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

We have a serious issue here in the Central District with the BPP ["Bankruptcy Petition Preparer"].  The Central District of California has more than 25% of the entire nation's Pro Se Debtors, which are Debtors that file their bankruptcy case without an attorney.  That's a whopping 38,667 cases filed without an attorney.  This volume of self-represented parties in bankruptcy has a significant impact on judicial resources and access to justice for all in bankruptcy.  Extra time is required of the court's clerks, judges and attorneys to provide assistance and correct errors when these self-represented parties make mistakes in their papers.  A significant portion of these Debtors seek the assistance of a Bankruptcy Petition Preparer, The BPP.  Problems can and do occur when Consumers use non-lawyers to assist them.  You may be saving money now, but might need to hire an attorney later to fix mistakes if you hire the wrong BPP.  Last week, I posted a warning in, Attention Debtors Without an Attorney, and provided important information on where to get help for FREE.

11 U.S.C. Section 110 provides for penalties for persons who negligently or fraudulently prepare bankruptcy petitions.  The bankruptcy courts are now tracking BPPs and prohibiting those that frequently make mistakes from filing cases within the district.  The most common mistakes made by the BPP is the wrong exemptions are used to protect assets of the debtors from being taken by the Trustee.  So, when you hear horror stories of someone who filed bankruptcy and the trustee took their property to pay creditors, it could be they hired someone who incorrectly applied exemptions and the Debtor suffered the consequences.  This usually can be corrected, and this a good reason to hire an attorney from the beginning of your case.

Remember that a BPP cannot give you legal advice or tell you which set of exemptions to use in preparing your bankruptcy case and, if they do, they are engaging in the practice of law without a license to do so.  Cal. Bus. & Prof Code Sections 6125-6128 define what constitutes the practice of law and persons authorized. There is no substitute for proper advice from an attorney.  I cannot emphasize enough that many of our local practitioners will provide a FREE consultation to help you choose whether to file bankruptcy, if so, which Chapter to file under and what you can expect from the bankruptcy process.  Only a licensed attorney can provide such advice. 

There is help if you've been defrauded by a BPP.  We have fee shifting remedies where the fees paid can be diverted to the attorney you retain to correct the BPP's mistakes under 11 U.S.C. Sections 523, 526 and 110.  It's important to cooperate with the attorney and sign a declaration that states the problems you've had and why you had to hire an attorney.  Then, be sure to attend the hearing on that matter and explain the situation to the judge.  This will help you obtain the assistance from this attorney, perhaps without any additional money being paid out of pocket for the much needed service. 

Other B Words in the Bankruptcy Alphabet: Beware of These Credit Card Offers, Bar Date, and Bank Account Levy.

Photo Credit: Leo Reynolds

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New data from the Central District of California was posted on Prof. Jonathon Hayes, Bankruptcy Prof. Blog:

• Pro per filings for the Jan through Sept, 2011 period were 28.3% of the total.  The national average is 7.9%. 
• The central district clerk's office processes one bankruptcy petition every 3 minutes, 44 seconds. 
• The next highest number of filings after the central district is the middle district of Florida.  The C.D. Cal has 146% more filing than M.D. Fl. 
• The central district expects 141,000 filings this year, up from 109,000 in 2009, and 66,000 in 2008.  

From the looks of those numbers above, we have a large population of debtors filing bankruptcy without an attorney.  I wonder if people are just trying to save what little money they have left, or do they just think filing bankruptcy is little more than filling out forms anyway, so you don't need a lawyer?  I know it's hard to pass that freeway billboard that says, "Bankruptcy $799."  However, if you read the fine print, even though it shows a man's picture and has the name of a law firm, it says that hiring the attorney will cost more.  I find advertising like that to be misleading the public.

The Office of the United States Trustee for the Central District of California has placed informational fliers inside the courtrooms in Los Angeles, warning debtors without attorneys that some debtors have been victimized by unscrupulous practices on the part of those who assisted them in preparing their bankruptcy petitions.

FEDERAL LAW REQUIRES: all non-lawyers who assist debtors in the preparations of bankruptcy petitions to: (1) sign the bankruptcy documents; (2) provide their names, addresses and social security numbers; (3) have debtors review all documents before they are signed; and (4) disclose any fees they have paid or are still owed.  Remember that only a licensed attorney can answer your legal questions that includes help with properly completing the petition, schedules and bankruptcy papers, which set of exemptions to use, etc.

There is a Bankruptcy Self-Help Desk located at the Federal Building, 300 N. Los Angeles Street, 1st Floor, Los Angeles, CA 90012 on Mondays and Wednesdays from 10:00 a.m. to Noon and from 2:00 p.m. to 4:00 p.m., except for court holidays.  The Self-Help desk can provide information about Chapter 7, Chapter 13, bankruptcy forms and access to reference material and more importantly, referrals for additional legal assistance.  Income eligible individuals can apply to attend the Chapter 7 Bankruptcy Self-Help Clinic. This project is sponsored by Public Counsel, Central District Consumer Bankruptcy Attorneys Association ("CDCBAA"), and the Los Angeles County Bar Association Commercial Law & Bankruptcy Debtor Assistance Project Subcommittee.

If you simply cannot afford an attorney, FREE legal help may be available to you.  For more information, contact Public Counsel's Debtor Assistance Project Hotline: 213-385-2977, ext. 704.  Some of our local bankruptcy practitioners will also offer their services on a low or pro bono basis. Hiring a competent lawyer is worth their price so your case moves smoothly through the bankruptcy process and you're not faced with losing your discharge, an inquiry from the U.S. Department of Justice, or countless hours in trying to correct errors in your bankruptcy papers.

Photo Credit: Eversheds, LLP.

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As we welcome in the Holiday Season, our Bankruptcy Courts would like to add a little woe to your cheer.  Effective November 1, 2011 there have been some changes to the Means Test, which determines whether you qualify to file bankruptcy under Chapter 7 of the Bankruptcy Code, and your filing fees have increased.

Cathy Moran previously notified us that the Median Income for California Families has fallen.  A  drop in the median household income means that you must now make less than before to qualify to file bankruptcy under Chapter 7.  It also means we're making less money these days.  These numbers are taken from the Census Bureau that reports household income.  The new numbers for the Means Test are effective November 1, 2011.

Pursuant to 28 U.S.C. §1930,  the Judicial Conference approved an increase in filing fees, also effective November 1st.  The increased filing fee for Chapter 7 is now $306.00, an increase of $7.00. Debtors will also have to pay $30 to amend Schedule D, E, F, G or H, up from $26. Creditors will have to pay $176 to file a motion to lift the automatic stay, up from $150.

Jay Fleischman from New York suggests that, "If you have paid your bankruptcy lawyer for your filing fee and your case has not yet been filed, contact your lawyer about the $7 increase in filing fee." I agree. 

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For Halloween this year, I'm dressing up as a Bankruptcy Attorney because everyone is very afraid to speak to me about taking a bold move in their life by filing for "Bankruptcy"  [Boo!] 

I noticed this odd trend.  Bankruptcy filings have declined so everyone should get excited about our nation's economic recovery right?  Even the folks over at Bankruptcy Law Network recently made this same observation in their article, Bankruptcy Filings Decrease: Why? Shelter, Food, and Necessities of Life.  They mentioned many factors, but the one that jumped out at me was credit card use.

Well, check this out, credit card delinquencies are on the rise according to CNN Money. I can see you all now, doing your very best to avoid the scary monster, BANKRUPTCY [Boo!]  This reminds me of the lovable furry old Grover in the Sesame Street Book, The Monster At the End of This Book. He did everything he could to convince us not to turn the page, but each time he did, nothing bad happened.

Have a look at one of my prior article about the warning signs you may need to file for bankruptcy and consider that if you're not currently on the road to saving for retirement because of what ever your story is, then consider it time to take the law on your side and make a bold move before you can't even afford to do it.  Any time you're paying money to creditors and sacrificing your well-being, you're putting yourself in financial slavery.  Stop the insanity!

The longer you wait to turn the page and get your fresh financial start, the more you'll have to sacrifice.  I can tell you that there is NO monster at the end of bankruptcy. In fact, I get rid of the Monsters [Creditors] from the moment your case is filed.

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     Chances are the answer is going to be a YES. The relationship between married persons and creditors is separated by individual or joint debt. Individuals are personally liable for their debts and may be jointly liable with others for their debts. See Division 9 of the Code of Civil Procedure; CCP Section 680.010 et seq. An obligation may belong to an individual or to two or more individuals per CC Section 1429.

     Personal liability for the debt of your spouse is found in Part 3 of Division 4 of the Family Code Sections 900-1000. For spousal liability purposes, "debt" is defined as an obligation incurred by a married person before or during marriage, whether based on contract, tort or otherwise (Fam. Code Section 900). A spouse is personally liable for the debts of the spouse in only three circumstances: (1) the debt of one spouse is assigned to the other spouse in the context of divorce proceedings, (2) the spouse becomes personally liable under the necessaries doctrine, and (3) a surviving spouse has liability for the debts of their deceased spouse up to certain limits.

     In bankruptcy we view these debts in terms of individual and community debts and have some flexibility in whether we advise our clients to file an individual or joint bankruptcy when working with married couples. Remember that we cannot represent married couples when a conflict arises, so it's important to cooperate with your bankruptcy counsel and disclose everything to them, including whether or not you're contemplating divorce so that they can properly represent you in obtaining the fresh start that you deserve.

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    In recognition of National Estate Planning Awareness Week (October 17 – October 23, 2011), A & R Law Group will offer the preparation of a free will to every new bankruptcy client that retains Greifendorff Law Offices, PC in Garden Grove, California.
 

       According to the National Association of Estate Planners and Councils (NAEPC), estate planning is one of the most overlooked areas of personal financial management. It is estimated that over 120 million Americans do not have up-to-date estate plans to protect themselves and their families in the event of sickness, accidents, or untimely death. This costs people wasted dollars and hours of emotional hardship each year that can be minimized with proper advanced planning.

     Estate planning is a vital part of financial planning, despite how much money you have. Proper estate planning is the only way to control what happens to your assets, including assets that are passed down to your children, when you become disabled or die. Additionally, estate planning documents allow you to help guide the court in determining who you would prefer to act as guardian of your children if something were to happen to you. Why leave these important decisions to chance or let your loved ones argue in court about these matters? Estate planning saves money, emotional stress, and time for you and your loved ones.
 

In addition to the “free will” promotion, A & R Law Group is offering 50% off a simple will through November 30, 2011 to all clients. With these specials, basic estate planning is affordable for most everyone. 

___________________

Disclaimer:  One free will per new bankruptcy retainer paid to Greifendorff Law Offices. This offer is specifically for a simple will and applies exclusively to new bankruptcy clients who retain and pay in full the amount of their bankruptcy retainer during this National Estate Planning Awareness Week (October 17-October 23, 2011). Offer expires October 24, 2011.
 

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     Once upon a time, in a faraway land, Beauty and the Beast got married in California; a community property state. Beast was a selfish, self-centered gambler who took a second mortgage on the couple's home to satisfy his addiction and lost more than $100k in Vegas one weekend. Now the couple can't pay their bills and they're considering bankruptcy.

     When one spouse wastes the assets and creates a debt that could be denied a discharge under 11 U.S.C. § 5423(a)(2), (a)(4), or (6), he/she may find protection in the discharge injunction. Listen, I don't make this stuff up. Just have a look at “The Devil Could Get a Discharge ... If He Were Married to Snow White!” by Marlene G. Weinstein. See applicable case, In re Kimmel 367 B.R. 174 (Bankr. N.D. Cal. 2007.

     What this boils down to is that as long as the couple remains married and the innocent spouse files bankruptcy on behalf of the "community," the discharge injunction of 11 U.S.C. § 524(a)(3), which protects the after-acquired community property of the Debtor from creditors, may also include a creditor of the Beastly spouse. A thorough review of Kimmel will assist your attorney in providing proper representation under these facts.

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Here's a great article written by Michael Doan at The Bankruptcy Law Network that discusses when you can file bankruptcy again after a previous case.  Here in California, if you're married and you filed your previous case as an individual, without your spouse, then your spouse can file his/her bankruptcy anytime. Remember that these rules only apply to the Debtor who filed the bankruptcy case, not any non-filing spouse.

I agree with Attorney Doan's "Nutshell" synopsis,

"The time frames between discharge eligibility are as follows:

8 years between 7s. -727(a)(8)

2 years between 13s. -1328(f)(2)

4 years between a 7 and 13 -1328(f)(1)

6 years between a 13 and 7(if under 70% plan). -727(a)(9)

The time is counted from filing to filing — not from first discharge to second filing."

This information has become more important now than ever before in the history of our country because of the current economy.  Be sure to consult with your bankruptcy attorney about your situation. All is not lost. In most cases you can still get the relief you deserve.

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     A literal reading of 11 U.S.C. Section §362(c)(3) terminates the stay 30 days after the filing of the petition only with respect to the debtor, not property of the estate. However, coming into bankruptcy court in the Central District, recent rulings have discussed whether the Stay terminates entirely or only with respect to the Debtor in subsequent bankruptcy case filings.

      In re Reswick Jr., 2011 Bankr. LEXIS 873, (B.A.P. 9th Cir. February 4, 2011) held that the Automatic Stay terminated as to the debtor and property of the debtor’s bankruptcy estate 30 days after the debtor’s second bankruptcy filing. The court agreed with the persuasive reasoning set forth in In re Daniel, 404 B.R. 318 (Bankr. N.D. Ill. 2009), and held that the automatic stay terminated in its entirety on the 30th day after the petition date." (Emphasis added.) This is a minority decision.

The Reswick court analyzed the majority viewpoint [*364],

“The majority interpretation finds the phrase "with respect to the debtor" to be both critical and unambi-guous, and concludes that on the 30th day after the peti-tion date, the automatic stay terminates only with respect to the debtor and the debtor's property, but not as to property of the estate. See, e.g., Holcomb v. Hardeman (In re Holcomb), 380 B.R. 813 (10th Cir. BAP 2008); [**7] Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (1st Cir. BAP 2006); In re Pope, 351 B.R. 14 (Bankr. D.R.I. 2006); In re Murray, 350 B.R. 408 (Bankr. S.D. Ohio 2006); In re Brandon, 349 B.R. 130 (Bankr. M.D.N.C. 2006); Bankers Trust Co. of Cal. v. Gillcrese (In re Gillcrese), 346 B.R. 373 (Bankr. W.D. Pa. 2006); In re Williams, 346 B.R. 361 (Bankr. E.D. Pa. 2006); In re Harris, 342 B.R. 274 (Bankr. N.D. Ohio 2006); In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006); In re Moon, 339 B.R. 668 (Bankr. N.D. Ohio 2006); In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006). Although these decisions state that the court need not read beyond the phrase "with respect to the debtor" to discern its meaning, see, e.g., Jones, 399 B.R. at 363 ("Section 362(c)(3)(A) provides that the stay terminates 'with respect to the debtor.' How could that be any clear-er?"), these decisions arguably do read beyond the phrase because they find that the stay terminates with respect to the debtor and to any property of the debtor that is not property of the estate. Id. at 362; see also Holcomb, 380 B.R. at 816 ("[W]e conclude that the language of § 362(c)(3)(A) terminates the stay only as to the debtor [**8] and the debtor's property."); Jumpp, 356 B.R. at 797 ("Section 362(c)(3)(A) provides for a partial termination of the stay.").”

On May 9, 2011, the Central District Riverside Division Court in In re Rinard, 2011 Bankr. LEXIS 1731, Judge Clarkson held,

“Under 11 U.S.C. § 105(a), a bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Section 105(a) gives the bankruptcy courts the power to stay actions that are not subject to the 11 U.S.C. § 362(a) automatic stay (footnote omitted) but "threaten the integrity of a bankrupt's estate." Canter v. Canter (In re Canter), 299 F.3d 1150, 1155 (9th Cir. 2002) (citation and quotation marks omitted); Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir. 1987)." Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1093 (9th Cir. 2007). The Ninth Circuit, in Solidus Network further found that the usual preliminary injunction standard applies to stays of proceedings against non-debtors under § 105(a). Solidus at 1094.”

One of our judges recently overruled a motion for turnover of property that was foreclosed upon after the Stay expired.  What this means is that you MUST file a Motion to Continue the Automatic Stay beyond the 30 days when your client has filed a subsequent filing within 12-months preceding the filing of their current case.  In our Central District these are fairly simple form motions that are routinely granted. These motions MUST be filed and heard within the first 30 days of the case. Don't risk losing your client's assets.

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Just another reason why I hate association living, Homeowners Association Dues. I know that when you're faced with either feeding your family or paying HOA dues, you'll need to feed your family. Just know that these particular fees are called covenants running with the land and are part of your obligation even after you've filed bankruptcy.

11 U.S.C. 523(a)(16) makes post-petition HOA fees nondischargeable and leaves the Debtors liable for these fees as long as they held legal, equitable, or possessory interest in the condominium. The problem with this scenario is that it provides no incentive to the lender to foreclose on the property because then they would be liable for these dues accruing. It's the perfect storm of natural disaster of legislative inequity.

Never fear my precious condo owners in desperation, there is still HOPE. Quoting Aristotle, the nature of equity is the "correction of the law where, by reason of its universality, it is deficient." I hold this to mean that since the HOA and the bank choose to sit on their rights by trying to keep the homeowner liable for the accruing dues, then they consented to the remedy by their inaction. Remember that Bankruptcy Court is a court of equity, meaning they will do their best every time to balance those scales of justice.

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It’s not unusual these days that debt collectors take extreme tactics to get you to pay up on your debts. Meet the vehicle disabling device.

Wall Street Journal posted this article entitled, "Late on Car Loan? Meet the Disabler," by Jonathan Welsh, which introduced us to the vehicle disabling device. Imagine that you’re driving along the freeway on your way home just a couple days after missing your auto loan payment and your car suddenly stops. Hopefully you’ve made it to the side of the road when you realize you’ve missed your car payment and the creditor has initiated this disabling device in your car to force you to either surrender it or make your car payment so you can continue to drive it. Sound like extortion to you? Well it certainly a form of extortion not to mention this creates huge risk exposure for the wary debt collector who happens to initiate a vehicle shut down causing damage to the consumer.

I’m not seeing any of these devices here in California yet, but it seems to be a sign of things to come. Protect yourself by asking the dealership if one of these devices has been installed in your vehicle when you purchase a car from a dealership. Also, if you’re in bankruptcy and have one of these devices, ask your attorney to request the dealer disable the device as it could constitute a violation of the automatic stay injunction that legally stops all attempts to collect debts against you.

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Dave Ramsey may have been the first to coin the term, "plasectomy," but the doctors and surgeons that most effectively execute this procedure are bankruptcy lawyers.  Dave touts self plesectomy, such a procedure will only slow the tumor's growth. To be sure, my partner John Greifendorff defines plasectomy as the procedure to remove malignant financial tumors.

Other related terms are:

PLASECTIC: adj, of or pertaining to malignant financial consumption, a person or thing that suffers from Plastectomia; and

PLASECTOMIA -- a condition of financial decay or consumption, symptoms -- credit card debt, unsecured debt,
decreased ability to control spending, stress

Symptoms of Plasectomia include:  financial nausia, stress, bounced checks, depleted savings and retirment accounts, headaches, insomnia, homelessness, wallet discomfort, shame, guilt, thoughts of suicide and even death. This list is not exhaustive.

Don't let the stress and worry of moderate to severe Plasectomia drag on your finances any longer. If you've recently done this procedure on yourself and the symptoms are recurring or worsen, it's time to consult with a bankruptcy attorney in your area.  Remember that the Bible even allows for a discharge or wiping clean of all your debts every 7 years. It's no wonder the Bankruptcy Code mirrors the Bible by allowing you to obtain a Discharge of your debts every 8 years.  That's why we offer FREE Plasectomys for our clients.

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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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Yep. You read that right. Filing for bankruptcy will improve your sex life. No blue pills; no magic bullet; and no better way to improve your sex life than to powerfully deal with DEBT by filing for bankruptcy.  The reasoning is simple:

The same reason that got you into DEBT is the same reason it's crippling you now, emotionally, and making your sex life miserable or even non-existent; it's your personal identity or EGO!

You got into DEBT to buy things you didn't need with money you did not have in order to look good and be attractive to the opposite sex. You did this in order to get sex.  Unfortunately, you failed to plan for a way out of debt and now find yourself stuck in a hole too deep to dig yourself out of. [No pun intended]

This financial burden weighs heavily on your personal identity ("EGO") and your self worth is tied up in your wallet, so much so that you are emotionally drained according to psychotherapist Phil Tyson, Ph.D. who wrote, Do You Understand the Psychology of Debt?  I've even written about your emotional ties to money in my white paper entitled, Money is a Matter of the Heart.  So, how do I suggest you improve your sex life?  Deal powerfully with your DEBT by filing bankruptcy.

Bankruptcy is a powerful tool that will eliminate the stress in your life that will allow you to get that much needed sleep.  Getting enough sleep actually helps reduce stress. Less stress means your self esteem goes up. When stress goes down and self esteem rises, you will feel better about yourself.  When you feel better about yourself, you're happier and want to have sex. Oh, and you're much more attractive to the opposite sex when you're happy. Therefore, filing bankruptcy will improve your SEX LIFE!

Contrary to popular belief, filing bankruptcy will actually improve your credit score too, and it eliminates your legal obligation to pay your debts permanently.  It's better than debt settlement because you won't owe any money to the IRS on debts discharged in bankruptcy, like you would if you negotiated a settlement of your debts.  In bankruptcy, you can use Exemptions to protect your property from being taken by the trustee and still eliminate your debts.  Most bankruptcy lawyers offer FREE consultations.  You're worth it to eliminate your debts and your sex life will improve.  Now that's just plain sexy.

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U.S. Bank misled the Debtor into abandoning bankruptcy by promising to work with the Debtor on a mortgage reinstatement and loan modification. The case, Aceves v. U.S. Bank, N.A., No. B220922 (Cal.App. Dist.2 01/27/11) the California Court of Appeal for the 2d Appellate Division found that the Debtor could have reasonably relied on the bank's promises, the promises were sufficiently concrete to be enforceable, and the Debtor's decision to forgo Chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Here's my favorite part:

"Contrary to the bank's contention that Plaintiff's use of the Bankruptcy Code was ipso facto bad faith, Chapter 13 is uniquely tailored to protect homeowners' primary residences from foreclosure," the appellate court said.

After the debtor abandoned her case, the lender foreclosed.  The trial court entered a judgment in favor of U.S. Bank and the appellate court reversed on the issues of promissory estoppel and fraud. This means that if the lender promises to work with you and then they later foreclose after you have taken action in reliance on their promise, the lender could be liable for their actions.  Unfortunately, this story does not have the happiest of endings because the court found no basis for voiding the deed of sale or otherwise invalidating the foreclosure.

The moral of this story is that you receive valuable rights under Chapter 13 Bankruptcy that will stop the foreclosure sale through the injunction provision of 11 U.S.C. §362 (Automatic Stay). The bankruptcy court can reinstate your loan and will permit you to cure your default through Chapter 13 Plan payments over 3 or 5 years. Since Congress refuses to allow bankruptcy judges to modify the terms of the loan, you'll have hire an attorney who focuses their practice on predatory lending, mortgage fraud and the securitized mortgage pools to determine whether you have legal claims that could potentially be litigated during the pendency of your bankruptcy case.

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Every time I sit in court on confirmation hearings there are at least a few cases that get dismissed because the debtor's did not complete their court required pre-filing credit counseling course before they filed their bankruptcy case. The Bankruptcy Code is very clear on this and

Your case will get dismissed if you fail to complete the course prior to filing your bankruptcy case.

There are plenty of courses to choose from and a few will provide you with a completion certificate on an emergency basis.  You can file your bankruptcy case, the moment your course is complete and can file the certificate at a later time.  Since the course certificate is date and time stamped, the court will be able to confirm that you've completed the course before your bankruptcy case was commenced.

Here's a list of approved credit counseling agencies.  Just click on your state from the drop down menu and you can choose from any company on the list.  Here in California, we have the best deal in the market for pre-filing credit counseling courses.  This course was once offered for free, but now the certificate costs $5.00.  For this low cost course, go to Consumer Bankruptcy Counseling. Save yourself the hassle of filing twice and comply with the rules.  Call your local bankruptcy attorney for a free consultation if you're not sure what course of action is right for you.

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 Back in July, 2010 I reported on the 9th circuit case of Mwangi v. Wells Fargo Bank, N.A., "Wells Fargo Won't Stop Freezing Bank Accounts." Our local group of attorneys here in the Central District of California have it on good word from sources inside Wells Fargo's bankruptcy department that the bank continues to freeze accounts while the litigation case is reviewed by the bankruptcy court in Nevada.  The Mwangi case has been remanded back to the bankruptcy court to determine whether Wells Fargo's continuation of the administrative freeze and retention of the account funds claimed exempt, in the absence of instructions from the trustee, was reasonable in light of the debtor's demand that the subject account funds be released for their use.

This is a case to watch as it affects all debtors filing bankruptcy, clients of Wells Fargo Bank, N.A. and the Automatic Stay under 11 U.S.C. § 362(a).  On January 21, 2011 Christopher P. Burke, Esq. and Scott C. Borison, Esq. attorneys for Eric Mwangi and Pauline Mwicharo [Plaintiffs] filed case no. 11-01022-bam in U.S. Bankruptcy Court for the District Court of Nevada this Adversary Class Action Proceeding.  

The allegation from the complaint alleges that Wells Fargo Bank acted in Willful Violation of 11 U.S.C. §362(a)(3).  If the court determines Wells Fargo's conduct was a willful violation of the stay under §362(a), then the bankruptcy court will need to determine what, if any, damages the debtors are entitled to under §362(k)(1).  We will keep you posted on the progress of this pending case and the outcome.  In the meantime, don't bank where you owe money.

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 Have you heard of Judicial Estoppel?  Well, you need to if someone owes you money and you're thinking of suing while contemplating bankruptcy. The doctrine of Judicial Estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. What this means is that what you disclose on your bankruptcy papers become public record in a legal proceeding; a judicial record.  So, if you're owed money or have a potential creditor harassment suit and you fail to list these potential claims on your bankruptcy papers and later file suit, that subsequent lawsuit can be dismissed on a judicial estoppel theory.

A recent 6th Circuit case, White v. Wyndham Vacation Ownership, 617 F.3d 72 (6th Cir. August, 2010) illustrates this point.  The question presented before the court was whether the failure of the debtor to disclose in her schedules, a sexual harassment claim she had was grounds to dismiss the harassment case on the basis of judicial estoppel.  The court held yes. In this case, the Debtor filed bankruptcy under Chapter 13 but did not list a sexual harassment claim she had against the defendants in this district court action. About a week after the plan confirmation hearing, she file a lawsuit in district court seeking more than $1 million in damages. A month later, the defendants filed a motion to dismiss the harassment case on the basis of judicial estoppel. The Debtor later filed an amendment to her schedules disclosing the case, but not the amount. 

The court cited two  circumstances in which a debtor's failure to disclose might be deemed inadvertent or mistake as:

1.  Where Debtor lacks knowledge of the factual basis of the undisclosed claims; and

2.  Where the debtor has no motive for concealment and an absence of 'bad faith.'

The reasoning behind this important decision is that your creditors should be entitled to any proceeds or the value thereof in your bankruptcy case.  So, while you will likely be able to keep your stuff and claims too, it's wise to disclose potential claims to preserve your right to sue later. Remeber that you sign your bankruptcy papers under penalty of perjury that you have fully disclosed all assets, claims, debts and liabilities, so there's no having it both ways in bankruptcy.

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Married couples facing tough financial decisions must also face eachother. Here in California, we are in what is called a community property state.  That means that income earned during marriage and debts incurred during marriage are part of the marriage community. In contemplating bankruptcy, couples must know that the act of filing a bankruptcy case creates an estate for the purposes of liquidation under Chapter 7, or reorganization under Chatpers 13 or 11.

The bankruptcy estate consists of all the assets and debts of that estate.  So, your spouse's income, expenses and debts will come into the bankruptcy case even if they do not sign the bankruptcy papers. The bad news is that you're in this together. The good news is that you can also rebuild your credit quicker after bankruptcy.

Depending upon how the assets of your community estate are set up, will depend on how you should best proceed in bankruptcy. So, talk to your spouse first about your finances and set a goal for yourselves. Once you're teamed up and have your goal in mind, consult with your tax professional, financial planner and your local bankruptcy lawyer  to determine which direction is best for you.  There are many solutions to your current situation and the best strategy is to stay united and enlist help from several professional resources. Most professionals will consult with you for free, so take their advice and then make your decision from a well informed position.

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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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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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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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Debt settlement requires that you negotiate with creditors to settle debts for less than what you owe. Once an agreement is reached, you pay the agreed amount and your liability for that debt goes away. What these debt settlement companies don’t tell you is that you will also receive a 1099 tax form they filed with the IRS. Now that the debt is gone, you’ve got a tax bill for that settled debt. So, not only have you paid to get rid of the debt, you owe income taxes too.

Too often, hiring a debt settlement company to help you negotiate with creditors can cost in the thousands of dollars. What happens is that they set you up on their payment plan and then the debt settlement company begins taking your money first for their fees and never paying a dime to your creditors until their fees have been paid in full.  Many consumers end up in litigation with their creditors and these companies do nothing to assist consumers until they've been fully paid.

Here’s an example: Say you owe $5000.00 to credit card and you’ve done well and negotiated this debt down to $500.00. You must pay $500.00 to get rid of the debt. At year’s end you will receive a tax bill for $4500.00 and you must pay income tax on that amount; perhaps another 15% depending upon your tax bracket. You’ve paid a total of $1175.00 to settle that account. Simply follow this plan until each credit account has been eliminated and you get the picture.  Add to that cost, the fees for hiring a debt settlement company and you have nothing left.

Bankruptcy, on the other hand, effectively eliminates all debts, without any income tax liability. Usually, you are charged a flat fee for services. Once you’ve received your discharge, your debts are gone forever. Isn't that your goal? So, you pay nothing to your creditors, have no income tax liability and pay one flat fee to file your bankruptcy case and your debts are permanently eliminated.  There's no sense in foregoing a free consultation with a bankruptcy lawyer because you can generally keep your cash and belongings and still eliminate your debts.

Your credit score is the last thing you should be thinking about during any financial crisis. Besides your credit score only measures how well you manage DEBT and isn’t that what you’re working so hard to get out of? We have generally found that most people who file for bankruptcy have their credit score actually increase because the debts are gone. Soon after, you’ll receive offers for credit because the creditors know that you cannot file bankruptcy for another 8 years, making you a prime candidate for high interest credit cards. But why would you want to create debt ever again?
 

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Now, I'm no math expert; that's why I went to law school.  The other day, I heard someone mention that they were tired of the medical bills they were receiving and they were just going to pay those medical bills with credit cards.  Unbelievable.  You're of above level intelligence if you're reading this post because you can turn on your computer, log onto the internet and search for information about relevant subjects that interest you; right?  Then, what makes you think that using your credit card, with an interest rate of about 10% or more, to pay off a debt with 0% interest is a good idea?  Am I missing something here?

Too often people are led to the wrong conclusions about money and can't figure out how they got  themselves into the messes they created.  Stop and think about it.  It "feels" good to pay off a debt.  What's missing is that more debt is being created to "feel" good momentarily.  Don't let your emotions get the best of you when making financial decisions.

Another financial mistake would be to pay those medical bills with your retirement accounts; 401k, 403b, IRA, or Roth IRA account.  I don't care how you're saving for retirement, that money is not for medical bills now; it's for your future.  Never, and I emphasize NEVER, touch your retirement accounts until you retire.

Medical bills and credit card debts are always dischargeable in bankruptcy and your retirement accounts are safe from being taken by the trustee to pay those debts.  So, if the Courts can't touch your money to pay your bills, why should you?  

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Here's a tip; if you're going to live extravagantly, don't make that lifestyle the focus of a reality show. Teresa Guidice starred in the reality show, Real Housewives of New Jersey, with her husband Giuseppe.  Mrs. Guidice was often featured on the Bravo show going on outlandish spending sprees to furnish their newly constructed and underwater, $1.7 million dollar home. Now, the Chapter 7 bankruptcy trustee is alleging the debtors hid more than $250,000 in assets in their bankruptcy petition filed in November, 2009. 

You don't have to look very far to see the cash fly.  Teresa Guidice has a book, Skinny Italian; an online clothing boutique, T.G. Fabulicious LLC.; and the couple is also accused by the trustee of having an interest in a pizza parlor and laundromat.  They also mysteriously made more luxurious purchases after their bankruptcy filing.  Apparently, the online company made these purchases for their household goods totaling more than $60,000.  The trustee is seeking a preclusion of discharge and/or a dismissal of the bankruptcy case that would deny the debtors the benefits of bankruptcy.  The drama unfolding in federal Bankruptcy Court is worthy of a reality show all its own. 

There is a lesson in here somewhere I just know it.  I suspect that hiding assets from the bankruptcy trustee is never a wise idea.  Remember that you are signing your bankruptcy petition and schedules under penalty of perjury that you have disclosed all of your assets and all of your debts.  Bankruptcy Fraud is Prosecuted and is a Crime. 

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So, either a friend (and they'd better be your Best Friend) or family member asked you to co-sign on a loan and you did. They just told you they're filing bankruptcy.  What happens now?  Well, you don't need me to tell you what a bad idea it is to ever co-sign for the debt of another; or do you?  Once you've signed on the bottom line, you're liable for that debt if the bills go unpaid by the person who talked you into this contract. 

When the co-signer files bankruptcy, the effect of the discharge is a permanent injunction that prevents the Creditors from collecting on the debt owed by the debtor.  However, if there is a co-signer on the account, the Creditor is free to pursue collection efforts against the co-signer.  You remain liable for the debt as the co-signor; if the person you signed for fails to make the payments.  So, what can you do if the person you signed for files bankruptcy?

Depending upon the nature of the agreement you co-signed for, you will need to contact the Creditor immediately to discuss your options.  If it's a vehicle loan and the value of the vehicle is less than what is owed, you'll be legally liable for any deficit owed.  You can work out payments, if the Creditor will allow it.  It is imperative that you take action immediately.  You may even need to file for bankruptcy protection yourself, if you are not financially able to make the required payments on this debt.

Here's my advice.  Do not co-sign for the debt of another, unless you can afford to buy what ever it is you're signing for; and, you wouldn't mind owning it in the event they fail to make their payments.  You're new mantra needs to be, "Friends don't let friends co-sign for their debts."

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The bankruptcy rule changes from Bankruptcy Abuse Prevention and Consumer Protection Act 0f 2005, or BAPCPA, created the Means Test formula for determining whether a consumer qualified to file bankruptcy under Chapter 7 of the Bankruptcy Code. Basically, the means testing requires that the debtor’s income must be below the median level for households, using Census Bureau and IRS standards. 

Based on your current income and expenses you have determined that you qualify to file bankruptcy under Chapter 7 and file your case in good faith. Now, enters the United States Trustee. The Trustee’s role in a Chapter 7 case, is to determine whether your estate has any assets that can be sold to pay your debts, or whether you have income to pay at least a portion of your debts, pursuant to 11 U.S.C. § 707(b)(3)(B). 

A June, 2010 decision by Bankruptcy Judge Randall L. Dunn, in In re Stubblefield (Bankr. D. Or. 2010) granted the U.S. Trustee’s motion to dismiss the debtor’s case pursuant to Section 707(b)(3) because the debtor’s ability to pay creditors through Chapter 13 is of primary importance when considering whether the Chapter 7 filing is an abuse. The Court determined that although the debtor’s income had declined, under the totality of the circumstances and using the six factors outlined in Price (In re Price, 353 F.3d 1135 (9^th Cir. 2004)), the debtor’s ability to pay a substantial portion of her unsecured debts was of primary importance. 

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Let's face it, we are in tough financial times throughout our country.  There are many options to dealing with money issues.  Along with tough financial times comes stress, even depression, anxiety and fear.  Our emotions are tied very closely to our relationship with money.  Here are a few tools that just might help you gain some perspective.

Take a look at this WebMD article, The Debt-Stress Connection and notice where you might be in terms of your stress level about your current financial situation.  Your life is much too precious to lose over your debts.  It's important to start right where you are and decide to take action; whatever action is necessary to change the outcome. What is the worst that could happen to you financially?  Most people don't answer the question with any health issues, but that's what you're facing if you remain paralyzed about the situation.

Take action and get help.  I'm a big fan of the Dave Ramsey program for those of you that have the ability to climb out of debt without bankruptcy.  Learn about financial planning and get yourself on a budget today.  Have a reality check with your doctor, your tax professional, financial planner and your bankruptcy lawyer.

Vision your life in five years.  What does your life in the future look like?  Where will you live?  How will you provide for your self?  Your family?  Imagine what that looks like and then decide the path that is right for you to get there.  For some, it's creating a budget and sticking to it.  For others, it means filing for bankruptcy. The sooner you commit to your future, the sooner you'll feel better.

Remember that financial responsibility requires that we make some tough choices in our lives.  Filing bankruptcy is not the end, but a process toward a new beginning.

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I know what you've been told because I have heard it all too.  The government wants you to do your very best to avoid bankruptcy at all cost.  Bankruptcy is bad; or at least, a harsh remedy to dealing with debt, and should be your last resort.  We have all bought into this 'agreement reality' and it couldn't be further from the truth.

I assert, bankruptcy is a powerful tool that should be considered in your overall financial plan that includes eliminating debts.  Adrian Lapas, over at Bankruptcy Law Network explained the pitfalls of debt settlement by warning of 1099 tax bills for canceled debts; and even creditor's unwillingness to negotiate a settlement at all.  Oh, and I'm really tired of discussing your credit  score because it's already been adversely affected by your not making your payments on time. In fact, filing bankruptcy might actually improve your credit score once all that bad debt is cleared from your credit report. 

I've had clients come to me after signing up with these debt settlement companies and spending nearly $10,000 on fees, only to find themselves in lawsuits with their creditors that these companies warned them about and would not help them with.  Remember that if you negotiate your settled debts, you're still paying money toward them and you'd better have some cash saved up to pay it in full if they accept your offer.  Also, you must be prepared for that 1099 tax bill at the end of the year because you'll wind up paying taxes on that can celled debt.

Bankruptcy not only eliminates the debt without any payments from you, it will eliminate your liability entirely and you won't owe taxes on the debts that were discharged in the bankruptcy.  That's where bankruptcy as a tool, is more efficient and not only a powerful tool, but a cost saving device for you as well.

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Many a Creditor has driven us bankruptcy lawyers and our clients nuts with their antics, but freezing a client's bank account after their case has been filed takes the cake.  The Ninth Circuit BAP just released In re Mwangi Case No. 09-1408 (9th Cir.B.A.P., June 30, 2010), which held that Wells Fargo's national policy of placing administrative holds on accounts of persons filing a bankruptcy petition violates the automatic stay by exercising control over property of the estate.  The issue in Mwangi was their national procedure of running a computerized comparison of all newly filed Chapter 7 bankruptcy cases against Wells Fargo's list of account holders.  If they found a match of one of their account holders who had also filed bankruptcy, then Wells Fargo would immediately 'freeze' that account, preventing the debtor from having access to their money. 

It's no secret that Wells Fargo has been notorious for freezing the accounts of debtors filing bankruptcy under Chatper 7.  We also have it on good word that Wells Fargo will continue to hold funds while they appeal the Mwangi case. 

Keep in mind that your bank account is property of the estate upon filing your bankruptcy case that presumably includes the cash in your bank accounts.  So, don't go on a spending spree just yet.  Any Exempt funds are not exempt until 60 days after the conclusion of your meeting of creditors.  Technically, all of your assets, including cash on hand must be turned over the trustee to administer your estate, but that is just not practical.  This means that the law is not on your side here and while Wells Fargo can put a freeze on your accounts, they also must act prudently by asking for guidance and direction from the Trustee and/or Court as to what to do with your funds.

This reminds me of the term "vicious compliance."  This term seems to crop up in certain union worker circles when they don't like a particular ruling or law, they will strictly comply with it and demonstrate that it doesn't work and then use it against management by knowing it better.  So, if Wells Fargo wanted to 'viciously' comply with the law, they would stop freezing accounts and simply send all the money to the trustee.  No matter how you slice this ruling, Wells Fargo is still a big bully.

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Are you one of the many Americans caught up in the viscious grip of payday loans?  It seems, these days, that payday loan shops are replacing Starbucks on every corner.  It's the new business to be in with this depressed economy. Here's what happens when you obtain payday loans in your rup-up to filing for bankruptcy.

If you have presented a post-dated check as 'security' for the loan, when you file for bankruptcy, the payday lender will simply cash the check and hang on to the funds.  The lender can do this under 11 U.S.C. Sectioin 362(b)(11), which provides that the automatic stay does not apply to the presentment of a negotiable instrument and the giving of notice and protesting dishonor of such an instrument.

However, the overconfidence on the part of these payday lenders comes with a price.  One decision, In re Thomas, 311 B.R. 75 (W.D. Mo. 2004) provides that a post-petition transfer of funds out of the account by presentment of post-dated payday loan check could be avoided pursuant to 11 U.S.C. Section 549(a).  This means that you could bring an action to recover the funds as an unauthorized post-petition transfer.  Unfortunately, such actions are more costly than the amount transferred; which is why most debtors decline to bring an action under Section 549.

Ask your bankruptcy lawyer about their experience with repeat offenses by payday lenders because the creditor's willful violation of the automatic stay does give rise to actual damages, costs, and attorney fees; even punitive damages in some cases.  Don't think that these payday lenders have the upper hand just because they have your check in their hands.

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A bankruptcy will remain on your credit report for up to ten (10) years. However, the perceived hit to your credit is an illusion that your creditors don’t want you know about. You see, if you’re already experiencing wide spread defaults on your bills, or even your mortgage, then your credit score has already been adversely affected. 

In fact, not taking any action toward resolving your money problems will cause significant and long-term damage to your credit score. Late payments and defaults will stay on your credit report for up to seven (7) years and if those debts are not discharged or paid, they can haunt you for all eternity. The biggest hit to your credit score is unpaid debts; not a bankruptcy.

Filing bankruptcy will eliminate old debts and completely clear your credit report of all debts, period. This fresh start by filing bankruptcy, cleans the slate and can actually cause your credit score to go up. Yes, I said that your credit score will likely increase after bankruptcy. Your creditors don’t want you to know this and they will do everything they can to get you to pay them as much as possible.

The folks over at the National Bankruptcy Forum agree, according to their recent blog article entitled, “Has the Biggest Reason Not to File Bankruptcy Already Happened to You?” This article points to the fact that being late, or failing to pay your debts has more of a negative impact on your credit score than filing bankruptcy. Why continue to suffer and throw good money after bad? If you are considering bankruptcy, call your local bankruptcy lawyer today.

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Whether you're filing bankruptcy under Chapter 7 or 13 in California, you will get to keep most of your belongings and your home.  That is, if you have a home worth keeping.  Under the law, the keeping of assets is known as 'exemptions;' meaning the assets are exempt from being taken to pay your debts.  These exemptions can be found in the California Code of Civil Procedure Sections 703 and 704. 

On Schedule C of the bankruptcy forms, you will be required to state under which law you are applying your exemptions and you must use one or the other and cannot use both.  This is important to keep in mind because even though Bankruptcy Law is federal law, here in California, we have our own unique sets of exemptions that we can apply.

Don't lose your stuff in your attempt to eliminate your debts through bankruptcy by filing your own case.  Now, more than ever before, you need to consult with your local bankruptcy lawyer to protect your rights.

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I always tell my clients that your credit score only tells you one thing; how well you manage DEBT.  So, why would you want to go back into debt again after bankruptcy?  After all, don't you just want to enjoy the feeling of financial freedom from debt for as long as possible?  My first inclination would be  to strongly discourage you from ever getting into debt again, but I know you're an adult and you can do with your life and money as you please.  So, here are some suggestions I found from the folks over at the National Consumer Law Center on Using Credit Wisely After Bankruptcy. 

Lower interest rates. Just because you've filed bankruptcy; it doesn't mean that you will forever be stuck with high interest rate offers on credit.  In fact, I strongly encourage you to avoid those high cost, high interest rate predatory type lenders.  Run, don't walk away from anyone advertising, "Bad Credit?; No Credit? Bankruptcy? No Problem!"  You're guaranteed to get a loan from these lenders, but it will cost you more than it did to file bankruptcy in the first place.  Don't get pressured into signing any contract that you don't understand, or that cost too much just for the credit. 

Here's the deal.  You've worked hard to take responsibility for your financial well-being and now have your bankruptcy discharge.  You'll be able to get credit again and on good terms too, but don't you want better than that for yourself and your family?

Savings accounts.  Instead of debt and credit, consider setting money aside every month in a savings account to save for big ticket items.  Remember layaway?  Be your own lender and save money to buy what you want.  Chances are, if you have the cash in your account and actually have the money to buy that flat screen TV, it will be much harder to part with that cash than it would be to put it on a credit card and pay 29% interest.  There is a dysfunctional psychology to that.  So, if you can't afford it, save your money and pay cash instead.

Shop around.  Rich people do this all the time.  Shop around for services you need and use all the time, like groceries, phone service, insurance, etc. 

Ask for discounts.  I have found that negotiating and asking for discounts on things really makes a difference.  Here's a story:  I was at a do-it-yourself-store a few weeks back.  My boyfriend and I were shopping for area rugs for our living room.  We found one we could both agree on, but the only one left was the hanging sample.  It was in otherwise perfect condition hanging on the display clamps.  So, I told the representative that I would like for him to roll it up, give me a discount and send me on my way with the rug.  Now, mind you, they were already on sale and I was asking for an even greater marked down price.  He went to talk to his manager and brought back a hand written ticket and had taken another $50.00 off the price!  I am telling you that asking for a discount works. 

Read before you sign.  Don't be embarrassed because you don't understand a complex financial document.  You're not a lawyer.  Hey, I know some lawyers that don't understand complex financial products.  Remember that when you sign a legal document and enter into a contract, you're agreeing to what is in that document whether you read it, or understood it.  Be a well informed consumer.  If you don't understand the contract; don't sign it.  Just because something is being sold in the marketplace does not make it a good idea. 

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In this economy, all cross-sections of our community have been impacted.  Money matters to all of us.  Your local bankruptcy attorneys are working hard to dispel the lies and myths about filing bankruptcy.  It is imperative that the truth be told; bankruptcy is an important tool that will facilitate Economic Recovery for America.  That's why we're coming to the Long Beach Lesbian and Gay Pride Festival, May 15-16, 2010.

Attorney R. Grace Rodriguez is the sponsor of the Financial Wellness Clinic booth inside the festival.  Local Bankruptcy Attorneys will be on hand to answer your questions about debt relief options; fiancial wellness; tips to avoid bankruptcy; the bankruptcy process and life after bankruptcy.  A special note to homeowners:  Filing Bankruptcy Will Stop Foreclosure! 

The lesbian and Gay community has special legal needs when it comes to bankruptcy and financial wellness.  It is more important than ever to know your legal rights.  The attorneys will be dispensing valuable information and providing pricelss resources to the booth's viistors.  Be sure to look for the Financial Wellness Clinic Booth at this year's festival, held in Long Beach on May 15-16, 2010.  Be proud.  Be debt FREE.

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As a consumer debtor, you will usually have two options when deciding to file bankruptcy; Chapter 13 or 7 under the Bankruptcy Code.  The question is which is better?; and which one should you file?  The answers to these questions are as unique as your individual circumstances.

Under Chapter 7 of the Bankruptcy Code, you are declaring that you have no ability to pay your debts at all.  You are, in a sense, liquidating your estate.  From the moment you file your case under chapter 7, the trustee takes control and has the right to take any assets available to pay your debts.  However, you have certain rights to retain assets under California Code of Civil Procedure Sections 703 or 704.  This means, that you will be able to keep your home, cars, retirement accounts, personal belongings, up to the limits pursuant to the law. These cases usually conclude within about six (6) months.

Under Chapter 13, you are declaring that you have some disposable monthly income to apply toward your debts and you are asking the Court to allow you to restructure that debt over time and allow you to pay only what you can afford. 

Chapter 13 is, in my opinion, the best choice to save your home, dispute debts owed, and otherwise hold your creditors accountable for any mistakes in your debt obligations, accounting, collection activity, fraud or abuse.  These cases require a longer period of time, usually up to five (5) years, and there are additional reporting duties involved.  You are strongly discouraged from filing a chapter 13 bankruptcy without an attorney because of the additional local rules, accounting and reporting requirements. 

Most everyone has thought of filing bankruptcy as simply filling out a bunch of forms.  I would have said that before the BAPCPA in 2005.  Now, with the sub-prime mortgage meltdown and their complex financial contracts; scams, despair and desperation of the banking industry; and the complexities of the Bankruptcy Laws, you need to consult with your personal bankruptcy lawyer before your case is filed.  Your bankruptcy lawyer will save you time and money by reviewing your current financial situation and create strategic plan to eliminate your debt with the least amount of money out of your pocket.

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Let's talk about your retirement accounts as they relate to your decision to file for bankruptcy.  There are many varieties and vehicles for retirements savings that include pensions, 401k, 403b, IRA and Roth IRA accounts.  Perhaps there are others that I am not aware of.  As I have said before, DO NOT CASH OUT YOUR RETIREMENT TO PAY YOUR DEBTS.  Your retirement accounts are ONLY for retirement and should NEVER be accessed for any other reason. 

When you file bankruptcy, all of your assets become a part of your estate.  The trustee will have temporary control over that estate and can administer certain assets to pay debts.  However, some assets in your estate, including retirement accounts are exempt from being taken by the trustee. 

One great reason to hire an attorney to assist you in filing bankruptcy is pre-bankruptcy planning.  Your attorney will give you valuable advice before filing your bankruptcy case.  Converting non-exempt assets to exempt assets before filing a bankruptcy is not only non-fraudulent, your attorney has a duty to maximize this type of pre-bankruptcy planning.  Keep in mind the CA IRA has a "reasonably necessary" for retirement limit, in addition to limitations of contributions to only the tax deductible amount for each tax year.

The good news is yes, you can fund that IRA before filing bankruptcy.  Be sure to consult with your personal bankruptcy lawyer to ensure you're taking full advantage of your exemption rights.

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Let's face it; the economic recession is dragging on and there are no signs of improvement.  The government spending is the only spending that is propping up our economy.  So, when you hear in the news that spending is up, it's your federal government doing the spending with bailout money, and building projects for green technology; that's it.  We consumers are not so fortunate and I'm am proud to be counted with the majority who are paying down our debts, but why?  Why do we continue to be the slaves to our creditors who are increasing interest rates and charging extortion penalties when we're a day late?

Jay Jump, a Washington based consumer bankruptcy attorney addressed this very question in his recent blog post where he discusses, to a group of Realtors, that filing bankruptcy is personal financial responsibility.  His article is pretty lengthy and he admits that at the outset, but he's right on point.  We need to set our emotional high morality aside and look at our own households as small corporations and our families as our shareholders.  When you look at your financial affairs from the perspective of a business owner and who you owe a duty to; your family becomes the priority and your creditors take a back seat.  When you put your priorities in order, filing for bankruptcy makes sense in many cases.

Being financially responsible means cutting your losses before you lose everything.  It means leaving your retirement money where it belongs; for retirement.  When you are financially responsible and know that the numbers don't add up where you can feed your family and pay your debts, then the debts must be discharged in bankruptcy. 

You can transform your financial distress into financial freedom from the moment you sit down with your bankruptcy lawyer.  The stress is further reduced the moment the bankruptcy case is filed on your behalf.  Then, when your discharge notice arrives from the Court, you have done the very best you can and protected your small corporation, Your Family, from financial disaster and made a difference.  Read what Mr. Jump has to say and decide for yourself if filing for bankruptcy is responsible financial behavior because I'm in complete agreement with him.

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The only reason you should negotiate directly with your creditors, is to avoid bankruptcy.  Remember that working with debt settlement companies is both costly and detrimental to your finances and will likely land you in my office filing for bankruptcy.  If you want to avoid bankruptcy, work directly with your creditors for an agreement on what your debt is worth.  If they even think you're about to file for bankruptcy, they will most likely make some kind of offer.  However, settling debts to avoid bankruptcy comes with a price;  Income Taxes!

Beware that if you settle, or negotiate a debt to avoid bankruptcy, you could end up getting a tax bill.  while the IRS is forgiving settled debt where mortgages are concerned; the California Franchise Tax Board is not because their program has expired.  So, in California, you'll wind up owing state income taxes, if the debt you settled relates to a secured mortgage in a short sale.

But what about your credit cards?  Unsecured debt negotiations and settlements will be taxed by both the state and federal agencies.  So, unless you're prepared to pay taxes on the amount that will be written off by your creditor, then, like Cathy Moran said in her blog, Should I Settle Some Debts Before Bankruptcy, your money could be put to better use, like saving for retirement.

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In order for your bankruptcy case to run smoothly through the process, you need to avoid these seven mistakes people make before they file their bankruptcy case. 

1. Do Not Run Up Your Credit Cards:  Once you've decided to file for bankruptcy because any debt in excess of $500.00 incurred within 90 days of filing for bankruptcy are presumed to be non-dischargeable and you may end up holding the bag on this.  Also, cash advances of more that $750.00 made within 70 days of filing are presumed to be non-dishcargeable and may be found due and owing.
2. Don't Repay Any Family Members:  You cannot repay your family members any better than you would any other creditor.  In fact, the bankruptcy trustee can reclaim any amount you paid to a family member within one (1) year of filing bankruptcy.
3. Do Not, I Repeat, DO NOT Cash Out Your Retirement Accounts:  This is one of the biggest financial mistakes you can make EVER.  Retirement accounts are generally exempt from the trustee taking when you file for bankruptcy.  This means that you can usually eliminate your debts and keep whatever you have in an ERISA qualified account. 
4. Do Not Transfer Any Property Out of Your Name:  You have a duty to disclose all  of your assets to the trustee and your estate essentially belongs to the trustee once you file for bankruptcy.  The trustee can, and in most cases, will undo any such transfers made within two (2) years prior to filing for bankruptcy.
5. Do Not Try to Reduce Your Home's Equity:  Right now this should not be an issue here in California since most of us have no equity in our homes.  Just keep in mind that there is a homestead exemption and in most cases, you can keep your home and the equity, and still file for bankruptcy.
6. Do Not Fail to Appear At Court Proceedings:  Until your bankruptcy case is filed with the court, any civil proceedings, or collections case against you will continue and you MUST appear.  Also, you MUST appear at your 341(a) Meeting of Creditors in your bankruptcy case and all other appearances as instructed by your lawyer.
7. You Must Tell Your Lawyer The Truth:  Your lawyer can only provide advice based upon the information you provide.  If you fail to tell your lawyer about your assets you could lose them, your bankruptcy case could be dismissed, you could be fined, and you could end up in prison for bankruptcy fraud.

So, if you've decided to file for bankruptcy, follow these golden rules.  Don't risk your financial fresh start because you deserve a life free from debts that you cannot afford to pay. 

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Over on MSN Money, Liz Pulliam Weston wrote an article entitled, "Are You Foolish to Pay Your Mortgage?"  I get asked this question all the time, is it worth it to keep my home?  I'm passionate about this subject on behalf of my clients, whom I advise whether filing bankruptcy is in their best interests financially.  What really caught my eye about this article was Law Professor Brent White's paper, "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."  I agree with Liz that this is a must read for the finer points and Liz certainly summarizes his points from her perspective that we all need to do our best to save our homes and we all must make the best of a bad situation and know when it's time to walk away from our mortgages.

The good news is that California is a 'non-recourse' state.  This means that lender cannot pursue defaulting homeowners for deficiency judgments where they owe more than what the house is worth or what the lender might receive in a short sale or foreclosure sale.  For Californian's this is good news too because their will be no income tax on the cancelled debt or capital gains taxes to be paid on the deficiency. 

Knowing that we won't get taxed or sued after we walk away from our mortgages here in California should bring a sigh of relief, but when is it a good financial decision to walk away?  Professor White says that when the net cost of homeownership becomes more expensive than the net cost of renting is when you should walk away.  His article provides in-depth details and citations and even a hypothetical example of a couple who bought their home in 2006, at the height of the real estate boom. To make it easy, I've found a housing cost calculator on the internet that might help, but I wouldn't base any decision solely on this information.

I think the biggest challenge is to walk the imaginary road into the future and ask yourself whether you'll be better off in the long run.  I suggest that if you can afford your mortgage payment now, even though you're home's value is less than what you owe, you may be better off in 20 years than if you had rented.  Why?  In 20 years you will likely have paid down your principal, or even paid off your mortgage and if you've been maintaining your home, you're maintenance costs will likely have dropped.  If you rented for 20 years, you're still a renter and we all know the cost to rent will invariably rise over that time too.

I agree with Liz when she says to "Get Help."  Talk to your HUD Counselor, your tax professional and your local bankruptcy lawyer.  The sooner, the better.  Don't spend down any savings trying to save a sinking ship because you may end up in a worse financial situation. 

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Nowadays it seems everyone from big business to celebrities is filing for bankruptcy.  While major corporations are getting government bailouts with our tax dollars, wouldn't it seem fair if we could get a bailout too? 

Sure, you can file for bankruptcy and have many of your debts cleared off your books through a bankruptcy discharge.  But, how do you know if you need to file for bankruptcy?  At what point do you throw up the white flag to your creditors and declare bankruptcy?  Here are 10 signs that are strong indicators that you may need to file for bankruptcy:

1.  You've depleted your savings and are considering cashing out your retirement savings to pay your bills;

2.  You're living on credit cards and your debt increases rather than decreases each month;

3.  Your family has given you loans or bought you food;

4.  You're behind on your rent or mortgage, or are in foreclosure;

5.  You're anxious when the phone rings because the only calls you get are from debt collectors;

6.  You can only afford to pay the minimum payments on your debts and have high interest rates;

7.  You're using the legal loan sharks at those payday advance shops to get cash;

8. You know you have a lot of debt, but don't exactly know how much and you're afraid to look;

9.  Your car is about to be repossessed;

10.  You're being sued and you know you cannot afford to pay for any judgment.

If you, or someone you know is experiencing extreme financial hardship during these challenging economic times, it's important to take action sooner rather than later.  The sooner you discuss your situation with a trusted authority, like your local bankruptcy lawyer, the more likely you will be able to have your debts discharged without having to go broke doing it.  This means that you can save your retirement for retirement and still get out of debt.

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Once you've decided that filing personal bankruptcy is the right path toward financial freedom from your debts, you need to know: what is the process? How long does the process last? Do filers have to go to court? Who needs to be informed of the bankruptcy filing?

The process of filing bankruptcy requires that you complete a bankruptcy petition and disclose all of your debts and assets to the bankruptcy court.  Before you file for bankruptcy with the court, you will be required to complete a pre-filing credit counseling course and your certificate of completion of that course must be filed with your bankruptcy petition. 

After you've filed your petition with the bankruptcy court, you must attend a meeting of the creditors as required by 11 U.S.C. 341(a); otherwise known as a 341(a) hearing.  This meeting takes place before your court appointed trustee.  The trustee's job is to verify your identity by viewing your government issued identification card [usually a driver's license] and social security card; and the trustee will ask you some basic questions about your petition.  You must also complete a financial management debtor education course in order to be considered for a discharge of your debts. 

For chapter 7 liquidation cases, the process usually lasts approximately six months with a mandatory meeting of the creditors before the trustees.  Chapter 7 debtors will not see the bankruptcy judge, unless they need a reaffirmation hearing.  Chapter 13 individual debt adjustment cases where a debtor repays a portion of their debts over time, requires considerably more time and expense.  The process for a chapter 13 case lasts between three and five years depending upon the household income and the debtor's ability to repay their debts.  

The fact that you've filed for bankruptcy will appear on your credit report for 10 years if you filed Chapter 7 or Chapter 11 and will appear on your credit report for 7 years if you filed Chapter 13.  Bankruptcy may also affect your ability to lease rental property and find employment; and filing bankruptcy will impact your ability to file again in the future.  

Experiencing extreme financial hardship has emotional costs as well.  That's why it's best to talk to a bankruptcy lawyer so that you can make a well informed decision and lead your family to financial freedom from your debts with a trusted advisor who will inform you of all of your legal rights and remedies available through the bankruptcy process.  

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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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When closing a small business, there are advantages to using Bankruptcy as a means to winding up your small business.  If you're Going Out of Business and are looking for alternatives to Bankruptcy, or a more detailed discussion on bankruptcy advantages, then you must read Gordon Eng's recent article in the Los Angeles Lawyer magazine of the Los Angeles County Bar Association entitled, Going Out of Business. 

The advantages of using Bankruptcy as a means of closing your small business include having the Court judicially assist in winding up the financial affairs of the business by providing a single forum for contesting the validity of creditor's claims.  The Court also provides a valuable mechanism for the liquidation of the debtor's assets and determining the allocation among the creditors based upon their priority in a chapter 7 bankruptcy.  After the business has been liquidated and distributed among the creditors, any remaining debt is usually discharged.

Debts that cannot be discharged in a bankruptcy are

• Federal, state and local taxes
• Family support; i.e., spousal and/or child support
• Student Loans, absent undue hardship
• Secured debts
• Government imposed fines or penalties
• Fraud and punitive damage claims

A small business may file a chapter 7 bankruptcy as a corporation or LLC., otherwise the business owner must file a personal bankruptcy.  If the business is not incorporated and the owner files a personal bankruptcy, they are subject to the means test in determining whether they qualify for a chapter 7, or if they must file under chapter 13. 

Business owners who are shutting their doors would be wise to consult with an attorney who can help them work through the issues of closing a business in the most efficient manner that limits or eliminates their financial and legal exposure. 

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The November, 2009 issue of ABA Journal article entitled, The Bad-Debt Blues, explained the need to take federal taxes into consideration when restructuring debt as, "crucial."  The article provides an excellent overview of the federal tax rules that apply to debt workouts, and focuses on the impact to individual debtors.

The recent media blitz touting the end of the recession is an illusion caused only by government spending.  Bankruptcy filings are still up over last year and climbing to record numbers since the BAPCPA in 2005. Americans continue to struggle with what to do about their debt.

The so-called housing bubble we appear to be experiencing is caused by the fact that banks are holding foreclosed homes in their inventory rather than selling them because putting them on the market will only reduce already depressed housing values.  Similarly, the banks are also refraining from foreclosing on homes and moving toward more workout programs and modifications because they're starting to realize the error of their greedy ways. 

When faced with the tax consequences of the restructuring of individual consumer debt; either through foreclosure, repossession, or modification; filing bankruptcy provides a safe harbor and important IRS exclusions.  There is another exclusion under the Mortgage Forgiveness Debt Relief Act of 2007 that applies to Qualified Principal Residence Indebtedness on or after Jan. 1, 2006. 

It is important to remember that most financial transactions have tax consequences and we all know that ignoring the IRS with its hand out is never a good idea.  Consult with your lawyer to fully understand the tax consequences and restructure debt in the way that best minimizes tax liabilities for you. 

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I am excited to share with you, a new resource for information regarding student loans, as published by the National Consumer Law Center.  The Student Loan Borrower Assistance portal offers answers and and solutions to student loan borrowers, however, they do not provide legal advice. This issue has also attracted the attention of Congress, who recently held an oversight hearing on the matter.

Student Loans, in general, are not dischargeable in bankruptcy, absent undue hardship.  11 U.S.C. Section 523 (a)(8) provides that the debtor must show that the payment of the student loan debt will "impose an undue hardship on the debtor and the debtor's dependents."  Courts have interpreted this standard very restrictively, which makes it very difficult for even the most vulnerable to receive a discharge. A recent case, Booth v. U.S. Department of Education, et al., 10 CBN 1093 (Bankr. E.D. Wash. 2009) held that debtors can prove undue hardship even if their Income Contingent Repayment Loan Program (ICRP) payments are zero.  The Ninth Circuit Court asked, in Craig v. Educational Credit Management Corp., 19 CBN 1039 (9th Cir. 2009), how the bankruptcy court thought the debtor could pay their student loan. 

The Court will apply a three-part test, known as the Brunner test, to determine whether excepting all or part of a student loan debt from discharge will impose an "undue hardship" under § 523(a)(8); Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987). Under the Brunner test, a debtor must demonstrate:

(1) that she cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans;

(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(3) that the debtor has made good faith efforts to repay the loans.

Further, the procedural difficulty level is a general deterrent for most attorneys since the debtor must affirmatively seek this determination in bankruptcy and prove her case.  For more information on this subject, check out Student Loans In Bankruptcy.  Bankruptcy practitioners can purchase Discharging Student Loans in Bankruptcy as a resource.

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In determining eligibility to file for a chapter 7 bankruptcy, the basic qualifying factor is income under the Means Test as set forth in 11 U.S.C. 707(b)(2).  The debtor's income must fall below the Census Bureau's Median Income by Family Size.   Thus, the Means Test is a two prong test:

• The first prong being the size of the household; and

• The second prong being that of the debtor's gross income for the six months preceding the bankruptcy filing. 

Debts generally not dis chargeable in Chapter 7 bankruptcy include:  taxes, child or family support payments, student loans [absent undue hardship], traffic tickets, government fines, alcohol related accident judgments, judgment for willful or malicious conduct resulting in serious physical injury or death.

Debtors are required to submit a copy of their recent tax transcripts to the Trustee prior to the meeting of creditors, 11. U.S.C. 341(a).  A copy of the tax transcripts can be obtained by the debtor by calling the IRS 1-800-829-1040 and the debtor can even authorize the transcripts be faxed directly to counsel.  The IRS attorney line for transcripts is 1-866-860-4259. 

In California, their are certain exemptions that can be taken under California Code of Civil Procedure Sections 703, 704.  Exemptions allow a person to keep certain assets after the bankruptcy.  You must select only one set of exemptions.  If spouses are filing jointly, they must select the same set of exemptions.

A qualified bankruptcy attorney will review your individual financial situation and determine whether you qualify for chapter 7 or need to file chapter 13 bankruptcy.   

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New median income figures take effect November 1, 2009.  The change in median income levels will have a direct impact on those seeking debt relief through chapter 7 bankruptcy because of the means test.  Individuals seeking to file chapter 7 bankruptcy must pass the means test   in order to qualify; otherwise they will be required to file under chapter 13 and make some payments toward their debt.  Not since the inception of Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") in 2005 have we seen the income figures drop.  What this means is that those seeking debt relief under Chapter 7 bankruptcy, may soon be disqualified and forced to file under Chapter 13 instead.

Here in California, our current unemployment rate is 12.2%, according to the Bureau of Labor Statistics.  Our real estate market still has not bottomed out as those in the industry project a Gloomy Outlook.  Lenders have been stalling out or flat out refusing to modify mortgages that would otherwise qualify under the Obama Plan and more foreclosures are coming soon.  Also, our state workers have taken approximately 3 furlough workdays without pay, which equals an approximate 14% pay cut.  No wonder the median income figures are dropping. 

It's time to review those borderline Chapter 7 cases pending and get them filed before the client potentially becomes disqualified under the new changes taking effect November 1st. I don't think it's Bankruptcy Means Test Irony as the folks over at Bankruptcy Law Network do; it's the factual truth.

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Would you advise your client to file a Strategic Bankruptcy?  I read Michael Doan's recent blog article about the subject and would like to add there are tax advantages to home ownership that were not considered in the equation.  A homeowner receives the tax advantage of writing off the mortgage interest paid on their loans and property tax payments, while renters receive no such tax advantage.  When a homeowner stops paying on their mortgage, they no longer receive these tax advantages. The tax advantage would serve to reduce the overall savings by the amount in reduction of income tax, even if nominal, it still must be a consideration.

Further, the insurance requirements of home ownership can be expensive, depending upon the home.  However, the usual homeowner policy also covers the owners personal property both on premises and off, and personal liability.  A renters policy serves a similar puprose and will cost sometimes less or about the same as a homeowners policy.  I would never suggest that an owner stop paying on the insurance policy while they are still legally on title and responsible for the property, especially in our fire ridden state of California.  If there is a loss on the property, while the owner is still on title, and no insurance in force, then the owner would be  personally liable. 

Here's an idea:  A Shortsale with a lease back option is something I've personally considered for my own home.  As an example, my home is currently upside down by approximately $209,000.  I could eliminate that debt by having a family member buy my home for fair market value in a short sale and then I could rent it from them.  That way, I eliminate the debt and later, I buy back the house from them without the additional burden.

In conclusion, make sure you get all the facts and numbers on the table.  Each situation is more unique and we cannot possibly say that anyone with negative equity should strategically foreclose or file bankruptcy.  An attorney will discuss all your options and then you decide your best course of action. 

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The Central District Consumer Bankruptcy Attorneys Association (CDCBAA) hosted, an MCLE program on September 12th called, “The Chapter 7 Trustees.” Southwestern Law School co-sponsored the event and provided the wonderful location. The panel trustees consisted of Jeffrey I. Golden, Amy L. Goldman, David Seror, Diana C. Weil, and Edward Wolkowitz.  The trustees set forth to air their “pet peeves” and reinforced their duties and obligations as set forth in the Handbook for Chapter 7 Trustees.
 

11 U.S.C. Section 341(a), known as the "meeting of creditors" is required and it is mandatory that the debtor appear in person before the trustee at this meeting. “Appearing in person” requires the debtor to bring their current valid driver’s license with any extensions and social security card. The trustee is looking for a substantial deviation from the name(s) reported on the petition and the identity of the person appearing before them. If there is a substantial deviation in the name, an amendment to the petition is a best practice.

In preparing the debtor for their 341(a) meeting, I will provide my clients with the 10 mandatory questions that the trustee must ask and make sure they bring their “current,” “valid” identification forms, a signed copy of their petition and I will bring a copy of their tax return.

As for priority at the section 341(a) meetings, we were advised the following: Even though small children are to be left at home, anyone with small children are likely to be handled expeditiously. One attorney commented that this is a little known priority and parents have been offered as much as five dollars for the use of their children for this priority. Otherwise, represented debtors are given priority at these meetings.

What is important to note is that the goal is to avoid a continuance. Disclosure and explanation is never a problem for the trustees and being helpful by noting any discrepancies is actually refreshing. We must continue to lead by example and assist the trustees in maintaining a respectful and dignified space in the hearing room for the benefit of all debtors.
 

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I have been reading everything bankruptcy related lately.  A few weeks ago, M. Jonathon Hayes sent us an email on our listserv for the Central District Consumber Bankrutpcy Attorneys Association, CDCBAA for short, that he had just published a new book entitled, A Summary of Bankruptcy Law.  I am one of those folks who likes summaries or digest versions of anything that cuts to the point and gives me just the meat, hold the potatoes and vegetables. 

The section on chapter 7 bankruptcies takes up a major portion of the summary material.  I would have liked more information regarding chapter 13 processes, but it is a summary, so I let that go.  The material is concise and to the point.  It's an easy read and looks similar to a top tier law student's outline of a subject.  Not that I was a top tier law student, but I've obtained outlines from a few.  Overall, the book holds up to its title as a summary and I would add, a thorough summary at that.

Like kicking the tires on a car you're thinking about buying, I took the book's website citations and case citations for a spin.  The book provides valuable tools, advice on practice materials and case citations that I am still looking up.  I reccommend this book to the new practioner and law student.  Since the book was written by a California attorney,  it is well suited for the California practitioner and more specifically, those of us practicing in the Central District.  I even printed a copy of Judge randall Newsome's Research Notebook and if I ever get a chance to meet the man, I promise to buy him a beer Jonathon.  Thank you for your good work. 

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Generally, taxes are treated the same as other debts in a chapter 7 bankruptcy case.  Taxes may be treated as secured, unsecured, or non-priority unsecured, or some combination.  IRS Code, found in 26 U.S.C. 6321, states that the government is secured if it has recorded a notice of lien.  Taxes that have been recorded as a  lien are a priority and must be paid in bankruptcy and cannot be discharged.  

A colleague of mine,  John Greifendorf, addressed the question, Can I discharge Federal Income Tax in Bankruptcy?  His article is concise and outlines five conditions for discharging what the debtor owes to the IRS and even sets forth and example to follow. 

The Five Conditions are:

1. The due date for filing the tax return was not less than three years ago
2. The tax return was filed at least two years ago
3. The tax assessment is at least 240 days old
4. The tax return was not fraudulent
5. The tax payor is not guilty of tax evasion

If the debtor meets the qualifications, then the tax liability is not a priority and is discharged in bankruptcy; 11 U.S.C. 523(a)(1).  Unsecured taxes that are deemed a priority, fall outside the scope of the conditions discussed by Mr. Greifendorf and cannot be discharged in bankruptcy.

Timing is a critical component in deciding to file for bankruptcy protection and the advice of a bankruptcy attorney will address this issue.  Best practices include filing all tax returns prior to filing a bankruptcy petition with the court.  Seek the advice of a CPA or tax attorney regarding IRS claims. 

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Somewhere in the American vocabulary, there has got to be a list of the top ten most dreaded words like death, divorce, bankruptcy, we’re moving, your fired, etc. These dreaded words all have one common theme, change. Any significant change can be a traumatic experience and filing for bankruptcy is no exception.

At the heart of deciding to file for bankruptcy, every debtor must face the spiritual, emotional decision, as well as the financial decision to file bankruptcy. Each aspect, spiritual, emotional, and financial, calls for a unique conversation we must have with ourselves.

Religion aside, bankruptcy is and can be a spiritual journey in letting go of the material world as you have come to know it. You are letting go and it feels like you have lost control and you are afraid. I hear this in my client’s voices, “I’m a good person and have always paid my debts . . .” We are all good people. Being able to pay your debts does not a good person make, and the freefall happens anyway.

I have seen it many times. Clients will exhaust all of their resources and drain their savings before filing for bankruptcy because they are paralyzed by the fear and stigma of bankruptcy. They may be following their religious dogma that tells them that somehow bankruptcy is “a sin” and therefore, not an option.

I have another paradigm for bankruptcy. In bankruptcy, you are given an opportunity for a fresh start on your finances to begin again. Like in video games, when you hit the restart button, you get to start over. If you have learned the spiritual lesson of letting go of the material realm, you will view this, not as dread, but rather as an opportunity to live much differently than before.

Start from the point of being legally forgiven for your debt; in bankruptcy terms, it’s the date of discharge. Learn to be a good steward of your money and guide it forward, toward a great retirement program for your self and your family. You have more than enough stuff and no longer have to keep up with the Jones’.

Some of my clients don’t need bankruptcy, but rather come to me because they have run out of options on their own. At this point, I would encourage them to follow some sound financial principles and, as a result, I often prescribe Dave Ramsey’s book, “Total Money Makeover.” His book has seven baby steps that really get to the heart of your emotional relationship with money.

These are breakdown or breakthrough times; it’s your choice. I challenge each of us to have a breakthrough in our relationship to the material world and money. This requires being responsible in handling our money and putting it toward good use. Thank you for allowing me to lead the way.
 

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