Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

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

Image:  © Innovated Captures – Fotolia.com

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

Image:  weatbix

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.

More

How Chapter 13 thwarts repossession

Keeping your car after Chapter 7

10 ways bankruptcy makes you better off

Image  Snackariah under a Creative Commons license

4 Essential Tips To Get Ready For Bankruptcy

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ready for life after bankruptcyReady for life after bankruptcy?

Even before your case is filed, you can start preparing for your life after bankruptcy.

These four steps will probably  make the bankruptcy case be smoother, too.

Change banks

Your money on deposit in “your” bank may not be solely yours.

If you have a loan or other debt to your bank, the bank can help itself to funds in your deposit account to apply to what you owe it.

That’s called set off:  the amount the bank owes you (your account balance)  is set off against what you owe it.  Trust me, you’ll lose if that happens.

Since you usually stop making payments on dischargeable debts once you’ve made the decision to file bankruptcy, don’t leave your cash sitting in the bank, waiting to to be snatched by the bank who didn’t get paid this month.

Open a banking relationship elsewhere with an institution you don’t owe money.  Move your money, and any automatic deposits, to the new bank or credit union.

You don’t need to close the existing account.  Just keep no more money there than you’re willing to lose if the bank does a set off.

Review automatic bill payments

If money is automatically taken from your account to pay recurring bills, ask yourself if each of those withdrawals are bills you want to pay if you are filing bankruptcy.

If not, stop the bleeding.

Cancel payments on old debts, debt settlement arrangements, and things you can do without in your new financial life.

Sometimes, it seems the only way to stop such things is to close the bank account.  I’ve seen any number of cases where my client may stop the withdrawal for this month, but it pops back up next month.

On the other hand, if you end up changing banks to avoid an offset, as I talked about above, think about whether the automatic payments are for services you want to continue post bankruptcy.

If so, set them up at your new bank.

Can the cards

Stop using your credit cards.

Once you’ve decided to file bankruptcy, any charges to your credit cards may be considered fraudulent.  After all, you don’t expect to pay off that card after bankruptcy.

Since you’ve stopped paying on the dischargeable credit card debt, use the cash freed up to pay for purchases with cash.

A debit card is fine, since it just draws on your own money.  It isn’t a loan to be repaid.

Just like automatic bill pay, if you have ongoing and necessary expenses regularly billed to your credit card, you need to make a new arrangement to pay those bills monthly.  You can expect your credit cards to be terminated upon filing.

Remember the checking account float

The balance in your account on the day your bankruptcy case is filed is the number important to you and the bankruptcy trustee.  It is not the balance as shown on your check register.

The balance on the day you file is property of the estate.  That’s the amount that may need to be protected by claiming an exemption, or turned over to the trustee.

Watch out, if you write checks on the eve of filing.  If they haven’t cleared the bank when your case is filed, they may never clear, as the trustee may demand the balance shown on the bank’s books on the day you file.

If you have things you have to pay before filing or if you are counting on spending down the bank account, get cashier’s checks.

The funds to buy a cashier’s check are immediately taken from your account; there is no float.

Smooth sailing

Get these four things done before you file your case, and things in your financial life in general will go more smoothly.

Then you can graduate to my list of 8 must do tasks after you get your discharge.

More

Who to pay after filing bankruptcy

Pay less for your car in Chapter 7

Who is discharged in my bankruptcy

Image courtesy of Carmen Jost and Flickr

V Is For Value In Bankruptcy Alphabet

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Bankrutpcy Alphabet: V is for Value

 

The Letter V is for Value in my bankruptcy alphabet.

The value of one’s assets drives exemptions and the question of what you get to keep through bankruptcy.

The value of  your assets that are subject to liens also determines whether you can void liens on those assets.

I’m fond of saying that bankruptcy is a snapshot of what you own and what you owe on the day you file bankruptcy.  The workings of a bankruptcy case revolve around what your assets were worth on the day you filed bankruptcy.

It’s sometimes hard for families to realize (and write down on their bankruptcy schedules)  that the value of their personal property is very little, since value for these purposes is what you could sell the stuff in question for.  Particularly in today’s distressed economy, that may be a disappointing number.

What’s it worth

I have strange conversations with clients about the value of their assets.

Asked what their household goods are worth, they give me a substantial number.  Skeptical, I ask  “Could you sell them now for that?”.  “Oh, no,” comes the reply, “but that’s what they’re worth.”

Sorry to say, but the value of  assets in bankruptcy is what they can be sold for, today.

Value critical to exemption law

Many exemptions are capped at a certain dollar value.

In California, for instance, you can exempt $7,175 in jewelry, heirlooms and works of art. So the fact that things you bought for much more are saleable today for far less works in your favor if you want to keep the asset.

Your treasures are more likely to fit within the exemption at the lower value.

Another way a lower value at filing works in the client’s favor involves assets that are encumbered by voluntary or involuntary liens.  The lower the value of home, business, or timeshares, the greater the chance the debtor can strip off liens that don’t really attach to  equity in the asset.

A lien that is stripped off is gone forever, so you reap dividends into the future because of that lower value.

This valuable stuff  has been brought to you by the letter V.

V can also stand for Vehicles in bankruptcy and for Vesting,

Image courtesy of Leo Reynolds.

What You Left Out Of Your Bankruptcy Schedules

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magnifying_glass openclipartOne of the first questions a bankruptcy trustee will ask you at the hearing in your bankruptcy case is:  did you read the schedules before you signed them?

The obvious, and expected, answer is YES.

And if your answer is “yes”, then the trustee can conclude that you stand behind the information that the schedules contain.

You signed them under penalty of perjury, after all.

But did you really read them?

Let’s talk about it.

Get your schedules right

Schedules is bankruptcy lingo for the lists of assets, creditors, budgets and financial history that make up the initial bankruptcy papers.

Quick guide to bankruptcy lingo

Your right to a discharge of dischargeable debts is based on making full disclosure about your financial situation in those schedules.

That disclosure starts with the official forms that make up the schedules.  They are one-size-fits-all.  So the questions include inquiries about  your airplanes and the livestock you own, things that don’t often appear on my clients’ bankruptcy schedules.

The schedule of personal property assets, Schedule_B ,  asks 35 questions about what you own.  Unless you read each question carefully and give thought to your answer, it’s all too easy to carelessly omit assets.

Assets are more than things with a physical presence:  assets include rights in a probate estate, participation in a class action suit, and rights to a tax refund.

“Don’t count your chickens” is bad bankruptcy advice

The most frequently omitted asset in my experience is legal claims.  For bankruptcy purposes, a legal claim isn’t just the lawsuit that you’ve already filed.  It’s the right to assert a claim based on events that have already happened.

Whether your attorney asks you to fill out a questionnaire or interviews you for the information necessary to fill out the forms, the exercise merits your best efforts.

How to review schedules before signing

Unless you are keen on spending some extended time as a guest of Uncle Sam on a conviction for perjury, or losing your bankruptcy discharge for recklessly filing untruthful schedules, it pays to know how to review the draft schedules your attorney has prepared.

Don’t limit yourself to reviewing the information that has been typed into the form.  Look for what isn’t there, too.

That’s a lot harder, because it requires that you read the questions on the form and consider whether you really have nothing to report in response to the question.

Believe me, though, it’s worth the effort.  You can catch things you forgot to tell your attorney.  You may catch creditors or assets that were somehow omitted from the schedules.

You want to catch any mistakes before the schedules are filed.  Careless mistakes on the papers  casts doubt on the accuracy of the rest of your schedules.

Making corrections at the first meeting of creditors

All is not lost if you remember something after your schedules are filed that should have been included.

Another one of the trustee’s standard questions at the first meeting of creditors is “are there any errors or omissions in your schedules you want to bring to my attention”.

Take up the trustee’s invitation to make any additional disclosures needed to make the information in the trustee’s possession complete.

You want to take the initiative to correct the record.

Give it your best effort

The effort required of you to get a bankruptcy discharge isn’t very great.  The most important of the things you must do is file accurate schedules.

After that, most bankruptcy cases are a piece of cake.

More

Rules for appearing at the first meeting of creditors

What if you skipped a creditor

List it or lose it:  the price of nondisclosure

How exemptions work

Image courtesy of openclipart.Find

 

List It Or Lose It: Why It’s Critical To Tell All

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bankruptcy disclosure

Transparency is the essential ingredient in bankruptcy. The name of the game is disclosure.

In exchange for full disclosure in your bankruptcy papers of assets , debts, and financial history, you get a discharge.

Do it right, everyone with notice of your case is bound by the discharge.

Disclosure costs you nothing and it insulates you from charges that you’ve has concealed property of value or otherwise been less than candid with the court.

That lack of candor can cost you big time, from the loss of confidence in your filings by judge and trustee; to charges of perjury or criminal fraud; to loss of the discharge.

This is serious stuff.

Pay attention

My questionnaire for clients says repeatedly that you must disclose all of your assets, yet I get back questionnaires showing no clothing (did they come to my office in a barrel?), no bank accounts, no furniture, no car, etc.

Sometimes, the client doesn’t  have the kind of property in question.

But more often, they made assumptions. They assumed that 1) if the account was overdrawn, they didn’t have to list it; 2) if the clothing was worth little, they didn’t have to list it; 3) if the bank had a lien on it, they didn’t have to list it.

The erroneous assumptions go on.

A is for Assumptions

I declined representation in a case this week that promised a five figure retainer in large part because I believed that I could not get the prospective client to take seriously the need to be open and candid with the court.

If you want to keep any asset, tangible or intangible, after the bankruptcy, list it in your schedules.

Throwing away assets

My colleague lawyer Jay Fleischman wrote about the consequences of failing to disclose the right to sue for a violation of consumer law in the bankruptcy schedules.

There’s a sneaky legal doctrine used by lawyers on the other side of your lawsuit:  judicial estoppel.  It boils down to this:

if you said in the bankruptcy schedules that you didn’t have such an asset, you are barred later from claiming you have a legal right that you didn’t list.

It usually doesn’t matter if the omission was innocent or calculating.  The result is too often forfeiture of the claim.

List everything

That way, you also get to keep the discharge, the real prize in this exercise.

More

What’s included in bankruptcy

Find what’s missing from your schedules

What to do if you missed something

High Income Earners Pass Bankruptcy’s Means Test

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means test

ALERT:   Being over the median income is not an automatic bar to filing bankruptcy

I’m so used to railing against deliberate campaigns of misinformation about bankruptcy that I forget that there’s a lot of innocent ignorance out there.

Start with “qualifying” for bankruptcy.

A very earnest and ethical financial counselor was telling me about a client of hers trying to find the right moment in time to file bankruptcy.

She was targeting the point in time after the job loss, but before the new business got established.  After the severance pay ran out and before the child left for college.

Yet the story involved a home with a mortgage and tax debts.

I couldn’t get my head around why, on those facts, the means test was a bar to filing a Chapter 7.

Til something she said tipped me off.  She thought the means test barred families with incomes over the median from Chapter 7.

Wrong, wrong,  WRONG. [Read more…]

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

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