge order.

Enforcing the discharge

Can discharged debt come back

Maximize your bankruptcy discharge

When Can I File Bankruptcy Again

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calendarYou can file bankruptcy tomorrow, so long as you don’t currently have a bankruptcy case pending.

When you can get a discharge in that case is a different story.

The Bankruptcy Code limits the frequency of getting a discharge, not the filing and completion of the bankruptcy case.

My friend Gene Melchionne wrote a marvelous piece about the timing of the bankruptcy discharge that conjures up the old high school cheer:  2, 4, 6, 8, who do we appreciate.

The waiting period between cases, if you want a discharge, can be 2 years, 4 years, 6 years or 8 years, depending on what kind of case you filed before and what kind of case you want to file now.

You count those years from the filing of the first case to the filing of the second case.

But, contrary to the usual thinking, the discharge isn’t everything.

Sounds like heresy from a bankruptcy lawyer, doesn’t it,  but let me tell you a couple of stories.

The no discharge Chapter 7

My client had a house with equity, a recent bankruptcy discharge, and a criminal conviction that had him heading to prison, soon.

He faced a future with no income and no way to pay the mortgage.  And at the point he didn’t live in the property, his right to claim a California homestead in the property was in doubt. [Read more…]

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Phone: (650) 694-4700

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