Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Drive-in bankruptcy?

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time to file bankruptcy

We got a call about three o’clock the other afternoon from someone who wanted to come in that afternoon and file bankruptcy that day.

When my partner hesitated, the caller responded, “Well , you are open now aren’t you?”

I had a mental image of one of those parking lot, drive up coffee vendors, selling “bankruptcy” instead of java.  Would that the information gathering for bankruptcy was that easy.

When Congress “reformed” bankruptcy, they added pointless additional hoops to jump through.  They hoped that it would seem too daunting for people to use bankruptcy.

All Congress succeeded in doing was making attention to detail and a good bankruptcy lawyer more important.  It didn’t extinguish the need for bankruptcy.

Nor did “reform” make bankruptcy any less effective.

What bankruptcy requires

The general “bankruptcy bargain” is that the debtor provides full financial disclosure and the system provides a discharge of debts.  (It’s somewhat more complicated than that, but that describes the overview).

The bankruptcy papers include

  • Assets
  • Debts
  • Future budget
  • Financial history
  • Means test information
  • Intentions about secured debts

None of this is particularly difficult.  It’s just required.  And paper-heavy.  More about your bankruptcy papers.

What client has to do

We’ve experienced a spate of clients who think that because they’ve signed a representation agreement and provided us with some information, their work is done.

Wrong.

Usually the information is incomplete, ’cause they either don’t read, don’t think about the “bankruptcy bargain”, or can’t believe that we really need all that information.

Believe me, we wouldn’t ask for it if it wasn’t necessary.

Staggering in our door and paying us money just gets you out of the starting blocks in the Bankruptcy Relay.

The finish line is getting the discharge, and there are miles to run between those two points.

I’ll pour a cup of coffee and get down to work.

More

When waiting is wise

Mistakes to avoid before you see a lawyer

Interviewing a bankruptcy lawyer

List it or lose it:  intangibles in bankruptcy

 

Image courtesy of AdamL212

Unfiled Tax Returns Are A Life Sentence

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clock face blueTwo clients, each with $200,000 in tax debt,  came to my office this week.

One can escape it all now;  the other is facing several years before bankruptcy will do anything for him.

What’s the difference?

Filed tax returns

The first man had filed his tax returns, even though he hadn’t paid the taxes called for.

The second man had not filed returns for the last 10 years.

In each situation, the IRS computed their tax debt to be the same.

One I can help today, the other has to fend of the feds for at least two years before bankruptcy can help.

Why?  because you cannot discharge liability for tax year for which you have not filed a return.

Erasing taxes in bankruptcy

You CAN discharge most taxes. [Read more…]

New Bankruptcy Trends From An Old Hand

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bankruptcy trends

I’m seeing a real change in the people seeing me about filing bankruptcy.

Used to be, the problem was credit card debt, unemployment, or divorce.

A surprising trend over the past six months is developing.

I acknowledge the sample size is small.  Statistically, you can challenge the significance, but here are the trends.

My office is crowded with single women scammed on dating sites;  on line borrowers from virtual lenders; and small retailers.

Different, huh?

Scam victims tap their credit

The women are single, moderately prosperous,  and looking for a romantic connection.  The men are elsewhere, seemingly interested, and broke.

My clients each maxed out their credit, took out loans and even took lines of credit secured by their homes to help their “boyfriend”.

And when the credit was tapped out, the “boyfriend” was gone.

The debt hung around, and the women next met a bankruptcy lawyer.

Virtual lenders supplant credit cards

On line lending is the new source of money for the financially challenged.  Fire up the computer and order up some cash.  Give the lender access to your bank account.

Never mind that the rates are awful, and the ease of borrowing is deceptive.

I’ve seen several instances where the loan amount ranged from $50,000 to $90,000.

It’s my guess that the borrowers are even less likely than normal to read the terms, understand the transaction.

The deal doesn’t even require an ink signature.

I’ll need an ink signature, however, on the bankruptcy petition.

Small retailers reeling

You’d think that any retailer that survived the Great Recession was solid and good for the long haul.

Not so, apparently.

I’ve seen two in the last two months who can see they won’t make it.

Traditionally, small business folk come to see me when times are tough and they want the magic wand to fend off creditors.

Not so for this duo.  Each arrived in my office ready to throw in the towel.

Bankruptcy relief beckons

If there is a lesson here, it is that money troubles touch lots of people, in different realms and under different circumstances.

The stereotype of the reckless and self centered spender is just that: a stereotype.

And mercifully, you don’t have to explain how you got into financial trouble to use bankruptcy to get out of trouble.

When Realtors Go Rogue

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real estate train wreck

True story from the mortgage meltdown 10 years ago.

Usually, I try to be the voice of common sense, conservation of energy, and moving on after a debacle.

The client I saw the other day had the warrior side of me overwhelming the lawyer’s logic.

The facts: the client, an immigrant carpenter with limited English literacy, “invested” in a rental house with partners who bailed on him. The loan was the typical sub prime, adjustable rate loan where the rents on the house could never have covered the debt service.

Then the “friendly” real estate professional helped him borrow some money on the rental to pay the closing costs on a no-money-down purchase of a home for himself. Realtor gets a real estate commission on the purchase and a fat commission on the two loans to buy the house.

Again there were supposed to be partners who would contribute to the debt service and own some interest in the property. None of it was in writing, others bail, and again my client is left holding the mortgage “bag”.

Meanwhile, the home’s value goes down and the mortgage payments go up. While the client is willing to walk away from the rental, some self interested “expert” tells him that if he defaults on the rental mortgages, he will lose his home, on which he is current, even though the property is upside down.

He works huge amounts of overtime, loses sleep, figures he will lose everything. He’s near tears when he sees me.

The good news in this scenario is, such as it is, that all the client has invested in these deals is about $15,000, and a year and a half of inflated mortgage payments on “investments” that are worthless now, and probably when purchased.

When I analyzed the first loan on the home, I calculated what the mortgage payment would be if, instead of an exploding ARM, it were a conventional, 30 year fixed rate note at 6.5%. The answer was that the monthly mortgage payment on a loan of that size, if it could be restructured, equaled his gross monthly income!

What lender makes such a loan?
The rational part of me wants to tell the client, take your lumps, be glad you didn’t lose any more than you did following the American dream.

The warrior side of me says, who were this guy’s friends who engineered these “deals”, with commissions to themselves? Who gets away with misrepresenting the consequences of a foreclosure on the rental? Who were the lenders who participated in exploiting a simple man who couldn’t read the relevant documents?

Again, my advice will probably be to live in the property payment free til the lender forecloses . But my personal inclination is to sue the assorted bastards involved in this mess.

Spotting The Mean In The Means Test

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means test

Just being a consumer is enough to put you on Congress’s bad side when it comes to bankruptcy.

How do I know?

I read the “reformed” bankruptcy code.

Only those individuals whose debts are primarily consumer debts have to prove that they aren’t abusing the bankruptcy laws.

The Bankruptcy Code attempts to exclude from its shelter those who “abuse” the system.  Abuse is equated with having “enough” money to pay your debts.

That’s “enough” money under the formula Congress wrote.

Only consumers are scrutinized

Only a debtor whose debts are “primarily consumer” debts is subject to this scrutiny. Others get a pass.

Those whose debts result from business failure or failure to pay their taxes are not subject to review for “abuse”, regardless of their ability to pay.

Those debts aren’t “consumer” debts for this purpose.

One’s ability to pay back some or all of business debts or, for Pete’s sake, pay your taxes, isn’t a gating factor for getting into bankruptcy. [Read more…]

Bankruptcy Alternatives Cost More, Deliver Less

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Alternatives to bankruptcy cost big bucks

Bankruptcy alternatives often suck.

The on-line story of one customer of a debt settlement company particularly sticks with me.

Using the “services” of this company, the poster now has six judgments of record and two garnishments in process. The debt settlement company, however, has its full fee.

One man I represented went to a debt management company before he found me.  The “plan” to get him out of debt was that he send the company 50% of his gross income (that’s before taxes and any other deductions) every month.

I have never seen a client who could keep body and soul together in the Bay Area on 50% of their gross income.

When his “plan” collapsed, he was meeting with a bankruptcy lawyer.  The debt management company was counting its fees.

Getting fat on fear

Such stories, and there are lots of them, are emblematic of the profit that debt settlement firms and credit management outfits make on the consumer’s fear of bankruptcy.

Most folks will do anything to avoid bankruptcy, either out of ignorance of how bankruptcy works or a values-driven preference for paying their debts.

Feed that fear and you profit.

Appeal to the inherent desire to do right by creditors, and you get your money before it’s obvious the debt is simply too large to pay off.

When is bankruptcy the best choice

Bankruptcy isn’t right or necessary for everyone, but it would improve the lives of a great many more working families than actually file.

My rules of thumb about when bankruptcy is best:

  • The older you are, the more likely you should file
  • The smaller your retirement savings, the more likely you should file
  • The larger your debts for recent taxes or family support, the more likely you should file
  • The greater your debts in general are to your income, the more likely you should file.

Do your get-out-of-debt homework

Everyone considering paying money to an organization promising to get them out of debt ought to see a bankruptcy lawyer before signing up with an alternative service.

A lawyer can tell you about  how bankruptcy would work for you and the risks in debt settlement.

myths about bankruptcy

Bankruptcy can often wipe out debt with no payment at all to  creditors and get you immediate relief without negative tax consequences.

People with high incomes or more assets than they can protect in Chapter 7 can reorganize their debt, frequently at a small fraction of the debt, through Chapter 13.

With a real understanding of  the alternatives to bankruptcy, there would be fewer of these sad stories.

More

When you want to pay your creditors in full

Why I love Chapter 13

Questions to ask a bankruptpy lawyer

Image courtesy of Flickr and Financial Match.

Tax Liens Live On After Bankruptcy, Unless….

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Tax ProblemsYou mean the tax liens won’t  go away when I get a bankruptcy discharge?

The client was startled that the lien would live on beyond his bankruptcy.

So, if all my debt doesn’t go away, what do I get from the bankruptcy discharge?  he asked.

I thought the tax debt went away when I filed.

It’s your personal liability that is wiped out when you get a bankruptcy discharge.

Liens live on.

What’s personal liability for debt

In a nut shell, personal liability is the right of your creditor to use the powers of the law to reach your wages and your assets to satisfy a  debt.

When you get a bankruptcy discharge, that personal liability is erased.  The discharged creditors can’t reach assets that you acquire after the bankruptcy, nor the assets that you exempted in your bankruptcy case.

So, get a bankruptcy discharge that wipes out older taxes and the IRS can’t garnish your future wages or  levy your bank accounts.  Further, the existing tax lien won’t attach to assets you acquire in the future.

Tax liens  on current assets

But liens, which are rights that others have in your property, survive a Chapter 7  bankruptcy.  Your property doesn’t necessarily get a discharge when you do.

 Stripping tax liens in Chapter 13

By “property”, we mean personal property and real estate.  A properly perfected tax lien attaches to all your personal property and to real estate in the county where it’s recorded.

The critical question is:  what is that tax lien worth?  Does it really attach to anything of value? [Read more…]

Dead Debts Haunt Home Purchase

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Watch for old debtsEternal vigilance is the price of freedom.

It’s also the price of freedom from old debts, as my former bankruptcy client learned.

He was about to close escrow on a new home a couple of years after his discharge.

But the sale came to a screaming halt when an old, discharged debt reappeared on his credit report.

It hadn’t been there before;  it shouldn’t have reappeared.  But “shouldn’t” didn’t keep it from happening.

Meet zombie debt

As we fought to save the deal for his new home, we figured out that the debt that had reappeared long after the bankruptcy was a junior loan on a property he’d owned before bankruptcy.

The servicer on the loan had changed, and the servicer was clueless

  1. That the property had been foreclosed years ago; and
  2. That the bankruptcy had eliminated my client’s liability for the debt

But being clueless didn’t keep the servicer from reporting that this mortgage debt was enforceable and delinquent.  All of which threatened my client’s ability to get a new loan, or the price he’d pay for that loan. [Read more…]

Facing Foreclosure? Your Kids Can Cope

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I talk with clients about walking away from underwater houses day after day. *
  • The  mortgage payments on their home eat up fifty percent or more of their income.
  • They’re struggling now, and the mortgage will reset soon.
  • Attempts to modify the mortgage are fruitless.
  • They expect a foreclosure notice any day.

Yet despite the pain and the roadblocks,  these clients express reluctance to move because of the impact on their children.>

It’s our home, they intone.

It’s as though there can be only ONE home, and it’s this piece of real estate.

They imagine that moving will scar the kids and render them insecure and vulnerable.

Leaving a home that offers nothing but debt nonetheless seems to be a horrendous and overwhelming prospect.

More than their stressed-out selves can manage.

Stress makes you stupid.  Really.

Moving away from bad mortgage

That’s the parade of horrors that march through the minds of those facing decisions about a bad housing situation.

I got a peek at the actual impact of moving from a former client last week:  sheer and utter delight!

[Read more…]

The Struggle To Surrender Underwater Real Estate

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surrender real property

How difficult it can be to surrender real property in bankruptcy when you have no hope of paying for it.

After all, the lender takes a mortgage on the property so they can take it from you if you don’t pay.

My client’s bankruptcy plan said he would make no payments on the rental’s mortgage and would surrender it to the lender.

More than two years later, the lender refused to do anything to take back the property.  The property ran up bills and became run down.

And still the lender did nothing.

So I reacted as most good attorneys do:  I sued.

And, it seems, won.

All this in a fight that my client was willing to lose from the beginning.

Here’s the story.

Debtor proposed surrender

My client owned two out-of-state rental properties when he filed Chapter 13.  His plan told one and all that he did not propose to cure the mortgage defaults on the properties.

Rather, the plan said he would surrender them. They were vacant and remained vacant throughout.

One lender held a foreclosure sale and the title to the property was transferred to the bank.

But inexplicably, two and a half years into the Chapter 13, the second lender had not even started foreclosure. [Read more…]

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

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