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

You've been planning and saving for retirement and doing everything "right" according to the financial gurus.  Then, in 2008 when the economy tanked, you're now left with a home with no value, credit lines cut-off and closed, and wondering if you'll even have a job in the next year. Or worse, you've just been laid off.  What do you?  First, you immediately consult with a bankruptcy attorney, your tax advisor and financial planner before the first unemployment check arrives. Why?

Because tempting as it is to tap into that nice nest egg you've been so diligently building, its sole purpose is for your retirement and unless you're 65 you don't want to touch it at all costs. It's alarming for me to see an increase in 401k loans according to this article,  Loans From 401(k)s Are on the Rise As Investors Tap Their Inner Banker. Besides the income tax consequences in pulling funds from a tax deferred retirement account, its one of the worst financial mistakes you can make that will still land you in bankruptcy.

When you're faced with declining or non-existent income, you 

FIRST must cut your expenses immediately and consult with your professionals.

SECOND, consider whether this is short term or long term and make your decisions based upon your financial goals and what you have to work with. 

THIRD, create and live by a BUDGET.  Cut expenses and then cut them again. You cannot afford to borrow from your 401k to support the lifestyle you had when you're working, now that you're unemployed.  You simply cannot sustain any negative budget.  If you don't take these necessary steps, you'll land in my office with no retirement and still needing to file bankruptcy.

the absolute LAST thing you want to do is continue to pay unsecured credit card debts, especially with a 401k loan.

In fact, if you would consider bankruptcy as a powerful tool instead of the last stop to financial freedom from debts, then we could get this economy propped by by spending again. I would much rather see bankruptcy filings on the rise than 401k loans. Be sure to consult with your professionals before making any important financial decisions and do it now to save you from disaster later.

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An above median debtor who has no disposable income only need propose a 36 month plan according to Henderson, David W. and Candice Y.; In re, 21 CBN 754 (Bankr. D. Idaho 2011), which means that the Kagenveama case is still good law.  The court overruled the trustee's objection to confirmation of the debtor's plan in Henderson. The debtor proposed a 36 month plan because they had negative disposable income according to their Form 22C.

In re Kagenveama, 541 F.3d 868 (9th Cr. 2008) the court said, "if a trustee or unsecured creditor objects to plan confirmation for an above median income debtor with positive projected disposable income to unsecured creditors for a period of no less than five years, i.e., the applicable commitment period. ...If, however, that same above median income debtor has no projected disposable income, the Ninth Circuit holds that 'applicable commitment period' does not apply."

The trustee argued that Kagenveama was overruled by the Supreme Court case of Hamilton v. Lanning, 130 S.Ct. 2464 (2010), but the Henderson court rejected that argument citing that the Supreme Court adopted the forward looking approach. However, the Lanning decision did not directly address the issue here of whether Section 1325(b)(1)(B) requires an above-median income debtor with no disposable income to make payments to creditors over the applicable commitment period."

What this all means is that if you're an above-median debtor with no projected disposable income, your proposed plan payments do not need to continue for any set period of time, and certainly not for five years as suggested by the trustee in the Kagenveama case. Just remember to review this prior warning about that projected disposable income.

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I just returned from a workshop held by Fico Certified Credit Professional Rondi Lambeth, owner of Fortress Credit Pro where I gained some great information I want to pass along to you here. He cleverly coins the name of his workshops as, Fico Score Up Yours!  The negative connotation of sticking it to Fico always makes me giggle.  So, you want to know how to improve your credit score after bankruptcy?  I have great news. If you go to Rondi's website, you can pay $50.00 for him to audit your credit report and point out all the errors. He will tell you himself that you can do this on your own and don't need to hire him, but if you do, he will have you sign a statement that you knew this and requested his services anyway. 

Here's the myth I outlined last year in, Filing Bankruptcy Will Ruin My Credit. Rondi says that he can actually achieve greater results, much faster for those who have filed bankruptcy. Usually in about 90 days you can have good credit again. In many cases, you can even have your bankruptcy removed from your credit report.  What? Read that again.  You can actually have your bankruptcy removed from your credit report! 

Under the Fair Credit Reporting Act, any information provided on your credit report must be accurate, meaning 'freedom from error.' Accurate information means that the creditors must report complete, full and accurate account numbers, which Rondi says, they rarely do. Also, those who have filed bankruptcy will know that their bankruptcy case always ends in two letters, which represent the Judge's initials of the Judge assigned to their case. What this means is that if the Judge's initials are missing, the credit bureau MUST remove this erroneous information all together. What's even better is that once you've filed bankruptcy and received your discharge, your debts must show as discharged on your credit reports.  White v. Experian is our case on point with this issue.

Another nifty trick provided by Rondi was the use of IRS Form 12277 to remove a tax lien from your credit report by simply completing the form and sending it to the IRS with the box marked under Section 8(d) that "withdrawal is in the best interest of the debtor and the government." 

My advice from this article, How To Use Credit Wisely After Bankruptcy on May 17,2010 still holds merit, but with Rondi Lambeth in your corner, helping you to clear the errors from your credit report and improving your score will put you back on the right path of financial freedom while being fiscally responsible with your money.  Not to mention that with great credit comes the better job, and rewards programs and discounts only offered to those with the best credit. Now that's a Winning Formula!

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From the moment you filed bankruptcy, your creditors were legally forced to cease all collection efforts against you. Now, you've probably sailed past your Section 341(a) Meeting of Creditors with the trustee when all of a sudden you're served a Notice and Summons in your bankruptcy case. You're being sued!

Keep in mind that a discharge of your debts voids any judgment at any time obtained. It also operates as a permanent injunction against the commencement or continuation of an action to collect on any debt as a personal liability of yours and any community property, if you're married. The failure by creditors to raise a non-dischargeability and discharge objection issues timely will forever bar them when your discharge is issued. There are two types of objections:

The first type is where the creditor or trustee objects to the discharge of all debts under 11 U.S.C. §727. This adversary complaint must be based upon proof that you, the debtor, fraudulently transferred or concealed property; failure to keep or preserve books or records; made a false oath or account; or failed to explain loss of assets or insolvency.

The second is where a creditor objects to the debtor's right to receive a discharge of a particular debt rather than the entire case and can be found in 11 U.S.C. §523. Some of the more common grounds for objecting to the discharge of certain debts are if those debts were obtained by false pretense or actual fraud; making false financial statements to obtain debt; embezzlement or larceny; willful or malicious injury; or for fraud or defalcation while acting in a fiduciary capacity.

If you're issued a notice and summons during your bankruptcy case; don't panic. Call your bankruptcy attorney and they will either handle the case for you and explain your rights, or make a referral to a colleague who handles these types of cases. Don't delay because you only have 30 days to respond or the plaintiff could get a default judgment against you.

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