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Discharged Debts Don’t Bar Chapter 20 Lien Strip

By Cathy Moran

304526237_6d1acf58bb_z_opt

Underwater liens that linger after an earlier bankruptcy don’t count in Chapter 13.

At least, they don’t count against the unsecured debt limit that restricts entry into Chapter 13, says the 9th Circuit Bankruptcy Appellate Panel in Free.

Great news for homeowners for whom Chapter 13 was not initially available because they exceeded the debt limits.

Free settles the question of whether the lien that passed through a prior bankruptcy case is a “debt” counted for eligibility purposes in a subsequent Chapter 13 if there is no collateral value to secure it.  The answer is no.

Neither the Code nor case law compels inclusion of the discharged in personam liability in such calculation.

What survives a bankruptcy discharge

Without getting so technical that only a lawyer would care, the problem when a Chapter 13 case is filed after a Chapter 7 is characterizing what’s left of the liens in effect when the 7 was filed.

The Chapter 7 discharge eliminated any personal liability of the debtor for the debt that was secured by a lien, but left the lien as a valid charge on any collateral to which it had attached. [Read more…]

Filed Under: Chapter 13, How bankruptcy works, Newsworthy, Real property & mortgages

Earthquake In California Law Of Community Property And Title

By Cathy Moran

The ground has shifted under California real property law.

The change looms as large as a quake along the San Andreas fault that runs through our neighborhood.

The  words on a real property deed no longer mean exactly what they say when the property owners are married to each other.

The newly decided Brace case holds that the presumption that property acquired during marriage is community property trumps the form of title expressed in the deed.

Under this decision, spouses who take title to real estate as “husband and wife, as joint tenants”  hold that property as community property, not the separate property that follows from the form of title,  unless they’ve taken another step.

That other step requires a written agreement, expressly transmuting the property from community property to the separate property of each spouse.

trans·mute-change in form, nature, or substance.

Without getting too geeky, Brace addressed the collision between two statutory presumptions in California law.

One presumption says that the form of title expressed in a deed controls the characterization of the property, in the absence of evidence that it’s really something else.  So, if the deed says we’re joint tenants, and California law says that joint tenancy is a form of ownership distinct from community property, then the property is our separate property, even if we’re married.

The competing presumption says that property that a married couple acquires during marriage is community property.  So which presumption wins when married folks acquire property during marriage taking title as joint tenants?

The Brace decision says that the community property presumption wins:  the property is community property.

Why characterization matters

A central tenant of California community law is that all of the community property of a married couple is liable for the debts of either spouse.

If we’re married, my half of the marital community can be seized by your creditor for a debt I have nothing to do with.

In bankruptcy, if one spouse files bankruptcy, all of the community property of the marriage comes into the bankruptcy estate .  The bankruptcy trustee can sell all non exempt property to pay creditors of the community.

Tremors caused by Valli decision

Until Brace, the bankruptcy community turned to the 9th Circuit’s decision called Summers, applying California law to a bankruptcy governed by federal law.  Summers held that the title presumption in the deed by which spouses acquired real property was effective to show their intention to hold the property as the separate property of each spouse.

Then the California Supreme Court decided Valli, determining that when Rudy bought a life insurance policy during marriage and took title in his wife’s name, his decision to give her title wasn’t effective to defeat the community property presumption.  That was so, the court said, even though Rudy was the spouse who gave up his interest in what would otherwise be community property.

When the Valli’s divorced, Rudy claimed the insurance policy was community property, and eventually won.

The question in the bankruptcy context has been whether the presumptions that operated in divorce carried over to debtor/creditor rights in California property where there was no divorce involved.

The Brace decision says it does.

Filed Under: Featured, Newsworthy Tagged With: 2017

Making Retirement Saving More Expensive

By Cathy Moran

retirement regulationCongress has taken the first step to bar states from sponsoring inexpensive retirement plans for employees.

In the name of cutting regulation, H.J. Res. 66 repeals a regulation allowing states to promote retirement savings with plans of their own devising.

The regulation doesn’t require anyone to do anything.  It allows states to experiment with low cost, opt out retirement plans.

Americans are frighteningly unprepared for their old age.  Half of American families have no retirement savings.  The median retirement savings is $5000.

And the first thing the House of Representatives can think to do in the name of reducing regulation is stop states from offering lower cost retirement plans for employees?

Oh, wait.

Those who currently sell and manage higher cost retirement vehicles are thereby protected from competition.

I thought competition was good.

I thought states as laboratories for governance was a good.

But then, I thought Congress was focused on the good of the country.

Silly me.

Let’s see who the Senate lines up with.

 

 

 

Filed Under: Featured, Newsworthy Tagged With: 2017

The Fight For Better California Exemptions

By Cathy Moran

tug-of-war-1013740_1280_opt

The fight for modern California exemptions happens this week in Sacramento.

On one side are average folks and seniors;  on the other is the financial services industry.

The struggle is for the votes of California Assembly members on SB 308.

The bell rings on this month  We’ll have winners and losers within days.

SB 308 protects families & the self employed

Exemptions are legal protection from creditors for the essentials of day-to-day living.  They limit what a creditor can take from you.

The value of California’s exemptions has fallen behind the cost of living and the employment mix of our citizens.

They no longer work well to protect the roof over your head,  the car in your garage, or your small business.

SB 308 would fix some of those shortcomings.

The bill creates a $5000 exemption for the self employed to shelter inventory, receivables or cash.  That puts the gigsters and the entrepreneuers on similar footing with wage earners.

The bill increases the protections for equity in a California home, particularly important for seniors.

And it eliminates a current provision that makes a married person filing alone get their spouse’s consent to their choice of exemptions.  And there’s a new exemption protecting child support and family support from creditor garnishment.

Assembly members who haven’t taken sides

Here are some Assembly members  who appear to be undecided and the Assembly district they represent.  Find your assembly district.

Alejo30Gipson644
Gomez51Low288
Ridley-Thomas54Rodriguez52
Waldron75Calderon57
Chu25Cooley8
Dababneh45Daly69
Eduardo Garcia56Gray21
Levine10McCarty7
Salas32Santiago54
Wood2

 

Call, write, email or fax

If you take sides with average folks, contact your representative today.  Time’s run out.

Your message is simple:  Please vote for S.B. 308.

Enter your zip code from this link and get a sample letter you can send to your Assembly member with a mouse click.

Join with a great coalition of others who want to balance the rights of average folks against moneyed corporations.

 

Filed Under: Newsworthy Tagged With: 2016

Donald Trumpets: I Didn’t File Bankruptcy

By Cathy Moran

Donald_Trump_by_Gage_Skidmore_2_opt

As much as it pains me to say, Donald Trump was doubly right about filing bankruptcy.

He loudly announced at the debate that he had never filed bankruptcy.

And, he’d only taken advantage of our laws in filing.

Now, he was contemptuous of his creditors and dismissive about what the filings said about his business judgment.

Neither attitude was very appealing.  But his basics were correct.

Corporate bankruptcy isn’t personal

One, when a company files bankruptcy, it is not a bankruptcy filing by the shareholder.

Even when the company bears your name.  Trump Casinos may file bankruptcy, but that isn’t a bankruptcy of The Donald.

The shareholder’s interest in the company may become worthless, but the shareholder’s other assets aren’t involved.

When a corporation files a Chapter 11, it attempts to reorganize.  Since the interests of owners are subordinate to claims of credits, the existing shareholders are often wiped out, or greatly diluted.

Creditors get to vote on the plan of reorganization and assess whether they are better served taking less than they are owed through the plan than liquidating the company.

A corporate bankruptcy emphasizes that the corporation is a separate legal person from its owners.  The corporation can fail without necessarily bringing down the shareholders.

Our laws promote bankruptcy reorganization

The American approach to risk taking and financial distress enables recovery or reset. [Read more…]

Filed Under: Featured, Newsworthy

No Discharge Chapter 13 Effective To Strip Lien

By Cathy Moran

Group of business people sitting on chair in office

The wait is over; the decision is in.

Homeowners in the 9th Circuit can strip off underwater mortgages in Chapter 13 cases even when they aren’t entitled to a bankruptcy discharge, the 9th Circuit BAP has held.

Thus, courts have taken another step in the building consensus that the debtor doesn’t have to be eligible for a Chapter 13 discharge in order to use Chapter 13 to eliminate an entirely underwater mortgage.

Lien strips in Chapter 20

Voluntary liens can be stripped off the debtor’s real estate only in a reorganization chapter of bankruptcy:  Chapter 11 or Chapter 13.  And since bankruptcy “reform” in 2005, you can’t get a discharge in a Chapter 13 case filed less than 4 years from a previous Chapter 7 case.

You aren’t barred from filing a Chapter 13 right after a Chapter 7.  It’s just that any debts that survived the Chapter 7 don’t get discharged in the no-discharge Chapter 13.

In bankruptcy slang, we call it a case of Chapter 20:  a Chapter 7 plus a Chapter 13.

Chapter 20 cases are useful for curing mortgage defaults or paying taxes or support that isn’t dischargeable in Chapter 7.  But it was undecided, until now,  whether a mortgage lien that was “out of the money” with respect to the value of the property could be stripped off in a Chapter 20.

A basic of bankruptcy law is that liens pass through bankruptcy undisturbed, unless the bankruptcy court, pursuant to some code section, ordered otherwise.

Thus, some argued, that the discharge was the essential element that voided the lien upon plan completion.  Without eligibility for a discharge, could a mortgage lien be voided.

Lien strip OK without discharge

In Boukatch, the Bankruptcy Appellate Panel of the 9th Circuit held that it was plan completion that made the lien strip possible, not the discharge of personal liability. [Read more…]

Filed Under: Chapter 13, Newsworthy

Homeowner Beats Loan Servicer On Foreclosure Appeal

By Cathy Moran

foreclosure_optCalifornia appeals court  slaps down servicer’s attempt to require payment of the entire mortgage loan a condition of homeowner protection.

Nice try, Ocwen.

But no, says an intermediate California appeals court.

Such an interpretation would gut the California Homeowner’s Bill of Rights.

Facing foreclosure

The facts in Valbuena v. Ocwen  are common:  Ocwen became the servicer of the Valbuena’s mortgage loan when the loan was in default.

Ocwen filed a notice of foreclosure sale and sent the homeowners a letter offering to consider a loan modification.  The homeowners submitted an application and supplemented it when Ocwen told them it was missing necessary documents. [Read more…]

Filed Under: Newsworthy

My 7 Favorite Soapbox Posts Of 2014

By Cathy Moran

I tallied the readership’s favorite posts of the year and found the list far different than mine.

So here’s the counter-list of my favorite posts of 2014, drawn from material first published this year.

Most impactful appellate decision

airstream trailer-flickr-stephen hillWelsh was decided in 2013, but I talked about it on Soapbox in 2014:  The Most Important Bankruptcy Decision of 2013.  The 9th circuit said that the means test formula, flawed as it is, prevails over the Chapter 13 trustee’s view of how big a house, or how many financed cars you can have and get bankruptcy relief.

Most important how-to

Gavel and money in wallet isolated on whiteGarnishment in California entitles a judgment creditor to 25% of your after-tax wages.  Wage Garnishment Survival Guide  provides a three part attack on a pending garnishment:  what to do on the spot;  what to do to get out from under; and what to do about your big picture debt.

 

Most significant new law

House_damaged_by_Hurricane-wikimedia-public domainHomeowners can get as a matter of right information about what they owe on their home mortgage and what extra charges and fees have been added to the balance.  Information is the beginning of power.  What You Don’t Know Yet About Your Mortgage.

 

Best free resources

A disappointed young woman looking at a documentHUD certified housing counselors offer quality, free counseling to homeowners in need of a mortgage modification or other guidance about short sales and foreclosure.  I listed all the Bay Area counselors in Free Expert Help With Your Bay Area Home Loan Modification.

 

Biggest life changer

clotheslines-clues1-storytimingNew federal student loan programs forgive the entire remaining balance after 10 years if you work for a government or non profit.  Get Out From Under Student Loans In Half the Time, regardless of your position with the employer.

Least understood legal principle

jail cells-flickr derekskeyWe don’t jail people when they can’t pay their debts.  Yet scammers continue to fleece people with fake “tips” that the police are on the way to arrest you, unless you wire the caller money.  You don’t have to Pay Your Debts To Stay Out of Jail.

 

Tongue in cheek award

Naked_Hike-wikimedia-ebdow-croppedMy only partially ironic analysis of how to Avoid To Avoid Filing Bankruptcy.  Make these five choices and your risk of bankruptcy falls dramatically;  only trouble is, the resulting life is pretty flat.

 

Let’s see what 2015 brings.

Filed Under: Newsworthy

Best Of 2014 On Bankruptcy Soapbox

By Cathy Moran

Here are the ten posts that most intrigued readers of Bankruptcy Soapbox in 2014.

Some are new this year, and others are classics from earlier.

In reverse order, the ten posts that spoke to you.

Reasons Not To File Bankruptcy, Rotten & Wrong10.

Six Rotten Reasons Not To File Bankruptcy   Mortgage law attorney Bill Purdy walks through the misguided reasons his clients give for not filing bankruptcy, when it would help a lot.

 

9.

3 paper dolls b-wAre You Liable For Your Spouse’s Debts  Just because you’re married folks in California doesn’t make you personally liable for the debts of your mate.  Your community property is exposed to all debts, but it isn’t personal.

 

8.

jail cells-flickr derekskeyPay Your Debts To Stay Out Of Jail  The latest scam says there’s an arrest warrant out because you are behind on your debts:  send money to avoid arrest.  Neither the FBI nor the sheriff collect civil debts.

7.

fema-katrinaBankruptcy Trustees And The Short-Sale Racket  Judge slaps down bankruptcy trustee attempting a short sale of the debtor’s underwater house for a piece of the action from the secured lender.

 

 

6.

What's so scary about bankruptcy?What’s So Scary About Bankruptcy  We love being scared on Halloween for fun, but let fear of the unknown keep us from bankruptcy relief.  It’s another “what’s wrong with this picture” moment.

 

5.

weddingSeven Principles of California Community Property Separating truth from fiction, I walk you through the basics of community property applied to assets and debts.  What’s at risk from your spouse’s bills?

 

4.

condominiumFive Easy Ways To Avoid HOA Fees  Bankruptcy can discharge most debts incurred before filing but not HOA fees arising afterwards.  How to escape the HOA trap.

 

3.

tax magnifiedAvoid Paying Taxes On That 1099 Form, Legally  Just because the creditor sent you and the IRS a 1099 form doesn’t mean your tax bill goes up.  Ways to keep your tax from increasing.

 

 2.

empty pocketCalculating Insolvency For Cancellation of Debt Tax  Settle a debt or close a short sale and you have debt that’s forgiven.  It’s not taxable if you are insolvent.

1.

currency&taxreturnTax Deductions Hidden in Chapter 13  The most read post of 2014 concerned digging out deductible expenses from the payments made by the Chapter 13 trustee.  Mortgage interest, property taxes and business expenses all are deductible even if the trustee writes the check.

Filed Under: Newsworthy

Congratulations To Sergio Garcia, New California Lawyer

By Cathy Moran

sergio garcia

 

Welcome to the California Bar, Sergio Garcia.  Brought to this country as a teen by his father, Garcia is still waiting after 10 years for his green card.

Meanwhile, he graduated from university and law school, and passed California’s notoriously difficult bar exam.  But it was unclear whether an undocumented person was eligible for a license to practice law.

This week, the California Supreme Court held that there was no legal reason to prohibit an undocumented person from admission to the bar.

It may remain illegal for a employer to hire the new lawyer, but his expressed interest is in setting up his own practice.

Bravo.  Given his struggle to become a lawyer, you can bet he’ll be a powerful advocate for clients.

Filed Under: Newsworthy

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About The Soapbox

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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Pay Off Credit Cards Without Interest And Be Debt Free

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 … Read more

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