Los Angeles Bankruptcy Law Monitor

Los Angeles Bankruptcy Law Monitor

Protecting your rights when you need it most.

Debt Collection Tricks Exposed By the Courts

Posted in Bankruptcy Law Overview, Chapter 13, Debt Collections

The recent case of McMahon v. LVNV Funding et al, 2014 U.S. App. LEXIS 4592 (7th Cir., 2014) held that a letter from a non-attorney debt collector on a time barred debt was false, deceptive and misleading because it used the word “settlement.”  “Settlement,” the court reasoned, implied a threat of litigation, even though the letter made did not contain an express threat.

DebtCollectorIronically, and I point out that in the first sentence of this article is “time barred,” which is a legal premise that the underlying debt owed CANNOT BE COLLECTED.  The court’s premise in this case is that it is a false and deceptive practice to COLLECT ON TIME BARRED DEBTS.  The collections industry needs to quit trying to collect on old “bad” debt and quit complaining about getting slapped around by the courts when they do.

CREDIT SLAVERY  is alive and well when creditors engage in unfair and deceptive practices by trying to collect on a debt long after the statute of limitations allows.  Statutes of limitations on debt collections are state laws that set a time limit for debt collectors to file suit or otherwise legally collect on a debt.  In California, the statute of limitations is four (4) years on a written contract.  If the borrower makes even the smallest payment of $1.00, the clock starts all over again and the creditor gets another four (4) years. That’s why they’ll ask for even the smallest of payments!

The debt collection industry relies on consumer’s lack of knowledge of the laws and guilt over not paying their debts.  The law puts a limit on the amount of time creditors can collect on debts owed.  I recently had two creditors in one of my client’s cases, file claims to be paid on debts from 1999!  Silly debt collectors, tricks are for kids!

Debt Is Holding You Back From Wealth

Posted in Bankruptcy Law Overview, Chapter 13, Debt Collections, Foreclosure, Modifications, Short Sales

You cannot spend your way to wealth, unless it’s a debt elimination plan. If there was a magic pill to getting rich, you would think that Magic Pill Potionmore people would be taking it, but that simply isn’t the truth.  The truth is that most people have and hold very high moral values and want to fulfill on their obligations in life.  The “magic pill” is sheer determination, hard work and time to live debt free and build wealth. I know a few millionaires, and I know what financial sacrifices they have made to grow financially.  One friend lives in a house that is fully paid for because he worked two jobs, never refinanced the house and stayed focused long enough to pay it off early and he’s not even 50 years old.  Another started his retirement plan at age 19.  He’s over 40 now and has amassed more than the average retirement account, and then some.  So don’t tell me that it can’t be done.

If you want something bad enough, you will have it.  Every time I look at a potential client’s financial picture, I am evaluating their options.  Do they have enough income to repay some or all of their debts?  If so, will they be able to obtain freedom from debt within say, five years?

These are important questions because I can help clients with their long term debt problems under Chapter 13 bankruptcy protection with a court ordered payment plan. A debt repayment bankruptcy fulfills on the moral need to repay the debt and provides a controlled environment where the client makes payments they can afford, while living within a manageable budget.  We solve income tax problems, student loan debt problems, mortgage problems and can even support them in saving for retirement.  Essentially, we reorganize their financial house to regain control and begin to create a future again.

The Curse Of The Red Queen

Posted in Bankruptcy Law Overview, Debt Collections, Family Law and Bankruptcy

Are you really in control of your financial future?  Every turn the economy takes, anywhere on the planet, changes your financial future.  The game is always changing; it’s evolutionary.  There’s an evolutionary paradox called the curse of the Red Queen that states, “What worked yesterday is unlikely to work today.” Another way to put it is you cannot continue to do the same thing and expect a different result, which is the definition of insanity. 

Alice in Wonderland, 2014

Alice in Wonderland, 2014

When Alice was playing chess in Wonderland, the Red Queen kept changing the game whenever she moved. The same thing occurs in the financial world. The financial crisis of 2008 brought on by the housing crisis, nearly crippled our economy and had a ripple effect worldwide. So, what can you do to create your own financial future in spite of a constant changing world? Create stability.

Start by working to create a stable income.  Then, working with a budget, live on less than the amount that income provides after taxes.  Sure, we all had to downsize and that’s what is needed.  Do more with less and get by with a little help from our friends, as the song goes.  Seeking relief from debts, whether it be through paying them off or filing for bankruptcy protection, is the first step toward a financially stable future. After that, staying out of debt should remain a priority.

Student Loan Business Profits Buys Sallie Mae CEO A Golf Course

Posted in Chapter 7, Student Loans & Bankruptcy

According to this article, the CEO of Sallie Mae has made so much money from the student loan business that he owns his very own golf course!  The article is entitled, Student Loans — Do Criminals Have More Rights? by attorney Richard Gaudreau is rich with information and powerful links, including this one, A history of Student Loan Bankruptcy Exception.  It’s important to see the history of how student loans became increasingly difficult to discharge in bankruptcy because some of this debt is likely to be noncollectable, due to its age.

I agree with the advice given by Mr. Gaudreau with regards to being a savvy student loan borrower.  It’s important to understand the flickrjjenniferelysedifference between a federal and private student loan, and subsidized versus unsubsidized loans. Borrow as little as possible to keep the debt down is my Number One piece of advice.

I think criminals do enjoy more rights under the law than student loan borrowers.  You know what else I think?  I think that capitalism is alive and well, now stealing America’s future by commercializing education. It all starts with a bright idea by our federal government that everyone should be entitled to an education, even if they cannot afford it.  Next, private lenders are allowed to issue federally guaranteed student loans.  With little risk to the lenders, loans are handed out like Halloween candy.  Then, the colleges and universities jump on the bandwagon for this money by increasing tuition costs faster than you can say, “Shit!”

We are left with student loan debt exceeding credit card debt in the U.S. that is now more than $1 Trillion Dollars!  Private for profit colleges are now being investigated for their use of federal student loan funds, known as Title IV funding and not providing the education or failing to monitor the federal requirements to be entitled to such funds.  The most troubling to me is that recent graduates are not finding jobs and even if they are, the pay is not enough to repay the loans.  Where do we go from here?

Private Students Loan Collections Are Time Barred

Posted in Debt Collections, Student Loans & Bankruptcy, Uncategorized

I hope that you’ve heard by now that there are repayment options for federal student loans such as the “income sensitive” repayment programs, or administrative discharge for those that qualify.  You’re also likely to be frustrated by the lack of options when it comes to repaying private student loans.  But did you know that creditors only have a limited time to collect on private student loans?  Good news!

It’s called a Statute of Limitations (or as I like to call it, “S.O.L.“).  The legal dictionary provides, “Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. These statutes, which apply to both civil and criminal actions, are designed to prevent fraudulent and stale claims from arising after all evidence has been lost or after the facts have become obscure through the passage of time or the defective memory, death, or disappearance of witnesses.” Many collections statutes are provided through state law.  In California, we find the law in Cal. C. Civ. P. §337, which provides a four year statute of limitations on the collection of debts arising from a contract.

The only problem with student loans is that they are often executed by a promissory note, which falls under a different set of laws. If the agreement constitutes a “promissory note,” then a six-year statute of limitations may apply. See Education Res. Inst., Inc. v. Yokoyama, 2008 WL 390684 (Cal. Ct. App. Aug. 26, 2008). So what does all this mean when collectors come calling to collect on a private student loan?  It means that if it’s been more than four or six years since you’ve made a payment on the loans, it’s likely you are not legally obligated to pay that debt.  Consult with an attorney to be certain and you may be entitled to compensation under the Fair Debt Collections Practices Act.

Missed Trustee Payments In Chapter 13

Posted in Chapter 13

Sitting in court during Chapter 13 motion hearings always provides news and updates to how our court responds to issues that arise Bankruptcy Courtduring these cases.  As a reminder, a Chapter 13 bankruptcy case is a reorganization bankruptcy for individuals with disposable income who make payments on their debts over time; generally five years.  A lot can happen over five years, like missing a payment to the trustee.

If you miss one payment, that’s not a problem and can usually be remedied by making a double payment the following month to get caught up.  The problem comes in when multiple payments are missed and the trustee files a motion to dismiss your case.  This can be costly for the court, the trustee and your case. The way the court is now handling these matters is that if you become current prior to the hearing, and your attorney files opposition to the trustee’s motion with the evidence of your payments, the court will still grant the trustee’s motion on the basis that ANY FUTURE DELINQUENCY gives the trustee authority to file a declaration and lodge an order dismissing your case.  The court essentially said that if it first comes to the debtor’s attention after the trustee files the motion to dismiss for failing to make payments, it’s too late.  Also, the first offense is not excuse.

Here’s the takeaway for Chapter 13 debtors.  Be on time, every time with your trustee payments.  Many trustees have automatic payment programs, sign up for them as soon as practical.  If you get into trouble with payments, call your attorney immediately.

IRS Tax Bankruptcy

Posted in Chapter 13, Chapter 7, Taxes & Bankruptcy

Do you owe taxes?  Many who do find themselves facing federal income tax collections and incur penalties, fines, bank levies, or even tax liens when the IRS pursues collections.  Did you know that some taxes can be eliminated and discharged through bankruptcy?  Did you know that bankruptcy can potentially remove tax liens?

There are Five (5) general rules required to discharge IRS taxes in bankruptcy.

  1. The due date for filing the tax return was not less than three years ago
  2. The tax return was filed at least two years ago
  3. The tax assessment is at least 240 days old
  4. The tax return was not fraudulent
  5. The tax payor is not guilty of tax evasion

A tax lien, once recorded, adds tremendous complication to the subject of tax discharge in bankruptcy.  It’s not impossible, but requires a skilled attorney to analyze and resolve the tax issues.  A skilled bankruptcy lawyer understands that liens generally survive a bankruptcy, giving rights to the “secured” creditor to continue collecting on their lien rights, after bankruptcy.  Even if the underlying tax debt is dischargeable, ignoring tax liens can have problematic consequences for the debtor after discharge.

Attorney analysis is required to determine the extent of income tax liability, whether liens were recorded and what solutions is right for the individual taxpayor. A tax discharge bankruptcy might be right for taxpayors who owe enough delinquent taxes to cause him/her trouble and sleepless nights. Be prepared to pay an additional fee to the attorney for a proper analysis and determination of whether taxes can be discharged in bankruptcy.

What Is A Landlord To Do When a Tenant Files Bankruptcy

Posted in Bankruptcy Law Overview, Chapter 13, Chapter 7

As the economy continues to lag, many renters are creating more problems for landlords when they cannot pay their rent.  The duties imposed on a landlord are stringent enough, but what is a landlord to do when the tenant they want to evict files for bankruptcy protection?  The American Bar Association provides this publication that provides some important details. Here are some important points to remember:

The Automatic Stay

11 U.S.C. Section 362 requires that a landlord cease all efforts to collect rent and/or evict a tenant upon the filing of a bankruptcy case. This means that the moment the landlord knows of a tenant’s bankruptcy case, they MUST stop the eviction process until the case is concluded, or the court grants the landlord relief to proceed with their eviction.

Past Due Rents

When a tenant files for bankruptcy, any rents due prior to the bankruptcy case have the potential of being discharged.  This means that a landlord must be very careful when seeking past due rent after a bankruptcy case has been commenced.  Depending upon the type of bankruptcy case filed, the landlord may recoup past rent.  A consultation with a bankruptcy lawyer will keep the landlord informed of the current laws and help them moving forward.

Timing is Key

It is extremely important to take proactive steps quickly by hiring a bankruptcy attorney to help with seeking an order from the bankruptcy court that allows the landlord to continue with their eviction proceedings or unlawful detainer cases. It’s just a good business decision to work with your landlord tenant attorney and bankruptcy lawyer to navigate the dangerous waters where the tenant has many rights.

In bankruptcy proceedings, tenants obtain rights they would not otherwise have, rights that come at the expense of landlords, including certain rights landlords normally enjoy under state law. Acting before a bankruptcy filing occurs is the ideal scenario. But if that ship has sailed, acting quickly when a bankruptcy does occur is the next best thing. Prompt action allows landlords to help enforce their rights to receive current rent, to protect against an unwanted assumption or assignment, or when acting pre-bankruptcy, to evict the tenant.

Bankruptcy Cases in the Supreme Court

Posted in Bankruptcy Law Overview

We continue to see consumer bankruptcy cases and decisions come from from the U.S. Supreme Court that impact our practice.  Here is a summary of two recent cases.

Bullock v. Bankchampaign, N.A., —U.S.—, 133 S.Ct. 1754 (May, 2013) If, for nothing more, this is a great case about family drama.  The facts involve a trustee of a family trust and his mother who borrowed money from the trust without the consent or permission from the beneficiaries.  The money borrowed was always repaid, but the pair had made great returns on the investments made from the money borrowed.  The bankruptcy issues arise because when the family pursued the brother trustee, he filed for bankruptcy protection.  The lawsuit filed in the bankruptcy court, known as an adversary proceeding ensued on the issue of non-dischargeability under 11 U.S.C. 523(a)(4).  The bankruptcy court ruled the debt non-dischargeable; the district court and Court of Appeals affirmed.  The Supreme Court reversed, holding that where the conduct at issue does not involve bad faith, more turpitude, or other immoral conduct, the term "defalcation" requires an intentional wrong."

This decision clears up the definition of defalcation for the purpose of determining whether a debt is dischargeable.

Now pending before the Supreme Court, Executive Benefits Insurance Agency v. Arkinson (In re Bellingham Insurance Agency, Inc.), 702 F.3d 553 (9th Cir. December, 2012) The issue in this case presents a novel question:  Can a non-Article III bankruptcy judge enter a final judgment in a fraudulent conveyance action against a nonclaimant to the bankruptcy estate?  This case was appealed from the District Court holding that Federal law empowers bankruptcy judges to do so, but the Constitution forbids it; also holding that the decision provided no reprieve because the company consented to the adjudication of the fraudulent conveyance claim by a bankruptcy judge by failing to object until the case reached District Court.

This is a must read case for every bankruptcy practitioner to understand the powers of our bankruptcy judges and their limitations.  We hope that the Supreme Court will bring more clarity as to the matters that can be heard by our judges.  Perhaps even allowing the parties to consent, in certain small areas, would likely take little away from Article III judges who might want to protect their turf.

Student Loan Crisis 2014

Posted in Student Loans & Bankruptcy

Does anyone remember the mortgage crisis of 2008?  It seems like so long ago that wall street and mortgage lenders that created securitized mortgages nearly brought down the economy. Did you know that the recession officially ended in 2009? I bet you’re wondering what the mortgage crisis has to do with the student loan crisis.  One word; SECURITIZATION.

The same financial investment scheme that nearly brought down the world economy and forced millions of Americans into bankruptcy was used in the student loan market.  Millions of student loans were sold off into the bond market and securitized.

Securitization 101

First a trust is created.  Like many trusts, it has a purpose and assets.  Only, the assets of these trusts are student loans.  Filings are made with the SEC and made public by a prospectus disclosure. Investors can buy shares of these "asset-backed" securities.

The student loans are originated by Lender A and the proceeds are paid to the school for the student’s tuition and expenses.  Then, Lender A sells the loan to the Sponsor or Depositor of a securitized trust like [National Collegiate Student Loan Trust].  The Sponsor/Depositor then sells the loans to the trustee of the trust.

Why am I explaining all this?  Well, when a debt collector comes calling for you to pay up, it’s important to know whether they have a legal right to do so.  When student loans are sold and transferred so many times there are many more records that are required to be maintained.  Proof the debt is valid becomes more difficult.

Student Loan Crisis 2014

There is currently nearly $1.3 Trillion dollars in outstanding student loan debt in the United States.  Federal loans [backed by the government] enjoy many programs to help borrowers repay their loans.  Unfortunately, private loans not guaranteed by the government are not required to offer any benefits and many of these loans have been securitized. 

The GOOD NEWS is that consumer bankruptcy attorneys have more options than ever before to help.  We can create a payment program borrowers can afford through a Chapter 13 Bankruptcy Case.  We can sue the lenders and Discharge Student Loans under 11 U.S.C. 523(a)(8) when the borrower can establish and Undue Hardship.  An Undue Hardship Discharge completely eliminates the debt. Free consultations can help borrowers make well informed decisions and get on with their lives.