California community property law is complicated.

I get it.

It shouldn’t surprise me that debt collectors don’t understand community property.

Or maybe, they find it inconvenient to understand.  Or deliberately distort the law.

Collector expands spousal liability

A client reported that her ex husband had been told by a debt collector that the former marriage made him personally liable for his exwife’s debts.

There must be an emphatic, yet polite, word for b***s****.

Wish I knew the word… “Balderdash” seems so weak.

In my most generous view, this could be debt collectors from outside of California who are clueless about community property law. Or, more realistically, they’ll say whatever they think will scare a payment out of someone.

What California spouses owe

For the record, living in a community property state such as California does not make each spouse personally liable for the contractual debts incurred by their spouse.

If your spouse in California takes out a credit card and runs up a balance, you are not liable to the card issuer for the debt. The community property is liable for the debt, but you are not liable.

During the marriage, property that a married couple acquires is presumed to be community property.  That community property includes your earnings as well as those of your spouse.

It may feel like community property law makes you personally liable, but the liability doesn’t follow you out of the marriage.

Death, divorce or a post post nuptial agreement with your spouse not to have community property ends whatever exposure you, personally, have for your spouse’s debts.

If there is no community property, then only the person who contracted the debt is liable for it.

Don’t take legal advice from debt collectors

My client’s encounter with the all-knowing debt collector is all too typical of collectors.

This is but one of the “whoppers” told by debt collectors.

Engage skepticism when dealing with this breed.

Or take notes, and check out the requirement that collectors tell the truth found in the Fair Debt Collection Practices Act and California’s Rosenthal Act.

More

Make debt collectors pay you

How debt collector nearly cost elders their home

When filing bankruptcy is the right move

The old saw about Oakland, California is that there is no “there” there.

I suggest it’s the same about being “in foreclosure”:  foreclosure is not a place, it’s a path.

Nothing legally meaningful changes until you get to a foreclosure sale.  Everything before that is prelude.

Yet several  Bay Area clients have asked whether they can remove personal property from their home while it’s “in foreclosure”.

Another client wanted to know what the rights of the foreclosing creditor were to come into her home before any sale was held.

Another thought he needed to vacate the house before the sale.

Your rights to the property remain the same,  unchanged by any default on the mortgage payment.

Rules of California foreclosure

Be clear:  it’s your property until there is a foreclosure sale.

Likewise, the lender is still an outsider unless and until it obtains title to the property by being the highest bidder at the foreclosure sale.

So, certainly you can remove personal property from your home, and, no, neither the lender nor anyone else can come on your property without your permission.

Debt changes your thought process

I’m fascinated by the concept of being “in foreclosure”.  It seems to be akin to being  “in collections”.

Neither are real places, or even changes in your legal rights.

Yet laymen seem to think of them as situations in which the rules change and consequences follow. [ I have a mental image of them being dank dungeons with manacles on the wall, and cobwebs hanging from the beams.]

True, each represents a process that may lead to a change in legal rights, or a loss of property, but they are roadways, not fixed “places.”

The foreclosure process, which by California law, takes a minimum of  four months from formal notice of default to foreclosure sale, is being drawn out these days,  by the action or inaction of the foreclosing creditor.

The Homeowner’s Bill of Rights makes dual tracking illegal;  modification processes abound.

Don’t leave before it’s final

Which brings me to my current favorite sermon:  even if it’s inevitable that you lose the house to foreclosure, stay in the property and live payment-free until there is actually a sale.

You may be astounded at how long that interval is, how very much longer than the four month legal process.  Build up some savings to make your move.

How long does California foreclosure really take?

The foreclosure that was longer than War and Peace

More on walking away from a house you can’t save

HBOR

First image courtesy Colleen Lane;  woodcut of torture of Nicholas Owen courtesy of Wikimedia.

“Your wages have been garnished, ” reads the letter from your employer.

Do nothing and twenty-five percent of your after-tax earnings will be sent to your judgment creditor.

So, do something:  keep reading this action guide for Californians subject to a wage garnishment.

This guide has three parts:

• the short run guide for minimizing the hit to your income,
• the medium range attack on the judgment, and
• the long run look at the bigger picture of your personal finances.

Wage garnishment explained

A wage garnishment is a legal order that a creditor with a judgment against you can obtain from the court to collect on its judgment.

10 things you need to know about judgments

The existence of a judgment means that a court has already issued its order finding that your creditor is entitled to a sum of money from you to satisfy a debt.

If the system has worked as it’s supposed to, you should have been served with a copy of the complaint when it was filed.

Due process requires that before a judgment is entered, you get notice of the lawsuit and a chance to defend against it. Increasingly, these days, that doesn’t happen as it is supposed to.  More about that in our discussion of medium range survival tactics.

California is among the majority of states that allow a judgment creditor to intercept your wages at the source, your employer, to collect on its judgment.  Both federal law and state law impose a cap on how much of each paycheck the creditor gets.  State law can protect more than the federal law does;  it can’t protect less.

Here, we are looking at the garden-variety judgment for credit card debt or medical bills.  There are different rules governing collection of taxes and support that we won’t deal with today.

1.  Protect Your Paycheck From Garnishment

The wage garnishment entitles the judgment creditor to 25% of your paycheck, after mandatory deductions are subtracted.  But that’s the maximum the creditor gets.

You get a chance to show that you need more than 75% of your earnings to support yourself and your dependents. Cal. C. of Civil Procedure 706.051.

But to exercise that chance, you’ve got to fill out a form.  Are you game for that?

Claim exempt funds for support

With the notice of garnishment, you should have been served with a form to claim the exemption for money necessary for support.  To claim the exemption in wages, you need to also complete the form financial statement.

Note that the financial statement asks for your monthly income.  That’s easy if you are paid once a month, or twice a month. Watch out, though, if you are paid weekly or every two weeks.  There are 4.3 weeks in a month.  Figure your weekly income, then multiply by 4.3.

The claim of exemption and the financial statement get sent to the levying officer, not the court, and not your employer.  That information is shown on the notice of levy.    The back of the notice form has instructions for the judgment debtor; read them carefully.

Creditor can agree to allow exemption

The levying officer delivers your claim of exemption to the judgment creditor, who can accept your claim of exemption, or can request a hearing before a judge.

If a hearing is required, you will get a completed copy of the notice with the time and place of the hearing.  It will look like this.

If there will be a hearing, you need to appear, with evidence in hand about other sources of income, if any; proof of your expenses; and any other documents that support your need for all or nearly all of your wages.

You can also negotiate directly with your creditor for some alternative way to pay the judgment.

2.  Attack The Judgment

Wage garnishment is available only if a court has properly determined that you owe the money in question.

If you participated in the lawsuit, lost, and didn’t appeal, the matter is closed.  It’s a done deal.

But if the judgment supporting the wage garnishment was news to you, if it was entered because you didn’t appear in the suit, you may have a chance to fight back.

California law allows you to move to set aside a judgment that was improperly entered.  “Proper” here refers to the procedures involved, not the merits of the claim.

Grounds to set aside a default judgment include excusable neglect, lack of actual notice, or lack of subject matter jurisdiction.

Setting aside a judgment requires an understanding of the issue, attention to detail, and prompt action.  Sit on your hands and you may be barred from available relief because you waited too long.

The Sacramento County Public Law Library has a great guide to setting aside judgments.  If doing it yourself looks too difficult, a lawyer can help you.

Setting aside the judgment is probably only worth the effort if you have a defense to the substance of the lawsuit.  It’s a lot of work if at the end of the day, you are still liable for the debt.

3.  Assess Your Finances As A Whole

Your time and energy are precious commodities and come in limited supply.  Before spending a passel of time and energy defending yourself from this judgment creditor, take a look at all your financial obligations.

Ask yourself: Will managing this debt leave me able to pay everyone else I owe money to?

If not, get some help looking at the big picture.  Reputable credit counselors can help you with alternative payment plans.

I don’t recommend debt settlement schemes, however.  The concept is appealing, but in practice, it seldom works to solve the entire problem.

Bankruptcy lawyers are experienced in looking at debts and assessing whether you can dig yourself out of a financial hole without the help of available bankruptcy laws.  A bankruptcy filing stops a wage garnishment and usually eliminates your liability for the debt for all time.

Read more about bankruptcy and the alternatives.

Image:  © Africa Studio – Fotolia.com

Scoping out dates and mates by their credit scores at first seems far fetched and overblown.

Not to mention it pretty much kills romance.

CNN reported on credit scores and dating.  My colleague Frank Pipitone took off on the idea.

But there is a kernel of wisdom there that couples in California need to heed.

A couple’s community property is liable not only for the debts that either spouse incurs during the marriage, it is liable for the debts that either spouse incurred before the marriage.

Zap!

Your accumulations during marriage could be levied by a creditor with a judgment to satisfy your spouse’s debts that arose before the two of you even met.

California does have an exception to that rule that protects the wages of one spouse earned during marriage from the other spouse’s premarital debts.  It requires that the non liable spouse put those wages into a bank account to which the indebted spouse has no access.

Returning to credit scores as a dating criteria, maybe it isn’t so outlandish.  That is, assuming you think the credit score is meaningful.

Many of my bankruptcy clients, who are drowning in debt they can never pay off, tell me that they have a 800+ credit score.  The credit score cannot be a reliable measure of much of anything, if that’s so.

Remember that credit scores are based on credit reports, which are uniformly significantly inaccurate.  Here in Silicon Valley, we love to chant, garbage in, garbage out.

Community property is the default

So if the love of your life brings a bunch of debt to the relationship, all is not lost.

Bankruptcy will, of course, discharge most debt.

But if that’s not feasible or timely, remember that you don’t have to hold your marital assets as community property.

Community property is the default.  What you earn and acquire together doesn’t have to be community property.

Spouses can agree that they won’t have community property.  The agreement can craft any kind of characterization of assets that the parties desire.

There are rules about pre nuptial agreements, to guard against overreaching by either spouse.  If you are relying on an agreement to protect you from a significant debt of your spouse,  it’s worth it to get legal help.  From a lawyer, not a website, or a paralegal or a form book.

If your financial stability in the future depends on your marital property arrangement, do it right.

More

Principles of California community property

Why credit scores are meaningless in the real world

Image courtesy of Flickr and Zoetnet.

Psst!

Let me tell you a secret about bankruptcy law.

You can get 3/4 of the benefits of a bankruptcy discharge without ever going near a bankruptcy court if you are a married person in California, or any other community property state.

If your spouse files bankruptcy and you don’t join in, you still reap much of the protection from your creditors that you would get if you had filed.

How can that be?

It’s the law,  a little known feature of the bankruptcy code that applies to a bankruptcy discharge in a community property state.  §523(a)(5)

Here’s how and why it works this way.

When only one spouse files

Spouses aren’t required to file bankruptcy together.  They can file together, but they don’t have to.

But even if only one spouse files, all of the community property of the marriage becomes property of the bankruptcy estate.

In return, the community property gets a bankruptcy discharge, just as though it was a separate person.  (Which is why I sometimes  say that, in a community property state, each marriage is a menage a trois.)

The discharge protects not only the property that the couple owned when one spouse filed bankruptcy, it protects community property that they acquire in the future. [Read more…]