THE NEW BANKRUPTCY LAW

The BAPCPA

In October of 2005, Congress passed the newest set of bankruptcy laws in an attempt to reduce fraud and potentially reduce the number of bankruptcy filings. The law they passed is known as the “Bankruptcy Abuse Prevention and Consumer Protection Act.” (BAPCPA) The law was supported by credit card companies and banks. In 2006, bankruptcy filings were the lowest they had been in years. After 2006, bankruptcy filings dramatically increased as the mortgage, banking and securities industries had their own financial collapses and many were taken over by other companies.

Detailed financial disclosure is needed.

As it turns out, the BAPCPA didn’t have the affect creditors had hoped for. Most everyone who was able to file for bankruptcy before, can still file now. One significant difference is that filing for bankruptcy now is much more paperwork than before, and you must more fully disclose assets, debts and a complete statement of financial affairs, among other things. It is important to fully disclose all financial matters because they will be scrutized for accuracy and creditors can be very aggressive if a debtor has not fully disclosed all matters accurately and completely.

What did the new bankruptcy law change?

The lobbyist succeeded in adding the “means test” to bankruptcy filings. The means test is a determination to see if the debtor has sufficient “disposable income” to be pushed into a chapter 13 bankruptcy. If a debtor has too much excess money at the end of the month, they may not qualify for chapter 7 bankruptcy and must pay back a portion of their debt in a chapter 13 plan.

Before you can file for either a chapter 7 or 13 bankruptcy, you must take a credit counseling class. You must take the first course prior to filing your bankruptcy case. You must also take another debtor education class after you file. Thus, two courses are required. Neither class is difficult or time consuming and you can take them online. A bankruptcy case can be closed without a discharge if the debtor fails to take their second class. It’s very important and necessary to take this class right away. Print out and provide copies of the course completion to your bankruptcy attorney if you have one, so they can file it with the courts.

Secured debts and bankruptcy

Secured Debt

A secured debt is linked to a specific piece of property like a car or a home. When you finance a car or home it is a secured debt because the lender can take the property back if you don’t make payments. Most credit cards are different and do not secure your debt to any specific property item. Unsecured means if you don’t make payments on your credit card there is no collateral for the bank or credit card company to take from you. That’s why credit cards are considered to be unsecured.

Secured Debt and Filing for Bankruptcy

If you are going to file for bankruptcy and you are current on your secured debt, then you should be able to keep it, depending on how much equity you have in the item. Equity means the fair market value of the item, minus the amount of debt owed for it. Keep in mind that if you choose to keep your car or home in the bankruptcy, then your obligation to pay the underlying debt remains. You can’t file to get rid of the car loan or mortgage, and then keep the property. It doesn’t work that way. Failure to make payments allows them to take the property back if permissions is granted by the court.

Getting rid of loans and liens

If you have a secured debt such as a car and you want to get rid of it, you can simply “surrender” it in the bankruptcy petition. The lender can come pick it up or you can drop it off. The same goes with your house. If you have property that has a lien or judgment against it because someone sued you and got a civil judgment, you can get rid of this in the bankruptcy by filing a motion. This brings up an important point, but is confusing for many people to understand. If the court discharges a debt based on a lien or judgment, the debt is discharged, but the lien or judgment are not automatically removed from the title to the property. The lien or judgment often remain after discharge of the debt, unless your attorney files a motion for the court to allow “stripping” of the debt. We are happy to discuss this in person with you if you decide to come to our office for a consultation.

Stripping off your 2nd mortgage

You may be able to eliminate a 2nd or other junior mortgage, lien or judgment, only in a chapter 13 bankruptcy and only if the value of your home is worth less than what you owe on your first mortgage. In other words, if there is no equity when you subtract the amount of debt from the fair market value of the item, there is no equity. If you have equity value and decide to file a chapter 7 and want to keep your home, then junior mortgages, liens and judgments will often remain against the lien or title to the property. If you have a recent appraisal for the value of the property, whether it is a Realtor opinion, Certified Appraisal, or an auto appraisal, the appraisal might be used to determine the value for purposes of assisting you to decide your different options.

Contact our chapter 7 bankruptcy lawyer in Modesto for more information.

Property and bankruptcy

Property Ownership in Bankruptcy and the Trustee

When you file bankruptcy everything you own now belongs to the United States Trustee. Keep that in mind, but do not drain your bank accounts to keep it from the trustee, because that appears suspicious. The trustee can keep it but often will not touch your smaller accounts, so you will be able to pay your normal monthly bills.

Federal bankruptcy law allows debtors to exempt certain property. An exemption is basically protection for certain items. Your household furnishings, clothing and retirement accounts are usually all exempt in addition to another $21,000 or so. For example, this means you can have stocks worth $10,000 and $10,000 in the bank, and you get to keep it all.

Contracts in Bankruptcy

While your bankruptcy case is pending don’t give away or sell your property without trustee permission. Technically, the U.S. Trustee is the owner of the property until the bankruptcy case is closed. Many people wonder if they can purchase secured property before filing their bankruptcy case. There usually is no problem with purchasing secured property as long as you are buying it at fair market value or less.

Non Exempt Property

California allows two potential exemption methods under Federal Bankruptcy laws. We can help you determine which allows you to keep the most of your assets.

If some of your property is nonexempt, then the United States Trustee can take it or demand you send payment. For example, let’s say you get $21,000 in wild card protection from California exemptions and you have $18,000 in your checking account and you expect to receive $7,000 in tax refunds, meaning youwould have $25,000 available. In this situation the trustee can take $4,000, which is the excess over $21,000.

Allowed Transactions in Bankruptcy

You are allowed to spend on necessities such as groceries, gas, rent, etc. However, do not give away money or property to relatives or close friends before you file for bankruptcy. This can be deemed a “preference” transaction which can lead to suspicion in your financial affairs and also may be subject to the Trustee or court taking negative actions. The Trustee can sue either you or whomever you gave the property to for the fair market value at the time of transfer. For example, if you gave $5,000 to your cousin and signed over a car worth $4,000 to your brother, all within a year of filing, you may be liable for $9,000 to your bankruptcy trustee, or the person whom you gave the property to might be sued.

For more information regarding bankruptcy and protecting your assets, call our lawyer in Modesto today!

Employment discrimination and bankruptcy

Many people are afraid to file for bankruptcy because they think everyone will find out. Nothing could be further from the truth. Nobody other than the creditors are contacted when a debtor decides to file for bankruptcy. That means other than your creditors, there are very few ways anyone will find out about your bankruptcy, for example, if they run a credit check on you, or to check bankruptcy case filing dockets.

Government Discrimination

Section 525 of the US bankruptcy code provides that a governmental entity cannot discriminate against someone for filing for bankruptcy. That means they cannot deny, terminate, suspend or discriminate with respect to employment any person who has filed a bankruptcy. Section 525 further prohibits the government from discriminating against someone who doesn’t pay a dischargeable debt or has been insolvent prior to or during a bankruptcy proceeding.

Private Employers

Similarly, private employers can’t discriminate against people who file for bankruptcy. That means they are prohibited from terminating or demoting someone, solely because of the bankruptcy. The term “employment” is much broader in the bankruptcy sense than usual. Employment relationships have been found with workers that would have been labeled independent contractors under state law. Section 525 of the bankruptcy code also applies to promotions and advancements. An employer can’t demote someone or fail to pay their quota because of the bankruptcy filing.

Proving the Discrimination

The Bankruptcy Code states that an employer can’t discriminate against an employee “solely” because of the bankruptcy filing. Therefore, an employer is free to terminate or demote an employee if there are other sufficient reasons such as lack of performance. If reasons exist that would justify the act by the employer, then the conduct will likely not be in violation of section 525 of the bankruptcy code.

Debtor’s Remedies

If a debtor is able to establish discrimination under section 525 of the Bankruptcy Code, he may be entitled to an order enjoining the employer from further discrimination and/or monetary damages for lost income. Punitive damages however, cannot be recovered.

If you believe you are experiencing employment discrimination in Stanislaus or County, call our bankruptcy lawyer today!

Dischargeability of divorce debts

Divorce debts can be discharged in bankruptcy if they are not in the nature of alimony, maintenance or support. If the divorce debt is a property settlement, it can be discharged in the bankruptcy. Therefore, the key issue is determining whether the debt is a property settlement or alimony, maintenance or support. See In re Baron, 283 BR 328 (MD FL, 2002). The way it works is the debtor files his bankruptcy petition and lists all his creditors. If a creditor feels like his debt is non-dischargeable, he files an adversary proceeding in bankruptcy court. An adversary proceeding is a creditor lawsuit within the bankruptcy. If the debtor wins the adversary proceeding the debt is erased. If the debtor loses the adversary lawsuit then the objecting creditor’s debt will remain, but the debtor’s other debts can still be discharged.

The key issue when classifying the debt is the intention of the parties or the divorce court at the time the agreement or order was made. See In re Hoberg, 300 BR 752 (CD CA, 2003). The most important question in determining whether the debt is in the nature of alimony, maintenance or support is the purpose of the obligation at the time of the divorce. Where the obligation serves as a spouse’s income, then it is going to be classified as support, regardless of the terminology of the order or agreement. See Cummings v. Cummings, 244 F. 3d 1263. The present needs of the parties should not be considered by the bankruptcy courts on the issue of classifying the debt as support. The courts should consider the financial circumstances of the parties at the time the agreement was made and should not consider the current financial positions of the parties at the time of the bankruptcy filing. In re Chedrick, 98 BR 731.

A factor the courts consider is how the divorce related obligation is paid. If the obligation terminates upon remarriage or a child turning a certain age, that is usually an indication that the obligation is support and not a property settlement. See In re Sorah, 163 F. 3d 397 (CA 6, 1998). If the obligation payment is supposed to be made in one lump sum as opposed to installments, that is an indication that the obligation is a property settlement which can be discharged in bankruptcy. See Duffy v. Taback, 331 BR 137.

If you live in Stanislaus County and you are looking for an experienced bankruptcy attorney, call us today!

Property you are entitled to, but you haven’t yet received.

Receiving property and bankruptcy

Property that you are legally entitled to receive, but hasn’t yet arrived, is property of the bankruptcy estate. That doesn’t mean you are going to lose that property because it could be exempt. Many filing debtors rarely have to give up anything. In California, you are allowed a wildcard exemption of over $21,000. That means if you expect to inherit $10,000 and you have $5,000 in your savings account, then you won’t lose anything, because the amount is less than the exempt property you are allowed to keep. It’s important to disclose to your attorney everything you expect to receive so it can be protected. Here are some examples of property that you may be entitled to, but have not yet received:

tax refunds
money that you inherited
money from an insurance policy
a legal claim that constitutes a law suit, such as a personal injury claim
property that people owe you.
Money earned from property in your bankruptcy estate such as rent from a home, royalties from intellectual property rights

Property you acquire within 180 days of filing bankruptcy

For the most part, the property you acquire after you file for bankruptcy is not part of your bankruptcy estate and the trustee can’t touch it. However, some property you acquire is property of the bankruptcy estate and must be reported to the trustee. This includes:

Community property in bankruptcy

California is a community property state, so be careful about leaving your non-filing spouse’s property out of your bankruptcy petition. The general rule is that any property or money earned during the marriage is owned 50/50 by the spouses. If you are married and file for bankruptcy in California, all the community property that you and your spouse own is part of the bankruptcy estate. Your exemptions still apply so you can often keep everything you have within the exempt property limits. The separate property owned by the non-filing spouse is not part of the bankruptcy estate.

If you have assets that you are worried about losing in a chapter 7 bankruptcy, we have experienced attorneys in San Joaquin and Stanislaus county ready to help you now!

Spouses and bankruptcy

Both spouses are not required to file for bankruptcy if only one of them wants to file. However, the income and asset information of the non-filing spouse is taken into consideration in determining whether the filing spouse qualifies for a chapter 7 or 13 bankruptcy. Also, if one spouse files then it is possible for the creditors to go after the community property of both spouses. It is almost always better for both spouses to file together, so the creditors cannot attempt to claim assets and property owned by your spouse, and so they cannot make claims against your non-filing spouse. Our attorney at BKModesto will counsel you through this area of the law, if needed.

One Spouse Filing for Bankruptcy

If one spouse has great credit and or no debt, then it would certainly make more sense for that spouse not to file for bankruptcy. However, keep in mind that the income of both spouses is taken into consideration when determining whether the filing spouse qualifies for a chapter 7 bankruptcy. For example, if husband has no income, but wife makes over 100k a year, then husband may not qualify for a chapter 7 bankruptcy. If the household income is more than the median income allowed for the particular family size, then the filing spouse may be forced into a chapter 13 bankruptcy. Furthermore, if you have someone else living in your home, the income that person contributes to the home is taken into consideration when determining bankruptcy qualifications. If that person doesn’t contribute much to the home, and you provide over half of their support, then they may help you qualify for a chapter 7.

One Spouse Filing a Chapter 13

If the filing spouse doesn’t qualify for a chapter 7 because their income is too high, then they may choose to file a chapter 13 where they will be required to pay a percentage of his debt back to his creditors. Even though the non-filing spouse won’t be involved in the chapter 13, his or her income is taken into consideration along with any other household income when determining how much the filing spouse repays.

Credit and the Non-Filing Spouses

The non-filing spouse’s credit will not be affected by the filing spouse’s credit. No bankruptcy should appear on the non-filing spouse’s credit report unless there is joint debt.

Our experienced bankruptcy lawyer is ready you help you with your chapter 7 in Stanislaus county, so call us today!

Utility discrimination and bankruptcy

Section 366 of the Bankruptcy code prohibits a utility company from discriminating against a debtor solely because they file for bankruptcy. This also applies in situations where the debtor has pre-bankruptcy debt to the utility company. Once the bankruptcy petition is filed, the debtor has a 20 day window that keeps the utility company from refusing service. After the 20 days have expired the utility company may refuse service if the debtor doesn’t pay an adequate deposit for future services.

Often times the utility companies shut off service for nonpayment. Once a debtor files a bankruptcy petition, is the utility company in most cases is required to reinstate the service. The debtor may be required to pay a deposit for future services. In the case of In re Whittaker, 882 F.2d 791, a utility company had terminated services prior to the debtor’s filing a chapter 7 bankruptcy petition. Section 366 of the bankruptcy code required the utility company to restore services within 20 days of the bankruptcy filing. In that case, because the company did not require its other new members to pay a deposit for services, debtor was not required to pay a deposit.
Section 366 doesn’t apply to debtors that default after they make their adequate assurance deposit. If the debtor pays his deposit then later defaults on payment, the utility company is no longer subject to section 366 of the Bankruptcy code. In this type of situation the company’s remedy is to terminate services under state law.

If a utility company violates section 366 of the bankruptcy code, debtor’s relief is usually an order requiring the utility company to reinstate the service. Debtor usually won’t be entitled to money damages unless the debtor was financially damaged by the termination of the service.
If you reside in Modesto or the surrounding areas and you are considering filing bankruptcy, call our offices today!

Debts caused by drunk driving

Section 523 of the Bankruptcy Code does not allow a debtor to discharge debts caused by drunken driving in bankruptcy. Under subsection (9), it states “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft, if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”

This exclusion applies regardless of the type of discharge the debtor is seeking, in both chapter 7 and chapter 13 cases. Whether the debtor caused injury or death, the debt will remain non-dischargeable in either chapter if the debtor was driving while intoxicated.

The bankruptcy provisions of subsection 523(9) apply regardless of whether a creditor files an objection or complaint. In fact, the creditor does not ever have to appear during the bankruptcy proceeding to protect his or her interest. Furthermore, because the provisions of 523(9) are self-executing, bankruptcy courts are not the only courts that can decide the issue of nondischargeability. State courts may all determine the issue of nondischargeability of a debt, as long as the issue has not already been determined by another court.

For a creditor to show the debt is nondischargeable in bankruptcy, they need only show that the debtor was in fact intoxicated under state law, the debtor was operating some kind of motor vehicle while intoxicated and the injury resulted. Furthermore, there is no requirement that the debtor have a conviction for a DUI in state court.

A creditor is not required to prove that the debtor’s intoxication caused the accident which gave rise to the injuries. Courts have held that nondischargeability can be established by proving the debtor was driving while intoxicated, without showing the intoxication was the primary cause of the accident. A bankruptcy court is required to apply state law for purposes of determining whether the debtor’s driving was “unlawful” under section 523(9).

In the case known as In re Mellot, 187 BR 578, the bankruptcy court decided that the creditor’s evidence of the debtor’s blood alcohol level of more than .10%, was sufficient to establish the debtor’s intoxication under Section 523(9). In another case, In re Phelan, 145 BR 551, the creditor’s bankruptcy attorneys established by a preponderance of evidence that the debtor was intoxicated at the time of the accident even though the debtor was never convicted of a DUI or DWI. In that case, the debtor’s license was revoked for 10 years and there were witnesses that stated debtor drank beer before the accident.

On the other hand, in In re Race, 198 BR 740, the debtor’s bankruptcy lawyers successfully defended the allegations by the creditor that the debtor was intoxicated at the time of the accident. In that case, there was no evidence to suggest the debtor had consumed alcohol within two hours of the accident and witnesses testified the debtor was not impaired. A few other bankruptcy courts that have decided in favor of the debtor on the issue of intoxication include, In re Spencer, 168 BR 142 and In re Crump, 321 BR 879.

Our bankruptcy lawyer in Modesto and surrounding areas will give you the direction you are looking for, so call us today!