Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

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…]

Automatic Stay Has Exceptions: It Doesn’t Stop Everything

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bankruptcy stay exceptions

The automatic stay is the signature feature of American bankruptcy.

Just by filing a bankruptcy case, a federal court injunction instantly prohibits your creditors  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).

To get a stay outside of bankruptcy, you have to prove that you are entitled to an injunction.  A bond may be required.

In bankruptcy the injunction is granted automatically, just because you filed.

The burden falls to 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

What should bankruptcy cost?

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Shop for a bankruptcy lawyer, and you’ll end up wondering what bankruptcy should cost.

When you’re flat broke and under pressure, cheaper sure looks better.

If a lawyer will do your Chapter 7 for $600, what’s the point of paying $1000? Or even $2000?

Like answers to many legal questions, it depends.

Bankruptcy relief depends on your facts

Whether to file bankruptcy, or whether to file now, rather than later, depends on how the facts of your financial situation interact with bankruptcy law.

Your bankruptcy lawyer is charged with gathering those facts and analyzing them so that you get the most debt relief the system can offer.

If your bankruptcy lawyer doesn’t dig deep enough, or think broadly enough, you may hit avoidable snags in your case. Or you may squander opportunities for more relief from your debts.

With the caveat that there is no direct and sure-fire connection between cost and quality, let’s talk about what it costs to escape from broke.

How to figure what your bankruptcy should cost

1.  The cheapest guy in town isn’t for you.  Chances are, he’s new to the field.  He’s dabbling.  Or, he’s hoping to sell you something else along with a bankruptcy, or he’s outsourced the real work to someone with even less training than he has.

Further, if you are looking for advice about finances, is the cut rate practitioner the one best suited to provide that perspective?

2.  The more that’s at stake, the better representation you need.

The larger the value of your assets, the more likely you need higher value legal help.  If the point of the bankruptcy is to save your house or end nasty big dollar litigation,  you need more legal firepower than if you are simply discharging old credit cards or medical bills.

3.  The more people involved with you in money matters, the better lawyer you need

Got business partners, assets owned with others, money set aside for children?  All of those situations trigger special parts of the bankruptcy code with possible results you or an inexperienced lawyer don’t anticipate.

4.  Who is chasing you?  

When your likely opponents in a bankruptcy case are heavy weights, you need to lawyer up.  Think IRS, criminal justice system, or well funded ex spouses.

The stronger your opposition, the more likely weaknesses in your bankruptcy case will be identified and exploited, to your detriment.

What legal fees should buy

When you hire a bankruptcy lawyer, you are buying familiarity with the body of bankruptcy law and the analytic skills to see how that law applies to the facts in your case.

The more you pay, the greater your entitlement to some hand holding in the form of answers to your questions, no matter how muddled or how frequent.

Price is not necessarily connected to good client service, but that is usually the case.  Low fees leave little room for interpersonal niceties or actual access to the lawyer.

How much to pay for bankruptcy

At the risk of falling back on cliches, it depends.

It depends on the cost of living where you are.  Legal fees are more expensive in San Francisco than they are in Redding or Susanville.

It depends on your situation.  Straightforward kind of debts, stand-alone finances, and few assets, the more likely the mid price practitioner can handle your case well.

It depends on the level of service you want and need to get through a tough patch.  If you are emotionally battered, unsure, or unwell, maybe you want to pay for more service rather than less.

Survey the legal market where you are.  Be prepared to interview and reject lawyers and law firms who can’t talk candidly about their experience, fees and costs.

And don’t think that a high fee necessarily means expert representation.

After all, what bankruptcy should cost depends.

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Image courtesy of Flickr & Ryan Dickey 

Bankruptcy Alphabet: Q is for Questions

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The letter Q stands for Questions in my bankruptcy alphabet.

Like the storied Light Brigade, “stormed at with shot and shell” , we in bankruptcy are peppered with questions, not cannons.

Those considering bankruptcy have the profound questions:will bankruptcy improve my situation?

Bankruptcy attorneys in turn have questions of the client:

  • what do you own?
  • who do you owe?
  • what has recently changed about your finances?

Then, the bankruptcy trustee has questions:

  • did you read these documents before you signed them?
  • is everything true, correct, and complete?
  • do you owe any domestic support to anyone?

All three players, debtor, attorney, and trustee need to have their questions answered for the system to work.

Have the answers

When it’s your turn to provide answers, it can be make or break time. Get sloppy, indifferent or inattentive, and one or more of the central players in the bankruptcy triad gets less than is necessary to assure a good outcome.

Let me suggest that one of the most important qualities in a superior bankruptcy lawyer is the ability to answer client questions simply and directly.

The companion quality is the ability to make the client feel comfortable enough to ask the perplexing or distressing questions. If client questions are not met with respect and openness, then find another lawyer.

The person who gets a smooth and predictable bankruptcy filing is the one who takes his lawyer’s questions seriously.

Don’t just tell me about the obvious; engage and tell me about everything, whether YOU think it important or whether you believe it has value or not.

I ask for a reason.

Questions and their answers are at the heart of the bankruptcy filing process.

This post has been brought to you by the letter Q.

While I think Q is for Questions in the Bankruptcy Alphabet, consumer protection lawyer Jay Fleischman proposes Q stands for Quiet.

More

Questions you should ask a bankruptcy lawyer

Going to court in your bankruptcy case

Getting the bankruptcy papers right

Image courtesy of Leo Reynolds.

 

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,

More on value

Valuing homes and stripping mortgages

Cutting tax liens down to size

All about exemptions

Image courtesy of Leo Reynolds.

What You Think About Chapter 13 Is Dead Wrong

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The difference between bankruptcy’s Chapter 7 and Chapter 13 is often expressed this way:   

Liquidation: the process of turning assets into cash

Chapter 7 is a liquidation proceeding

Chapter 13 is a repayment plan

 

And therein lies the biggest misconception about Chapter 13: 

13 does not repay everything you owe.

It’s a repayment plan alright, but not necessarily a 100% repayment .

You may not pay much at all, to any creditor.  It depends.

How much you repay

The amount you repay to creditors through your plan is determined by comparing

Rough and dirty, you calculate the number for each of these factors, and your plan must pay the largest of the three tests.  That payment is spread over 3 to 5 years.

Which creditor gets 100%

Bankruptcy law gives special standing for repayment to two common kinds of creditors.

  • Family support (alimony, child support, or other Domestic Support Obligations)
  • Recent income taxes or payroll taxes

These creditors have a priority for payment,  ahead of all other unsecured creditors.  They get paid in full.  The interest that accrues on family support obligations even survives the Chapter 13 discharge.

Therefore, to get court approval of a plan, the plan payments must be sufficient to make these payments, along with any fees of the Chapter 13 trustee and any of your attorneys fees to be paid through the plan.

Unsecured creditors out of luck

The brutal truth is that general unsecured creditors holding medical bills, personal loans, judgments for money, and credit card debt may get nothing in Chapter 13.

That’s because the available money is paid first to priority claims and the costs of administration of the case.  So a debtor with little disposable income may propose a plan that pays only the costs of the plan and the priority creditors.

Chapter 13 makes creditors face reality

The strength of Chapter 13 is that it often forces unsecured creditors to accept that there simply isn’t enough money to pay their claim.

The bankruptcy schedules show it, and the bankruptcy judge enforces it.

It is that coercive effect that makes Chapter 13 so much more effective than debt settlement:  if the numbers support it, the plan can pay them little or nothing.

So, don’t be put off by the phrase “repayment plan”.

Chapter 13 pays creditors only what you can afford, over a limited period of time, in the order of the importance of the debt.

That’s why I love Chapter 13.

More

Debt settlement is a dud

How secured debt can scuttle a Chapter 13

What bankruptcy should cost

 

 

 

 

 

 

 

Your Bankruptcy Discharge Doesn’t End Your Case

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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 just because the debtor got a 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.

What You Need To Know About Reaffirmation

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bankruptcy reaffirmation

Decisions, decisions.

Are you going to reaffirm the car loan?

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

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

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

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

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

Liens not discharged

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

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

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

If you keep paying

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

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

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

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

Effect of reaffirmation

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

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

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

What the car lenders got from Congress

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

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

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

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

Reaffirmation is voluntary

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

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

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

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

Getting reaff approved

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

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

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

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

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

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

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

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

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

Does ride-through survive?

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

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

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

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

More

Tax liens after bankruptcy

What a bankruptcy judge actually does

To Do list for after your discharge

 

 

 

Bankruptcy Discharge vs. Dismissal

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Dismissed and discharged.

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

Yet they are often confused.

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

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

When cases are dismissed

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

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

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

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

Why I love Chapter 13

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

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

Closed without a discharge

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

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

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

The bankruptcy ticket to ride

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

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

More

Choosing the bankruptcy chapter for you

Why Chapter 13 cases fail

Can you change lawyers mid stream

 

Image courtesy of Nemo and Pixabay.

How To Spend Money Before Filing Bankruptcy

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ice cream float

Trying to spend down cash before filing bankruptcy?

It’s time to talk about the float.

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

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

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

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

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

Why does the float matter

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

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

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

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

Bummer.

Spending before bankruptcy

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

Can you sell assets before filing?

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

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

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

More on cleaning up your finances before bankruptcy

Eliminate the float

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

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

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

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

More on planning for bankruptcy

What about the tax refund?

Do you know about the secret bankruptcy exemptions?

What belongs in your bankruptcy schedules

Interviewing a bankruptcy lawyer

Image courtesy of Flickr & boo_licious.

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

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