Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

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.

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…]

Divorce And The Ticking Debt Bomb

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Debts of the marriage often outlive the marriage itself.

Left-over debts are nothing but trouble.

But too often, divorcing couples don’t mop up the joint debts they held during the marriage, and the situation blows up years later when one ex-spouse hits financial trouble.

Joint account remained open after divorce

It’s playing out in a bankruptcy case I have now:

  • divorce final for decades.
  • no balance on joint line of credit when the spouses divorced
  • no one closed the account

When one spouse hit a rough patch, she accessed the left-over line of credit, big time.  But it wasn’t enough to avoid the need for bankruptcy.

My client’s financial mess threatens to slop over to the former spouse who remained listed on a dormant line of credit.

Even though the current debt is long after the divorce, the ex spouse remains liable to the lender because his name is on the account.

During the marriage, the community would have gotten the benefit of the community property discharge.  Not so after divorce, when there is no community.

What is discharged on joint debt

My client can discharge the debt to the lender, but not the debt to the long-since ex spouse.  That’s because obligations between spouses, such as the division of debt, can’t be discharged in Chapter 7

Unpaid support in bankruptcy

I see a couple of possible outcomes in my case:

  • The indemnification clause in the divorce agreement will require my client to make the ex whole.
  • The other spouse’s reported efforts to close the account will serve to insulate him from the debt.
  • In the face of the bankruptcy, the lender will not pursue the uninvolved ex.

It’s early days on this particular episode.  But the broader lesson is clear:  clean up all joint financial matters during the divorce.

Every joint obligation left for untangling later is a ticking time bomb.  Leaving a refinance, a property transfer, or a joint account for “later” exposes one ex spouse to the debts and financial travails of the other.

Former spouses got a big bump in their protections from consequences of bankruptcy filings by their ex’s in the bankruptcy “reform” act of 2005.  Now, no debt created by a divorce is dischargeable in a  Chapter 7.

So the obligations created by an agreement to indemnify or hold harmless the other spouse from debts will survive Chapter 7.

But the value of that indemnification right may be questionable if the person required to protect the other former spouse has just gone through bankruptcy.  If the protected spouse has to pay the lender, the only remedy is to sue the ex, who just went through bankruptcy.

So, clean up the debt situation in the divorce, just as thoroughly as you divide the assets.

Image courtesy of Fort Meade.

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.

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.

How the stay works

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

Outside of bankruptcy, you have to prove that you are entitled to an injunction that stops some otherwise lawful action.  In bankruptcy the injunction is granted automatically, just because you filed.

The burden is then on creditors to take action to extract themselves from the stay.

The stay has its limits

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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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

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

Going To Court In Your Bankruptcy Case

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bankruptcy hearingEvery bankruptcy debtor must attend the first meeting of creditors in their case.

It’s usually the first and only time that your personal appearance is required.

The meeting is nicknamed the “341 meeting” from the section of the Bankruptcy Code that requires it. 

What’s the point of going to court

The first meeting of creditors has two basic purposes: to have the debtor validate the information in the bankruptcy papers under oath, and to provide the trustee any information needed to determine exemptions or administer any non exempt assets.

More about the role of a Chapter 7 trustee

It’s also an opportunity for creditors, who are likely to take a financial hit in your bankruptcy case, to ask questions of the debtor.  Those questions must be limited to inquiries about assets and about debts.

How does the first meeting of creditors work

The trustee, not a judge, conducts the meeting and leads the questioning.  Creditors are invited but seldom attend.

The meeting is not a test or an inquisition.  Its focus is on validating and perhaps expanding on the information in the bankruptcy papers.

If you genuinely don’t know the answer or don’t understand the question, it’s OK.  Just say so.  The trustee will adapt by rephrasing the question or asking that you supply supporting information.

Usually, each debtor’s testimony is concluded in a few minutes.

Rules for testifying

Here are my rules for how to behave:

  1. Tell the truth
  2. Listen to the question……. all the way to the end.
  3. Answer in as few words as possible
  4. Don’t explain, expand, justify, or speculate unless asked
  5. If your attorney starts talking, you stop talking

While I have seldom had clients blow a case at the 341 meeting, they can certainly either prolong the meeting or confuse the trustee or the issues by babbling.

So, start by listening, carefully, to the question.

Bring your identification; be familiar with the information in the schedules; and answer questions in short sentences and all will be well at your first (and probably last) meeting of creditors.

More

About the 341 meeting.

How to review your bankruptcy schedules before they’re filed

Tips for worry free bankruptcy

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

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