How Can Filing Bankruptcy Help Me Pay Less on My Vehicle Loan?

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If you did not get a very good deal when purchasing a new or used car and the loan is destroying your finances each month there is light at the end of the tunnel. In Chapter 7 you can redeem the vehicle for its fair market value pursuant to Section 722 of the Bankruptcy Code (I cannot recommend this though, see why below). In Chapter 13 you can “cram down” the loan to the fair market value and reduce the percentage rate if you purchased the vehicle at least 910 days prior to filing for Chapter 13 bankruptcy.

Yes, filing Chapter 13 or Chapter 7 can reduce what you owe on your vehicle loan.

Yes, filing Chapter 13 or Chapter 7 can reduce what you owe on your vehicle loan.

Law Change in 2005 for Chapter 13 Cases and “Cram Down” of Vehicle Loans

Prior to 2005 the requirement that the purchase date of the vehicle be 910 days prior to filing of the Chapter 13 bankruptcy case did not exist. Today they say a car loan is either a 910 loan or not. We will assume you did purchase your vehicle 910 days ago and you are thinking about filing for bankruptcy.

How A Chapter 13 Bankruptcy “Cram Down” Works

As time goes by usually most vehicles are worth less than what is owed on the loan. The worse the loan or higher the percentage rate the more likely the difference between what is owed and what the vehicle is worth is larger. Under these circumstances you can save more money by filing a Chapter 13 bankruptcy and reorganize the vehicle loan. I will use a Mercury Grand Marquis as an example given that Forbes.com (http://www.forbes.com/2010/10/27/cars-resale-value-lifestyle-vehicles-depreciation-residual-used_slide_6.html) claims this car is one of worst investments you can make. After 60 months the Mercury Grand Marquis loses 87% of its value.

You purchased a 2012 Mercury Grand Marquis for $30,285.00 with a loan with a percentage rate of 12.5% and a $1,500 cash down payment and a 60 month term. The monthly payment is $647.60. After 910 days (2.52 years) the 2012 Mercury Grand Marquis is only worth $8,782.65 according to Forbes.com and you still owe $19,411.80. When filing for Chapter 13 bankruptcy you will only have to pay the fair market value of $8,782.65 at approximately 4.5%. You will save approximately $9,587.40 by filing a Chapter 13 bankruptcy case. As most experienced bankruptcy attorneys know car loan companies and banks usually object the value of the vehicle you propose in the Chapter 13 Plan. This is normal. It is in their interest to always argue the value is higher and your interest to argue the vehicle value is lower. The value is also the retail value more or less also. If you use the private party value or some other value you will off the mark.

How to Value a Car When Attempting to “Cram Down” the Value

First the date of the valuation should be the date the petition is filed pursuant to Bankruptcy Code Section 506(a)(2). Section 506(a)(2) further provides the value of personal property shall be determined based on the “replacement value of such property as of the date of the filing of the petition.” In addition, if the property was obtained for personal use the Bankruptcy Code further defines “replacement value” as the “price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.” A good case about valuing a vehicle is In re Morales, 387 B.R. 36, 45 (Bankr. C.D. Cal. 2008). Most courts will start with the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle taking into consideration evidence present regarding he condition of the vehicle. KBB and N.A.D.A are suggested values only. So the KBB or N.A.D.A. value must be adjusted for the condition of the vehicle and must reflect that the KBB or N.A.D.A. value is the asking price, not the final price. Few to no cars are ever sold at the asking price by dealers in a retail setting.

So after all that if the value of the vehicle is low enough and the amount due on the vehicle loan is high enough to save you money on the vehicle loan filing a Chapter 13 case to reduce how much you pay for the car should be successful and in your best financial interest. Your bankruptcy attorney will have fees and costs for filing the Chapter 13 case though. So that needs to be taken into account also. There will most likely be other benefits to you filing for a Chapter 13 Bankruptcy also like discharging your credit card debt or unpaid taxes.

Chapter 7 is Different: The Car is Redeemed Under Section 722

In a Chapter 7 bankruptcy case you can also reduce the amount you pay for a vehicle loan pursuant to Section 722 of the Bankruptcy Code by redeeming the vehicle for its market value. The valuation of the vehicle is similar to that in Chapter 13 case, but the law and process is very different. A motion must be filed to redeem the vehicle. The catch with redeeming a vehicle in Chapter 7 for less than was is owed (market value) is you have to pay off the old loan with a lump sum payment. So for the example above the person redeeming their vehicle in a Chapter 7 case would have to come up with $8,782.65 to redeem the 2012 Mercury Grand Marquis. Most of our Chapter 7 bankruptcy clients do not have the cash lying around to redeem their vehicles like this. So there is a solution. There are companies out there that provide new financing or a new loan to pay off the old loan and allow you to redeem the vehicle. As I said at the beginning of this article I cannot recommend obtaining new financing to redeem under 722 of the Bankruptcy Code because the new financing is usually with a high interest rate and there are a number of fees involved. There will also be attorneys’ fees and costs for fling the motion to redeem that must be taken into account when determining if redeeming the vehicle is in your best financial interest. What you choose to do is up to you though. Just be careful and do not lock yourself into another bad loan thinking you are saving money.

We Are Your Reputable and Local San Jose Bankruptcy Attorneys

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If you are having trouble paying your debts, whether credit cards, a home mortgage, vehicle loan or tax debts filing for bankruptcy protection can help. At West Coast Bankruptcy Attorneys we are your honest and experienced local San Jose Bankruptcy Attorneys.  We will provide clear and honest information about how bankruptcy can help you and not try and steer you down the path that leads to us making the most money.  In the San Jose, California area in particular you must be careful that you are not filing a Chapter 13 bankruptcy case with no financial benefit to you.  There are a number of bankruptcy attorneys that will file your case with no money paid in attorneys fees before the Chapter 13 case is filed.

Ryan C. Wood has been part of thousands of bankruptcy cases. We also have nothing but five star reviews on various on-line websites. Please visit our Testimonials page for reviews from actual clients that have filed for bankruptcy protection and received a discharge of their debts.  Mr. Wood also administrated anywhere from 800 – 1,000 Chapter 13 bankruptcy cases while employed as the staff attorney with the Chapter 13 Trustee for the San Francisco and Santa Rosa Divisions of the Northern District of California.

We are you reputable and local San Jose bankruptcy attorneys.

We are your honest and experienced local San Jose bankruptcy attorneys.

There are a number of factors to consider when retaining reputable and local San Jose bankruptcy attorneys. Just because a firm seems large and has filed a lot of case does not mean clients are treated properly and given the service they deserve. Some law firms are described as bankruptcy mills. They take on as many clients as possible with the least amount of staff and you will never speak to an attorney about anything after your initial consultation. That is the opposite of how we conduct our business. The most important thing is communication and being comfortable with who you retain. We know this is not the best time in your life and we make sure you have the information you need to not worry needlessly. Attorneys that do not communicate with their clients are just making things worse and adding to the anxiety their clients are already feeling. If a bankruptcy law firm does not get back to you within a reasonable amount of time it could mean a number of things. The law firm my just not care or the San Jose bankruptcy law firm may have unethically taken on more cases then they can handle (ethical violation) so no client is getting the service they deserve. As reputable and local San Jose bankruptcy attorneys we return all emails and phone messages within twenty-four hours if not the same day. You will never have a problem communicating with attorneys Ryan C. Wood and Kitty J. Lin. They answer their phones personally. It is every important to us to answer your questions quickly and accurately. We want to get rid of the stereotype that attorneys do not communicate with their clients’ one client at a time.

Again, experience does matter and we have filed a lot of cases. We also practice bankruptcy law in all four divisions of the bankruptcy court in the Bay Area. The divisions are the San Jose Division, San Francisco Division, Oakland Division and Santa Rosa Division. This is also important because we know the differences in how Chapter 13 cases are administered in each division, and there are significant differences. Different Chapter 13 trustees and different judges equal different administration.

A testament to our experience and track record is as of the writing of this blog article we have never converted a case from Chapter 7 to Chapter 13. What does this mean to you? It means we are your reputable and local San Jose bankruptcy attorneys. If the United States Trustee’s office files a motion to dismiss a Chapter 7 case for abuse, a possible solution is to convert the case to a case under Chapter 13 of the bankruptcy code. We have never had to do that because we have always been right. Eventually we will probably file a Chapter 7 and convert it to a Chapter 13 instead, but it has not happened yet.

All of our consultations for potential clients seeking to file for bankruptcy protection are free. The free consultation will usually take anywhere from a half hour to an hour. We will provide with our Client Information Form prior to the free consultation. The form has questions about your income, expenses, assets and debts. In 2005 Congress amended the Bankruptcy Code to create what is called the Means Test. The Means Test does not really exist in the real world. It uses a six-month average of your income and then multiplies that average times twelve to determine your yearly gross income. It then deducts standardized expenses based upon the county you live in and the number of people in your household. The Means Test also uses some national standards for certain expenses. So you may pay rent totaling $2,800 a month in the real world while the Means Test only deducts $2,100 for rent each month because that is what the median rent is in the county you live in based upon the number of people in your household. Confused yet? Do not worry, making sure the calculations are correct is what you are paying us for. Please give us a call at 1-877-9NEW-LIFE to schedule a free consultation with our reputable and local San Jose bankruptcy attorneys and begin your new life without your debts.

The Medical Bankruptcy Fairness Act of 2014’s Proposed Amendments to the Bankruptcy Code

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Are all people that choose to file bankruptcy equal in terms of why they are choosing to file for bankruptcy protection? No, they are not. Certain types of bankruptcy filers as of today do not have to “pass the Means Test” to qualify to file a Chapter 7 bankruptcy case. Certain debtors are already allowed to claim a higher exemption to protect equity in their homes. Senate Bill 2471 was introduced this year to amend the Bankruptcy Code to give different treatment to people that have significant medical debts and that is purportedly why they are filing for bankruptcy protection. If passed the law would be called the Medical Bankruptcy Fairness Act of 2014. It will make a number of changes to the Bankruptcy Code to make “medically distressed debtors” have more rights to qualify to file a Chapter 7 case, exempt equity in their property and discharge private student loans without proving the loans are an undue hardship than someone who incurred all of their debts from the use credit cards. SB 2471 is attempting to create a separate class of debtors. So why not create a class of medically distressed debtors?

How Does SB 2471 Propose to Amend the Bankruptcy Code?

SB 2471, the Medical Bankruptcy Fairness Act of 2014, proposes to amend the Bankruptcy Code in a few places. The first is the definition section of the Bankruptcy Code, Section 101. If this law were passed it would add the following terms and definitions:

Medical Debt: debt incurred voluntarily or involuntarily—
(A) as a result of the diagnosis, cure, mitigation, or treatment of injury, deformity, or disease of an individual; or
(B) for services performed by a medical professional in the prevention of disease or ill-ness of an individual.

Medically Distressed Debtor:
(A) a debtor who, during the 3 years before the date of the filing of the petition—
(i) incurred or paid aggregate medical debts for the debtor, a dependent of the debtor, or a nondependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor that were not paid by any third-party payor and were greater than the lesser of—
(I) 10 percent of the debtor’s adjusted gross income (as such term is defined in section 62 of the Internal Revenue Code of 1986); or (II) $10,000;

‘‘(ii) did not receive domestic support obligations, or had a spouse or dependent who did not receive domestic support obligations, of at least $10,000 due to a medical issue of the person obligated to pay that would cause the obligor to meet the requirements under clause (i) or (iii), if the obligor was a debtor in a case under this title; or
(iii) experienced a change in employment status that resulted in a reduction in wages, salaries, commissions, or work hours or resulted in unemployment due to— (I) an injury, deformity, or disease of the debtor; or (II) care for an injured, deformed, or ill dependent or non-dependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor; or
(B) a debtor who is the spouse of a debt-or described in subparagraph (A).

So as you can read the definition of what a “Medically Distressed Debtor” is has quite a few twists and turns. The definition seems to be broad and cover a number of circumstances. The one that caught my attention is if a person who is supposed to receive child support but did not due to an illness or loss of employment by the person who is supposed to make the child support payment each month. Someone thought this one through.

SB 2471 also would amend Section 522 of the Bankruptcy Code regarding exemptions. The whole point in defining someone as a “Medically Distressed Debtor” is so they can have a higher exemption. This amendment to the Bankruptcy Code would allow a medically distressed debtor to exempt $250,000 worth of property described as (1) real property or personal property that the debtor or a dependent of the debtor uses as a residence; (2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence; or (3) a burial plot for the debtor or a dependent of the debtor. Right now in California the most that can be exempted in equity in a house is $175,000 if you meet the requirements.

SB 2471 would also amend Bankruptcy Code Section 707(b) so that a medically distressed debtor does not have to meet the requirements to qualify to file a Chapter 7 bankruptcy case created in the 2005 bankruptcy amendments. A medically distressed debtor would not have to fill out the “Means Test.” This is already true for consumers with primarily nonconsumer debts, disabled veterans and members of the national guard/reservists. Adding medically distressed debtors to this list will not cause much upheaval for experienced bankruptcy lawyers. SB 2471 also seeks to amend the Bankruptcy Code Section 1325(b)(1) to provide a medically distressed debtor does not have to pay unsecured creditors all of their monthly disposable income during the applicable commitment period. This change would allow courts to confirm chapter 13 plans of reorganization over the objections of unsecured creditors.

SB 2471 also amends Bankruptcy Code Section 109(h)(4) to do away with the requirement that a bankruptcy filer complete a credit counseling course within the 180 day period prior to the case being filed. This not a huge perk when filing for bankruptcy protection. This amendment would give a little special treatment and save the medically distressed debtor some time and money. The credit counseling provider we use charges $5.00 for the course and it usually takes a client two to three hours to complete the course on-line.

Possibly the single largest change resulting from SB 2471 if it were passed into law would be to allow medically distressed debtors to discharge their private student loans. Section 523(a)(8) of the Bankruptcy Code would be amended to allow medically distressed debtors discharge their private student loans without having to prove the private student loans are an undue hardship.

The amendment to Sections 522, 707(b), 1325(b)(1), 109(h)(4) and 523(a)(8) would give a medically distressed debtor a significant advantage in qualifying to discharge their debts in a Chapter 7 case, discharging unsecured debts in a Chapter 13 reorganization cases, protecting more equity in their property and discharge private student loans as compared to other bankruptcy filers.

Should Medically Distressed Debtors Should Have Special Treatment

First, the goal to allow bankruptcy filers to exempt or protect more of their assets I absolutely agree with. The goal of allowing bankruptcy filers to discharge private student loans I absolutely agree with. The problem I have with these proposed amendments to the Bankruptcy Code is defining a certain class of debtors to only receive these advantages and not others. I would like to see these amendments apply to all bankruptcy filers, but SB 2471 is a step in the right direction. I am also concerned that if medically distressed debtors can discharge their private student loans then Congress will not amend the Bankruptcy Code to give everyone the right the discharge their private student loans. I would hate to see discharging private student loans limited to medically distressed debtors.

What Can I Do If A Collection Agency Harasses Me or Tries to Collect a Debt After Filing For Bankruptcy?

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One of the not so great parts of filing bankruptcy for Bay Area residents is dealing with unlawful acts of collection agencies and creditors. Yes, everyone understands that a creditor has every right to seek payment for the debts owed to them. The problem is when a creditor tells one of our client’s mother that they are going to through her daughter into jail and arrest her if the mother does not send them money that same day. There are so many problems with this attempt to collect a debt I do not know where to start. If this type of conduct by a creditor happens after a bankruptcy case is filed is most likely a violation of the automatic stay. So, can a bankruptcy filer receive punitive damages, attorneys’ fees and damages for their emotional distress if a creditor is found guilty of willfully violating the automatic stay? According to In re: Snowden No. 13-35291 (9th Cir. 2014) recently published on September 12, 2014.

In re Snowden

In this case the bankruptcy petitioner obtained a $575 payday loan. Things unfortunately did not improve financially for Snowden and she filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. The pay day loan company, Check Into Cash, was very aggressive from the moment they found out Snowden would not be able to pay back the payday loan as agreed. Check Into Cash called Snowden at work even after she told them not to. After Snowden filed for bankruptcy Check Into Cash chose to cash the check Snowden gave them to secure payment of the payday loan. This resulted in Snoweden’s bank account becoming overdrawn and throwing her into further financial turmoil. Snowden eventually filed a motion for sanctions against Check Into Cash for their cashing of the check post-petition and their continued harassing phone calls post-petition in violation of the automatic stay.

Emotional Distress Damages

Section 362 of the Bankruptcy Code provides for the automatic stay as soon as a bankruptcy case is filed. Section 362(k) deals with damages for the willful violation of the automatic stay. Section 362(k)(1) provides in part: . . . an individual injure by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages. This section permits an award for emotional distress damages if the bankruptcy petitioner (1) suffered significant harm, (2) clearly establishes the significant harm, and (3) demonstrates a causal connection between that significant hard and the violation of the automatic stay. See Dawson, 390 F.3d at 1149. In the Snowden case the creditor took issues with the second prong of the analysis. The creditor argued through their experienced bankruptcy lawyers that Snowden did not prove significant emotional harm, but just fleeting or trivial anxiety or distress. The court disagreed though given that the post-petition cashing of the check and continued phone calls. Even worse was the fact that Check Into Cash did not rectify the situation timely. The Ninth Circuit Court of Appeals found the district court did not error in confirming the emotional distress damages award. The bottom line is this analysis is a case by case analysis. Whether any court will award damages for emotional distress depends upon the severity of the violation, the distress caused and what the creditor did or did not do about it once the creditor was put on notice that a violation had occurred.

Punitive Damages

Punitive damages are damages to punish a party for their conduct and deter any further violations in the future. Section 362(k) provides for punitive damages in “appropriate circumstances.” Good bankruptcy lawyers will be able to prove some showing of reckless or callous disregard for the law or rights of others. See In re Bloom, 875 F.2d 224, 228 (9th Cir. 1989) In the Snowden case Check Into Cash argues on appeal that the bankruptcy court applied the wrong standard, willful violation rather than the reckless disregard standard. The 9th Circuit Court of Appeals disagreed. The court found that Check Into Cash failed to provide a policy for employee training about how to address debt collection following a bankruptcy filing. This demonstrated reckless and callous disregard for the law making punitive damages appropriate under the facts of the Snowden case.

Attorneys’ Fees

It is well settled that a debtor can receive attorneys’ fees and costs related to enforcing the automatic stay and remedying the stay violation, but not attorneys’ fees earned when filing an adversary proceeding to be awarded punitive damages and damages for emotional distress. As soon as the violation of the stay is remedied a bankruptcy filer cannot collect from the creditor attorneys’ fees and costs going forward. The 9th Circuit Court of Appeals held that the ‘American Rule’ applies and each party to an adversary proceeding bears their own costs for litigation. There are exceptions. If a court rules a violation of the automatic stay took place and the creditor appeals the ruling, then the debtor has no choice but to incur additional attorneys’ fees and costs to defend the bankruptcy court’s decision and their right to collect damages for the willful violation of the automatic stay. Under these circumstances the bankruptcy filer would be able to recover attorneys’ fees. See In re Schwartz-Tallard, No. 12-60052, 2014 WL 4251571 (9th Cir. Aug. 29, 2014).

Can a Non-Filing Spouse of a Spouse that Filed Bankruptcy Buy a Community Property Asset From the Bankruptcy Estate?

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The short answer is yes, a non-filing spouse of a spouse that filed bankruptcy can buy a community property asset from the bankruptcy estate. See 11 U.S.C. §363(i) and In re Lewis; BAP No. CC-13-1367. For some this question alone might be confusing. When a couple is married either spouse may file for bankruptcy protection without the other spouse. All of the separate property of the filing spouse and community property of the filing spouse must be listed in the petition. In California, community property consists of: all property, real or personal, wherever situated, acquired by a married person during marriage while domiciled in California is community property. Cal. Fam. Code §760. In the Lewis case the community property at issue is an employment law lawsuit filed, but not resolved, prior to the bankruptcy case being filed. The cause of action is therefore an asset of the filing spouse’s bankruptcy case. See Vick v. DaCorsi, 110 Cal. App. 4th 206, 212 n.35 (2003).

A twist in the Lewis case was that the bankruptcy trustee sold the bankruptcy estate’s interest in the lawsuit to a company named Kallman & Company, LLP for $40,000 pursuant to 11 U.S.C. §363(b). Section 363(b) allows the trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate . . . . . . The Chapter 7 trustee’s bankruptcy lawyer filed, served and correctly provided notice of the motion for approval to sell the cause of action to Kallman & Company, LLP. A hearing was held and the bankruptcy court approved the sale to Kallman & Company, LLP. According to the terms of the sale Kallman did not have to pay the $40,000 until 30 days after the closing date of the sale, and the closing date occurred only when the order approving the sale became final and not appealable. Given the delay in closing the sale the non-filing spouse had time to act and her bankruptcy attorney and her did indeed act.

The non-filing spouse informed the Chapter 7 Trustee and counsel that she intended to exercise her rights pursuant to 11 U.S.C. §363(i). 11 U.S.C. §363(i) provides: before the consummation of a sale of . . . . . . property of the estate that was community property of the debtor and the debtor’s spouse immediately before the commencement of the case, the debtor’s spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated. So the Chapter 7 trustee then filed a motion under 11 U.S.C. §363(i) under the grounds that the lawsuit claim is community property and the sale to Kallman & Company, LLC was not consummated yet. Kallman & Company, LLC of course opposed the sale to the non-filing spouse. The bankruptcy court granted the motion to sell the lawsuit claim to the non-filing spouse and held that the lawsuit claim was community property and the sale to Kallman & Company, LLC was not consummated. After various legal wrangling the order approving the sale to the non-filing spouse was appealed to the 9th Circuit Bankruptcy Appellate Panel. The 9th Circuit BAP found the act of the non-filing spouse asserting her claim to the lawsuit asset and obtaining an order from the court granting the sale was an intervening event that prevented the consummation of the sale to Kallman & Company, LLC. The 9th Circuit Bankruptcy Appellate Panel went further to say that Kallman & Company, LLC have no one but themselves to blame. Kallman could have consummated the sale immediately by tendering the purchase amount to the Chapter 7 Trustee and Kallman could have asked to have the stay pursuant to Federal Rule of Bankruptcy Procedure 6004(h) to be waived. FRBP 6004(h) provides that an order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. The 9th Cir. BAP further said that Kallman instead provided the non-filing spouse with sufficient time to assert her §363(i) right and to prove that she had the ability to make good on her offer to purchase the lawsuit claim from the bankruptcy estate. What is there to take away from this case? If you are a purchaser of assets under 363 of the Bankruptcy Code and you really want the assets you are purchasing consummate the sale as soon as possible if there is a non-filing spouse.

How To Avoid or Prevent the Necessity of Filing for Bankruptcy?

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One of the most common remarks we here from clients is, “I never thought I would file for bankruptcy protection.” Our response is usually, “No one ever does.” They probably never thought the bad thing that happened to them or, their family, that led to having to file for bankruptcy protection would happen either. Bad things happen every day that are not in our control. So unfortunately for some there is no avoiding the necessity of filing for bankruptcy. For example: being laid off from a job, medical debts, debts resulting from car accidents or a natural disaster. While these circumstances are not traditionally in our control there are plenty of other pieces of the financial puzzle that are within our control.

Credit Cards/Payday Loans/Cash Advances/Vehicle or Title Loans

These four types of debts are primarily the types of debts that can have incredibly high interest rates. If you have never heard of usury laws you are not alone. Each state has or had usury laws to limit the amount of interest a lender could charge a borrower. The laws are designed to protect all of us from unfair or unconscionable interest rates. These laws have been weakened over and over again in the name of greed and corporate profits. For more detailed information please read “How Can Credit Card Companies Charge Such High Interest Rates?” http://www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ So the law now allows for the ridiculous and unconscionable interest rate as high as 29% on some credit cards. If you do not pay off the credit card each month that has a high interest rate the underlying debt will balloon quickly. Spread that problem around four or five different credit cards are you are heading in the direction of a bankruptcy lawyers office unfortunately. So do your best to limit the use of creditor cards and especially the use of your highest interest rate credit cards. Payday loans and cash advances are even worse. The highest interest rate I have ever seen on an actual loan documents was over 1,000%. Somehow this is legal. Standard vehicle loans can have generous interest rates. Title loans are when your vehicle is paid in full, but you take loan and use the vehicle as collateral. The loan company will take your pick slip/title until the loan is paid in full. Title loans are traditionally horrible for the borrower. Again, very high interest rates and title loan companies rarely keep very accurate records regarding payments and accrued interest.

Home Mortgages

Do not buy too much house. Other than banks handing out questionable loans and fraudulent appraisals artificially increasing the value of homes, the next largest factor as to why so many people lost their homes in my opinion was because they bought too much house. That means they purchased a house that was too large and too expensive given their income and expenses. The cause of this was mostly interest only mortgages and adjustable rate mortgages. So do not buy too much house. If you income is reduced 20% will you still be able to afford your mortgage payment each month? How long can you pay your mortgage if you are laid off? We all hope that these unfortunate events do not happen to us, but they happen to everyone without discrimination.

Taxes

The thing with taxes is you have to pay them, period. So just let the government have the money upfront so you do not have an issue when it comes time to file your taxes each year. In California the Franchise Tax Board is does aggressively collect unpaid taxes. The FTB will garnish your wages and attached a tax lien to your home if you own real property. If you have changed your deductions on your paycheck to artificially increase your net income each month you are creating a tax debt each paycheck. Will you have the money to pay the taxes at the end of the year? No, you will not because you changed your deductions to increase your net income because you are currently having trouble paying your bills. Do not change your deductions to artificially increase your net income. It is a recipe for disaster. If you take an early distribution from a retirement account pay the penalty/taxes at the time you have the money taken out. Do not defer the penalty/taxes to when you have to file your return. Again, this is a recipe for disaster. Every bankruptcy attorney will tell you that ERISA and other qualified retirement accounts (Tax Deferred) are 100% protectable when filing bankruptcy under almost all circumstances. So another reason to not raid a retirement accounts because you can keep the retirement money and still discharge your debts.

If you are having difficulty paying your bills each month bankruptcy might be the best option to get back on track financially.

Can I Be Evicted after Foreclosure of My Home If I File Bankruptcy?

By Ryan C. Wood

We have all heard this story many times: a homeowner gets behind on their mortgage payments and cannot catch up to pay the lump sum now due. The house is foreclosed on and the new homeowners then file an unlawful detainer action against the old homeowner to have the sheriff evict the old homeowner. But what happens if the old homeowner files for bankruptcy protection after getting an unlawful detainer judgment entered against them, but before getting evicted? Does a subsequent eviction violate the bankruptcy automatic stay? The Ninth Circuit Bankruptcy Appellate Panel recently decided that the eviction does actually violate the automatic stay.

The circumstances detailed above are exactly what happened in the case of In re Perl, No. 13-1328 (B.A.P. 9th Cir. May 30, 2014). The homeowner, Sholem Perl, and another joint tenant (“the Perls”) fell behind on their mortgage payments and the property was sold to Eden Place in a foreclosure sale. The trustee’s deed was recorded in a timely manner. Eden Place then filed an unlawful detainer action against the Perls when they refused to leave the foreclosed home. The Perls filed a lawsuit against Eden Place and several others for wrongful foreclosure, violation of the Homeowner Bill of Rights, unfair business practices and breach of contract. Eden Place counter-sued. The judge entered a judgment against the Perls for the unlawful detainer action and the sheriff posted a lockout notice. Mr. Perl filed a skeleton petition on June 20, 2013 seeking bankruptcy protection under Chapter 13 of the Bankruptcy Code. Eden Place filed a Motion for Relief from Stay on June 24, 2013, but the sheriff proceeded with a lockout on June 27, 2013, before the motion was heard by the court. The Perls were now officially evicted from the property.

Mr. Perl’s bankruptcy attorney filed an Emergency Motion to Enforce the Automatic Stay and the court heard the Emergency Motion and Eden Place’s Motion for Relief from Stay on June 28, 2013. The bankruptcy court indicated that it seemed Eden Place violated the automatic stay by evicting the Perls prior to receiving relief from the automatic stay. Eden Place argued that Mr. Perl did not have any legal or equitable interest in the property since the property was foreclosed on and the trustee’s deed was recorded. Eden Place argued that Mr. Perl was merely a squatter on the property with no possessory rights. The court disagreed. The court indicated that the automatic stay applies even when there is bare possessory interest coupled with causes of action or claims for the right to possession. The automatic stay is very broad. “The automatic stay applies even to the more limited bundle of rights that still exists. It may not even be a bundle. It might just be the opportunity to seek some relief.” In re Perl, No. 13-26126 (Bankr. C.D. Cal. 2013). The bankruptcy court held that the eviction was a violation of the automatic stay and was therefore void.

The Bankruptcy Appellate Panel agreed with the bankruptcy court. In order to determine if Eden Place violated the automatic stay they needed to see if Mr. Perl had any interest in the property. The court held that Mr. Perl’s physical occupation of the property gave him a possessory interest in California law and he was therefore protected by the automatic stay. The court further went on to say that there was a willful violation of the automatic stay because Eden Place knew about the bankruptcy filing and still continued with the eviction. Even though there was no bad faith because Eden Place thought Mr. Perl did not have any legal or equitable interest in the property, it was still a willful violation. The eviction was therefore void. Eden Place appealed this decision to the Ninth Circuit Court of Appeals. In all fairness to Eden Place they legally foreclosed on the property, then legally filed and obtained a judgment in an unlawful detainer action to evict the former homeowner. This is not a quick or cheap process. At the very end the Perls and their bankruptcy lawyer filed an emergency skeleton petition to stop their eviction from a house they stopped paying for and no longer own. What is not discussed is whether the Perls’ even have a feasible reorganization case to begin with. It will be interesting to find out how the Ninth Circuit Court of Appeals holds on this issue and how they get there. If the prior homeowner does in fact have actionable claims regarding the purchase, loans or foreclosure of the property and they possess the property still there is a reasonable argument that the automatic stay should apply seems reasonable.

Can I File Bankruptcy If I Have a Payday Loan or Advance?

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Can I file bankruptcy if I have a payday loan or advance? Yes you can. Payday loans are unsecured debts just like a credit card or medical debt. Payday advances are dischargeable. There are some issues though given the nature of the debt. Payday loans are usually to be repaid within a relatively short period of time. Given that payday loans are usually recently incurred when filing for bankruptcy protection there are a few issues for bankruptcy lawyers to discuss before filing for bankruptcy protection. The reality is few payday loan companies pursue nondischargeability claims At the same time, past results are not necessarily indicative of future results.

1. Payday Loans Are Horrible

Before discussing the pitfalls of filing for bankruptcy when you owe payday loans let us examine payday loans in general and how the work. Payday loans are supposed to be short term loans until the borrower gets paid next. The percentage rates are usually disgustingly high and should be illegal. We have documentation of a percentage rate of 1000%. To obtain a payday loan or advance it usually requires some sort of regular income of some significance. If make $200 a week you will most likely not qualify for an amount larger than that. Once you are approved for an amount to borrow, you will be asked to write a post-dated check for the amount borrowed to be cashed when you get paid. The original loan will have some sort of fee ranging from $40 to $100 for the loan. If you are unable to pay the loan back when you get paid some companies will allow the loan to be renewed for another high fee ranging from $40 – $100. What about that post-dated check you wrote? If the check bounces your bank will charge you fees too. Not paying the payday advance or loan on time will start a vicious cycle of increased fees. Borrowers commonly have to continue to obtain a new payday advance or loan to keep their bills paid while continuing to incur more and more fees.

2. Recently Incurred Debts May Not Be Discharged

Debts incurred or obtained close in time to filing for bankruptcy raises a number of issues. The problem is that the payday loan company may have an argument that you never intended to pay back the loan given you filed for bankruptcy so close in time to obtaining the loan. Bankruptcy Code Section 11 U.S.C. 523(a)(2)(C) provide for a 90 day look back for cash advances and payday loans. The payday loan company would have to file an adversary lawsuit against the bankruptcy filer alleging the payday loan should not be discharged given it was incurred within 90 days of filing the bankruptcy case. Bankruptcy Code Section 11 U.S.C. Section 523(a)(2)(A) governs debts incurred from fraud. If the case is filed within the 90 days of incurring the loan the payday loan could argue with circumstantial evidence you never intended to pay back the payday loan.

3. Payday Loans With Post-Dated Checks Are A Problem

Another problem is the post-dated check that was provided to the payday advance company. Section 326 of the Bankruptcy Code governs the automatic stay that becomes effective as soon as your bankruptcy attorney files your bankruptcy case. The automatic stay stops any and all collection activity. The problem is that Section 362 does not stop the presentment of a negotiable instrument, or a post-dated check. You need to research your circuit cases regarding this issue to determine if trying to deposit the post-dated check is a violation of the automatic stay or not.

While it is rare for a payday loan company to sue a bankruptcy filer for an unpaid payday advance or loan it is important to be fully advised of the potential ramifications or filing for bankruptcy protection with a recent payday loan or advance. It is more of a cost benefit analysis. If the payday loan is only $500 it does not make much sense to spend thousands of dollars to prove the loan should not be discharged. It does happen though.

What Events Can Toll or Stop The Clock for Reach Back Periods When Discharging Taxes in Bankruptcy?

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There are a number of requirements to discharge taxes when filing for bankruptcy protection. Timing is everything. Taxes can be discharged if they taxes are three years old, filed on time or 2 years before the bankruptcy case was filed, assessed 240 days prior to the bankruptcy case, non-fraudulent return and no willful tax evasion. This article will not address the numerous issues that can arise regarding each of the requirements listed. This article focuses on what events can stop the clock or start the tolling of the different time periods. Your bankruptcy lawyer in your jurisdiction will be able to discuss how your state taxes are dealt with in bankruptcy.

Tuition Credits are not Student Loans

Tuition Credits are not Student Loans

For example, the due date for 2009 taxes is April 15, 2010. In theory taxes owed for 2009 therefore will be dischargeable after April 15, 2013, when filing for bankruptcy protection. So stops the clock on the three year period though? Or what stops the clock for the filed on time or return filed at least two years before filing for bankruptcy?

Bankruptcy Code Section 507(a)(8)(G) provides in part . . . . “applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.

Events that Toll or Stop the Clock From Running

1. Filing Bankruptcy: The first event is the filing of a prior bankruptcy case. As soon as the bankruptcy case is filed the automatic stay is in effect stopping any and all collection activity, including collection of taxes. The time period of three years and 240 days is not stopped since the governmental agency is prevented from attempting to collect the taxes. However long the automatic stay was in effect should be subtracted from the total days. Bankruptcy Code Section 507(a)(8)(G) also adds 90 days to the time period.

2. Request for a Hearing: Once you receive a letter in the mail from the IRS or FTB that you allegedly have unpaid taxes you may request a hearing to object or challenge the taxing authorities findings. Once you make this request the time period for looking back to determine if the taxes are dischargeable is tolled or stops. In addition once the event is over the time starts to run again 90 days must be added to the time period.

3. Appeal of Any Collection Action: This is more or less the same as making a request for a hearing. If the IRS or FTB levied on your bank accounts or informs you of a proposed assessment and you appeal the collection action or assessment the time period looking back is again stopped or tolled.

4. Offers In Compromise: If you make an offer in compromise it will stop the 240 day period while the offer is pending or in effect, plus 30 days. See Bankruptcy Code Section 507(a)(8)(A)(ii)(I). The trap here is if you had an offer-in-compromise in effect previously but no longer. The time the OIC was in effect must be calculated and added to the 240 day time period. Also, it only tolls the 240 day period with the taxing authority the offer was made to.

5. Extension to File Return: The Internal Revenue Service requires a form be filled out to obtain an extension of the deadline to file a tax return. Some states, like California, will automatically extend the deadline to file a return if not filed on time. This is an issue that needs to be looked at closely. Do not assume the federal tax time periods and deadlines are the same for whatever state taxes are owed as well.

The good news is that entering into an installment agreement with the Internal Revenue Service or Franchise Tax Board does not toll or stop the time periods. This is our recommendation also. If all else fails then enter into an installment agreement as soon as possible. Ignoring the taxing authority will only make matters worse. You do not want the government levying on your bank accounts, garnishing your wages or issuing tax liens on your real and personal property.