Thursday, February 19, 2015

Flickr: Jacob Botter


Flickr: Ryan
When filing a chapter 7 bankruptcy, understanding how exemptions work is important. Debtors are allowed to keep exempt assets.  Debtors lose non-exempt assets in a chapter 7 bankruptcy, so it is important to know whether an asset is exempt from bankruptcy or it is not.    

Bankruptcy Exemptions

The bankruptcy code allows an individual debtor to exempt real, personal, or intangible property from being sold in bankruptcy.  Real property is another name for real estate.  Examples of personal property can be money, cars, clothing, jewelry or household furniture.  Intangible property can include the goodwill of a business. What is important to understand is that a lot of different types of property can be classified as exempt when filing bankruptcy. 

Flickr: Canon

List and Describe ALL Assets

Under bankruptcy law, debtors are required to list ALL of their assets in their bankruptcy paperwork.  Debtors are required to declare whether an asset is exempt, and the amount an asset is exempt.

Home Exemption Example:

For example, let’s say a homeowner lives in a home worth $100,000.  She has a mortgage with $50,000 left to be paid.  If the homeowner were to sell the home (with no costs), she would pocket $50,000 after paying off the Mortgage.  Therefore, the homeowner has $50,000 in home equity. 

If the homeowner would have to file a chapter 7 bankruptcy, she would need to describe in the paperwork the home address, the fair market value, and the amount owed on the mortgage. 

Next, the debtor will then need to declare whether the home equity is exempt.  The amount afforded in home exemptions is NOT set.  It is different from state-to-state.  It can change depending on the debtors’ age and marital status.  It can also differ by which set of exemption laws a debtor chooses.  For example, in California, debtors can choose from two separate sets of California exemption laws. 

Flickr: Cali
Debtors need to determine how much they can claim BEFORE filing bankruptcy.  This should be done with a qualified bankruptcy attorney.  A mistake in the amount of exemption permitted by the law could cause the home to be sold. 

Other Exemptions: 

California also prescribes exemptions for other assets.  Generally speaking, qualified retirement accounts are fully exempt.  Debtors can claim exemptions for equity in cars, household items, and tools of the trade, to name a few of the popular exemptions. 

Wild Card Exemption: 

In California, debtors can SOMETIMES add exemption credits to cover extra equity in particular asset categories if a debtor runs out.  Here is a general description of how it works:

Flickr: Peter
Let's say a debtor is an auto mechanic.  He owns $10,000 in "tools of the trade".  Let’s assume that the exemption law where he lives – after working with qualified bankruptcy attorney, right? -- determine he is allowed to exempt up to $7000 of his tools.  That means $7,000 of the tools are protected and $3,000 worth of the tools are not protected (non-exempt).  The bankruptcy trustee would have every right and a duty to seize and sell the $3000 worth of tools for the benefit of the creditors.  By using the "wild card" exemption, the debtor can apply extra exemption money and declare the $3,000 as exempt. 

Flickr: Tim Pierce
This California exemption is the “Wild Card” exemption.  It gets its name from the poker card game.  Have you ever played poker, calling out “deuces wild” or “Jokers wild”?   "Jokers wild" in a card game means that you can turn a Joker into another card to help your hand of cards out.    

As you can see, deciding which assets are exempt and how and how a debtor can claim an asset as exempt from the bankruptcy estate can be one of the more important and difficult aspects of his bankruptcy case.  A mistake can cause an asset to be sold to pay creditors.  It is extremely important to consult an attorney if the debtor has any questions regarding the issue of exempt assets.

Tuesday, February 3, 2015

Bankruptcy Filings Drop Again!

Total bankruptcy filings in the United States dropped 14 percent in January from the same period last year.  Local results saw even larger decreases.

California saw a 23% drop in cumulative filings.  California ranked 1st compared to all other states with the largest decrease in bankruptcy filings when compared to 2013.  For the first time in a long time, fewer than 100,000 bankruptcies were filed in the Golden State.  During the height of the Great Recession in 2010, more than 255,000 bankruptcy cases were filed.

Other states seeing a drop in cumulative bankruptcy filings when compared to 2013 include Alaska (-22%), New Hampshire (-21%), Vermont (-22%) and Wyoming (-23%).

The San Joaquin Valley saw bankruptcy case filings drop 23.5% from 2013.  This area includes Sacramento, Fresno and Bakersfield,  Total cases filed were 20,355.  In 2013, the San Joaquin Valley Valley filed 26,606.  In 2010, the valley had more than 54,000 bankruptcy cases filed.

 Why the decrease in bankruptcy filings? American Bankruptcy Institute Executive Director Samuel J. Gerdano said, "High costs to file and sustained low interest rates continue to reduce the number of consumers and businesses seeking the fresh financial start of bankruptcy."  January Bankruptcy Filings Decrease  

Click here to read the full statistical release.

Will the last bankruptcy debtor remember to turn off the lights on the way out?

Photo courtesy of Francesca Gallo on Flickr

Friday, December 19, 2014

Will Bankruptcy Get Rid Of My Student Loans?

Bankruptcy Courts Make It Tough To Rid Student Loans

Bankruptcy courts around the country toughened up on helping students discharge student loans beginning in 2006.  Many still do not realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. Student loans are preventing thousands of college graduates from purchasing their first homes.  After all, living expenses are higher and salary levels are lower than anticipated, making student loan debt repayment difficult if not impossible.

If this is you, you might be wondering if you can turn to bankruptcy for relief and a fresh start. The chances of bankruptcy being the solution is slim.  That is because not all debt is not treated equally in bankruptcy. While bankruptcy is great for getting rid of medical bills and credit card bills it is terrible for getting rid of student loan debt.  Most chapter 7 and chapter 13 debtors accept that this debt will remain after filing for bankruptcy.

While Tough, It Is Still Possible Rid Student Loan Debt  

Bankruptcy courts will not discharge student loans except in one narrow circumstance. You have to show undue hardship.  This is a very tough standard to meet.  Some bankruptcy courts require showing not being able to maintain a minimal standard of living, with no hope of a positive change in financial circumstances for some time.  The bankruptcy judge will also look to see whether there was a good faith effort to repay student loans in the past.  

In short, this is what the bankruptcy court is looking for when determining whether is will discharge a student loan from a debtor:


What kind of lifestyle is the debtor living?  A bankruptcy court will want to see that after living a frugal life, i.e. paying for apartment rent, food and other necessaries, a debtor does not have any money left over to pay his Lenders. 


A bankruptcy court not only requires a present inability to pay, but also requires a prediction about future ability to pay. Factors to consider include a debtor's mental and physical health, dependent's needs, age and other conditions affecting earning capacity. Also considered are prospects for income in the debtor's profession. One bankruptcy court noted that the "most important factor" to satisfy this element is that the debtor's circumstances must "be beyond the debtor's control, not borne of free choice."


Finally, bankruptcy courts will analyze whether the debtor had made a good faith effort to repay the loans. One court found that even though a mother made over $18,000 in payments, the debtor failed to show good faith by only making one payments and not applying a tax refund he had received.  

In denying the debtor's attempt to discharge the student loans, the bankruptcy court wrote that Debtor and the Lenders "will have to live, uneasily it seems, with the consequences of the bargains they improvidently struck at the beginning of their relationship."

Ouch! present day students need to take heed and understand that today's student loans will have consequences that can effect their financial situations throughout their life.

Southeastern Seminary at Flickr

Monday, December 1, 2014

What Happens at a Chapter 7 Meeting of Creditors?

After filing a chapter 7 bankruptcy, you will be required to attend "the meeting of creditors".  The meeting takes place at court around 45 days after you file bankruptcy. If you have to attend the hearing.  If you do not attend, the trustee, who runs the meeting will likely file a motion asking the court to dismiss your case.   
The meeting is referred to as the "meeting of creditors" because creditors are notified that they may attend and question you about your assets and any other matter relevant to the administration of the case. The good news is that creditors rarely attend the meeting.  On the rare occasions when they do, they are usually trying to locate secured property.  Commonly I see jewelry shops shops asking for the location and return of jewelry where the debtor defaulted on the loan.  Other creditors may ask questions to see whether a debtor should be in a chapter 7 when they can afford to pay back their creditors.  Again, it is rare that a creditor shows up to ask questions.  
The meeting usually lasts only a few minutes and may be continued if the trustee is not satisfied with the information provided by the debtor. Often meetings are continued when the debtor fails to provide acceptable identification and proof of Social Security number. Also, many debtors fail to send the trustee tax returns and pay stubs 7 days before the hearing, per California Eastern District Bankruptcy Court rules.  In short, make sure you are prepared for the meeting.  If you have hired an attorney, the attorney will make sure to send the documents to the trustee and remind you to bring your driver's license and social security card to the meeting.  

If you fail to provide the information requested at the meeting, the trustee will likely set another date for you to return to provide the information.  Multiple instances of non-compliance will likely lead to the trustee requesting that the bankruptcy case be dismissed or that the debtor be ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate. 
The information enables the trustee to understand your financial circumstances for filing bankruptcy and speeds up the questioning process. The trustee will ask questions to ensure that your financial information is correct, that you do not have assets that can be sold with proceeds going to creditors and to make sure you understands the positive and negative aspects of filing for bankruptcy. 

Wednesday, November 19, 2014

When Will Creditors Stop Harassing Me After I File Bankruptcy?

You probably do not even bother answering the phone because you know it is a creditor calling.  It would be nice to have some peace, right?

Creditors will stop calling you immediately after you hire a law firm to file your bankruptcy case. This is even before your bankruptcy case is filed with the bankruptcy court!  You tell your creditors that you hired a lawyer and that all contact must go to that attorney.  They have to follow your instructions.  Under the Fair Debt Collection Practices Act, once a creditor is made aware that you are filing for bankruptcy or that you have representation to file bankruptcy, they are prohibited from contacting you and they must go through your attorney.

Most bankruptcy attorneys can be retained for a small down payment toward your bankruptcy fee. Many debtors take several months of saving money to afford a lawyer to file their bankruptcy case. Those months of saving are done without the hassle of creditors calling all the time.

Photo credit: Atilla KeFeli at Flickr

Monday, November 10, 2014

How Zillow and Trulia Can Ruin Your Bankruptcy

Bankruptcy attorneys are hired to navigate debtors through the murky waters of the bankruptcy court. One concern for a debtor is when they own a home that is worth more than what is owed to a lender. Some debtors unwarily rely sites like Zillow or Trulia to determine their property values.  Zillow and trulia are too unreliable.  As a result, debtors filing bankruptcy can ruin their bankruptcy because their property values are higher than what Zillow or Trulia believes.

How You Can Keep Your Home In Bankruptcy: Exemptions for Residence

Under current bankruptcy rules, debtors are allowed to keep up a certain amount of home equity.  However, this amount of equity should not exceed your jurisdication's limit.  In California, bankruptcy courts allow debtors to keep between $75,000 and $150,000 of home equity.

For example, if you own a home that is worth $100,000, and you owe a lender $75,000, you have $25,000 in home equity.  In California, bankruptcy courts allow you to exempt all the equity in the home from the creditors.  However, by choosing to exempt your home equity, you reduce the amount of money that you can exempt other items, such as car equity and cash savings accounts.  Sometimes by choosing to save the equity in a home, a debtor will have to let the bankruptcy court take other personal property.

Let us look at another example.  You own a home that is worth $100,000.  You owe $99,000 to a lender.  Thus, you have $1,000 in equity.  Most California bankruptcy attorneys will choose not to use house exemption to protect this equity so that they can protect more equity in other property, such as car equity and cash savings accounts.  Under this scenario, the $1000 of equity will be protected under the "wild card" exemption.

Can You Trust Zillow or Trulia?

Therefore, it is important to have accurate house valuation.  What is the best way to determine house value?  Hire an appraiser.  Unfortunately, an appraisal will cost $350.  Another reliable source would be to have a competent Realtor tour your house and compare your house to homes that have sold in your neighborhood recently.  While less reliable than an appraisal report, a Realtor report should be pretty accurate a fraction of the price of an appraisal.

How about Zillow?  Or Trulia?  Why not just look at home values through these symstems because they are free?  Bankruptcy courts have held time after time that Zillow is not credible evidence of value.  (In re Phillips, 491 BR 255, 260, n.7 (Bankr. D. Nev. 2014).)

Debtors relying on Zillow are often surprised when the trustee tells them that their homes are worth more than what Zillow says.  Typically, debtors can recover from this surprise by changing their exemptions so that they choose the house exemption.  However, often that leads to other personal property as not being exempt.  The trustee is allowed to sell those items for the benefit of the creditors.

Thursday, October 30, 2014

Will I Have To Go To Bankruptcy Court After I File Chapter 7 or Chapter 13?

After filing bankruptcy, you will be required to go to bankruptcy court after filing a chapter 7 or chapter bankruptcy.  All debtors must appear at the meeting of creditors.  Some will need to appear to reaffirm car debt.      

1. Bankruptcy Court's Meeting of Creditors

When filing a personal bankruptcy under a chapter 7 or chapter 13, you will be obligated to attend the "meeting of creditors."  A "meeting of creditors" is not in front of a judge. --That's good news!-- Instead, you are examined by a trustee.  For meetings held at the Fresno Federal Courthouse, there are 5 different trustees that run the meetings.  These trustees have legal or accounting backgrounds.  

Do you want to know where Fresno's bankruptcy court is located and details of what happens at a meeting of creditors?  Here is a link to one of my more popular articles: 

What to Expect At Meeting of Creditors at Fresno's Bankruptcy Court

Usually the creditors meeting takes place between 20 and 40 days after filing chapter 7.  Chapter 13 meeting of creditors occurs a few weeks later.  

The main goal of the meeting of creditors is for the trustee to ask questions of the debtor related to their financial condition.  They want to see whether the debtor has any non-exempt assets that can be sold and paid to creditors. They also want to ensure the debtor is being honest about their financial situation.  The meeting is set with other debtors.  On average, the meeting lasts about 5 minutes.  Some meetings, however, can last longer if there are complicated issues involved.  Meetings can last longer because the debtor is represented by an unprepared attorney, or if the debtor is not represented by an attorney at all. 

The meeting permits the trustee to review the debtor's petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury.   

2. Reaffirmation Hearing

Do you own a car with a loan?  If so, your car loan is secured to the car, which means the creditor can repossess the car if you breach your contract.  Most car creditors have the right to repossess the car, even though the debt owed to the car is discharged. 

If you wish to keep your car, you will need to decide whether to "reaffirm" the debt. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. The agreement must generally be filed within sixty (60) days after the first date set for the meeting of creditors, but before the discharge is entered. You do not have to reaffirm a debt.  This is a voluntary agreement.  

If you decide to reaffirm your secured property, like your car, the protections of the automatic stay are terminated.   Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. 

If you are not represented by an attorney, you and the creditor will file an application for approval of the agreement, along with a request for hearing. An order approving the agreement should be brought to the hearing. You must appear in person at the hearing. The judge will ask you questions to determine whether the reaffirmation agreement imposes an undue burden on you or your family and whether it is in your best interests. The judge will only reaffirm those secured debts that you can afford and is important to you to make a living. The judges in Fresno do not reaffirm home loans.