Debt Forgiveness Plan

Do you have very old debt lingering on your credit report?  In California, if it has been more than four years since you first became delinquent; i.e., iStock_000044144728Smallmissed a payment, then the debt collector can no longer sue you to collect on that debt.  HOWEVER, that doesn’t mean that the debt is forgiven, or that the debt is not owed. Under both the Fair Debt Collections Practices Act and the Fair Credit Reporting Act, debt collectors can continue to collect the debt owed long after the statute of limitations (the time period a debt collector has to sue on a debt owed) has expired.  In fact, that collection can remain on your credit report for seven (7) years after you first became delinquent.

I agree with Liz Weston’s ( answer in her recent column where she explains, “. . .there’s no forgiveness for most debt. It’s legally owed until it’s paid, settled or wiped out in bankruptcy.” I see clients who want to move on with their financial lives and buy a home or car, but are declined due to these pesky old debts that linger on their credit reports.  Even though many of them are old and the creditor can no longer sue, the consumer still owes the debt and the collection sits on their credit report.  So, what plan is there for debt forgiveness?

The answer is always; it depends.  Every situation is different.  Time and timing are the most important factor in deciding a course of action.  If you’re like most folks these days, you live in the instant gratification age and want results NOW!  If you’re being sued, or have far too many credit lines in collections, then time may not be your friend. Unfortunately, quick results come at a price that likely includes filing bankruptcy.  Otherwise, if you can wait for time to pass, a full seven (7) years later, your credit report should be clear of the negative items.

Bankruptcy Lawyer Publishes Book to Help Consumers Become Debt Free


The book, 5 Steps to Freedom From Debt, published on Amazon on August 29, 2014 promises to deliver a simple system that anyone can follow to make the right choice to eliminate uncontrolled debt. It is essentially my consultation in an expanded version and in writing.  In this book I provide the process I take with prospective clients and boil it down to fit their individual financial goals.  While getting free from debt is a very individual path, there are only a few effective ways to get there.  I believe that all options must be considered before taking action.

As an advocate for a debt free America, I felt it was time to write the book on the options people have when it comes to effectively dealing with debt.  In five steps, you too, can become debt free. Here are the steps:

1.  Know Your Numbers

2.  Set Up Your Financial Goals

3.  Explore All Your Options For Getting Out of Debt

4.  Consult with Your Professionals

5.  Make a Well Informed Decision

The sooner you take action and consult with professionals like a bankruptcy lawyer and your accountant, for example, the more options you will have in getting out of debt.  Another important point is to make a decision from all available information because financial mistakes have a compound effect on your future and retirement. The book is available now on Amazon.  Christine A. Wilton, Esq. is only licensed to practice law in California and cannot provide debt relief outside the state.

Private Student Loan Taken For Struggling Addict Entitled To Bankruptcy Discharge

I’ve been quietly at work on a book for lawyers on effective ways of helping clients with both federal and private student loans, Discharging Student Loans in Bankruptcy.  Lately, I’ve been running up against National Collegiate Student Loan Trust and their California attorneys at Patenaude & Felix.  I am working with clients in both state court and bankruptcy court to sift through the issues presented by the alleged creditor and whether they have a right to collect a debt, if any, they believe my clients owe.  I assert they have no right to collect; and I’ll tell you why I believe it.

On the surface, many lawyers and much of the media commentary on student loans explains they are nearly impossible to discharge in bankruptcy because of the debtor generally must prove Undue Hardship by suing his/her lender under 11 U.S.C. 523(a)(8). I’m going below the surface of Undue Hardship and looking into the Limitations on Exception to Discharge of Private Student Loans. From this article, I am looking at loans that are NOT qualified education loans:

Some of the more common ways in which an education loan may fail to satisfy the requirements
of a qualified education loan include:
1. Use at a college that is not a Title IV institution (i.e., a college that is subject to a program participation agreement under 20 USC 1087ll).
2. Use for costs not included within the definition of cost of attendance or in excess of the expected family contribution (or cost of attendance minus aid received).
3. Use for study abroad not approved for credit by the home institution.
4. Use for rental or purchase of equipment, materials or supplies that are not required by the institution.
5. Use for purchase of a computer without obtaining an adjustment to cost of attendance from the college for the cost of the computer.
6. Use for a previous year’s school charges.

So, if you are among the many parents who have taken loans to help your child struggling with addiction, then these loans MAY be discharged in bankruptcy!  If you decide not to file for bankruptcy and National Collegiate sues you, there may be other defenses. It’s important to consult with an attorney that understands collections defenses, student loans, securitization to create a strategy that is right for you.

Ninth Circuit Appellate Panel Overturns the BAP; Approves Wells Fargo Freeze Policy

We have been following the Mwangi case since 2010 when we first heard of Wells Fargo placing a “temporary administrative pledge,” known as a “freeze” on a debtor’s bank account after it discovered that they had filed bankruptcy. You can read the first article here and the follow up article here.


After filing for bankruptcy, the debtor’s bank accounts held at Wells Fargo Bank, N.A. froze the accounts.  Each night, Wells Fargo combs their system for all newly filed Chapter 7 bankruptcy cases that match up with their account holders and places a, “temporary administrative pledge,” on the accounts. Wells Fargo believed, and I agree, that the money held in the bank accounts became property of the bankrupt estate upon filing of the case.

The Issue

Whether Wells Fargo violated the Automatic Stay provisions of 11 U.S.C. 362 when it froze the debtor’s bank accounts after they filed for bankruptcy.

Stay Not Violated By Wells Fargo Says Ninth Circuit

Stay Not Violated By Wells Fargo Says Ninth Circuit

Procedural History

Debtors filed a motion in the bankruptcy court seeking sanctions pursuant to 11 U.S.C. § 362(k) against Wells Fargo, based on Wells Fargo’s alleged intentional violation of the automatic stay provisions in §§ 362(a)(3) and (a)(6). The bankruptcy court denied this motion, concluding that Wells Fargo could not have violated the automatic stay because (1) the automatic stay applies only to property of the bankruptcy estate, and exempt property never becomes estate property; and (2) Wells Fargo took no action to collect, assess, or recover any prepetition claim against the Debtors.

The Debtors appealed to the Bankruptcy Appellate Panel (“BAP”), which reversed the bankruptcy court. Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi I), 432 B.R. 812, 816 (9th Cir. BAP 2010). First, the BAP rejected Wells Fargo’s argument that the Supreme Court’s decision in Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995), authorizes Wells Fargo’s policy of “temporary administrative pledges.” According to the BAP, Strumpf authorizes a bank to impose a temporary administrative hold only to preserve setoff rights, and in this case, Wells Fargo denied any intent to protect setoff rights. In re Mwangi I, 432 B.R. at 820. Second, the
BAP found that the Debtors had an inchoate interest in the account funds, which remained part of the bankruptcy estate. Id. at 820–21. Third, the BAP held that 11 U.S.C. § 522’s right to claim exemptions in estate property bestows standing on debtors to pursue sanctions for violations of § 362’s automatic stay provisions. Id. at 822–23. Fourth, the BAP held that Wells Fargo had violated 11 U.S.C. § 362(a)(3) by exercising control over estate property. Id. at 823–24. The BAP reasoned that the turnover provisions of the Bankruptcy Code are self-effectuating and that the Debtors were not required to take any action to ripen their interest in the account funds before asserting a violation of § 362’s automatic stay provisions. Id. at 824. Finally, the BAP remanded the case to the bankruptcy court to determine whether Wells Fargo’s retention of the account funds was reasonable and, if not, whether the Debtors had suffered damages. Id. at 825.

This case moved from the Bankruptcy Court, Bankruptcy Appellate Panel, then to the District Court, only to jump to its death in the Ninth Circuit on appeal.


The panel held that the debtors could not state a claim for willful violation of the automatic stay provision of 11 U.S.C. § 362(a)(3), which proscribes “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” You can read the entire court opinion here.

Moral of the Story

  • Don’t bank where you owe money!
  • If you bank at Wells Fargo, move your money BEFORE you file for bankruptcy!
  • Always consult with several attorneys BEFORE you hire them because not all attorneys know. 
  • Other banks may start freezing bank accounts.

When Life Gives You Lemons: OC Edition

From religion to politics; housing, transportation and food, the epic failures of the economic recession have delivered some real big lemons to the OC [Orange County]. No sector of the economy was left untouched and so many lives have been impacted in this recent wave of sour fruit. In July, the OC Metro Magazine’s (@OCMetro) article entitled, Orange County’s Biggest Lemons highlighted some of the OC’s hellacious failures and explained, “what we learn from failure is often the most important business lesson of all.” I say that it is the hard times that shape us all.  As the Kelly Clarkson song goes, “What doesn’t kill you makes you Stronger,” and I agree.

Make lemonade out of life's lemons

Make lemonade out of life’s lemons

I focus here on the personal lessons that mirror the financial failures my clients face because it’s only a matter of time when a case of lemons is likely to show up on your doorstep.  When it does, what will you do with all those lemons?  Will you delay making any decision and end up with a case of rotten lemons?, or, will you take immediate action to squeeze them all by hand, add sugar and water and enjoy the fruits of your labor when there is lemonade?

Financial mismanagement and family infighting caused the collapse of the Crystal Cathedral dynasty built by Dr. Robert Schuller.  Who doesn’t have family infighting?  Don’t pass on your incredibly successful business to your children, unless they are ready to take over and build upon your success.  The family finance lesson is that the entire family must be on board with a financial plan or you’ll end up with a saboteur in your midst who might sink the ship!  I like to include both spouses in talks about bankruptcy and debt relief because when everyone is on the same page, success happens faster.

The OC Metro article highlights some of the biggest bankruptcies our nation has ever seen and the it seems that the epicenter of the mortgage meltdown happened in Irvine, California where many of the mortgage brokerage houses enjoyed the ride up. We are left with the biggest lesson of all.  There are no ‘get rich quick’ schemes.

Lessons to live by

  1. Live on less what what you make
  2. Save cash for emergencies, not credit cards
  3. Save for retirement and NEVER borrow from it
  4. Don’t tap the equity in your home
  5. Use what you have before you buy more

A Medical Bankruptcy May Soon Discharge Student Loans

Cited as the Medical Bankruptcy Fairness Act of 2014, S.2471 is a Bill recently introduced in the Senate, June 12, 2014. The iStock_000011906030Smallproposed Bill would Amend the Bankruptcy Code to include definitions for a “medically distressed debtor” and allow a discharge of their student loan debt without the current requirement of filing an adversary proceeding to prove Undue Hardship. The “new” legislation would help those who have incurred medical debts during the three (3) years before filing bankruptcy that is greater than 10% of their adjusted gross income or $10,000; and received no domestic or family support; or which caused a reduction in income or unemployment.

The only other way to discharge federal student loans is through an administrative discharge, which requires a total and permanent disability.  The bankruptcy requirement would be a lesser burden on debtors with medical issues, but who are not totally and permanently disabled. Also, the Bankruptcy Code would include both federal and private student loans, unlike the federal administrative discharge.  Once again, bankruptcy may provide a more complete solution to debt problems.

Given the volume of potential cases I am presently consulting on where the potential debtors possess very strong cases supporting Undue Hardship.  However, these potential clients lack the financial resources to hire me to represent them in litigation against their lenders to prove their cases.  The passing of this Bill would lift an enormous burden off the backs of these clients who have suffered personally, financially; remain a burden on family, friends and the community; and who deserve a Fresh Start.

Supreme Court Bankruptcy Trilogy & Bankruptcy Judge’s Inferiority Complex

In the Beginning

In Stern v. Marshall,131 S. Ct. 2594 (2011), this Court held that Article III of the United States Constitution precludes Congress from assigning certain “core” bankruptcy proceedings involving private state law rights to adjudication by non-Article III bankruptcy judges. Applying Stern, the court of appeals for the Ninth Circuit held that a fraudulent conveyance action is subject to Article III. The court further held, in conflict with the Sixth Circuit, that the Article III problem had been waived by petitioner’s litigation conduct, which the court of appeals construed as implied consent to entry of final judgment by the bankruptcy court. The court of appeals also held, in conflict with the Seventh Circuit, that a bankruptcy court may issue proposed findings of fact and conclusions of law, subject to a district court’s de novo review, in “core” bankruptcy proceedings where Article III precludes the bankruptcy court from entering final judgment. The court of appeals’ decision presented the following questions, about which there is considerable confusion in the lower courts in the wake of Stern:
  1. Whether Article III permits the exercise of the judicial power of the United States by bankruptcy courts on the basis of litigant consent, and, if so, whether “implied consent” based on a litigant’s conduct, where the statutory scheme provides the litigant no notice that its consent is required, is sufficient to satisfy Article III.
  2. Whether a bankruptcy judge may submit proposed findings of fact and conclusions of law for de novo review by a district court in a “core” proceeding under 28 U.S.C. 157(b).

In The Middle

In Executive Benefits Insurance Agency v. Arkinson, 573 U.S. ___ (June, 2014) (In re Bellingham) the Court held, “[W]hen a bankruptcy court is presented with such a claim, the property court is to issue proposed findings of fact and conclusions of law. The district court will then review the claim de novo and enter judgment. This approach accords with the bankruptcy statute and does not implicate the constitutional defect identified by Stern.” Read more about the issues Here. The Court passed on the ‘consent’ issue because even if the Bankruptcy Court’s entry of judgment was invalid, the District Court’s de novo review and entry of its own final judgment cured any error, eliminating any issue on consent. Just call it ‘judicial efficiency.’

little wizardOur judges are taking these issues very seriously on the grounds that they could either clear or determine matters pending before their court.  In federal court, Constitutional Article III judges receive lifetime tenure.  The Constitution allows them to create inferior judicial officers, which gave us both Magistrate and Bankruptcy judges.  The magnitude of these decisions with the fallout of Stern is nothing short of monumental in terms of potentially undermining the bankruptcy system as we know it. We have Article III federal judges needing additional courtroom space, so they stake their claim in the current bankruptcy courtrooms.  At the foundation are federal budget concerns that loom and ultimately impact the federal judiciary with bankruptcy courts experiencing more severe cuts as the economy improves and bankruptcy filings shrink.

In the End

Next up, Wellness Int’l Net-Work, Ltd. v. Sharif, 727 F.ed 751 (7th Cir. 2013), which was decided while Bellingham was pending. “Wellness is Nutty,” said Prof. John Pottow at Central District Consumer Bankruptcy Attorney Association’s (CDCBAA) First Annual James T. King Bankruptcy Symposium entitled In re Bellingham:  From the Insiders.  Prof. John Pottow of University of Michigan School of Law presented along with Hon. Richard Paez, Ninth Cir. Court of Appeals; and Hon. Meridith Jury, U.S. Bankruptcy Court, Riverside Divsion and B.A.P. Panel Judge with Jon Hayes, President of CDCBAA and of the firm Simon Resnik Hayes, LLC.

The Court granted certiorari and will hear the issues of (1) Whether the Bankruptcy court has the statutory power, under Section 157, to enter final judgment where the plaintiff is seeking a ruling that the debtor is the alter ego of a trust, i.e., is it a cor matter?; and (2) Can the parties consent to entry of final judgment here, i.e., can the right to require an Article III court to hear the matter be waived?

The issues here look to be very narrow, if the Court were to opine solely as they relate to this case.  This would leave us with the lower courts to continue to wind through varying interpretations as they arise.  Where do you think these issues are headed?

Are Inherited IRAs Protected From Bankruptcy Creditors?

The Supreme Court unanimously held in Clark v. Rameker, 573 U.S. ___ (2014),  that retirement funds inherited by a beneficiary from the original plan participant are not considered ‘retirement funds’ within the meaning of the federal bankruptcy exemptions found at 11 U.S.C. 522(b)(3)(c).  As a result, the bankruptcy trustee may consider the inherited IRA to be an available asset of the bankrupt estate to satisfy creditor claims. The financial and estate planning communities are scrambling to provide critical warnings to their clients, “safeguard your IRAs!.” My colleague and estate planning lawyer, Anna Serrambana, Esq. suggests IRA owners may want to reconsider their beneficiary designations. Despite the added cost and complexity, leaving your IRA to a trust can be a safe move.

Three reasons were given for denying that beneficiaries hold protected retirement funds.

First, an IRA beneficiary who inherits can’t make additional contributions to that account. Qualified individuals can put money into retirement accounts such as traditional IRAs and Roth IRAs. Tax breaks encourage such outlays. But inherited IRAs are only for withdrawals.

Second, beneficiaries must take minimum distributions and pay any resulting tax, regardless of age. “Even a 5-year-old IRA beneficiary, who certainly isn’t retired, must withdraw something,” Slott said.

Third, the 10% early withdrawal penalty doesn’t apply to inherited IRAs. Unless certain exceptions are met, withdrawals from traditional and Roth IRAs before age 59-1/2 will lead to fines.

“Nothing about the inherited IRA’s legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete,” the Supreme Court noted in its opinion.

Read more:

From a bankruptcy standpoint, I advocate to protect my client’s assets while eliminating debt, to the fullest extent to the Bankruptcy Code.  Timing and planning are our most powerful tools when it comes to eliminating debt for clients.  With these changes, my advice includes filing bankruptcy long before there is even a remote chance to inherit any significant amount of money, greater than the current ‘wildcard’ exemption here in California, which is $22,500.00. In addition to timing and planning, it remains more critical to consult with an experienced bankruptcy lawyer who understands the subtle nuances of the Bankruptcy Code.  An inheritance can also be disclaimed, but this too, requires accurate timing.

How To Buy a Car Before or After Bankruptcy

Whether you’re buying a new or used car, the advice of Jerry Hirsch (@LaTimesJerry) in his article, The Keys to Car Buying Success, provides a step by step guide to getting the best deal.  From a pre-bankruptcy planning step or even after bankruptcy, a little planning can save you thousands. I recently bought a newer car (#protip I never buy NEW cars) and I intuitively followed Jerry’s guide because I’m always on the lookout for the best deal.

Research and time are the foundational keys to getting the best deal. I’ll add that I found a website that told be Car Buyingwhether I was getting a bargain, CarGurus. Use this site to search out the car you’re looking for and you’ll see the best deals.  Another tip is to expand your search because you never know whether your best deal is in your town or not too far away that you can’t just take a drive.  I found my car in Escondido and saved thousands taking a short drive. Your research knowledge must include the cost of maintenance, repairs, insurance and registration costs for the car because you have to include these into your budget so that you know exactly what you can afford. Check with your insurance company for a few insurance quotes before you buy that car so you’re not shocked about this mandatory expense.

If you need financing, get approved before you start shopping.  You can also shop for the best interest rates too.  Usually, a credit union will give you the best interest rate whether you have great credit or not.  Don’t worry if you just completed a bankruptcy case, there will be offers in the mail to finance a car, but don’t accept them.  Instead, research and then selectively apply where lowest interest rates are found.

What Do Minivans have in Common with Bankruptcy?

Sophisticated women hate minivans, but it’s a car, not a lifestyle statement. A minivan is transportation; a vehicle just like an SUV, but maybe with better gas mileage.  It doesn’t matter though that the minivan is durable, cost effective or fuel efficient.  A minivan tells the story to the world that you’re a #madmominaminivan or that you’re a #taxidriver hauling around #soccorkids all day. Think of all the stories told about minivans and then consider the practicality of the car and the reality of what it really is; transportation.

Bankruptcy, like the minivan also tells a story.  The story bankruptcy may tell is that you are broke, don’t manage money very well; or, that you’re a deadbeat for not paying your bills. It’s an emotionally charged word that delivers a powerful punch of shame and guilt with the scarlet letter pinned to your financial statements and your credit score. Instead of looking at bankruptcy as if it were transportation that gets you from point A to point B in a practical way, most folks will run from it because of the lifestyle statements made by others and the story told. But did you know?

Law Office of Christine A. Wilton proudly uses Dave Ramsey's Debtor Education Course For Her Clients.

Law Office of Christine A. Wilton proudly uses Dave Ramsey’s Debtor Education Course For Her Clients.

Dave Ramsey (@daveramsey) filed for bankruptcy before he became famous for helping people get out of debt without filing for bankruptcy. Celebrities like Walt Disney, MC Hammer, Mike Tyson, Anna Nicole Smith, and Abraham Lincoln? Many who have survived bankruptcy went on to become wildly successful. The reason for their success may very well be that they freed up their cash flow by eliminating their debt quickly and moved on with their ideas.

Getting out of debt quickly is the power behind the bankruptcy vehicle. You can be debt free in as little as six (6) months to five (5) years and take your future earnings and put them to work to build a better future for yourself, your family and your community.  A practical and economical approach to debt elimination requires a look at bankruptcy from another perspective, setting aside the stories lies being told.