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

At times our clients will sail through their bankruptcy case without any offense from their creditors.  At other times, it seems that our clients must fight for their rights. If you're among the unfortunate debtors who find themselves being sued in their Chapter 7 bankruptcy case you cannot ignore the Summons and Complaint.  If you've hired an attorney to represent you in your bankruptcy case, their firm may not be equipped to defend your litigation case and may need to refer you to an attorney prepared to litigate your dischargeability action.

The most important thing you should know is that you need to act quickly as the Rules require an answer usually within 30 days.  The more you know, the better your defense strategy will be.  It's interesting to note that as the economy continues to weaken our bankruptcy courts are being clogged up with more frivolous complaints than ever before.  Our bankruptcy judges are taking notice of this trend here in the Central District.  A Savvy litigation attorney will not only effectively defend you against any Creditor opposing your discharge, they may also be able to recoup your fees and costs to defend your case.

I know you're first reaction is to panic and think that your bankruptcy case will fail because you're being sued.  Relax and be sure you obtain competent counsel to represent and defend your case.  The law is on your side in most cases. 

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The new debt limits under Chapter 13 effective April 1, 2010 pursuant to 11 U.S.C. 109(e) were increased to $1,081,400 for secured debt and $360,475 for unsecured debt. This change represents about a 7% increase in the allowed debt limits. However, this increase still excludes many California homeowners who bought into the Jumbo loans sold during the bull market up to the crash in 2008. This means that if you’re a homeowner owing more than $1,081,400 on your mortgage(s), then you are not eligible to file under Chapter 13. Now what do you do? Well, unfortunately, you have the option of either filing under Chapter 7, if you pass what is called the Means Test; or, you must file under Chapter 11, if you want to save your home.
 

Many of these high debt homeowners have been short selling their homes as a means to eliminate or effectively deal with their underwater mortgages mostly because the IRS, in 2007 enacted The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.  Now, I am not a tax adviser and encourage you to consult with your own tax adviser to determine your eligibility for income tax forgiveness. The problem with this remedy is that in a short sale, you’re giving up your home. What do you do if you want to keep your home and stop the foreclosure process? You will need to file bankruptcy under Chapter 11.
 

An individual considering filing bankruptcy under Chapter 11 faces both legal fees obstacles and lack of attorneys willing to perform the complex case requirements of a Chapter 11 bankruptcy case. Additionally, there are more complex and detailed reporting requirements to the Court. Just to get started in Chapter 11, you’ll be required to complete a prefiling credit counseling course; provide income tax returns; insurance policies; complete a real property questionnaire; and you must open new bank accounts, three in fact before your case is filed. The great news is that debts discharged through bankruptcy are not considered canceled debts by the IRS.

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My partner, John Greifendorff and I appeared yesterday on Real Estate Radio with Ron Siegel again and briefly discussed the issue of lien stripping. The legal term used is 'lien avoidance,' and your lawyer's work is completed through either a motion or adversary complaint filed with the court in your bankruptcy case.  Effectively upon order of the court, the lien of your second mortgage, or junior lien, is removed from your property, thus making it an unsecured debt to you.  That debt is then placed in your Chapter 13 Plan.  At the end of your bankruptcy case, what ever balance remains is discharged and you are no longer legally obligated to pay on that debt.

Many courts hold that the debtor must complete their bankruptcy plan for the lien avoidance to be effective.  The bloggers over at The Bankruptcy Law Network recently posted that such liens, at least in the Southern District of California may become effective prior to the discharge of debts in the bankruptcy case; article. In either case, you could potentially avoid a significant amount of debt with this valuable bankruptcy tool.

Here's how you know if this tool is right for you.  If you owe more on your first mortgage than the fair market value of your home, you can avoid any junior or second mortgage. You will be required to have an appraisal of your home in support of your motion. Consult with your local bankruptcy lawyer to create your personal path to financial freedom from debt.

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There is a growing need for those entering their 'golden years' to face the reality of a fixed income that once looked like a hefty savings plan, plus Social Security is now Social Security alone; if you're lucky.  The stock market plummet has cut many Baby Boomer's nest eggs by as much as 50% with no recovery in sight.  Just a couple weeks ago, I read this article, Bankruptcy for Retirees is A Growing Problem where the author recommends that seniors contemplating bankruptcy should see a credit counselor at a non-profit organization to get their finances in order.  What finances?  Why does everyone still think bankruptcy is so bad and should be a last resort?  I'm outraged!

Seniors are facing an even tougher financial crisis at a time when they've been duped by their stock market investments in their 401k plans; Social Security is issuing IOUs; Medicare is just a fraud; and healthcare is up for grabs.  Now, you want them to consult with a credit counselor to get their finances in order before they file bankruptcy?  Absurd.

I say that medical expenses and credit card debt is bad enough without someone saying you should stay saddled with that debt and do all you can to suffer miserably until your death to pay this debt, and your taxes too.  What you really need is to consult with a financial planner and a bankruptcy lawyer to determine the right strategy for you.

There is one warning though; if you're facing additional and ongoing medical treatment, you may consider delaying filing of bankruptcy only because you will not be able to obtain a discharge of your debts but once every eight (8) years.  Otherwise, it's time to permanently discharge your debts once and for all and live with respect, dignity and debt free in retirement.

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Every year, the members of the Central District Consumer Bankruptcy Attorneys Association recognizes an attorney, trustee, or judge for their exemplary efforts affecting consumer debtors. The award presented is the Calvin Ashland Award.    This year's honor was awarded to Chapter 13 Trustee of the year, Kathy A. Dockery. 

Aside from the incredible honors, I noted the scuttle but about bow ties being appropriate for this occasion.  So, I took on creating my own award for this year; "Bow Ties: Who Wore It Best."  This year's semifinalists are pictured throughout.  These gentlemen take their ties very seriously.  Most notably was the confidence brought to the evening by the Honorable Judge Robles as he displayed the traditional, "tie-to-tie," style of bow tie.  Above, we feature an icon among bankruptcy attorneys, Mr. Dennis McGoldrick with his, "Wild," print yellow tie. 

Everywhere I turned, my colleagues all appeared jovial and celebratory; proudly displaying their ties in good faith.  Featured to the left are current CDCBAA President, Pat Green showing our past President, Jim King last year's bow tie.  These gentlemen display the "clip-on" version of bow tie.

Brazen color, bold patterns and polka dots were among this year's contenders.  Speaking of brazen, to the right, you will see Hale Andrew Antico with his tilted passionate red bow tie as he explains to anyone that will listen, why red is the best color for bow ties.  Below and to the left is Jason Wallach sporting the light yellow, polka dot bow tie.  His smile proves that wearing a bow tie makes you happy. 

All in all, it was a dazzling display of silk and what ever other fabric these accessories are weaved from.  This was an enjoyable evening to honor our colleagues for their incredible contributions to the thankless and tireless work in the field of bankruptcy law.  Please vote by comment and remember to have your bow tie photographed at next year's event for your entry into this underground category! 

Photos taken by famed photographer:  Will Taylor

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 In Chapter 7 Basics, I wrote briefly about the means test that was created in 2005 under BAPCPA where MBNA Bank, N.A. worked hard to make it more difficult for consumer debtors to qualify to file bankruptcy under Chapter 7 and created more disposable income to pay creditors under Chapter 13. It's interesting to note that this same bank who help draft the bankruptcy rule changes is now the subject bank in the Ransom case, which is to be decided by the Supreme Court early next year.

The lower 9th Circuit Court ruled in Ransom v. MBNA Am. Bank, N.A. (In re Ransom), 577 F.3d 1026 (9th Cir., Aug. 14, 2009) that an above-median debtor could not claim the ownership deduction of a vehicle in a means test calculation even if that debtor owned his vehicles free and clear and was not making payments on a vehicle. Other lower courts, including the 8th Circuit ruled the exact opposite.  It is this split of the lower courts that prompted the Supreme Court to hear the case.

The question presented before the Supreme Court is Whether, in calculating the debtor's "projected disposable income" during the Plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles. There are several compelling arguments to be presented as both common sense and following the letter of the law.  A Note to Big Banks:  The law is both a shield and a sword.  Even though you did your best to make these changes to the law bend at your whim, we Consumer attorneys will continue to point out the error of your ways!

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