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

Memorial Day, originally called Decoration Day, is a day of remembrance for those who have died in our nation's service. As we remember those who have died for our freedoms and those who continue to serve our nation, let's remember that we have the freedom to be DEBT FREE!

You have a biblical right to absolve yourself of your debts according to the bible. Remembering our service men and women who have also made the ultimate sacrifice of their lives so that we are FREE should inspire us all to take action in our lives to live as free people.  Free from being a slave to debts by filing bankruptcy would be an honor. Exercising your freedoms that cost so many lives is the least we can do as Americans to honor those who fought so hard for us.

If you're suffering from harrassing creditor calls, wage garnishments, a foreclosure looming, no savings and not enough income to pay your debts in full within 5 years, then do yourself a favor and call a bankruptcy attorney for a FREE consultation. 

You can keep your real and personal property and still eliminate your debts in many cases.  Stop sacrificing your freedom to pursue Life, liberty and HAPPINESS!

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I see it every day. Potential clients who have spent their savings and borrowed against their retirement accounts because they're told that,

"Bankruptcy is the worst thing for your credit,"

"It's rarely the best option," etc.

The shame and guilt that go into financial problems compounds the negative stigma that bankruptcy holds and by the time my clients come to my office, they have nothing left to protect.

I like this article by Angie Mohr over at Financial Edge, but she is incorrect in saying that bankruptcy is "rarely" the best option.  The problem with that statement is that people will hesitate to even consult with a bankruptcy lawyer to determine whether filing is right for them. With the economy still flat-lining and California unemployment holding steady at 12%, we cannot afford to maintain our current way of life for much longer.  What I did like about Ms. Mohr's article entitled, 5 Myths About Personal Bankruptcy was her helpful information about how consumers can keep much of their assets while still discharging their debts. She's correct in that your credit will not be ruined. Our friend and Fico Trained Credit Expert Witness friend, Rondi Lambeth over at Fortress Credit Pro explains that the late payments have a greater impact on your credit score than filing bankruptcy. 

The 6th Myth is Don't Wait Until You're Broke To Talk To Your Bankruptcy Lawyer. Like hiring any professional you want to look for an attorney who will take time to talk personally with you and answer all your questions to provide you with enough information to make a well informed decision for yourself. Then, if bankruptcy is your choice, which Chapter is right for you. Your choices may be limited depending upon your circumstances, but your lawyer will explain what options are available. Also, avoid these 7 Mistakes when considering bankruptcy and you'll be well on your way to your own FRESH START.

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One of my favorite activities as a leader in my own law firm is to take time and answer questions over at LawQA.  These questions come to me in an email and I respond with short answers most of the time.  This one though, caught my attention because just yesterday my partner John Greifendorff and I sat down with a couple of real estate professionals and discussed the benefits of a short sale after bankruptcy. 

I'll have to admit that in a prior article, Don't Get Stung in a Short Sale, I was of the opinion that a short sale would not serve a consumer at all. There are still warning signs to look out for, but I can now see that a short sale may not only benefit the consumer who eventually wants to buy another home later, it may also help our economy recover faster.

So the question in the title of this article asks which direction should the homeowner take after their bankruptcy case.  Generally, I would answer that it doesn't matter because your legal obligation to pay your debts has already been discharged and you would incur no tax consequences from any of the choices above. However, I will now add that if you want to buy a home again and re-enter the real estate market, you want to consider your options more closely.

I suggest you take some positive steps this way:

• Continue to maintain your home within reason and only using your own "sweat equity" by keeping the grounds and not otherwise destroying the property before you leave;

• Work with qualified, established negotiators to guide you through this short sale process. It is an added bonus, if they work closely with a law firm to review your short sale papers so that the transaction will leave you with no surprises after the close of the sale;

• Ask for "Cash for Keys" or some other incentive to leave at the end and show your good faith by leaving the house in a well cared for condition .

I can now see that a short sale after bankruptcy can be beneficial to the consumer by shortening the time for them to re-enter the real estate market. We know the benefits to the lender are the savings to them because foreclosure is a costly process; and the economic recovery process occurs more quickly when we can help families become homeowners again sooner. Besides who else is going to buy all this real estate that the banks are holding? If you need a referral to a trusted short sale professional, give me a call; I'll be glad to help.

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Like millions of Americans who take their old car to the dealership and trade it in for a new one when they still owe money on that old car, they wind up financing both the amount owed on the trade-in along with the new car loan.  This transaction leaves the consumer with negative equity in their new car and the dealership is risking that negative equity if the consumer later files for bankruptcy.  Recent case law supports the consumers filing bankruptcy and means bad news for dealerships who have made these negative loans.

The 9th Circuit appellate panel in In re Penrod, showed that Penrod owed more on the Explorer than its agreed trade-in value, and this difference is known in the auto trade as “negative equity.” The bankruptcy court ruled that the negative equity portion of the loan could be treated as unsecured debt. The Bankruptcy Appellate Panel ["BAP"] affirmed this ruling, and the three-judge panel affirmed the BAP.  The Court denied a rehearing on an earlier ruling, allowing the Debtor's negative equity in their automobile to be treated as unsecured debt in their Chapter 13 Plan. 

This is good news for consumers who owe more money than their car is worth. What this means is that the principal owed on the car loan will be reduced to the present market value, and the remaining balance owed will then be treated as unsecured debt. When the debtor receives their discharge, their legal liability to pay on their car loan will be that reduced amount. It is important to remember that liens will survive bankruptcy under most circumstances. So, in order to keep the car and receive the title to it, the debtor must pay off the loan. When considering bankruptcy to eliminate debts under Chapter 7, or restructure debts under Chapter 13, your bankruptcy lawyer will examine your financial situation to advise you which option is right for you. By the way, need I mention that borrowing more than a car is worth is a very poor financial decision you should avoid? 

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Whenever a consumer debtor files bankruptcy under Chapter 13 of the Bankruptcy Code, they may need to provide a Plan payment of all of their projected disposable income pursuant to 11 U.S.C. § 1325(b)(1).  That may sound easy to provide your projected disposable income, but the interpretation of the term is one of the most controversial issues arising in consumer cases according to Professor Ned W. Waxman who wrote an excellent article entitled, "Projected Disposable Income: Legislative Lunacy and Judicial Gyrations," 46 Houston Law Review 867 (2009).

Professor Waxman laid out the then existing judicial approaches being utilized in courts throughout the country. They are the Starting Point approach, the Mechanical/Multiplier approach, The I and J approach, and the Excusal from filing I and J, and Resetting the 6-Month period to Determine Current Monthly Income approach.  His journal article is a must read for consumer bankruptcy practitioners and provides an overview of the cases leading up to the Lanning case.

Last year, I briefly discussed the topic of projected disposable income in Chapter 13 bankruptcy cases while the Hamilton v. Lanning, 130 S. Ct. 2464 case was still pending before the U.S. Supreme Court. Lanning was decided on June 7, 2010 and the Supreme Court settled on the Forward Looking approach on the issue.  Since then, the case has been cited/distinguished in more than 72 cases throughout the country.  So, where are we now?  I'll give you the Lanning decision update from a California perspective, which is the 9th Circuit approach.

In re Smith, 418 B.R. 359 (2009) held that Debtors may not deduct payments not being made because they intend to surrender the property, "Ironic it would be indeed to diminish payments to unsecured creditors in this context on [**3] the basis of a fictitious expense not incurred by a debtor." Ransom v. MBNA Am. Bank (In re Ransom), 577 F.3d 1026, 1030 (9th Cir. 2009).

In re Thiel, 2011 Bankr. LEXIS 757, explained tha Lanning effectively overruled, in part, Maney v. Kagenveama (In re Kagenveama), 541 F.3d. 868 (9th Cir. 2008). A fair reading of Lanning indicates that the Supreme Court did not there discard the BAPCPA amendments to § 1325, nor jettison the calculation of current monthly income or disposable income under the Code that finds expression in each chapter 13 case through Form 22C. To the contrary, it was clear that Form 22C is to be followed, except in those exceptional cases where a forward-looking approach is required to take into account "known [*13] or virtually certain" information impacting the debtor's income or expenses. Id. at 2475.

In re Gladwin, 2011 Bankr. LEXIS 489, At issue is whether the disposable income require-ment of § 1325(b), after enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), allows a below median income debtor to continue making monthly payments for a debt secured by a boat used solely [*2] for recreational purposes. For the reasons set forth below, this Court concludes that the Debtor failed to satisfy § 1325(b)(1)(B), and that the Debtor's monthly boat/trailer payments are not reasona-bly necessary to be expended for the maintenance and support of the Debtor or a dependent of the Debtor.

In re Warren, 2010 Bankr. LEXIS 4644 denied the confirmation of the Debtor's Plan and the Trustee's request for dismissal as the Debtor's did not propose their plan in bad faith, but failed to provide all of their projected disposable income to the Plan.  These Debtors had two cars and two motorcycles and their expenses were above the standards provide in the Code without explanation to justify the increased expenses.

The bottom line with these cases is this:  Be sure your expenses are necessary for the maintenance and support of your household; and your Chapter 13 Plan provides for all of your projected disposable income. 

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