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

It's that time of year again where I gaze longingly into my crystal ball and make my predictions for the future of the American Dream; America's fresh start; and the demise of our mountain of debts.  Despite the continued negative stigma of bankruptcy and it's "last resort" paradigm, bankruptcy filings in the U.S. continue to rise during this depressed economy. 

According to the statistics found at the Bankruptcy Court's website, total bankruptcy filings in the U.S. during the 12-month period ending December 31,  2009 totaled 1,473,675.  This year, the year hasn't ended quite yet, but we have the 12-month period ending September 30, 2010 and the numbers total 1,596,355 for all bankruptcy filings in the U.S.; an 8% increase in filings throughout the country.  The folks over at Credit Slips predict a slight decline according to their recent post, "Projected Filings for 2011."

In California, we will see the slippery banks unleash a flurry of foreclosures as investigations into their business practices continue to mount.  More consumers will fight back against their securitized mortgages through chapter 13 bankruptcy litigation.  Here in the Central District of California, we will continue to see an increase in filings as the state of California struggles with its deficit and government workers are forced to take pay cuts and furloughs.  I disagree with Credit Slip's comment about lending beginning to open and any talk about economic improvement in 2011 because we still have 95 million securitized mortgages that have yet to be dealt with and the modifications of American homes has failed. We won't see an economic turnaround until well into 2015. 

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For those of you waiting until after the Holidays to file your bankruptcy case, heed my advice.  Here are my tips and pitfalls to avoid now, if you're planning a New Year fresh start.

1.  Don't spend more than $500.00 on any one occasion, unless it's necessary for the maintenance and support of your household.  Car repairs and groceries, etc. are okay.  You get the idea.
2. Don't use your credit cards and if you need to for an emergency, follow tip number 1 above. 
3. Don't spend your savings or cash in your retirment accounts to pay debts.
4. Don't borrow money from relatives.
5. Don't bank where you owe money.  Open a new account with a bank that you don't owe any money to.  This way, your cash will not be frozen when you file your case. 
6. Make home made Holiday gifts, or just spend time with loved ones instead of buying presents.  Create new traditions that spread the joy of gratitude for those in your life.
7. You absolutely MUST take your pre-filing credit counseling course BEFORE you file your bankruptcy case.  If you don't, you're case will be dismissed and you'll have to start over.

I wish you all a holiday season filled with Joy and Love.  I am grateful for those of you that have touched my life personally and professionally.  Thank you to all my teachers.  Blessings and Peace to you.

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A fundamental part of deciding to file bankruptcy is helping our clients achieve their financial goals.  One of the toughest decisions clients struggle with is deciding whether to keep their homes.  Many Californians are faced with underwater property values; denied loan modifications; falling behind on mortgage payments when their teaser rate terms end; and the fact that we live in a non-judicial foreclosure state where a home can be foreclosed without notice to the courts.

The short answer to this daunting question is Yes you can keep your home and file for bankruptcy. Under Chapter 7 liquidation bankruptcy, it is always recommended that you be current on your mortgage payments and have equity within the California Exemption limits.  If you're behind on your mortgage payments, the most effective way to deal with the "mortgage arrears", as they are called, is to file bankruptcy under Chapter 13 where you get to make up those past due payments over a period of 3-5 years.

The deeper question is whether you're trying to save the impossible American Dream of owning a home and at what price are you willing to pay to have it?  Unless you're stripping off a second mortgage and willing tolitigate against your loan servicer or lender on the securitized mortgage issues, then you may be better off walking away from your home completely because the values will increase over time, but this recovery will take a very long time; 10 years or more.

The numbers are staggering when you look at what you currently owe against a continuing decline in property values and what your home may be worth by the time you're finished paying on that outrageous mortgage.  If you're determined, committed and willing to go the distance and keep your home, the most economical method of saving your home is by filing bankruptcy under Chapter 13 if you're behind on your payments. 

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Chances are that if you have a car loan and filed bankruptcy under Chapter 7 of the bankruptcy code, you're going to get what is called a reaffirmation agreement.  If you're a pro se debtor representing yourself, you have no one to ask questions of.  If you're represented by an attorney, your questions may still remain unanswered and you may receive little to no help.  This is the range I've seen when I volunteer as reaffirmation counsel for Public Counsel at our Central District's reaffirmation clinics.

Gregory M. Duhl, Associate Professor of Law at William Mitchell College of Law in Minnesota wrote in depth on the attorney's role in reaffirmation agreements and I encourage those of you that desire a more in depth look at this topic to read his law journal article, "Divided Loyalties: The Attorney’s Role in Bankruptcy Reaffirmations. "  Here's the point: If the attorney signs off on your reaffirmation agreement, the attorney is basically agreeing that the contract is in your best interest and that debt should survive your bankruptcy.  What this essentially means is that you remain liable for that debt after your bankruptcy discharge.  So, if at some later point in time, you can't keep up with your car payments and you surrender the vehicle, you'll be responsible for any deficit you may owe.  This makes the reaffirmation a bad idea for those who are upside down on any debt obligation where a reaffirmation agreement is being offered.

On the other hand, if you've done everything you're obligated to do under the law and have signed your agreement and mailed it back to the Creditor, without an attorney signing off on the agreement, the Court will set the matter for a hearing.  The reason for this is that the Judge takes the place of your attorney and must decide whether this agreement is in your best interest.  Here in the Central District Los Angeles Division, all debtors are required to meet with a volunteer attorney prior to their hearing and we look at your individual situation and explain your options to you and the consequences of either outcome.  Usually when you ask the Judge to deny your reaffirmation agreement, they will.

When the Judge denies a reaffirmation agreement, the debt remains under the protection of your bankruptcy case and the debt is discharged.  However, under either outcome, the lien will always survive bankruptcy.  What this all means is that if you want to keep that house, car, or boat that has a lien against it, you must continue to make the payments.  The only difference here is that if that debt remains under the protection of the court and you later need to surrender it because you cannot afford the payments, you won't be liable for any deficiencies after the surrender.

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