Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

What Should Bankruptcy Cost?

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pay for bankruptcyPick the cheapest bankruptcy lawyer and it could really cost you.

It seems the newest specialty for bankruptcy lawyers is fixing mucked-up cases from other  lawyers.

The extra cost of repairing a case gone bad is only half the problem. Not all the problems created by the bargain basement lawyer can be fixed.

Even when the case can be saved,  the clients will end up paying twice: one to the cheapo lawyer, and once to us to clean it up.

Undoubtedly, they’ll pay more than if  they’d paid for competent counsel to do it right the first time.

Bankruptcy mistakes

Right now, in my office we have three conversions from Chapter 11 to Chapter 7 involving significant real estate assets.

We have cases where big ticket assets were omitted.  We have cases where the initial attorney just didn’t persist with the debtor to get the schedules right, and ones where counsel didn’t explore the choice of chapter.

Almost without exception, the debtors chose counsel based on price.  They went with the lower price for their bankruptcy case, and they bought a rat’s nest.

Cost conscious only at the end

Why is it that notions of economy only surface after a client has wracked up tens of thousands of dollars in debt?

Many of the debtors gave more thought to credit card expenditures or purchases of investment real estate during the boom than they give to picking a bankruptcy lawyer.

The influx of lawyers to this field and the prevalence of lawyer advertising suggest bankruptcy law is a commodity.  Lawyers with no track record to tout or past clients to spread the word  compete on price.  If you can buy a $15 toaster, why pay $30? goes the thinking.

What a lawyer adds

The existence of non lawyer petition preparers and do-it-yourself books reinforce the idea that bankruptcy is more like playing Go Fish than contract bridge.

Bankruptcy no place for do-it-yourself

Then, there are the official forms, suggesting that filing bankruptcy is all about the paper and not about the disclosure the paper requires.

What the bankruptcy papers require

And disclosure is what the forms are all about, and the system wants disclosure because there may be consequences to the stuff disclosed.

Quality of counsel is not reliably correlated with price:  I’ve seen some utter newbie lawyers charging more than highly skilled veterans for an inferior product.  But capable counsel is seldom the cheapest.

So, my charge to those needing bankruptcy relief is to consider that hiring the least expensive lawyer is a poor bargain.

Figure how much should you pay for bankruptcy

Another time, I’ll talk about how to assess a lawyer’s suitability for your case.

Questions to ask a bankruptcy lawyer before you file

Image courtesy of purpleslog.

Fearmongering and The Decision to File Bankruptcy

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The unknown is often fearful.

My colleague Peter Orville wrote

It is natural to be afraid of doing something you’ve never done before, like filing for bankruptcy protection. This is especially true if you’ve heard stories about why you shouldn’t file bankruptcy.

Peter has it right.  Some trepidation is natural.

My beef is that the fear of bankruptcy is promoted by those with something to gain by demonizing bankruptcy.

Fearmongers hope to profit

The stories about why you shouldn’t file are plants.

Not growing plants, but like planted evidence:  something intended to trap, decoy, or lure, as criminals.

It’s the creditors, their cohorts, the credit scoring folks, and the debt settlement companies who want you to think that filing bankruptcy is the end of life as we know it.

You know why they do it?

Each of those sources profit if consumers are scared off from filing bankruptcy.

If they can keep you paying the debt, whether or not you can ever pay it off, or keep you scared enough to pay them to make it go away, they prosper.

No one sits in judgment 

My charge to clients is that bankruptcy is not painful.  Or at least, any pain  you experience is self inflicted.

You can make yourself (or allow yourself) to feel as miserable and worthless as you choose to do so.  No one associated with the courts, including trustees, is judgmental.

A debtor does not have to justify his choice of bankruptcy relief and does not have to prove he is “worthy” of a discharge.  Eligibility for a discharge, even after bankruptcy reform, is presumed.

I have a perverse admiration for clients who have endured the pain and despair of financial distress for as long as most of them have before seeking me out.

But life does not have to be that way;  bankruptcy is an honest and effective choice.

There is nothing to be afraid of.

More

How debt makes you stupid

What should bankruptcy cost

Credit reports heal

How Chapter 13 Cuts Car Loan Down To Size

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car in bankruptcy

Car lenders who make new car loans with an underwater trade-in will face the music in Chapter 13.

The Supreme Court declined to review a 9th Circuit decision that stripped car loans of their protected specially protected status in bankruptcy; as a result, Californians will continue to benefit from the debtor-friendly decision in Penrod, rising out of a San Francisco bankruptcy case.

The question in Penrod

At issue was whether the prohibition on cramming down the debt on a vehicle purchased within 910 days of a bankruptcy filing protected “negative equity” financed in the car purchase.

“Negative equity” is the debt in excess of the trade in’s value. That left-over debt is added to the total of the new car loan and is unrelated to the value of the purchased vehicle.

And BAPCPA, the bankruptcy “reform” act of 2005 prohibited reducing a secured claim on a vehicle purchased within 910 days of the bankruptcy.  But did it similarly protect that part of the loan that wasn’t really related to the cost of the vehicle purchased?

Penrod facts

In Penrod, the Redwood City resident had traded in a car worth $6,000 on which she owed $13,000.  The new car loan included $7000 necessary to pay off the debt on the trade in.

The legal issue is whether that left over debt should enjoy the projections extended car sellers in BAPCPA for purchase money loans on the debtor’s car.

Every other circuit that addressed the question has given purchase money protection to the entire debt including the negative equity portion of the new loan.

The 9th Circuit held the negative equity was not purchase money as to the current car.  The appeals court remanded the case for the bankruptcy court to figure out how to apportion the payments made before bankruptcy between the purchase money element and the leftover debt element.

It’s surprising to me that SCOTUS didn’t accept cert on Penrod, since there is clearly a split among the circuits and it seems to this California bankruptcy lawyer that the Supremes take great pleasure in overturning the 9th Circuit.

But I’ll take a victory however it presents itself and await a decision on how to calculate what can be trimmed from a debtor’s car loan in bankruptcy.

Image  Snackariah under a Creative Commons license

Can A Trust Protect You In Bankruptcy?

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protect assets

Can a trust protect your assets from loss?

According to the lawyer advertising and the self-help books, everyone needs a revocable trust.

The asset protection industry loves irrevocable trusts to get assets out of your name so your creditors can’t reach your wealth.

So, do trusts work in bankruptcy to change the rights of debtors and their creditors?

Not so much.

What’s a revocable trust

A revocable trust is also called a living trust.  It’s created during the lifetime of the person putting their assets in trust.

The settlor, the person creating the trust, can unwind the trust altogether.  Or, the settlor can extract one or more assets from the trust.  It’s revocable.

The appeal of a revocable trust is that assets owned by a trust don’t need to be probated at the settlor’s death.  The terms of the trust determine who gets the trust assets.

I find revocable trusts useful to manage assets of the aging or the incapacitated.

Title to trust assets in a revocable reads:  George Smith, Trustee.  The asset appears to no longer be George’s asset, personally, but the asset of his trust.

Many people would like to think that George’s creditors can’t reach the asset if George doesn’t pay his debts.  Is it so? [Read more…]

4 Keys To Chapter 13 Success

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successful Chapter 13

How do I make a Chapter 13 plan that succeeds?

That’s important because a successful Chapter 13 lets you

keep your assets,

keep control of your income, and

discharge more debts than any other form of bankruptcy.

Yet a distressing number of Chapter 13’s fail before they reach the finish line.

Debtor writes the plan

One powerful characteristic of Chapter 13 is that the debtor writes the payment plan.

How Chapter 13 works

Not the judge, not the trustee, not some anonymous “they”.  You.

The court must confirm it, but creditors don’t have to like it or support it for it to become the order of the court.

The plan sets out how much money you will pay in every month, and tells the trustee whom to pay with that money.

So,  how do you craft a plan that you can follow and will get you to your goals?  What plan elements increase the odds of success?

1.  Don’t overreach

Biting off too much to chew (or really, to pay) dooms more Chapter 13 plans than anything else in the debtor’s control.

And that usually comes down to trying to save a house with a loan badly in arrears. Or, keeping a vehicle with a huge unpaid balance.

Bankruptcy allows you to choose whether to continue paying on debts secured by things you own.  Chapter 13 differs from Chapter 7 in that it provides you protection from creditors and a space to catch up on secured debts that are delinquent.

But some other debts must, by law, be paid in Chapter 13.  Child support and recent taxes are the two most frequent examples.  Those debts have a  priority under the law, and must be paid in full through the plan.

Since secured debts are usually paid first by the Chapter 13 trustee, the first dollars into your plan pay for those secured debts you choose to pay.

If  later you are unable to fund the plan, you can find yourself tossed out of bankruptcy, still behind on house and car, AND owing the feds and your ex.

Sometimes, the most valuable thing a bankruptcy provides is a chance to walk away from deals you can’t afford any longer.

2.  Be real about the cost of living

Bankruptcy is unlike many kinds  of legal representation where you can hand the problem to a lawyer and go on about your life.

Not in Chapter 13.

Chapter 13 requires that you help your lawyer present a budget for the life of your plan that is realistic.  Nothing good comes of estimating that you can feed a family of four on $200/month, or that you can operate an older car for just the price of gas.

Make unrealistic assumptions about ongoing living expenses, so that the plan appears to work, just pushes the next crisis a bit down the road.

Think about the real cost of running your house and nurturing your family.  Make provisions in the projected budget for those expenses that come around but not on a monthly schedule.

3.  Opt for automatic payments

Have your Chapter 13 payment automatically deducted from your paycheck, or your bank account, and you stand a far better chance of completing your plan.

It’s simply easier to look at what’s in the account and spend what’s available than it is to spend such that enough is left to make the Chapter 13 payment.

‘Nuff said.

4.  Cling to a capable lawyer

Your bankruptcy lawyer is yours for the duration of the plan.  Stay in touch.

Before there’s a crisis, or even a change that cramps your ability to make plan payments, pick up the phone.  Tell your lawyer what you’re facing.

Be proactive in solving problems before those problems prompt the Chapter 13 trustee to dismiss your case.

You may be eligible to reduce your payments, to surrender the collateral for some debt, or to suspend payments for a while.

If not, your choices may include converting to Chapter 7,  asking for a hardship discharge, or simply voluntarily dismissing your case.

Your lawyer can help you figure out which of the options works best for you.

Most problems in Chapter 13 are solved more effectively and more cheaply when you are proactive in facing those problems early.

Don’t be a stranger to your lawyer.

More

How to interview a bankruptcy lawyer

Why I love Chapter 13

If your Chapter 13 is in trouble

 

 

 

 

What You Need To Know About Reaffirmation

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bankruptcy reaffirmation

Decisions, decisions.

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

 

 

 

When You Can’t Make Your Chapter 13 Payments

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going nowhere

 

When your wallet’s as flat as this tire and you can’t make your Chapter 13 payments, what do  you do?

Chapter 13 promised a chance to reorganize, keep what’s important, and get out of a financial hole.

But it just isn’t working.

What now?

In good lawyer style, I’ve got to tell you:  it depends.

It depends on why you’re in Chapter 13;  what’s happened that you can’t make the payment; and what your goals are/were for your bankruptcy case.

Is the money problem going to last?

First question:  is the problem with your cash flow temporary or longer term?  When the problem is an unexpected expense or a short interruption in income, your case may be easily salvageable.

Some trustees allow an informal suspension of payments, or a plan to catch up on the court approved payment plan. [Read more…]

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.

Your Bankruptcy Discharge Doesn’t End Your Case

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bankruptcy trustee

Isn’t my case over?

I got my discharge.  Why’s the bankruptcy trustee still  hounding me?, my client asks.

People who’ve filed bankruptcy are focused on the discharge as their goal.

With their discharge in hand, they think it’s all over.

They lose sight of the fact that the administration of a bankruptcy estate by the trustee runs on a parallel track to the one that leads the debtor to a discharge.

Different tracks.  Different timelines.

Trustee’s job

The Chapter 7 trustee’s job doesn’t necessarily end at the 341 meeting where the debtor appears and answers questions.

Most Chapter 7 cases end for the trustee with the first meeting of creditors.  There are no assets for the trustee to administer and no unanswered questions.

But the trustee may have responsibilities that remain after the meeting.

The trustee is charged with investigating the debtor’s right to a discharge and with turning any nonexempt assets of the debtor  into cash for benefit of creditors.

How exemptions work

The trustee may need to know about bank balances on the date of filing or transfers that he may be able to recover.

If he has assets to distribute, he needs to review the claims filed by creditors.  If the bankruptcy estate has income, he may need to file a tax return.

There can be lots of work for the trustee in an asset bankruptcy case.

Road to discharge

For the debtor, the track is usually far shorter.

The Bankruptcy Code was structured to let the debtor know very quickly after the filing of the case whether he will get a discharge.

Or rather, it’s set up to let the debtor know whether there’s a dispute about getting a bankruptcy discharge or about the dischargeability of a particular debt.

The notice that goes out to creditors right after a bankruptcy case is filed sets out the deadline for creditors to challenge the discharge or the dischargeability of a particular debt.  That date is usually 60 days after the date of the first meeting of creditors.

Anyone challenging the discharge must file an adversary proceeding with the bankruptcy court in that time.

Absent the filing of an adversary, the court issues the discharge.  The debtor heaves a sigh of relief and thinks it’s all over.

Trustee work continues

The trustee’s work is not ended by the debtor’s discharge.

If there are assets, he’s still got work to do.  He may need information or other forms of cooperation from the debtor to do his job as trustee.

The debtor’s failure to provide that cooperation can lead to an action to revoke the discharge.  So the debtor still has some skin in that game.

The administration of some bankruptcy estates goes on for years.  It all depends on the nature of the assets the trustee is administering.

No asset cases

The vast majority of bankruptcy cases are no-asset cases.

That’s a shorthand way to say that there are no assets for the trustee to administer and there will be no distribution to creditors.  Even though  Chapter 7 is termed a liquidation proceeding, there may be nothing of value worth liquidating.

In those cases, the trustee may file his no-asset report and close his file long before the debtor gets the discharge.

So the trustee and the debtor proceed down the tracks of a bankruptcy case, in parallel, but not intersecting.

More

The stuff you keep:  exemptions

Choosing between the bankruptcy chapters

Making the most of your bankruptcy discharge

Image courtesy of Flickr and Anna L. Martin.

 

 

 

 

 

 

 

 

 

 

 

 

Who Gets A Slice Of The Bankruptcy Pie?

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“That woman filed a claim in our bankruptcy case, and we don’t owe her any money!”

The next line, or paragraph really, of my client’s email asked what was I, her bankruptcy lawyer, going to do about it.

The short answer was nothing.

Nada.

Not a thing.

I didn’t plan to do anything.

Because when you have a pot plan in Chapter 13, it doesn’t matter who files a claim or for how much.

You pay the same.

Pot or Percentage

When you choose Chapter 13, you get to set the terms of the plan.  The plan  tells creditors and the Chapter 13 how much money you’ll pay the trustee each month and how that money gets distributed.

The claims of creditors are categorized:  secured, priority, co signed, and general unsecured.

You can treat claims of the run-of-the-mill unsecured creditor in two different ways.  You can promise each unsecured creditor a certain percentage of their allowed claim:

Creditors holding unsecured claims shall receive 20% of their claim.

Or, you can propose a “pot” plan.  You fund a pot of a specified number of dollars, to be shared among unsecured creditors according to the percentage of the total claims represented by that creditor’s claim.

When filed claims differ

The difference between the two ways of stating your payment plan comes out when claims are actually filed.  (No creditor gets paid in Chapter 13 without filing a claim.) [Read more…]

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

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