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Why Alex Smith of the 49ers Is a Great Example for All of Us

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Okay, so this is a Bay Area bankruptcy blog and I am writing about the starting quarterback or former starting quarterback for the San Francisco Forty-Niners. Yes, yes I am. Why you ask? Because he is showing all of us, bankruptcy lawyers and my clients included, what to do when things go wrong.

If you have not followed Alex Smith’s career let me recap his career for a moment. Alex was drafted as the first pick in the 2005 draft and when you are drafted number one high hopes follow. Anything less than a stellar performance out the gate is considered a disappointment, especially given the millions of dollars the number one pick gets paid. Well, Alex suffered under the force of six different head coaches and underwhelming leadership during each year he was the 49ers quarterback until Jim Harbaugh took over last year.

Most people would not have the mental fortitude to have withstood the six years Alex endured let alone come back to have success he had last year. Alex Smith led the 49ers to the NFC Championship Game and if not for two muffed punt returns by Kyle Williams he would have led the 49ers to the Super Bowl.

Through all of this Alex has been professional and continued to work hard and do the right things even though he was being crucified in the media. One thing that has stood out was the respect his teammates continued to give Alex no matter what though. And then after going 7-2 so far this year Alex received a concussion three games ago against the Rams. His backup Colin Kaepernick gets to finish the game and the 49ers tie with the Rams. Then Alex is not cleared medically for the next game against the Bears and the 49ers crush them and win. Alex is medically cleared to play this week but does not get the nod against the Saints. Colin gets 14 points from the Forty-Niners defense, otherwise the game is a loss, and all I hear is praise for Colin’s performance. Huh? After six miserable seasons and one in a half seasons of winning Alex now has to take a backseat to Colin Kaepernick? That is harsh, but so is real life. A lost job and bad timing purchasing a home is all it takes for everything to come crushing down.

I am from Merced, CA, so I definitely root for anyone that grew up in Turlock, CA like Colin Kaepernick, but Alex Smith needs to be recognized for setting such a great example for us all. If you have a financial or personal setback, like filing bankruptcy with a bankruptcy lawyer, YOU keep working, YOU keep trying, YOU keep moving forward no matter what happens. Alex Smith is a great example of how we should all approach personal and financial setbacks in life. So YOU Alex Smith, keep your head up and be proud. YOU are a winner in life no matter what happens on the field and we should all try and follow your example.

What Happens If I File Two or More Bankruptcy Cases?

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There are a number is issues that can arise if you file more than one bankruptcy case.  The first question is how long has it been since you filed the first bankruptcy case?  Are you filing bankruptcy under the same chapter as the first filed case?  Was the first case dismissed or did you receive a discharge in the first case?  This article focuses on the topics listed above and if you file more than one bankruptcy case under Chapter 7 or Chapter 13 of the Bankruptcy Code.  Consult bankruptcy lawyers in your jurisdiction for more information.

Bar to Filing an Unlimited Number of Bankruptcy Cases

You cannot file an unlimited number of bankruptcy cases.  The bankruptcy code provides bars to filing a bankruptcy case over and over again to receive an automatic stay and stop a foreclosure or wage garnishment.  The code provides that an individual may not be a debtor under Title 11 if in the preceding 180 days has had a case dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case or the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay.  A bay to refilling because of either of the following two issues is rare.

Multiple Filed Cases and the Automatic Stay

The first case you file you will receive the full automatic stay stopping any and all collection activity.  If that case is dismissed for some reason and you re-file the second case within one year of the first filed case will only have an automatic stay for 30 days unless you request the bankruptcy court extend the automatic stay.  If the second case is dismissed prior to discharge again and you file a third case within a year of the other two pending bankruptcy cases then there is no automatic stay unless you ask the court to impose the automatic stay.

When Can I File Another Case and Receive a Discharge of My Debts

If you have filed and receive a discharge in a Chapter 7 or Chapter 13 case already there are limitations on when you can receive a discharge of your debts again.

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)

For additional information regarding filing bankruptcy or multiple bankruptcy cases please consult a bankruptcy lawyer in your area for more information.

Bankruptcy and 401k Plans and 401k Loans

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Are contributions to a 401k plan okay in a Chapter 13 bankruptcy case?  Or should contributions to a 401k be suspended during the Chapter 13 plan and that money be submitted to the control of the chapter 13 trustee for the benefit of creditors?  When the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was passed and became effective on October 17, 2005, interpretation of the changes to the Bankruptcy Code continues.  A recent 9th Circuit Bankruptcy Appellate Panel case weighed in on this issue in, In re Parks, No. 11-1366 (9th Cir. BAP, Aug. 6, 2012).  To muddy the waters a little more, Bankruptcy Appellate Panel decisions are not binding on district courts.

The Ninth Circuit Bankruptcy Appellate Panel held that voluntary contributions to a 401k should not continue during a Chapter 13 plan.  The BAP ruled that the Bankruptcy Code protects the funds already contributed to the 401k plan, but there is no language that allows the contributions to continue and reduce the bankruptcy filer’s disposable income or income available to creditors.  Many trustees have used a reasonableness approach to this issue.  If a debtor was contributing the maximum amount to a 401k plan each paycheck, depending upon the circumstances, the trustee would object to confirmation on the basis that they are contributing too much to the 401k plan.  We will see if and how chapter 13 trustees interpret this new case going forward.  Bankruptcy lawyers should probably advise their clients about this issue though and the possible consequences.

But what about repaying a 401k loan?  Well, that is different.  Section 1322(f) generally says the terms of a 401k loan cannot be altered.  So a 401k loan automatically deducted from a bankruptcy filer’s paycheck can reduce their disposable income while contributions to the 401k plan should not be continued once the case is filed.  Another case that involved a Chapter 7 case, In re Egebjerg), 574 F.3d 1045 (9th Cir. 2009), held that the 401k loan is not a debt under the Bankruptcy Code and should not be listed in Schedule D.

But wait a second, what about people that work for the state, county or city governments?  Their contributions to CALPERS, STERS, SFERS and other government pension systems are mandatory and are automatically deducted from their paychecks each month.  These mandatory deductions for retirement for government employees would seemingly be allowed to continue.  The new ruling from the Ninth Circuit Bankruptcy Appellate Panel could create unequal results for those choosing to file for protection under Chapter 13 of the Bankruptcy Code.  A nongovernment employee would potentially have to pay more to their creditors since they cannot continue to deduct retirement contributions while the government employee with a mandatory deduction would pay less.  This could be true even if both had the same exact income and expenses.  Ultimately the bankruptcy court is a court of equity.  The goal is to treat all parties fairly under the Bankruptcy Code.  Bankruptcy lawyers should look at this issue carefully when discussing filing a chapter 13 bankruptcy case.  The issue of contributions to retirement accounts is not over and there should be more clarification to come.

Atwater California Could Be The Next California City To File Chapter 9 Bankruptcy

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This really hits home for me given that I grew up about 8 miles south of Atwater in Merced, California. Atwater recently pursuant to AB 506 and Government Code Section 53760 declared a fiscal emergency. If you know anything about the Central Valley you already know that high unemployment and lack of good paying jobs is normal. Atwater has been hit particularly hard the last 15 years. The mortgage melt down seems to be the straw that broke the camel’s back.

California passed AB 506 requiring a municipality to either take part in a neutral evaluation process or declare a fiscal emergency before filing for bankruptcy protection under Chapter 9 of the Bankruptcy Code. Stockton California chose to take part in neutral evaluation process and it appears it failed miserably and participating in the neutral evaluation process further complicating Stockton’s bankruptcy case. Atwater on the other hand has declared a fiscal emergency. As a bankruptcy lawyer it appears this may be the trend for California cities that find themselves not able to pay the bills each month. Chapter 9 bankruptcy lawyers may be counseling cities to avoid the neutral evaluation process and just declare a fiscal emergency and then file a Chapter 9 bankruptcy petition.

Locals blame the mortgage crisis on reduced property taxes. In the Central Valley there was plenty of land to quickly build homes most people who lived and worked in the area could not really afford. Most homes have lost 60% of their value since the peak years ago. If you drive out “G” street in Merced towards UC Merced you can still see development after development where homes were supposed to be built and a few where there are only a few houses that were ever built. The brick walls and there, the roads are there, but there are no homes to be found.

Atwater’s claim to fame was Castle Air Force Base. Castle was home to B-52 bombers and KC-135 fuel tankers for years. After the Cold War Castle was slated for closure and closed around 1994. The closing of Castle hit the local economy pretty hard in both Atwater and Merced. Castle boasts one of the longest runways in the United States and it sits virtually unused today. Castle has struggled to convert to a viable civilian use since its closing and that has not helped the Atwater economy. When the Air Force left so did many thousands of dollars year after year. Castle does boast one of the best airplane museums around though. It is the first and only place I have ever cast my eyes on a SR71 Blackbird. The museum also has a rare B-36. Every year they host an open cockpit day that is fantastic.

Rich Dad Poor Dad Author Robert Kiyosaki Did Not File Bankruptcy

I keep reading over and over again that Rich Dad Poor Dad author Robert Kiyosaki filed for bankruptcy. It seems like most of the internet articles are just rehashed plagiarism with the wrong facts repeated over and over again. I did see a couple titled that Mr. Kiyosaki had filed corporate bankruptcy, which is a little better, but according to most bankruptcy lawyers, this is still not very accurate. Rich Global LLC filed for bankruptcy protection under Chapter 7 of the bankruptcy code in the United States Bankruptcy Court District of Wyoming, Bankruptcy Case No. 12-20834. Robert Kiyosaki did not file for personal bankruptcy protection as irresponsibly reported on television and by a number of rehashed internet articles.

Since the early 1800’s the United States Supreme Court has recognized corporations as separate legal entities from the owners and have some of the same natural rights and legal rights as a “person.” See Trustees of Dartmouth College v. Woodward – 17 U.S. 518 (1819) When Rich Global, LLC filed for bankruptcy protection the owner or owners did not file bankruptcy. The legal fiction of Rich Global LLC being a person is what filed for bankruptcy protection. This is the whole point in creating a separate legal entity to do business under and attempt to limit the liability of the owners of the corporation or limited liability company. This will be the second article I write regarding the distinction between a corporation or a limited liability company and those who own them. The distinction between a corporation or limited liability company filing bankruptcy and those who own it seem to be completely lost on the mainstream media. Mr. Kiyosaki should sue the hundreds of media sources that reported he filed for bankruptcy. Mr. Kiyosaki is a multimillionaire and will most likely continue to be one. I think the most famous victim of falsely being accused of filing for bankruptcy is Donald Trump. To my knowledge, and I am still waiting for someone to prove me wrong, Donald Trump has never filed personal bankruptcy. One of the companies he used to have a significant investment in, formerly known as Trump Hotels & Casino Resorts, has filed for bankruptcy protection a number of times. I should know, I still own a few shares of the new company that was formed after the multiple bankruptcy filings of Trump Hotels & Casino Resorts.

Rich Global, LLC’s bankruptcy lawyers filed a bankruptcy protection on August 20, 2012, as result of Learning Annex Holdings, LLC and Learning Annex, LLC and Learning Annex, L.P. (Case No. 09 Civ. 4432 (SAS)(GWG) winning a judgment against Rich Global, LLC totaling $23,687,957.21. The bankruptcy petition lists $1,794,405.26 in assets and $25,921,205.11 in liabilities. Rich Global, LLC had $591,728.00 in income for 2010 from Profit participation and licensing revenue. Rich Global, LLC did not have any income in 2011 or in 2012. There appears to be other pending lawsuits that entities owned by Robert Kiyosaki are involved in though.

Rich Global LLC Filed for Chapter 7 Bankruptcy, Not The Author Robert Kiyosaki

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I recently erroneously heard on the news that the author of Rich Dad Poor Dad filed for bankruptcy. As a bankruptcy lawyer I immediately went into investigation mode given that I have read a number of Robert Kiyosaki’s books and could not believe he had filed for personal bankruptcy, and of course I was right. Rich Global, LLC filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court District of Wyoming, Bankruptcy Case No. 12-20834. Robert Kiyosaki did not file for personal bankruptcy protection as irresponsibly reported on television and by a number of internet articles.

This will be the second article I write regarding the distinction between a corporation or a limited liability company and those who own them. Corporations and limited liability companies are separate legal entities from the shareholders of a corporation or members of the limited liability company. When the corporation or limited liability company files for bankruptcy the owners do not. This distinction seems to be lost on many news organizations and individuals, but not bankruptcy lawyers. To say Robert Kiyosaki filed for bankruptcy is false and unfair. He is a multimillionaire and will most likely continue to be one. I think the most famous victim of falsely being accused of filing for bankruptcy is Donald Trump. To my knowledge, and I am still waiting for someone to prove me wrong, Donald Trump has never filed personal bankruptcy. One of the companies he used to have a significant investment in, formerly known as Trump Hotels & Casino Resorts, has filed for bankruptcy protection a number of times. I should know, I still own a few shares of the new company that was formed after the multiple bankruptcy filings of Trump Hotels & Casino Resorts.

Rich Global, LLC filed for bankruptcy protection on August 20, 2012, as result of Learning Annex Holdings, LLC and Learning Annex, LLC and Learning Annex, L.P. (Case No. 09 Civ. 4432 (SAS)(GWG) winning a judgment against Rich Global, LLC totaling $23,687,957.21. The bankruptcy petition lists $1,794,405.26 in assets and $25,921,205.11 in liabilities. Rich Global, LLC had $591,728.00 in income for 2010 from Profit participation and licensing revenue. Rich Global, LLC did not have any income in 2011 or in 2012. There appears to be other pending lawsuits that entities owned by Robert Kiyosaki are involved in though.

Is a Timeshare a Good Investment?

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One of the common denominators I find with our clients is that a lot of them have invested in a timeshares. I say investment loosely because if you ask most bankruptcy lawyers if a timeshare is a good investment I believe most of us would say no. I have not had a single client yet that owned a timeshare that actually increased in value and it turned out to be a good investment. There are probably timeshares out there that have made the owner money; I just have not run across one yet. So let’s breakdown discuss the numbers behind a timeshare.
A timeshare is a fractional ownership interest in a condo or apartment style home located in a desirable vacation spot. We see many of them in Florida or Las Vegas. In most situations you will actually receive a deed of trust that is recorded as evidence of your fractional ownership interest. There is a purchase price and a monthly maintenance amount you must pay to maintain the property.

For example: A developer will build a 100 unit project. There are 52 weeks in a year. Each timeshare owner will get 2 weeks of the year in the unit. So that makes 26 possible timeshare owners for each unit. Let us say the timeshares are just off the strip in Las Vegas and we are in year 2005. The sale price is $18,000 and the monthly maintenance fee is $50 a month. Sounds reasonable right? You can put $5,000 down and finance the remaining $13,000. The monthly payment could be as low as $370 a month for three years. Then you will only have to pay the $50 maintenance fee.
Okay fine. But how does this investment increase in value? You and the other 25 people of purchased this one unit just paid $468,000 for a condo in year 2005. That condo is now probably only worth $90,000 in the real world today. The developer in theory just received a cool $130,000 in down payments from all 26 of you owners and they get $1,300 in maintenance fees a month from all of you too. That is a cool $130,000 a month in maintenance fees from all 100 units. Do they need $130,000 a month to maintain a 100 units? The developer is definitely putting money in their pocket from the maintenance fees each month. They also have sold out the other 99 units for a total take of a cool $13 million dollars. What a great deal for the developer. What happens when one of the owners stops making the maintenance payments or loan payments on their fractional interest? The developer forecloses on the fractional interest and sells it to someone else and makes more money.
So what if you had purchased the condo in a market when home values are actually increasing in value? Let us say you purchase the timeshare today. Given the market has decreased so much the developer is only asking for $10,000 for the same timeshare. That still values the condo at $260,000. In theory the value goes up by $50,000 over the next ten years, but you only own a 1/26th interest right. So $50,000 divided by 26 is $1,923. So I ask you, “How can a timeshare be a good investment under any circumstance?” So take it from this bankruptcy lawyer and do your homework before being sold a timeshare.

What Happens If I Forget to Add a Creditor to my Bankruptcy Case?

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It may happen from time to time. You do not realize you owe a debt to someone and therefore it they are not listed in the bankruptcy petition. Not many people have perfect memories. What happens frequently in the bankruptcy world is that our clients would come to us panicking because they realized they forgot to include a creditor in the filed bankruptcy petition. Does this affect the discharge of the debt owed to the forgotten creditor? Pursuant to 11 U.S.C. §523(a)(3), debts that are not listed in your petition will not be discharged if it deprives your creditor from filing a timely claim or it deprives your creditor the opportunity to timely file a nondischargeability complaint in your case (for example, a fraud action). However, that is not the end of the story. In the Ninth Circuit, the answer generally depends on what type of bankruptcy case you are filing. You should consult with your bankruptcy lawyer regarding any omitted creditors from your petition as soon as you realize you left someone out.

Chapter 7 Bankruptcy

If you have filed for Chapter 7 bankruptcy protection the question you should ask is whether or not your bankruptcy estate has unexempt assets available to distribute to your creditors. If you can exempt all your assets then there will be no assets available to distribute to your creditors. This is considered a “no asset” case. Pursuant to In re Beezeley, 994 F.2d 1433 (1993), the Ninth Circuit Court of Appeals indicated that if the case is a no asset no bar date Chapter 7 case, your creditors would not be prejudiced if you omitted them in your petition and you received a discharge of your debts. You would not need to re-open the case to add the creditor by amending your schedules. If the debt was dischargeable it would still be discharged regardless of whether they received notice since they would not receive any distribution of your assets (because there are no assets to be distributed). If the debt was nondischargeable because it was an intentional act or based on fraud or other basis for nondischargeability the debt would remain nondischargeable whether the creditor was added to the schedules or not. The creditor would still be free to file an adversary complaint to determine dischargeability just as if they received timely notice. Basically, it would be pointless to re-open a case just to add an omitted creditor if your case is a no asset no bar date Chapter 7 case.

If your Chapter 7 case is an asset case, meaning you have assets available to distribute to your creditors, then omitting that creditor from your bankruptcy case would result in that debt being nondischargeable since that creditor did not have an opportunity to file a proof of claim to get their share of your assets. The most important thing is notice. If the omitted creditor did not receive notice from you or the bankruptcy court, but the creditor still had actual knowledge of your bankruptcy case, they will be considered to have notice.

Chapter 13 Bankruptcy

If you have filed a Chapter 13 bankruptcy case debts owed to an omitted creditor would not be discharged as well if the creditor did not have notice and therefore was not able to file a timely proof of claim. If the creditor did not have the opportunity to file the proof of claim they will not be paid in your Chapter 13 case and are therefore prejudiced. They will be able to continue to collect on the debt that you omitted from your Chapter 13 case after the discharge of the other debts scheduled in your bankruptcy case.

In conclusion, if you have a no asset, no bar date Chapter 7 case, you should absolutely provide all of your creditors to your bankruptcy lawyers and list all of your creditors, but you generally should not worry too much about having forgotten to list a creditor. Again, our memories are not perfect and someone out there may think you owe them money that you have no idea why they think that or even who they are. If you have an asset Chapter 7 case or a Chapter 13 case, it is advisable you go through your list of creditors very carefully to ensure that all your creditors are listed so you can receive a discharge of those debts in your bankruptcy case.

Why the Stockton California Bankruptcy Will Cost the City Millions of Dollars

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The whole point in filing bankruptcy whether it is a corporation, individual or municipality like the city of Stockton, California is to obtain relief from overwhelming debts.  The process of reorganizing for many corporations and municipalities is extremely expensive though.  It is not necessarily the bankruptcy attorney fees that make the process expensive though.  Why is it so expensive then?

When a corporation or municipality files for bankruptcy protection the ripple effect of the filing is very broad and disrupts operations that are far reaching.  The automatic stay pursuant to section 362 of the Bankruptcy Code takes effect when the bankruptcy case is filed and stops any and all collection activities.

For example, the Stockton Police Officers Association (“SPOA”) recently filed a motion with the court to modify the automatic stay.  The SPOA had to hire a bankruptcy lawyer to help them of course.  Does Stockton owe the SPOA money?  No, but no entity wants to violate the stay and just in case it is good idea to seek relief from the automatic stay or modify the stay to make sure you are not violating the stay.

According to court documents the SPOA represents all persons currently employed in the ranks of police officer and sergeant in the Stockton Police Department.  The SPOA sued Stockton in state court in San Joaquin County after Stockton declared a fiscal emergency in 2010 and then changed the benefits and rights of SPOA members.  The automatic stay has stopped this litigation.  But there are disciplinary proceedings from grievances that are still pending.  The City of Stockton believes the disciplinary proceedings and any appeals of disciplinary actions are also stayed.  So the SPOA and the Stockton decided to modify the automatic stay to allow for some of the grievances to move forward to resolution and allow for back pay or other economic benefits to be paid the SPOA members.

This is why reorganizing debts in bankruptcy is so expensive.  Who would have thought that the filing of bankruptcy under chapter 9 of the bankruptcy code by Stockton would affect a grievance filed by a police officer a year and a half ago or longer?  There will be issue after issue that arises like this that must be dealt with by the bankruptcy court.  Each time Stockton’s bankruptcy lawyers fees will increase and the City of Stockton will have to pay that bill eventually.  It will just be a matter of time before the professionals in this bankruptcy case file fee applications for approval of their fees by the court.  I am going to roughly guess attorney fees will exceed $5 million for the City of Stockton alone, unless the case is dismissed for lack of eligibility.

Do Not Fall For the Forensic Audit or Pre-Litigation Fees Scam by Fraudulent Loan Modification Companies

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I have been telling clients for a couple of years now that you should not be paying any upfront fees for loan modification services.  That means nothing, zero and zilch.  It is illegal under California law.  It still happens though.  There are plenty of Housing and Urban Development (HUD) approved providers of loan modification services that help you for free and follow the laws.  Ask your local bankruptcy attorney for a referral to one of these HUD approved companies.

In California a loan modification company must be registered with the state as well:  “By July 1, 2009, any person or company who performs or promises or offers to perform the services of a foreclosure consultant must register with the Attorney General’s Office, post a $100,000 bond and receive a Certificate of Registration from the AG’s Office or go out of business. A foreclosure consultant is one who, for compensation, promises to stop or postpone a foreclosure sale, save a home from foreclosure, or do anything else set forth in Civil Code Section 2945.1.”

The horrible position of possibly losing a home and lack of integrity by loan modification companies is a dangerous combination.  What did unscrupulous capitalizers do?  They found ways to skirt California law and charge fees for other things like bogus forensic audits and pre-litigation education fees.  We have many clients describe to our bankruptcy lawyers their horrible stories about getting ripped off for thousands of dollars.

Recently the Consumer Financial Protection Bureau sued a southern California attorney for multiple violations of the Consumer Financial Protection Act of 2010 (“CFPA”).  Who is the Consumer Financial Protection Bureau?  It is an independent agency of the United States charged with regulating the offering and provision of consumer financial products or services under Federal consumer financial laws pursuant to 12 U.S.C. Section 5491(a).

§5491. Establishment of the Bureau of Consumer Financial Protection; (a) Bureau established – There is established in the Federal Reserve System, an independent bureau to be known as the “Bureau of Consumer Financial Protection”, which shall regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws. The Bureau shall be considered an Executive agency, as defined in section 105 of title 5. Except as otherwise provided expressly by law, all Federal laws dealing with public or Federal contracts, property, works, officers, employees, budgets, or funds, including the provisions of chapters 5 and 7 of title 5, shall apply to the exercise of the powers of the Bureau.

The CFPA was passed in response to the widespread fraud that helped lead to the mortgage meltdown.  In this particular lawsuit the defendants allegedly violated Regulation O of the CFPA in how they marketed the sale of their mortgage assistance relief services.  According to court documents from the United State District Court, Central District of California, Case No. CV12-06147, attorney Chance Edward Gordon, doing business under a number of other names, promised loan modifications in exchange for an advance fee. The complaint filed against Gordon goes on to describe in detail how $2,500 to $4,000 was paid in advance by homeowners for loan modification services with no meaningful assistance ever received in return.  Hopefully we will see more of these lawsuits and speak to less people getting ripped off.