Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

What Debts Were Discharged In My Bankruptcy?

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After your bankruptcy, one of the hardest questions is figuring out just which debts were discharged.

Eliminating debts was the whole point of filing bankruptcy. You’ve got a court order, but no list.

You and your creditors understandably  expect to find a single document telling them what debts are no longer enforceable and which survive the bankruptcy.

No such luck.

Bankruptcy discharge order

The official form used by most bankruptcy courts merely states that the debtor is granted a discharge. The general information on the second page of the form suggests that you might need an attorney to understand the application of the discharge in a particular case.

That’s because, while the bankruptcy schedules require you to list all of your debts, not all of your debts are dischargeable.

Some debts automatically survive the bankruptcy filing.  Survivors include family support, recent taxes, and criminal restitution.

Debts a creditor can challenge

Other debts may be non dischargeable if the creditor challenges the dischargeability of its debt and wins at trial.

Student loans may be discharged only if the person filing bankruptcy brings an adversary proceeding to establish that repayment creates an undue hardship.

And then, liens generally survive as a charge on the debtor’s property but not a personal liability.

So, it’s complicated.

And the court doesn’t work out all the intricacies before issuing the discharge order.

Who was included in bankruptcy

The basic rule about discharging debts provides that debts are discharged unless there is a statutory exception to discharge listed in the Bankruptcy Code.

The concept of due process (and a provision of the Bankruptcy Code) says creditors get their debt discharged only if they get notice of the bankruptcy.

That’s why saving your bankruptcy papers is so on point.  The schedules and the mailing matrix in your case (and any amendments to them) show who was listed in your case.

Listed creditors are most likely discharged.

Californians get broader discharge

In California, where 9th Circuit decisions are controlling, the Beezley opinion (994 F.2d 1433 1993) tells us that even a creditor who wasn’t listed is discharged in a no asset bankruptcy.

The caveat is that if the creditor has a claim to non dischargeability because of the debtor’s bad acts, the claim survives until the creditor has a chance to challenge the discharge of his debt.

Beezley stands for the proposition that even creditors not listed are discharged in a no asset case.

If everything you owned when you filed bankruptcy was exempt or not worth the trustee’s time to administer, you don’t need to amend your bankruptcy schedules to add creditors that you forgot when you filed.  If there are no assets, they didn’t miss anything financial by being omitted.

Other circuits have similar case law, too.

When creditors call after bankruptcy

In this era of debt buyers and zombie debt, most debtors can expect to get a collection letter on a debt that was discharged in their bankruptcy.

Usually what it takes to make a zombie debt collector go away is a copy of the discharge order and a copy of the schedules showing that the original creditor was listed in the bankruptcy.

A creditor who sold off bad debt can’t give the buyer anything more than the seller had;  in this case, the creditor had an unenforceable debt.

So, save your bankruptcy documents. If giving the collector a copy of the schedules doesn’t make the creditor go away, contact a bankruptcy lawyer.

The bankruptcy court stands ready to sanction creditors who blow off the discharge order.

Enforcing the discharge

Can discharged debt come back

Maximize your bankruptcy discharge

Title Isn’t Everything: Watch Out For The Assets In Your Spouse’s Name

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community property surprise

But it belongs to my spouse, sputtered the hapless debtor at the bankruptcy hearing.

Not so, says the bankruptcy trustee.  It was purchased during marriage, wasn’t it?

And so, the trouble begins for those who don’t understand community property.

Turns out the debtor left out of his schedules the bank account in his wife’s name.  Ooops!

Which motivates a trustee to keep digging for what else was left out of the bankruptcy papers.  Not where you want to be.

Property character, community or separate, makes a difference because it determines what assets creditors of the spouses can reach.  And, it determines what property falls under the control of a bankruptcy trustee.

All of the community property of a marriage becomes property of the estate when one spouse files bankruptcy.

So the community or separate distinction matters not just in divorce, but it matters to those Californians who owe debts they can’t pay.

Property title doesn’t control

In a nutshell, if you are a married Californian, it doesn’t matter whose name is on the title.

  • Buy a car.
  • Buy a house.
  • Take out an insurance policy

No matter whose name is on the paper work, chances are it’s still community property of you and your spouse.

Because “stuff” acquired during marriage is presumed to be community property under California law.

A presumption in law means  legal inference that must be made in light of certain facts.  Most presumptions are rebuttable, meaning that they are rejected if proven to be false or at least thrown into sufficient doubt by the evidence.  

The legal inference that acquisitions during marriage are community can be rebutted with sufficient and convincing evidence.  But absent such evidence, the presumption of community stands.

So, the house bought during marriage whose title reads Jane Spouse is community property, not Jane’s separate property.  That means that Jim Spouse’s creditors can reach it to pay Jim’s debts.

Magic words make a difference

The words in the title documents can themselves be evidence of an asset’s character.

If you want an asset acquired during marriage to be the separate property of one spouse, the first step in overcoming the presumption of community is to take title like this:

Jane Spouse, a married woman as her sole and separate property

But courts have made it more difficult, because what if Jane buys something using community property and takes title as her separate property.  Maybe she’s trying to cheat her spouse out of his share of the community that was used to buy the asset.  If she bought it, how does a creditor or a bankruptcy trustee know that Jim Spouse agrees that it’s hers alone?

Changing the character of an asset is called transmutation.  California law requires transmutation to be accomplished in a writing, signed by both spouses.  Then others know that the deviation from the usual is OK with Jim.

Prenuptial agreement can kill community property

An agreement between the spouses made before marriage (a “prenuptial” agreement) defeats the presumption.

A prenuptial agreement often says “we won’t have community property”.  The agreement lays out who is the owner of each kind of asset.  It may reject the legal cases that give the community an interest in property that either spouse brings to the marriage.

Because a properly drafted prenuptial agreement is in writing and signed by the spouses, it passes muster to rebut the presumption of community property.

Then, title plus the prenuptial beats the community property presumption.

Image courtesy of Flickr  & Nathan Pilkington 

 

Do You Need To Reaffirm Your Home Loan After Bankruptcy?

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refinance after bankruptcy

Banks, most especially Wells Fargo, seem to relish denying refinance applications for debtors who’ve gotten a bankruptcy discharge.

You didn’t reaffirm your existing home loan, so we can’t refinance that debt

Sometimes, the dig is even more painful (to me at least):  your attorney didn’t do this right so you are screwed.

As is often the case, the bank’s claim is unfounded in the law and even in its own lending standards.  Not to mention that none of the judges I practice before would approve the reaffirmation of a home loan even if I sought it for a client.

But that doesn’t stop the banks.

Let’s piece together the  truth about home loans after discharge.

Mortgage lien survives discharge

A basic rule in bankruptcy is that liens survive the bankruptcy discharge.  Put another way, the discharge wipes out your personal liability for a secured debt, but doesn’t alter the lien.

Procedures exist in bankruptcy to alter some liens, but it requires a separate motion, with service on the creditor to be affected.

So, the only way the bank’s claim is affected by the bankruptcy discharge is that it can’t sue you for the debt;  it can still foreclose on your home if you don’t pay.

Judges can nix reaffirmation

Reaffirmation amounts to waiving the bankruptcy discharge as to a particular debt.  Because of the possibilities of creditor overreaching, reaffirmation agreements are subject to a veto by the bankruptcy judge in the case.

If the reaffirmation agreement presents a hardship to the debtor, or it is unclear how the debtor can pay the debt to be reaffirmed, the judge can decline to approve it.

In many jurisdictions, including the Northern District of California where Moran Law Group practices, judges will not approve a reaffirmation of a home mortgage.  So even if a debtor proposed to reaffirm a home loan, it wouldn’t be allowed.

Rejection is simply bank policy

If you are turned down for a refinance on your home loan, it’s strictly because the bank has decided that’s how it wants to do business.  Nothing in the law prevents a secured lender from pocketing your mortgage payments after bankruptcy nor from modifying the loan or replacing it with a new loan.

I’m not even certain that rejection without a reaff is bank policy. I confronted a bank lawyer at a bankruptcy seminar and he flatly denied that the bank required reaffirmation as a condition of doing further loan business.  His advice was to take the matter up the chain of command in the bank.

Lots of fish in the sea

My advice is to take your business elsewhere.  There are lots of lenders out there. Find one that is eager for your business.

The practical challenge becomes proving up your post bankruptcy payment history to a new lender.  The old lender may not be reporting your payments to the credit bureaus for fear of violating the discharge injunction.

Credit reports aren’t the only way to show you’re current.  Gather up proof of payments in the form of canceled checks or bank records.  Get a payment history from the current lender through a request for information.  Go to a prospective new lender with paper proof of payment.

Consider that your existing lender may not want to refinance your loan because it has a higher interest rate than the current market rate.  They just don’t want to let you legally pay less for housing.

Clearly a crock in California

The bank’s excuse for not refinancing is a pure fantasy under California law.  Two state laws essentially eliminate a California borrower’s personal liability for a loan secured by his home.

California has an anti deficiency provision which prohibits the lender from getting a judgment against the borrower for any amount of  a purchase money home loan not repaid.

Secondly, use of the power of sale, found in the deed of trust which creates the lien, precludes a judgment for any deficiency.  When the lender uses the expedited procedures under the power of sale, they elect the foreclosure as the exclusive collection device.

So, under the typical California home loan transaction, the borrower has no personal liability for the loan, anyway.

Don’t buy the excuse

It seems to me that many banks have an interest in making the lives of bankruptcy debtors difficult.  As an institution, they don’t want consumers to get out of debt;  debt is, after all, how they make their money.

Understand their game and use your payment history and the competitive nature of lending to get what you need.

More

Who to pay after bankruptcy

Extracting information from your mortgage lender

Reaffirming a car loan

How Long Til Foreclosure?

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when will foreclosure happen?Everyone who has made the painful decision to let an unaffordable house go to foreclosure wants to know how long before they have to get out. While the statutory foreclosure process in California takes a little more than 4 months, if the the creditor is perfectly efficient, creditors aren’t perfectly efficient, and often seem to be deliberately dilatory. The foreclosure process stretches out. But how long?

I got a good data point today from a client in a pending Chapter 13 filed late in 2009. The client has not made a payment in 17 months. The confirmed Chapter 13 plan provides that the debtor will surrender the house and grants the creditor relief from stay. The lender just denied a loan modification. And the creditor has not yet taken the first, legally mandated step in the foreclosure process!

So, even if the lender starts foreclosure tomorrow, it will be September, almost two years from the filing of the bankruptcy case before title to the house changes hands. And I am fairly confident that the lender will not initiate foreclosure proceeding immediately, and even more confident that they will not be perfectly efficient in doing so.

The future is not predictable, and what is true today may not be true tomorrow, but it is clear that lenders are not in a hurry to own more California real estate.

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

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