Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

How Long Does Bankruptcy Take?

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clock-611619_640_optEvery client asks that question: how long will bankruptcy take?

Probably, the real question is “when will this be over?”

Like so many questions in the law, the answer is “it depends.”

From filing to discharge

In a Chapter 7, filing to discharge is about four months;  in Chapter 13 it’s three to five years.

But, too often, the real gating issue is getting ready to file.  

How long will it take you to get your attorney all the needed information.

And that’s a timeline that you, the client, control.

The source of delay

The real slow-down in most cases is getting the raw information to us.

Cases stall when the client

  • fills out as much of our questionnaire as they find convenient;
  • provides most of the paystubs;
  • promises the tax return; and
  • has to search for information on the insurance policy.

We hustle to get the schedules done, and the client then doesn’t have all the necessary funds to finish paying us.

After the case is filed

Once filed, a Chapter 7 marches fairly predictably to discharge.  Most cases get a discharge in 3-4 months.

The debtor’s obligations after filing are few:  show up at the 341 meeting, and complete the post bankruptcy education class.

Chapter 13 is different:  13 is a payment plan stretching over 3-5 years.  The discharge comes when the plan payments are complete.

But in most districts, Chapter 13 debtors have few action items:  make the payments to the trustee, provide requested updated information, and take the debtor education class.

What if I can’t make the plan payments

But back to the original question:  how long does bankruptcy take?

The time required for the debtor to empower the attorney with a full deck of cards is unknowable, to the attorney, and is within the control of the client.

It seems to depend on how committed the debtor is to get out from under the financial problem.

More

Understanding your bankruptcy schedules

Interviewing a bankruptcy lawyer

After your case is filed

Image courtesy of Pixabay.

Filling Out The Bankruptcy Papers

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Filing bankruptcy can make you feel like you are drowning in paper.

There’s your paper; there’s the paper your lawyer needs.  And there’s the paper the court insists on.

It’s easy to try to skate. To cut corners.  To shut down.

But that paper is critical.

Nearly every question, benefit, or dispute in an individual’s bankruptcy case starts with the bankruptcy papers.

Those papers are called the schedules.  The schedules form the heart of a bankruptcy case.  They lay out what the person filing the case owns, owes, and spends.

And most debtors (those who file bankruptcy) have little idea how much paper is involved til they see the schedules and sign them in their lawyer’s office.

Before they get to the signing, debtors chafe at the endless questions from their attorney about the nature of the debt, who is liable, and whether the debt is disputed.

Is all this effort really needed?

Bankruptcy schedules matter

Your schedules constitute  the trustee’s first look at you. Well-done schedules project engagement with the process and they tend to limit digging by the trustee.

The creditor schedules control who gets notice of your case and notice of the automatic stay.

Notice to all affected assures that anyone with a right to challenge the discharge of your debt to them is bound by the timelines of the Bankruptcy Code.

Creditors who don’t get notice may reopen the bankruptcy case later to assert that their debt isn’t dischargeable.

Omit assets and you may lose them, as case law limits your right to claim an exemption in an asset you didn’t disclose in the first place.

List it or lose it

Leave out a legal right or pending lawsuit and the defendant in that suit can have your lawsuit dismissed.

Then, there’s the matter of perjury:  the law provides for fines and imprisonment for deliberate untruths on the bankruptcy schedules.  Not something you want to expose yourself to.

What the schedules contain

Seen broadly, bankruptcy schedules list the debtor’s assets; debts; projected budget; and recent financial history.

Asset forms

Secured creditor form

Priority & unsecured creditor form

Since 2005, there’s a schedule for the means test.

You file proof of having taken prebankruptcy credit counseling and statement of your intentions with respect to debts secured by personal property, like your car.

Helping you get them right is part of the job of a bankruptcy attorney.

New bankruptcy forms

The courts are rolling out new versions of the bankruptcy forms which claim to be more “modern” and user friendly.

I find them verbose and impossible to scan easily to get the big picture in a bankruptcy filing.

The new forms read like tax forms and they suggest that you could competently file bankruptcy without a lawyer.  My experience is that, since 2005, it is the rare individual who can correctly file out the forms, much less understand the implications of those forms.

Enlist a professional to assess whether bankruptcy is right for you and whether now is the right time, before you file.  Afterward, it may be too late.

More

How to find the right bankruptcy lawyer

Understand exemptions

What debts don’t get wiped out

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What You Need To Know About Reaffirmation

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bankruptcy reaffirmation

Decisions, decisions.

Are you going to reaffirm the car loan?

Your bankruptcy filing requires that you state your intentions about reaffirmation right up front.

Translated, that means what are you going to do about the car after bankruptcy.  The car on which you still owe money and need to get to work.

In the midst of all the other information needed to file a Chapter 7, it’s hard to get your head around reaffirmation.

Particularly since reaffirmation got a lot more complicated and unpredictable thanks to Congress and bankruptcy “reform” in 2005.

With my apologies for being dull and dense, here’s my attempt at explaining the issues and the options when deciding whether to reaffirm a car loan.

Liens not discharged

The entire reaffirmation issue comes up because the bankruptcy discharge wipes out your personal liability for your car loan.  But the lender’s lien on the car survives bankruptcy.

After your Chapter 7 is over, the car lender can’t sue you for the unpaid balance of the car loan, but it can repo the car to enforce its lien.

As bankruptcy lawyers say, the lien “rides through” the bankruptcy.

If you keep paying

Before 2005, a provision of the Bankruptcy Code said that if you kept payments current on a loan after filing, you were not in default.

Put another way, just filing bankruptcy and discharging your personal liability didn’t breach the contract for the car loan as long as you paid as agreed.

That provision was wiped out in bankruptcy “reform”.  Now, even if you are current on the car loan payments, just having filed bankruptcy puts you in default.  You are now at risk of having your car repossessed.

You can eliminate the risk of repossession by reaffirming the car loan.

Effect of reaffirmation

If you “reaffirm” the original loan deal, your bankruptcy is no longer a breach of the contract.  You give up the benefits of your bankruptcy discharge as to the car loan.  So, the car lender emerges from your bankruptcy in the same position that it was when you filed.

You, however, are once again at risk of not only repossession of the car, but also a lawsuit for any deficiency if you can’t pay in the future.

The greater the spread  between what you owe on the car and what it’s worth, the greater the risk to your pocketbook in the future.

What the car lenders got from Congress

The car finance industry was one of the big winners when Congress amended the Bankruptcy Code.  They got the right to intimidate debtors with the loss of their wheels if they didn’t give up the benefits of bankruptcy as to this one creditor.

And the fear factor of losing your car, even if you’re paying, is huge.

As it has played out since 2005, most car lenders have elected not to automatically repossess cars when the loan isn’t reaffirmed.  They decided that they’d rather have the stream of income that post bankruptcy payments provide than get the used car worth less than the loan balance.

Ford Motors is the exception.  Ford has aggressively repoed cars where the debtor didn’t reaffirm the debt.

Reaffirmation is voluntary

You get a choice about reaffirming a car loan.  You don’t have to reaffirm.

In fact, the form that you file with your bankruptcy papers allows you to elect to surrender the car.

Surrender may be the best thing if the car is simply too expensive or isn’t reliable.

You can choose to keep the car and continue paying without reaffirming.  You take your chances that the lender will repossess the car, but you also keep the benefits of the bankruptcy discharge.

Getting reaff approved

Because reaffirmation presents risks, the required form for reaffirming lays out the value of the collateral, the amount owed on the loan, and the interest rate.  The facts get laid out in black and white.

A form I reviewed recently made clear that while the debt to be reaffirmed was $22,000, the value of the car involved was only $11,000.  You had to ask whether it was a good deal to pay $22,000 for something worth half of that.

Sometimes, the lender will reduce the interest rate or extend the payments as part of the reaffirmation.

The form also calls for the debtor to lay out his income and his other expenses.  The question is:  can the debtor really afford to keep paying on the car.

Often, there isn’t enough income to pay the expected costs of living and pay the car.  The form contains no way to express the fact that some living expenses are essential, and get paid even if other expenses are deferred.

Because the issue is so fraught with risks and uncertainties, the reaffirmation agreement has to be approved by the bankruptcy judge.

The judge is tasked with assessing whether the debtor understands the risks, and can pay the reaffirmed loan without hardship.

And the question the law doesn’t address is what can the debtor do if he loses the car.

In my experience, lawyers hate having to advise clients about their “options” when the options are so unappealing.  Judges, too,  hate trying to predict the debtor’s future, with or without the car.

Does ride-through survive?

Out of this cauldron of uncertain and bad options, a line of court decisions has developed that may provide a middle course.

Some courts have held that a debtor who attempts to reaffirm a car loan and has the judge deny approval is still protected from repossession.

Those courts read the law to say that all that is required to preserve the right to “keep and pay” is the willingness to reaffirm.  So, even if the judge withholds approval of the reaff, the lender can’t repossess as long as the payments are kept current.

In my view, all of this is enough to end our love affair with cars.  But there are your choices.

More

Tax liens after bankruptcy

What a bankruptcy judge actually does

To Do list for after your discharge

 

 

 

Right To Support When Your Ex Files Bankruptcy

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Outrage is the usual reaction when a former spouse who owes you child support or alimony files bankruptcy.

It reinforces all those less-than-flattering thoughts you harbor about your ex.

But maybe that’s not the right reaction for two reasons, one old, one new.

One is old: support debts can’t be wiped out in bankruptcy.

The second reason is new: failure to pay support is grounds for dismissal of a bankruptcy case.

You may have levers that weren’t available to you before as a former spouse.

Unpaid support dooms reorganization

Chapter 11 and Chapter 13 are reorganization chapters of bankruptcy.  The person filing for relief stays in possession of their assets and proposes a plan to solve their financial problems.

If you’re in financial trouble, it seems to offer the best of both worlds:  you keep your stuff and get immediate protection from your creditors.

But there’s a condition.  The debtor needs to stay current on support obligations that come due after he files the bankruptcy case.

Failure to pay domestic support obligations (the Bankruptcy Code’s catch phrase for alimony, spousal support, child support or family support) is ground for dismissal of the reorganization case, or conversion to Chapter 7, where a bankruptcy trustee takes control with an eye to liquidating assets.

That is just what happened in a case where I represented a spouse with an order for temporary support.

Husband had never paid on the support order before or after the the bankruptcy was filed.

Consequence:  husband’s Chapter 11 case was converted to Chapter 7 because he failed to meet the terms of the family court support order.  Section 1112 (b)(4)(P) lists failure to pay a domestic support obligation cause for conversion or dismissal of the case.

For this client, conversion has a second benefit:  husband’s wages earned after conversion are not protected by the bankruptcy code. My client will be able to get an earnings withholding order to direct his future earning toward the unpaid support.

Support debts never dischargeable

No matter what chapter of bankruptcy is selected, the debtor cannot wipe out support obligations.  Support is expressly made non dischargeable by 11 USC 523(a)(5).

If the bankruptcy case is one where payment is going to be made to creditors, support is the very first debt in line for payment.  The distribution scheme in bankruptcy provides that a debt with priority gets paid in full before debts with lesser priority are paid.

You need to file a proof of claim, however, in order to be paid.

Property that the debtor is able to exempt from the claims of other creditors is not protected from claims for a domestic support obligation.  11 USC 522(c)(1).

The unanticipated benefit of a bankruptcy of the spouse ordered to pay support is that other, non support debts may get discharged.  That leaves fewer creditors competing for payment with the support order.

So, things may not be so bad as they first seemed.

If you have an unpaid domestic support order and your ex files bankruptcy, get help from an experienced bankruptcy lawyer.  You may have cards to play in this game.

More

How to make your divorce bankruptcy-proof

Dividing debts in divorce

Bankruptcy myths

Bankruptcy Discharge vs. Dismissal

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Dismissed and discharged.

In a bankruptcy case, these two terms are at the opposite ends of the scale of results in bankruptcy.

Yet they are often confused.

A discharge is a win!  The bankruptcy discharge order wipes out your personal legal liability to pay a debt.

A dismissal is usually a loss.  It means the bankruptcy case was closed before a discharge was entered.

When cases are dismissed

A dismissal could be at the request of the debtor when bankruptcy protection or a discharge is no longer needed.

Sometimes, we file a Chapter 13 to buy enough time to complete the sale of an endangered home.  Once the sale is complete, there may be no further need for the automatic stay.

Generally a debtor can’t voluntarily dismiss a Chapter 7 case.  The debtor can convert the case to another chapter, but the debtor can’t usually change his mind and escape bankruptcy.

By contrast, the debtor has an almost absolute right to dismiss a Chapter 13 case.  That’s why Chapter 13 is my go-to chapter when the situation is fluid or there are major unknowns.  If things go really sideways, we can dismiss the case.

Why I love Chapter 13

More often, dismissal  comes on the motion of the trustee or the court, often for failure to timely file a document or for abuse of the system.

But dismissed means that the case has been closed without a discharge.

Closed without a discharge

There’s a third outcome for cases that involves neither discharge nor dismissal:  closed without a discharge.

Chapter 13 cases that follow a Chapter 7 too close in time to be entitled to a discharged are “closed” at the completion of the plan.  That’s a Chapter 20.

Cases are also closed without a discharge when the debtor fails to complete the required debtor education course that is a condition to a discharge.

The bankruptcy ticket to ride

Sometimes, having your case closed without a discharge represents a failure: all that effort to file and you failed the last little step to getting rid of your debts.

Sometimes, however, it’s a deliberate strategy to get out of an bankruptcy that was filed untimely, without using up one’s right to a discharge.  But that’s a story for another day.

More

Choosing the bankruptcy chapter for you

Why Chapter 13 cases fail

Can you change lawyers mid stream

 

Image courtesy of Nemo and Pixabay.

How To Spend Money Before Filing Bankruptcy

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ice cream float

Trying to spend down cash before filing bankruptcy?

It’s time to talk about the float.

Not the root beer float, though that would be more fun.

The bank “float”:  the period between writing a check and it clearing your bank.

(We’ll talk about what to spend on before filing bankruptcy, too).

When you file bankruptcy, your schedules are supposed to show what you own on that day.  For checking accounts, that’s the balance that the bank shows.

If you’ve written a bunch of checks right before filing, checks still floating out there on their way to the bank make your bank balance higher than the balance in your checkbook.

Why does the float matter

The money in your bank account on the day you file belongs to your bankruptcy estate.

Now, it may be fully exempt or it may be too little to interest a trustee in administering it, but that’s another story.

In the eyes of the law, the money in the bank is yours, even though you’ve written directions to the bank to pay some of it out to the holders of your checks.  Those directions (your checks) just haven’t arrived at the bank.

A bankruptcy trustee can demand that you pay him that balance for the benefit of your creditors, even though the money has long since been paid out by the bank, who knew nothing of the bankruptcy case when it honored your check.

Bummer.

Spending before bankruptcy

If you are in the lucky position of having more cash on hand than you can exempt in your bankruptcy case, you may want to spend that money on things you’ll need after bankruptcy.

Can you sell assets before filing?

My list of purchases/expenditures that generally pass muster with bankruptcy trustees include

  • Stocking your kitchen
  • Repairing your car
  • Paying insurance premiums
  • Refilling prescriptions
  • Getting needed health or dental care
  • Replacing aged appliances

But if you pay for them with a check, right on the eve of bankruptcy, you run the risk that the checks haven’t cleared the bank when your case is filed.

More on cleaning up your finances before bankruptcy

Eliminate the float

Instead of paying by personal check, you can pay cash for your purchases.  Be sure to keep a record of what you bought so you can trace the money for the trustee.

Or, you can buy cashier’s checks from the bank, and make your purchases with certified funds.  The funds to buy a cashier’s check come immediately from your account at the bank.

A cashier’s check is a check on the bank’s checking account, not yours.

By using cashier’s checks, you spend down your funds and eliminate the risk that your bank balance will be artificially high on the day you file your bankruptcy case.  And that’s good.

More on planning for bankruptcy

What about the tax refund?

Do you know about the secret bankruptcy exemptions?

What belongs in your bankruptcy schedules

Interviewing a bankruptcy lawyer

Image courtesy of Flickr & boo_licious.

Pay Off Credit Cards Without Interest And Be Debt Free

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The  sixtyish client sitting in my office had assets worth 10 times his credit card debt.

What could bankruptcy possibly do for someone who was solvent?

His problem was liquidity and an income that was certain to decline in the next few years.

His generous disability income would end at 65, leaving him with only Social Security and the income from the illiquid annuities to live on.

Minimum payments on $50,000 of credit card debt took 40% of his current income.  It would take 42 years to pay it off at contract terms.

Like so many clients, he wanted desperately to pay off the debt, yet the credit card interest rates made it impossible without selling off the assets on which he relied for a stable future.

Care to guess what saved the day?  The Federal Reserve!

The interest rate on federal funds was at .18%.  Less than one percent.

It’s the federal funds rate that defines the interest rate on federal judgments, and therefore the interest a solvent debtor must pay creditors in Chapter 13.

In a Chapter 13 plan, he could keep his house, preserve the annuities he’d need for his support at 65, and  pay the face amount of the debt plus minuscule interest.

All that Chapter 13 requires is that creditors do at least as well under the Chapter 13 plan as they would in a Chapter 7 where the trustee would sell the assets of the trustee’s choice to pay creditors.

So, by reducing the interest rate from credit card rates to the federal judgment rate,  my client’s $50,000 in credit card debt could be paid off in a 100% Chapter 13 plan, with less than $300 of interest paid on the debt over the entire 60 months of the plan.

Payments to the plan will be less than the current debt service and in five years, he’ll be debt free.

When we talk about saving, we talk about the power of compound interest.  Savor the reverse, the power of a minuscule interest rate on debts paid through Chapter 13.

More

Bankruptcy terms, simplified

How Chapter 13 works

 Image courtesy of Leo Reynolds.

How to Screw Up Your Bankruptcy

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If an asset isn’t titled to you,  it does not have to be disclosed in a bankruptcy filing.

I hear it and see it in action again and again.

If it isn’t titled to you, it will be “safe” from the bankruptcy trustee and from creditors.

And yet it is wrong.

Wrong, wrong, wrong.

Still, people transfer titles to cars and cash and quitclaim their homes to friends before bankruptcy, thinking that’s smart.

No.  It’s both dumb and dangerous.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts your bankruptcy discharge at risk.

Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

What could delay your creditors more than shedding assets without getting anything in return?

Transferring asset unlawful since Elizabeth I

Queen_Elizabeth_I_of_England_Wellcome_V0048338 (1)_optFor well more than four hundred years, the law has contained prohibitions on fraudulent transfers.

A transfer of an asset by one who has debts constitutes a fraud on creditors if

1) the transfer is for less that fair consideration; or

2) was made for the purpose of putting the asset beyond the reach of creditors; or

3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

So, a transfer is actionable even if it’s a gift to charity; you intended to hide the asset; or the transfer left you broke.

Consequences of fraudulent transfer

The usual remedy against the person who gets the asset is  an order requiring the return of the asset or a money judgment in the amount of its value.

The bankruptcy code has a statute empowering the recapture of transfers made within two years of filing.

In addition, the bankruptcy trustee has the rights of the debtor’s creditors under state law to recovery any property that the debtor wrongfully transferred.  In California, creditors have four years to recover fraudulent transfers.

Putting your assets in someone else’s name

So, a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney.

Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things.

Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, I get a chance to say “Don’t do it”.

And they have a chance to get a discharge.

More

What your bankruptcy lawyer can’t tell you

Bankruptcy’s 90 day rule

Do it yourself bankruptcy

 

Queen E. The First courtesy of Wellcome and Wikimedia.

Six Tips For A Worry-Free Bankruptcy

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question-556104_1280Your bankruptcy case is filed.

But what happens after your bankruptcy is filed?

After you’ve assembled all the paper, after you’ve answered endless lawyer questions, and after you’ve filed all the bankruptcy schedules in your case with the court, what do you need to do now?

Actually, relatively little happens after you’ve filed your bankruptcy.  The heavy lifting is done.

But for a successful outcome to your case, you need to stay engaged.  Bankruptcy is not the kind of law you just hand to your lawyer and bow out.

Here’s what you need to do to as a member of your bankruptcy team.

1.  Open your mail

Read what the court and I send you.  I sent you a copy so you can see what is going on and what I have done on your behalf.

Much of a bankruptcy case plays out in paper generated by my office and the court.  Stay up on the latest.

Make arrangements to appear at the first meeting of creditors.

2.  Review what you have signed

It takes a lot of paper to file a bankruptcy case and you undoubtedly signed lots of schedules.

Go back and review what you signed.  Read the question and your answer.  Is your answer true and complete?

Point out any errors or omissions. Innocent mistakes that the debtor identifies and corrects are seldom a problem in a case.

Mistakes are common and harmless if fixed.

3.  Keep me posted

I need to know about major events in your life: have you moved, changed jobs, become entitled to an inheritance, gotten too sick to work for a while.

Each of these things bears on bankruptcy issues.

4.  Ask me questions

Let me know about things you don’t understand. I can’t tell that you are confused unless you tell me.

There is no reason you should understand bankruptcy the first time through. I’m still seeing subltities in the law after three decades of doing this.

So let me know when you are lost.

At bottom, there are decisions in a bankruptcy case that only the client can make, so you have to have some understanding of the issue to make a good decision.

5.  Respond promptly

When I ask for documents or information, please move quickly.

A bankruptcy case moves on a short timeline and delay can be harmful.

6.  Don’t fret unnecessarily.

Bankruptcy may be new and strange to you, but my staff and I are experienced. Most bankruptcies are routine.

There is no reason to lay awake nights terrified of some horror you’ve dreamed up. If it worries you, ask me about it.

There is more on the statutory duties of a debtor on Bankruptcy in Brief.

More

Going to court in your bankruptcy

Creditors you must pay after bankruptcy

Are discharged debts gone forever?

Bankruptcy terms you need to know

Image courtesy of Pixabay and Geralt.

4 Rules For Testifying At Your Bankruptcy Hearing

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BusinesswomanGoing to court for your first meeting of creditors?

What are they going to ask me?, you wonder.

My bankruptcy clients imagine a quiz on the contents of their bankruptcy papers.

Or worse, an inquisition on why they needed to file bankruptcy.

That’s not likely.  The first meeting of creditors is much more likely to be a snooze.

Jay Fleischman set out a very comprehensive list of questions a Chapter 7 trustee might ask at your bankruptcy hearing.

Let me add my rules for answering those questions.

1.  Listen to the question

Just because you’ve read Jay’s list and think you know what’s coming, listen to the trustee’s question, all the way to the end.

First of all, it’s only polite.  Second, you want to make sure that you know what the trustee wants to know.

Your answer is being recorded.  You want to make sure you are answering the question that the trustee asked.

2.  Answer truthfully

Honest disclosure is the price of getting a bankruptcy discharge.  This is not the time to be cute or tell anything less than the truth.

You are answering under oath.  You are subject to the penalties of perjury if you are intentionally are less than honest.

3.  Be brief

Answer the question that the trustee has asked, truthfully, in as few words as possible.

Don’t explain, don’t justify, don’t ramble.

Just answer the question.

If the trustee needs to know more, he can ask a follow up question.

Usually, the trustee is just trying to make a record that he has done his job.

He has a list of cases he has complete.  Don’t make his day any longer by volunteering more than he wants to know.

4.  Don’t guess

If you don’t know the answer to a question, say so.  If the answer is honest, it’s perfectly OK.

Perhaps your counsel can help.  Maybe there are documents that provide the information.

Don’t pretend to a level of certainty if you don’t really know.

All’s well

If you’ve been diligent about getting your attorney all the requested information, chances are the first meeting of creditors will be the last, and you’ll be on your way to a fresh start.

More

How to review your bankruptcy papers

What happens to your car in bankruptcy

Who to pay after you’ve filed bankruptcy

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

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