Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

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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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animals-985500_1280_opt

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

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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

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

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Pay less for your car in Chapter 7

Who is discharged in my bankruptcy

Image courtesy of Carmen Jost and Flickr

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

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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…]

$7000 Off The Price Of The Car In Chapter 13

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When the client finally got me a copy of the car finance contract, it saved them $7000 on the price of the car.

They’d tried just giving me the monthly statement.

But that statement on the car loan didn’t show the bombshell that I found when I finally examined the contract:

Included in the loan for the new car was the unpaid balance on their old trade in!

In bankruptcy-speak, that’s negative equity, and negative equity isn’t entitled to payment in full in Chapter 13.

So in our Chapter 13 plan, we can reduce what they  pay for the car by the $7000 of the loan that paid off the trade-in.  It really was worth the effort to find the contract.

Sleuthing in bankruptcy

I know, the amount of paper a diligent bankruptcy lawyer wants from you is daunting.

There’s loan documents, deeds, IRA statements, bank balances, insurance policies, pay stubs, and tax returns.

It can seem overwhelming and sometimes pointless.  I get it.

Some of what we’re gathering is defensive:  to show that the information in your bankruptcy schedules is correct.  After all, disclosure is the price of getting a bankruptcy discharge.

But some of the paper we need supports our offense:  having found the portion of the car loan that related to the trade in rather than the new car, we can slice $7000 off of the debt.

Same thing about getting payroll tax returns.  Not everything a small-business employer owes the IRS is a must-pay.  But we’ve got to get the right paper to figure that out.

Just believe that we are asking for documents for a real reason.  Like reducing the loan by $7000.

Car loans in bankruptcy

The auto side of this story is worth the telling, too.  The ability to manipulate car loans is one of the appealing features of Chapter 13.

Only purchase-money:  After the 2005 bankruptcy amendments, car lenders got a windfall on cars purchased in the three years, more or less, before the bankruptcy.  “Reform” entitled car lenders to more than their collateral was worth. (The lenders had a bigger lobbying budget than consumers when the law was passed).

But the 9th Circuit judges have held that the negative-equity part of a car finance transaction isn’t part of the purchase money loan.  Thus we can strip out the  payoff of the trade-in from the loan balance that must be paid.

Likewise, a debtor can reject gap insurance, maintenance contracts and other add-ons that aren’t part of the value of the car itself.

Interest rate changes:  Regardless of when a car loan was made, Chapter 13 can alter the interest rate that the lender gets on the loan through Chapter 13.  So the 10-15% car loan may pay something closer to 4-5% under the Chapter 13 plan.

Term extended:  A Chapter 13 plan can extend the remaining term of a car loan to match the length of the bankruptcy case.  Spread over more months, the monthly bite of a car loan in your budget can be reduced.

And that’s just a part of the reason that I love Chapter 13.

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

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