Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

If You Can’t Make Your Car Payment During The Virus Shutdown

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car payments coronavirus

How am I going to keep my wheels while the coronavirus looms?

The fight against the coronavirus has cut off income for millions.  While there’s been broad discussion about mortgages and student loans,  there’s less discussion about rent.

So far, I’ve heard no governmental discussion about how to proceed if you can’t make car payments.

Car loans present particular, prickly problems, distinct from home mortgages and student loans:  the car creditor has a lien and the right to repossess the car if you don’t pay.

The closing of the courts and the lack of paychecks to garnish, which limit other creditors, doesn’t protect the car buyer.

And, there’s no governmental protection (yet) from repossession.

Hurray for Edmonds

Edmonds has assembled information on the announced policy of a long list of car lenders.

Check it out.

As of this writing, their page is dated March 17, with a promise to update it as time goes on.

Universal best practices

Anytime that you’re told to “contact your creditor” during this crisis, don’t rely solely on the phone.

The phone is easy, but I have no confidence in the ability of the lender to track those phone calls or retrieve them when necessary.

Follow up every phone call with a short, written letter, identifying yourself and your loan number, along with the meat of your message.

Keep a copy.

We don’t know how governmental and institutional policies will develop, but you want to be able to prove that you reached out as requested.

What’s to come

What’s different in the coronavirus crisis from other financial downturns is that the pain is huge and widespread.

Creditors and the government will have to develop mitigation strategies that preserve people’s mobility and make it worthwhile to keep paying on existing loans.

We’ll just have to stand by to see what they are.

My expectation is that lenders do not want to repossess a fleet of cars, and they don’t want to further tank their cash flow.

And, where I am, the repo guys are quarantined too.

More as news develops.

When you can’t pay your bills because of the virus

Protections for California homeowners during times of pandemic

California renters get protection from eviction

Tax season postponed

 

Means Test Means Little In Bay Area With New Census Numbers

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The latest numbers used in means test for the San Francisco Bay Area after April 1, 2020 are out.  They reinforce my contention that the means test is meaningless for most in Northern California.

Bankruptcy’s means test was sold to Congress in 2005 as a way to make sure those filing bankruptcy really needed relief.

It added expense and complexity to bankruptcy, which was  what the drafters secretly wanted.  They’d heard this story of people casually filing bankruptcy to avoid the inconvenience of paying their bills.

Of course, that was a myth; but that’s another story.

The income dividing line increases

Those whose gross family income is below the median get a pass on the means test.  It simply doesn’t apply to below median income debtors.

Median: the middle number in a sequence of numbers 

The median income for a family of four this spring in California is $ 101,315.

Make less than that, exclusive of Social Security, and you are free to file bankruptcy without taking the test.

Housing costs drive the bus

If you make more than the median income, the means test applies.  That doesn’t mean you can’t file bankruptcy.

It just means you have another hoop to jump through.

The means test formula purports to calculate how much money you have available each month after paying essential expenses.

The ugly truth for this high-cost part of the world is that housing eats up far too much of our budgets.

Lets assume you are just over the median income line and gross $102,000 a year, a fine salary in many places, but not really enough here.

The folks at the Census Bureau, who supply the bankruptcy system the numbers that drive the means test, say it costs $4173 a month to house a family of four in San Mateo County.

That’s almost half of the gross monthly income of a $102,000/year household.  Not much is left to pay for food, clothes, medical care and transportation.

Good news, bad news, there’s nothing really available to pay creditors, inside or outside of bankruptcy.

So bankruptcy is available because you’ve passed the means test.

Mortgage payments deductible

The same calculus applies to homeowners:  over median families can deduct monthly mortgage payments, property taxes, HOA dues, and hazard insurance from their gross income in doing the means test.

Again, those expenses tend to swallow up a huge part of most incomes.

Leaving little or nothing for creditors.

And leaving you the choice of which chapter of bankruptcy furthers your goals.

More about the means test

Who gets excused from the means test

Cheat sheet for passing means test

See a bankruptcy lawyer before making any of these stupid moves

California Renter Protections From Eviction: How To Qualify

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california eviction protection California  bans evictions for non payment triggered by the COVID-19 shut-down under Gov. Newsom’s executive order of March 27,2020.

The protection comes with a big IF:  A tenant must act to trigger these protections, which run through May 31,2020.

Who is protected

The order covers tenants who have been

  • laid off
  • had hours cut
  • suffered other income reductions
  • missed work to care for a child whose school closed

The loss of income has to be traceable to the virus, the state of emergency, or related government response.

How to qualify

You need to do two things to invoke eviction protection.

One, you need to notify your landlord, in writing, that you need to delay, in whole or in part, payment of the rent due.

That notice needs to be given before the rent comes due or within 7 days of the due date.

Two, you need to keep paperwork that supports the claim that your income is reduced by COVID-19.

That documentation can be

  • pink slips;
  • payroll checks;
  • bank statements;
  • medical bills, or
  • signed statement from your employer that explains your changed financial circumstances.

What protection is provided

The order makes two changes to existing law.

First, tenants get an extension of time to answer an eviction complaint.

Normally, a tenant’s answer to an unlawful detainer action (legalese for “eviction complaint”) is due 5 days from service of the summons.

The executive order extends that period for the 60+ days this order is in effect.

Second, no writ of possession may be enforced against a tenant who qualifies under the order.  That means the sheriff can’t evict you if you have taken the steps above.

What’s unclear

This order doesn’t seem to address the situation where the tenant was behind before the order became effective.

That situation may be addressed in further orders.

In most California counties, the issue may be moot because, independently, county boards of supervisors have instructed sheriffs not to enforce pending evictions.

What’s to come

I fully expect that this order or one like it will be extended if the economic shutdown continues beyond May 31.  It’s hard to imagine that it won’t, as I write this.

In the meantime, stay home, stay healthy, and stay hopeful.

More on the virus money crunch

When you can’t pay your bills because of the virus

Car payments and the pandemic

California tax deadlines extended

California Income Tax Deadlines Extended

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california income taxes

California’s Franchise Tax Board postponed until July 15, 2020, the filing and  tax payment deadlines for all individuals and business entities .

This special tax relief due to the COVID-19 pandemic for all California taxpayers was announced  on March 18, 2020 covering

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 1st and 2nd quarter estimate payments
  • 2020 LLC taxes and fees
  • 2020 Non-wage withholding payments

To give taxpayers a deadline consistent with that of the IRS without the federal dollar limitations, the FTB is following the federal relief described in IRS Notice 2020-17.

Since California conforms to the underlying code sections that grant tax postponements for emergencies, the FTB is extending the relief to all California taxpayers.

What you need to do

Taxpayers do not need to claim any special treatment or call the FTB to qualify for this relief.

What you can do

While there’s no immediate deadline to file, now may be a good time to prepare your tax returns.

If you expect to get a refund, all the more reason to file now.

However, if you expect to owe taxes, the FTB offers the ability to make electronic payments online.

Pay online

The days of manually writing a check and mailing it to the taxing agency via certified mail make little sense, given that secure options exist for electronic payments.  Manual checks can be lost in the mail, stolen, or incorrectly posted to the wrong tax period.

The FTB has an electronic one-line payment program called Web Pay.  It can be used by both personal taxpayers as well as businesses (corporation, partnership, or LLC).

There’s more  information on the FTB’s website .

More on money & COVID-19

When you can’t pay your bills during the pandemic

Car payment and the pandemic

Protections for California home loans during the virus shutdown

 

Steven WalkerGuest contributor San Jose attorney Steven L. Walker advises clients on tax controversies and litigation with the IRS, the FTB, and state & local taxing agencies. His clients bring him civil and criminal tax matters, including tax audits and appeals, litigation in U.S. Tax Court and federal district court, tax fraud, offshore/foreign tax compliance, and tax collection. He also advises clients on business matters.  Steven is an adjunct professor at the University of San Francisco School of Law in the LLM (Taxation) program, where he teaches Civil and Criminal Tax Penalties, and Bankruptcy Taxation. He is also a Fellow of the American College of Tax Counsel and a former IRS attorney with additional experience at the FTB Legal Division.  www.walk-law.com.

IRS Pandemic Relief in Taxing Times

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taxes COVID-19

In normal times, this would be tax season.

Not this year; these aren’t normal times.

The recent COVID-19 pandemic has already had a significant effect on our personal and professional lives.  Between states and localities implementing “shelter-in-place” orders, commercial activity grinding to a near halt, and the stock market seeing massive losses, the United States has taken a severe economic hit as well as the public health hit.

COVID-19 virus has  also affected tax obligations.   Here’s what to know.

IRS Extends Deadlines 

Filing: The IRS announced on March 21, 2020, that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.  See IR-2020-58

Payment: Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.

This deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax.  

Procedure: Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.

Individual taxpayers who need extra time to file beyond the July 15 deadline can request a filing extension by filing Form 4868 through their tax professional, tax software, or using the Free File link on IRS.gov.

Businesses who need additional time must file Form 7004.

Refunds

IRS urges taxpayers who are due a refund to file ASAP

. Most tax refunds are still being issued within 21 days.

The IRS expects to continue to monitor issues related to the COVID-19 virus, and updated information will be posted on a special coronavirus page on IRS.gov.

Ways to Pay  The IRS 

IRS Direct

The IRS  offers the ability to make electronic payments online.

Therefore, the days of manually writing a check and mailing it to the taxing agency via certified mail make little sense, given that secure options exist for electronic payments.  Manual checks can be lost in the mail, stolen, or incorrectly posted to the wrong tax period.

For the IRS, individual taxpayers can make an electronic payment online through Direct Pay with a bank account.  See the following link:  .  An individual taxpayer may use this service to pay Form 1040 taxes, estimated taxes, or other associated forms directly from your checking or savings account at no cost.

Also, the website allows a taxpayer to track payment by signing up for email notifications.

One drawback with Direct Pay is that not all tax liabilities can be paid using Direct Pay.  The IRS has a helpful lookup table online to determine whether a balance owed to the IRS can be paid using Direct Pay.

If payment cannot be made using Direct Pay, a taxpayer must use the federal government’s Electronic Federal Tax Payment System, also known as EFTPS, which is discussed below.

Electronic Federal Tax Payment System 

The best option for businesses or large payments is through the Electronic Federal Tax Payment System (EFTPS), a free service from the U.S. Department of the Treasury.

A taxpayer must enroll online to get started, and in seven business days, a Personal Identification Number (PIN) will be mailed to the taxpayer’s contact address.  Upon receipt of a PIN, a taxpayer can make payments and check payment history.

A potential drawback with EFTPS is that a taxpayer must wait to receive a PIN before making a payment, but once enrolled, the process is relatively straight forward and secure.  Like Direct Pay, a taxpayer can obtain a receipt and track payment.

Why filing deadlines matter

Taxpayers should always file their tax return on or before the due date and confirm with their tax return preparer that the return was timely filed.

This means obtaining a copy of the electronic receipt that the return preparer received after filing the return.

Many taxpayers fail to do this and assume that the accountant timely filed the return.  If, however, for some unexpected reason, the return was not timely filed (e.g., the return prepare mistakenly failed to transmit the return or the transmission did not go through), it may be difficult to avoid a late-filing penalty, even if the taxpayer relied upon the accountant to timely file the return.

There are separate penalties for failing to file AND for failing to pay.  Regardless of your current ability to pay, file the return and limit the penalties.

If you can’t pay

Given the unprecedented times, some taxpayers may simply lack the financial means to pay the taxes reported on the return by the due date.

There are options available for taxpayers in this situation, but the most crucial advice is to timely file the tax return by the due date to avoid the late filing penalty.

Once the return is timely filed, a taxpayer can choose a collection alternative, such as an installment agreement, offer in compromise, or currently not collectible status (financial hardship).

Other options may also exist, such as penalty relief, innocent spouse relief, and bankruptcy.  Taxpayers facing collection issues should retain competent tax counsel, who can review the facts of their case, explain the options, and formulate a workable strategy.

Coming soon

Changes to California state income tax deadlines

How to avoid the pain of tax penalties

Guest contributor San Jose attorney Steven L. Walker advises clients on tax controversies and litigation with the IRS, the FTB, and state & local taxing agencies. His clients bring him civil and criminal tax matters, including tax audits and appeals, litigation in U.S. Tax Court and federal district court, tax fraud, offshore/foreign tax compliance, and tax collection. He also advises clients on business matters.
Steven is an adjunct professor at the University of San Francisco School of Law in the LLM (Taxation) program, where he teaches Civil and Criminal Tax Penalties, and Bankruptcy Taxation. He is also a Fellow of the American College of Tax Counsel and a former IRS attorney with additional experience at the FTB Legal Division.  www.walk-law.com.

When You Can’t Pay Your Bills Because Of The Virus

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virus and money

 

The coronavirus has us locked at home where the  worry demons play unrestrained in our heads.

Money troubles cause us worry, in “good” times.  These are hardly good times.

As more and more of us are hit with shelter-in-place orders that keep us from work and our kids from school, we have even more time to worry about money.

And worry is debilitating.  In normal times, stress kills and the stress of COVID-19 dwarfs our usual worries.

I live and practice bankruptcy law in the San Francisco Bay Area: here,  we’ve been subject to social distancing, strategic shutdowns, and now, shelter-in-place orders for longer than most areas.

So here’s what I know and what I expect as a bankruptcy lawyer about the economic spillover from the fight against this virus.

Focus on the here and now

Staying safe and healthy right now is all that really matters.  Set aside issues of paying existing bills and long term commitments.  Those can wait.

Make food, medicine, and mental health your first concern.

If in doubt about your readiness for a jobless stretch, set aside, for the moment, payments on credit cards, medical bills, and student loans.

If possible, consider paying insurance premiums and car loans.

The very crisis that keeps you from your job keeps your creditors from their jobs, too.  While we’re still getting collection calls at my office, like most collector calls, they are toothless.

You are not alone

We see the usual money troubles as unique to ourselves:  shameful, defeating, personal.

Well hello, this time that isn’t so.  (It wasn’t so before, but that’s another rant.)  Millions of people in this country are facing the same situation.

Which is what feeds my expectation that government will craft remedies that mitigate the damage the country faces. And once those remedies start rolling out, we’ll all have opinions about the fairness and the adequacy of the remedy.

That grousing will give us something more to do.

But collectively, we all see the problem.  The problem is shared.  Your financial struggles will not stand out.

The help that’s coming

Lots of ideas are circulating about protecting families financially and pasting the economy back together.

California reopens signups for affordable health insurance

Right now, most of the solid action I see is at the state and local level.  Most pertinent for my clients, California state courts are closed except for the most essential health, safety and criminal issues.  So there’s not even a court available for creditors to sue you in.

For the longer haul, remedies under discussion include

  • Bans on evictions, foreclosures, and utility shutoffs
  • Restrictions on negative credit reporting
  • Mandated extensions of repayment on existing debt
  • Partial or total forgiveness of student loan debt
  • Low cost loans or grants for small businesses
  • Penalty-free late payment of income and employment taxes

Individual companies have offered free or reduced rate internet access; free online books and courses; on line exercise classes; and the list goes on.

Time will tell just what the collective remedies look like.  But, rest assured,  the crisis demands a fix.

And an election upcoming provides a feedback mechanism if the fix is slow, skimpy or spotty.

Law lumbers

In the best of times, legal actions take time.  So there is little immediate danger to you and yours in holding off payment on unsecured debts.  Don’t worry that the legal ax is about to fall if you miss a payment.

Law suits are expensive for the creditor and are typically the last resort of collectors.  Don’t fret that your unpaid bills will find you in court in the short run.  Where I am, the courts are barely open for much at all.

More concerning are the secured creditors with collection options that don’t require a judge’s involvement.  Think car repossessions and non judicial foreclosures.

If you can’t make your car payment, call AND write the lender and tell them how you are affected by the COVID-19 crisis and ask for relief.  I seriously doubt that, at the moment, creditors have a corporate answer to your request, but ask anyway.

And I never count on a phone call alone to make a record, much less make a difference to a creditor corporation.  Send a letter too and keep a copy.

I expect, but have not seen yet, a policy of tolerance on the part of car creditors.  What would they do with a fleet of repossessed cars? We can hope their repo guys are subject to stay at home orders, too.

As to foreclosures, there are glimmers of action to bar foreclosures while we are fighting the virus.  Residential lenders with loans guaranteed through Fannie Mae and Freddie Mac have been ordered to offer borrowers flexibility.  Stay tuned to see how that works out.

If your loan is not Fannie/Freddie, write the lender seeking relief, and stay watchful for developments.  Again, I don’t think lenders want to end up owning gobs of foreclosed homes.

Reach out and band together

It’s ironic that,  in a time when we’re told to practice social distancing, togetherness is critical.  It may be virtual togetherness, but it is good for our individual health and the strength of our communities.  Take care of your neighbors.

Stay strong, healthy, and hopeful.

More on the coronavirus crisis and money

Mortgage payments during the pandemic

Car payments while sheltering in place

Tax season postponed

California protects renters if…..

 

 

 

Mortgage Payments During California Shelter-in-Place

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mortgage in pandemic

Is my house at risk if I have no income due to coronavirus?

With economic activity at a dead halt due to COVID-19, California homeowners worry about next month’s mortgage payment.  And the month after that, for as far as the pandemic can see.

While it’s early days, and I fully expect broad governmental measures to protect homeownership, here’s what we know at present.

Federal protections from foreclosure

HUD has imposed a 60 day suspension of foreclosures and evictions on loans from the FHA.  Loans backed by Fannie Mae and Freddie Mac will also get a 60 day reprieve, with promises of further extensions if the circumstances require.

So, how do you know if Fannie or Freddie owns or guarantees your home loan.  There’s a tool, or rather two tools, for that.

Look up your loan.

Fannie: 

Freddie

Thus, California homeowners with existing foreclosure or eviction actions are protected for at least two months.  I fully expect that period will be extended.

Dealing with missed payments

What if  you were current when the shut-down was imposed but you can’t make next month’s payment?

What’s a loan servicer?

If  your loan is owned or guaranteed by Fannie or Freddie,  servicers have been directed to  offer flexible payments or a suspension of all payments for up to a year.

I anticipate federal regulations that will require servicers to offer loan modifications or payment extensions.  We can hope that the system has more teeth than the HAMP modifications following the Great Recession.

Not Fannie or Freddie?

It’s less clear, at this point, how lenders with loans that aren’t federally insured will proceed.

Early data suggests that lenders are prepared to be flexible.  We’ll have to wait to see if the federal government requires it some time down the road.

Check on line for the latest from your lender/servicer.

California 90 day grace period

Governor Newsom has reached agreement with 4 of the top five federally chartered banks who own or service home loans.  (Bank of America is the hold out.)

Two hundred state chartered banks and credit unions have joined the agreement

The banks agreed to waive mortgage payments for 3 month  regardless of income level.  No fees or penalties will accrue, and there will be no negative credit reporting.

Borrowers do have to document that their inability to make payments was traceable to the coronavirus.  Details on what kind of documentation is required varies among lenders.

For Californians, the most reassuring news is that California foreclosures take a long time.  While California foreclosures don’t involve the courts, the notice and cure periods mandate 4-6 months between the start of foreclosure and an actual foreclosure sale.

And the people who conduct foreclosure sales are in lock-down, too.

Write and call

For every debt that you can’t pay because of the shelter in place order, call the creditor to tell them how you are affected.  That’s what the creditors all say.

I say, follow up that call with a short letter repeating the facts of your situation.  Doesn’t have to be long or fancy.  Just get paper in the creditor’s hands.

Keep a copy for yourself.  Don’t count on the creditor to be able to file your letter and find it later.

Then you’ve made a record of your call and your situation.

Looking forward

I fully expect that we will see muscular, nationwide programs to keep people in their homes.  As a society, and an economy, no one benefits if masses of families lose their homes.

It will take time to work out just what those programs look like and how well they work.

But work it out we will.

Updated 3/30/2020

More

When you can’t pay your bills during pandemic

 

 

California Statute of Limitations Gets Teeth

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law has teeth

California law on debt collection finally has teeth.

Recent changes to California law say that a debt collector must allege that the statute of limitations has not run when it files a lawsuit.

No more suing on long-dead debt and winning unless the consumer files an answer and pleads the statute of limitations.

No more collectors relying on consumers being broke, scared, or ignorant of the legal facts about the timeliness of a lawsuit.

The timeliness of the lawsuit has gone from being matter of defense to an element of the cause of action.

Score one for consumers.

California statute of limitations on debt

The law on when you can sue someone on a contract, like a credit card, a medical bill, or a personal loan, lives in the Code of Civil Procedure.

AB 1526 added to the statute of limitations in § 337 the following:

(d) When the period in which an action must be commenced under this section has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Section 360.

Before the 2019 change

Used to be, a creditor was free to sue on a debt, even if the creditor knew that the four year California statute of limitations was long past.

The burden to assert the statute was on the defendant to raise the statute as an affirmative defense.

An affirmative defense operates to say, in the pleadings, that even if everything you claim is true, you don’t win because….

As a result, the issue of whether a debt was too old to be enforced through the courts was seldom considered by the judge because the consumer-defendant never filed an answer.

If no answer is filed, the judge effectively never considers the merits of the lawsuit.  The system assumes that if a lawsuit is defective, the defendant being sued will answer and point it out.

But that’s not how most collection actions go.  The overwhelming number of collection actions go to judgment by default, because the defendant never spoke up.

New law in action

As of now, Spring 2020, there don’t seem to be reported cases applying the new rule.

Over time, it will be worth looking at whether the number of collection actions goes down.  That may be hard to discern if we hit a period of further economic distress.

More

What to do when you are sued

All about California judgments

Will bankruptcy wipe out a judgment

 

 

 

Bankruptcy Questions Have Few Quick Answers

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The caller to my law office kept telling my assistant: I just want to ask  Cathy a question.

To which my assistant replied:  you need to first fill out our questionnaire and make an appointment.

But I don’t want a meeting, I just want to ask a question.

At which point, both sides of the call are frustrated.

The caller thinks he has a reasonable request.  The law office isn’t getting through to the caller that a quick answer isn’t possible.

And that’s because:  there are no quick answers to bankruptcy questions.

Or rather, there are no reliable quick answers about bankruptcy.

Bankruptcy answers depend on your facts

To provide an answer that is any good, a bankruptcy lawyer needs to get a bunch of facts about your situation.

Have you filed bankruptcy before?

Did you get a discharge?

How long have you lived in this district?  Where did you live before?

What do you own?  What’s the form of title?

How much money do you make?  How many people do you support?

Do you owe taxes or child support?

The list goes on.

A quick answer is risky

Good lawyering is about applying the law to the client’s facts.  Without facts, my advice is likely useless.

Or worse, dangerous.

It’s dangerous to the caller, because the answer, without all the facts, may not be right.

It’s dangerous to the lawyer, who has a legal responsibility to you to provide competent advice.  Even if the advice is free and even if you don’t hire the lawyer to represent you.

The undisclosed facts may lead to an entirely different conclusion.  And I don’t know the facts until I’ve asked a BUNCH of questions.

If I get it wrong, you may be able to sue me.

Legal advice online

Why you don’t want a bankruptcy lawyer who’ll fight for you

The importance of the facts is why relying on the internet for legal advice hold huge dangers.

Post a question to an online forum, and you select the facts that you think are important.  Or as much of the facts as you are willing to disclose in public.

Those facts may not be the ones that are critical to the answer.  And even if you provide good facts about some aspect of your situation, other facts may counteract the result.

Use the internet to get some legal education about bankruptcy as a whole.  Learn the bankruptcy vocabulary.  Figure out what documents a lawyer will need to provide good advice.

But take no action until you’ve laid those facts before a competent bankruptcy lawyer and answered a bunch of questions.

More

Questions to ask a bankruptcy lawyer

Free bankruptcy advice

Considering bankruptcy

 

 

Be Prepared When You File Bankruptcy Without Your Spouse

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The bankruptcy trustee’s question to the debtor was jarring:  “why didn’t your spouse file bankruptcy with you?”

For starters, it was the only “why” question in an entire calendar of debtor hearings.

Every other question began, “what”, or “do you have”, questions about assets and financial history.

This question asked for the motivation of another person, who isn’t here, and isn’t under oath.

As the debtor’s attorney, I stifled my inclination to say “what difference does WHY make”.  (Actually my first thought was much pithier than that, and probably not appropriate for an attorney to say in public).

So, let’s look at the single spouse filing, and guess “why” the trustee asked that question.

Spouses can file alone

It’s absolutely uncontroverted that both spouses don’t have to join in  bankruptcy filing.

Pro’s and con’s of filing without your spouse

The real deviation from the normal here is that a married couple can file a bankruptcy case together.  § 302.  

Just as importantly, spouses don’t have to file together.

Community property comes into bankruptcy

In a community property state like California, all of a married couple’s community property comes into the bankruptcy estate, even when only one spouse files.

That’s because all of the community property is liable for the debts of each spouse.  Outside of bankruptcy, husband’s creditors can reach all of the community property to pay his debts.

That doesn’t change in bankruptcy.

So, as a matter of law, the trustee’s question makes little sense:  regardless of the “why” the absent spouse didn’t file, the creditors still get access to the entirety of the community property.

Community property is poorly understood

The trustee may have tried, inartfully, to see if the debtor testifying before her understood community property.

Many Californians think, incorrectly, that buying an asset and putting it in one spouse’s name defeats the community property presumption.  That presumption says: all property acquired during marriage is presumed to be community property.

And that presumption carries the day, regardless of which spouse’s name appears on the title.

The community property presumption can be overcome by following the rules of transmutation.

So, a legitimate trustee question might be: does your spouse have any property that you haven’t listed in your bankruptcy schedules.  That might be a way to flush out whether there are assets missing from the schedules because the debtor thought the form of title prevailed over the community property presumption.

But asking “why” someone else acted a certain way is not a direct approach to the issue.

Some snark involved

In preparing clients for the first meeting of creditors, conducted by the trustee, I’ve offered clients a couple of possible responses to the “why” question.

Some of the possibilities include:

  • You’d have to ask him
  • Advice of counsel
  • Concern about future credit
  • Aversion to bankruptcy
  • No need of discharge

But whatever your response, your answer to “why” doesn’t undermine your right to file alone.

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Redwood City, CA 94063
Phone: (650) 694-4700

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