Los Angeles Bankruptcy Law Monitor : Los Angeles Bankruptcy Lawyer & Attorney : Christine Wilton Law Firm : Southern California Chapter 13 & Chapter 7 Bankruptcy, Foreclosure

The last big spike in bankruptcy filings was back in 2005, just before the passage of the Bankruptcy Abuse Prevention Consumer Protection Act ["BAPCPA"] with a record setting 2.04 million filings.  The BAPCPA created more obstacles to obtaining debt relief in 2005 and immediately following its passage, bankruptcy filings dried up.

When the mortgage meltdown of 2008 nearly crumbled the financial sector, the ripple effect on the economy continued to reverberate throughout 2009 and again, we saw a spike in bankruptcy filings throughout the country.  In 2008, bankruptcy filings total led 1.1 million.

Here in the Central District, filings in November total led 9,452.  This figure is more than double that of the entire state of New York with 4,368; and roughly double the entire state of Texas with 4,804 filings.  The U.S. Bankruptcy Court reports the fiscal year ending in September, 2009 total bankruptcy filings at 1.4 million.  So, what can we expect for 2010?

As I gaze into my crystal ball into 2010, I see that the unemployment numbers will continue to drag on as those people regroup, train and educate themselves for new emergent jobs.  Foreclosures will continue on their course until the banks and the government permanently modify the remainder of the 9 million homes in trouble.  I see that consumer spending is nonsensical because we Americans already have too much of everything on the backs of third world countries whose workers live in poverty.  All of this spells more bankruptcies for 2010.

We will see continued high numbers of bankruptcy filings throughout 2010 as consumers unfortunately spend down savings first, which is unnecessary, before deciding that they should file for bankruptcy.  Bankruptcy filings will be a result of more foreclosures rippling through the housing sector and the stagnant unemployment rate of 12.3% here in California.  We will also see more small business bankruptcies as businesses continue to tailspin from the economic recession.

Corporate bankruptcies will rise in 2010 as commercial property foreclosures commence on securitized commercial real estate.  We will not know the legal consequences in the commercial arena for several years to come.  In 2010, bankruptcy will be the new "black" for many Americans seeking financial freedom from debt. 

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The mortgage meltdown and ensuing global financial crisis, in the fall of 2008, still reverberates today.  The New York Times reported on the essentials of the credit crisis and pointed out the breadth and depth origins of this crisis and likened these times to the Great Depression. 

I have previously reported on the financial crisis in The Economy of Bankruptcy ; while The National Association of Consumer Bankruptcy Attorneys [NACBA] has been following SB61 since its inception.  SB61 essentially will allow bankruptcy judges to modify the terms of a mortgage.  Recently, NACBA Director, John Rao testified on the matter in October, before the Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts.

As posted in the New York Times, House Passes Far Reaching Bill Tightening Financial Rules.  Unfortunately, the banking industry struck a win when the House voted to reject the proposed amendment, known as "mortgage cramdown," which is the measure that would allow bankruptcy judges to change the terms of mortgages for distressed homeowners.  This vote reversed the House's passage in March of a cramdown measure that subsequently died in the Senate.

American homeowners need a real solution and based on what I read over at The National Bankruptcy forum, our Bankruptcy Courts may not be equipped to handle the tsunami of bankruptcy cases that would result in the passage of such legislation.  To date, few mortgages are being permanently modified, as reported by the LA Times.  

My solution is for every American to obtain independent financial freedom by paying off their debts outside of bankruptcy, if possible. For those Americans struggling to pay their bills, consider either a chapter 7 or 13 bankruptcy and never look back.  The rules of bankruptcy do not require that you spend down all of your savings and lose your assets in order to file for bankruptcy protection.  The goal here is financial freedom and independence from the banking industry FOREVER.  The new paradigm as Dave Ramsey so eloquently puts it, DEBT IS DUMB AND CASH IS KING!

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When you file for bankruptcy, you will be listing all of your assets, including any vehicle you own.  If you still owe money on your car, you will need to tell the court whether you intend to keep the car and reaffim the debt or whether you will give up the car.  Most people here in Los Angeles, need a car to get back and forth to work and so would want to keep the car and reaffirm the debt.  But what is a reaffirmation agreement and what does it do?

A reaffirmation agreement is made between you and the lender of your vehicle.  Essentially, a reaffirmation agreement tells the lender that you promise to be liable for the debt outside of the bankruptcy.  Iif anything happens to you later; i.e., job loss, illness, etc., you will remain liable for that debt.  The agreement takes that debt out of the protection of the bankruptcy and keeps you on the hook after your bankruptcy is discharged, even if you can't afford that debt later.  The reaffirmation agreement gives the creditor the same legal right as if you did not file a bankruptcy on that debt.

It used to be that if you just kept making the payments and stayed current on the car loan, insurance and registration, you could simply keep it in the bankruptcy and keep the car.  Unfortunately, the Ninth Circuit recently eliminated what was known as the "Ride Thru," which eliminated one of the most fundamental benefits to bankruptcy debtors.

Here's the good news.  Even after you sign the reaffirmation agreement with the lender, the lender must file it with the bankruptcy court and a hearing will be set on the matter.  The reaffirmation agreement does not become legally binding against you until it is approved by the judge. 

If the judge approves the reaffirmation agreement and you miss a loan payment in the future, the lender can:

1. Repossess the car;
2. Sell the car at auction; and
3. Sue you for the money you still owe ("a deficiency balance")

At the hearing, the judge will use the "In the best interest of the debtor" test to determine if you can afford the debt.  Don't despair if the judge denies your reaffirmation agreement.  In fact, a denial may be beneficial to you because then the loan remains under the protection of your bankruptcy case and you'll likely get to keep the car.

If your case was filed in Los Angeles, the Public Counsel Law Center provides volunteer attorneys, like myself, who will answer any questions you may have before your hearing.  Public Counsel provides this service through their Debtor Assistance Project & Consumer Law Project.  If you have a reaffirmation hearing date, please read Public Counsel's information packet before your hearing.

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From The Hospital to Bankruptcy Court is the title of a recent article in the New York Times that gets to the heart of why we need healthcare reform.  You could have a job that provides health insurance, but that health insurance policy has a cap on how much they will pay over the life of the policy.  Add to that limit, your deductible and co-payment amount of say 20% and you have a recipe for financial disaster and a prime bankruptcy case.

If you're faced with medical debt, do not use your credit cards or home equity or any other financing to pay that debt.  You're only adding interest to that debt and avoiding the most likely inevitable bankruptcy.  What's worse is that if you use home equity, you could lose your home later if you fall behind on your mortgage.  Taking action sooner, on deciding your options, could help you avoid a financial collision with bankruptcy court.

First, be sure you understand the limits on your health insurance plan and if you anticipate any large medical expenses, check to see if your employer offers a benefit plan where cash is taken from your paycheck, in pre-tax dollars, in advance to cover anticipated medical expenses.  What this does is essentially save you from paying income taxes on that money in advance, as opposed to deducting it on your income tax return later. If you've already paid for medical bills with your after tax money, then be sure to deduct it on your tax return.

Second, if you have medical bills that have gone to collections, you can make an effort to negotiate that debt.  Unfortunately, if the bills are completely out of your ability to pay, you need to consult with a bankruptcy lawyer who can help you file the right bankruptcy chapter for you and get that debt discharged.  Remember, you don't have to go broke to file for bankruptcy and you should consult a bankruptcy lawyer before playing debt roulette and using credit cards or savings to pay for medical bills because medical debt can be discharged in bankruptcy.

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