Category: Did You Know?

Dishonest Debtors May Get Nailed in Bankruptcy

 

In Oakland bankruptcy court, creditors can object to the debtor's discharge Dishonest debtors might find that their debts are still there at the end of their case. See you in court.

Yesterday I talked about how most debtors in the Oakland bankruptcy court never even see a judge. I explained that the bankruptcy system is actually pretty automated so the bankruptcy judges don’t have to get involved most of the time. One time when the bankruptcy judges do get involved is when someone believes that the person filing for bankruptcy has been dishonest.

The Bankruptcy Code provides for a mechanism to “catch” dishonest debtors and make it so some or all of their debts don’t get wiped out. That mechanism is called objection to discharge. If someone is going to gripe about the debtor’s honesty, the griper can either object to a particular debt being wiped out, or object to all of the debts being wiped out. If the judge agrees with the griper, the debtor may find himself still owing one or more debts at the end of his case.

It’s not quite as simple as it may sound. In order to win, the griper has to file a lawsuit, called an adversary proceeding. This is done in the bankruptcy court in Oakland, the same place where the debtor filed his bankruptcy case. The adversary proceeding is connected to the debtor’s bankruptcy case and sometimes the bankruptcy case is put on hold until the adversary proceeding is resolved. The court gives the griper and the debtor time to get information from each other about the alleged dishonesty and eventually there’s a trial.

These types of adversary proceedings are pretty rare. After handling bankruptcy cases for nearly fifteen years, I can still count on one hand the number of times any of my clients have been sued for nondischargeability of a particular loan. It just doesn’t happen very often. And when it does, it’s not at all a sure thing that the griper’s going to win. I’m pretty aggressive when it comes to defending my clients from adversary proceedings. I don’t like them. I don’t like it when creditors try to beat up on my clients. I want to see my clients debt free.

If you’re worried that a creditor might grip about a particular debt that you owe, you should speak with an experienced Oakland bankruptcy attorney about your concerns. The best attorneys in Oakland will be able to give you clear and realistic answers.

Image credit: By V Smoothe (Ronald V. Dellums Federal Building) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Most Bankruptcy Filers Never Even See the Bankruptcy Judge

 

Surprise! You'll probably never see the bankruptcy judge
Surprise! No judge! At least in most cases.

It sometimes comes as a big surprise when I tell my clients what to expect in their Oakland bankruptcy case and I never even mention a judge. “What a minute! When do we explain our situation to the bankruptcy judge?” they’ll ask. “Never,” is my reply, “or at least almost never.”

Seems kind of like taking a red-eye from San Francisco to New York only to find upon landing that there was no pilot in the cockpit, doesn’t it? Why don’t debtors usually have to tell their story to the judge? The answer, I think, is pretty slick. Gives me confidence that the bankruptcy system has its priorities straight most of the time.

Bankruptcy is actually a constitutional right–or at the very least bankruptcy is discussed in the United States Constitution. The Constitution says that Congress was supposed to set up laws that provided for a uniform system of bankruptcy throughout the states. Congress did that. By setting up the laws, Congress intended to provide a way for the honest but unfortunate debtor to get out from underneath the crushing burden of debt and start over financially. And they wanted the system to work as automatically as possible.

One way they did this is to make it so that honest people who filed for bankruptcy whether in Oakland or San Francisco or San Diego or Tallahassee would be entitled to a “discharge” of their debts as long as they jumped through the right hoops and provided the right information at the right time. In other words, if you do everything you’re supposed to do in your bankruptcy case–and you’re an honest person–you are entitled to a discharge–you have a right to have your debts get wiped out.

Since that’s the case, there’s really no need for a bankruptcy judge even to get involved unless it’s absolutely necessary. And that’s the reality: you rarely see a bankruptcy judge unless something unusual pops up in your case. Nothing unusual means you’ll never even see a judge. Once the required amount of time has passed, and assuming you or your experienced bankruptcy attorney has dotted all your “i”s and crossed all your “t”s, a computer in the clerk’s office generates a discharge order, the clerk mails it out to you–and you are debt free!

Always talk with an experienced bankruptcy attorney about your options and your questions. If you’re in the Oakland area, keep in mind that there are a lot of friendly and capable bankruptcy attorneys. If you can’t come to Alameda to meet with James Pixton, give him a call and let him recommend the best bankruptcy attorney your area to help you out. His number is (510) 451-6200.

You Will Not Lose Your Retirement in Bankruptcy–Usually

 

When filing in Oakland bankruptcy court, care must be given to retirement funds so they're protected.
Investments must be in true retirement accounts to be protected in bankruptcy.

One big fear often leads to a nervous question when I first meet with clients: “Will I lose my retirement when I file for bankruptcy?” The short answer, at least in Northern California, is generally no.

The two California exemption lists (lists of what you get to keep after your case is over) both list retirement accounts. This means that your creditors cannot get at your retirement and you will still have it after your case completes.

What’s important to remember, however, if that your retirement account actually has to qualify as a genuine retirement account under federal tax law. Therefore, IRAs, union pensions, private retirement account and similar products are exempt and protected in bankruptcy.

You’ll run into problems, however, if you try to get cute when you have a retirement account and file a case in Oakland bankruptcy court. I have had clients tell me during their first visit to my office that they have a retirement account. When I ask further questions and request documentation, I’ll occasionally discover that the clients are actually talking about an investment account. When I question them on it, the response I’ve received is, “Well, yeah, we’re going to use those investments to fund our retirement!” Whoops!

This is kind of like common law marriage in California: there ain’t no such thing! Either your account qualifies under tax law as a retirement account or it isn’t a retirement account. It doesn’t matter if the client intends to use the funds as a retirement account. If the IRS don’t see it as a retirement account, it’s not a retirement account.

If you live in the Oakland area and are considering bankruptcy, you should talk with an experienced bankruptcy attorney about all aspects of your finances. Be sure to make sure you talk about how your retirement is going to be handled.

Image credit: By Fletcher6 (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

If You Forget to List a Creditor in Chapter 7 Bankruptcy

In Chapter 7, Forgetting a Creditor Is Not the End of World.

Under the right circumstances, missing a creditor in a San Leandro bankruptcy case is not a problem.
Forgetting to list a creditor in bankruptcy is usually not as a serious as the detonation of an atomic bomb–usually.

Every once in a while, I get a frantic phone call from a former client who has just realized that she forgot to list a particular creditor when we filed a chapter 7 bankruptcy case several years before. “Is it too late to add the creditor?” she’ll ask.

There are two parts to the answer–at least in most chapter 7 bankruptcy cases filed in the Oakland bankruptcy court. The first is that, no, you can’t add the creditor; the second is that even though you can’t add the creditor, it most likely doesn’t matter and the debt has still been wiped out.

How can this be, you ask. It’s one of the wonders of the bankruptcy law as they have been interpreted by the Ninth Circuit, the court of appeals that interprets law for the West Coast states including California.

The simple version is that bankruptcy is intended to help people start over financially. The order at the end of the case called a discharge order indicates that all debts owed to creditors that can be wiped out have been wiped out. It doesn’t say anything about whether the creditors received any kind of notice of the bankruptcy because a discharge doesn’t necessarily require that the creditors receive notice.

Notice to the creditors is necessary for two big reasons. First, so the creditor can have time to object to its claim being wiped out through discharge. Second, so the creditor can have time to file a proof of claim in the case and get paid if there’s any money available to be paid out to creditors. When there is money to be paid out, there will be a deadline for creditors to make their claims. If they miss the deadline, they don’t get paid.

No Deadline in Bankruptcy Case Means No Deadline to Miss

For most regular people in most regular bankruptcy cases in the Oakland and San Leandro area, however, there are simply no assets to be paid out to creditors. What this means is that there is never a deadline for creditors to file their claims. If there’s no deadline to miss, they don’t get hurt if they don’t know about the deadline. That’s the second issue I mentioned above.

If They Can’t Object for Fraud They Likely Can’t Object

On the first issue, creditors are supposed to be notified of a bankruptcy case so they have time to object. The thing about objecting is that they can only object for certain specific reasons. One of the biggest is if they feel the debtor incurred the debt fraudulently. (For instance, they lied on their credit applications and said they were brain surgeons making $500,000 a year–and they really weren’t.) Obviously, most debt is not fraudulent debt so most creditors would have no reason and therefore no ability to object. Again, without a reason to object for fraud, the creditor really hasn’t been harmed by not being told about the bankruptcy case.

Now, lest anyone should get any funny ideas, you need to keep in mind that you are required by bankruptcy law to list all of your creditors in your bankruptcy case. You don’t get to pick and choose. You list all of them and then you sign at the bottom under penalty of perjury that you have listed all of them.

I would not want to be a debtor standing in front of a bankruptcy judge in Oakland (the location of the court for San Leandro and San Lorenzo bankruptcy cases) and explaining why I intentionally didn’t list a creditor. I really would not want to do that. This little tidbit is only for honest debtors who honestly forgot to list a creditor.

Lie in Bankruptcy Case and Go to Prison

Dishonest debtors who deliberately leave out creditors when they file their bankruptcy cases may find themselves wearing bright orange jumpsuits, eating three square meals a day on a tiny tray and learning to get along with a burly roommate named Bubba. None of my clients have been to prison yet and I intend to keep it that way. We disclose all creditors in bankruptcy cases filed by my office!

Always talk to an experienced bankruptcy attorney before you do anything in preparation for a bankruptcy case. I am confident that you won’t regret it.

2013 is a Great Time to Protect Your House by Filing for Bankruptcy

New California laws in 2013 make it easier for low income homeowners to protect their homes in bankruptcy.
You can protect your homestead by filing for bankruptcy.

When you file for bankruptcy in California, you are allowed to keep certain property called exempt property. If you happen to own a home with some equity in it (not so common in California these days), you may be able to protect your home with what’s called the “homestead exemption.” On January 1, 2013, the homestead rules changed in some really great ways for California residence who are considering bankruptcy.

Under the new 2013 California exemption laws for bankruptcy, you can protect up to $175,000.00 of equity in your house if you are over the age of 55 and made less than $25,000 if you’re single or less than $35,000 together if you’re married. (There are some other changes as well, but the income issue is all I’m tackling today.) This is a big change from before 2013 when you could only use the max homestead amount if you made no more than $15,000 if you were single or $20,000 together if you were married. This means many low income California residents with equity in their homes may qualify for the largest exemption amount fully ten years earlier now than in the past. That’s a great thing for California homeowners who need to file for bankruptcy.

The homestead exemption is available in both chapter 7 and chapter 13 case. If you love reading legal language, you can read about homesteads straight from the source: When you file a bankruptcy case, it doesn’t matter if you’ve recorded a claim of exemption with the county or not. You get an “automatic homestead” in the bankruptcy as long as you claim it properly in your bankruptcy papers.

You want to be very careful, however, because bankruptcy law and homestead law are both pretty complicated. If you do things the wrong way, you run the risk of losing your home. If you’re looking to protect your house in bankruptcy, you should definitely talk to an experienced bankruptcy attorney before you file.

Image credit : By Pearson Scott Foresman [Public domain], via Wikimedia Commons

No 30-Day Stay Termination in Chapter 20 Cases

The Automatic Stay in bankruptcy
STAY!

The automatic stay in bankruptcy is a bit more complicated than I realized–even after all these years. Oakland bankruptcy judge Roger Efremsky just taught me something new about it a moment ago. I had filed a chapter 7 case for a client who didn’t qualify for chapter 13. She received her discharge and in the meantime some positive financial changes occurred so that she was actually in a position to catch up on the mortgage on her home which was now in foreclosure.

I filed the second case for her, a chapter 13, and dutifully filed a motion to extend the automatic stay beyond 30 days as required by 11 U.S.C. § 362(c)(3)(B)–or so I thought! When I requested the default after 14 days and no creditor opposition, Judge Efremsky denied my motion as moot. The automatic stay already remained in effect beyond 30 days even without the motion.

It turns out that the 30-day stay termination provision only kicks in when a previous case was pending within the year before the filing of the second case and the first case was dismissed. If the debtor received a discharge in the first case, there was no dismissal and so § 362(c)(3) doesn’t apply.

Here’s the applicable language from the Bankruptcy Code:

(c) [I]f a single or joint case is filed by…a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707 (b)—

(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;

(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed…

There you have it. No dismissal of the first case means no termination of the automatic stay after 30 days in a second case. I have learned something new about the Bankruptcy Code. It’s time for me to go home and enjoy Thanksgiving with my family.

Dog photo courtesy of Luis García [GFDL or CC-BY-SA-3.0], via Wikimedia Commons

Should I Lie to My Bankruptcy Attorney | Oakland Bankruptcy Attorney James Pixton Responds

I have been a bankruptcy attorney since the late 1990s. During that time I have met with and advised thousands of people who are looking to improve their lives through bankruptcy. Usually, I am the first attorney they have ever met and considered hiring. That’s fine. I think a big part of my job is help people feel less nervous about the bankruptcy process.

Every once in a while, a new client will come to my office for the first meeting and will seem a bit jumpy. Questions that I ask seem to elicit sideways responses, answers that just don’t make sense. Sometimes I will hear responses that are actually questions, like, “Why do you need to know that?” My “favorite” answer is when I ask about the real estate or a car or stocks that this potential client owns, and the person responds, “Oh, no, I don’t want that included in the bankruptcy!”

All of these are clues to me that I’m not getting the full story and when I don’t get the full story, you can assume that I will not take the case. There is a lot at stake in a bankruptcy case and I want to make sure that I do the best job possible for my clients. If I sense that I’m not getting the truth from my clients, I will warn them what happens when a debtor in bankruptcy in not truthful. It’s not a pretty picture.

When I finished law school, my first job was as a law clerk for a federal bankruptcy judge in Fresno. Shortly before I arrived there, the judge had handled one particular case that is of interest to our discussion today. It seems that a woman in the Fresno area was suffering through some financial hardship and decided to file a bankruptcy case.

One woman thought she'd beat the bankruptcy system by lying about a cabin. She lost!
Lying about owning a cabin (or any other property) in your bankruptcy case could land you in federal prison!*

When she helped her attorney prepare the paperwork, she deliberately left out mentioning one piece of property, a cabin up in the woods that had been in her family for several generations. She figured that no one would know, no one would notice; her case would go through the system quietly, she would wipe out all her debts and on the other end, she’d still have the family cabin.

Her brilliant little plan had one little hiccup. It turns out the the nice, elderly gentleman who for many decades had owned a cabin right next to this woman’s family cabin was–the bankruptcy judge who would handle her case. You can imagine his surprise when he was reviewing the list of cases assigned to his court and he saw his cabin neighbor’s name.

The bankruptcy judge went down to the clerk’s office and pulled the file just to see what there was to see. Again, he suffered some surprise when he saw that the cabin up in the mountains right next to his was not listed as an asset. He was not pleased.

The long and the short of it was that the judge referred the matter to the US Trustee’s Office (a part of the US Department of Justice) and this woman was charged and convicted of bankruptcy crimes including concealing property of a bankruptcy estate. She ended up spending several years in prison all because she thought she could outwit the bankruptcy system.

It’s just not worth it! You need to be completely truthful with your bankruptcy attorney so he or she can help you. If you lie, you face not only a cratered bankruptcy case, but also prison time. Again, it’s just not worth it!

On the good side of things, an honest but unfortunate person with debts get to wipe out most of them. This means that a bankruptcy case that goes the way it’s supposed to could result in tens or even hundreds of thousands of dollars of debts just evaporating as a result of an order from a bankruptcy judge.

On the flip side, a dishonest debtors faces some pretty scary things. First, a dishonest debtor may find that certain of his or her debts does not get wipe out

By Oakland Bankruptcy Attorney James Pixton

*Photo courtesy of Almonroth (Wikimedia).

Debt and the Elderly | Often Bankruptcy Is Not Necessary.

Often the elderly do not need bankruptcy.I have helped out a lot of senior citizens during my time as a bankruptcy attorney in Oakland. More often than not, I don’t file a bankruptcy case for them for the simple reason that they often don’t need one. Instead I help them understand that they often can simply do nothing–and that includes stopping any further payment of creditor card bills. In the United States and in California in particular, we want to protect our seniors a bit more than the younger generations. To do that, the federal and state governments have set up some very strong protections for the elderly.

Your Social Security Checks Are Protected from Your Creditors

Social security is protected from creditorsThe first is this: Social security is protected from pretty much all creditors. (The only rare exception may be the US government and in that case, there still may be options to avoid having your social security check intercepted.) This is important. No creditor, no one you owe money to, no one who is trying to collect on a bill you owe can touch your social security! It is protected. This is true for monthly social security payments you have in your bank account (up to a certain limit) and for your right to future payments of social security.

I make a big point of this because I’ve had lots of scared and beaten down seniors come to my Oakland bankruptcy office frightened out of their wits because a bill collector has been telling them that their kind of debt can’t be wiped out in a bankruptcy, or their kind of debt is fraud so it’s kept out of bankruptcy. Rubbish like that. The problem of course is that my elderly clients aren’t familiar with the law and are often susceptible to the lies of bill collectors.

By the way, California and federal law require bill collectors to be truthful in their communications with the people they are trying to collect from. Violations of federal and state fair debt collection practices laws can subject creditors to fines and punishment. Pensions and other private retirements are also protected from creditors. Keep in mind, however, that these exemptions amounts are not unlimited, so you should probably talk to a knowledgeable Oakland bankruptcy attorney before you make decision about how to deal with creditors.

If Social Security Is Protected, Bankruptcy May Not Be Necessary

So, here’s my important point: Seniors in the Oakland area who are having serious debt problems may not need to file for bankruptcy. Since creditors can’t take their pension or social security, they really can’t do anything to a senior who does not own any real estate. This folks are referred to as being “judgment proof.” In other words, even if a creditor sued and got a judgment against them, the creditor still couldn’t get anything from them. That’s very good news for the elderly and should allow them to sleep better at night.

Beware of Lying Bill Collectors | Just Because They Say It Doesn’t Mean It’s True

Seniors should talk to an attorney if they feel that bill collectors are being too aggressive.Unfortunately, unscrupulous debt collectors might continue to call and harass seniors even knowing that they can’t get anything. Their hope is to create such nuisance that the senior will make some sort of payments just so the collector will quit calling for another month. Again, this probably violates federal and state laws with regard to debt collection. But it also can cause a lot of stress for the senior.

In many cases, the elderly individual may elect to file a bankruptcy case in Oakland just to get the harassing bill collectors to stop calling. I have filed this type of case for many clients. We talk about all the issues I discuss above and I reassure them that if they do nothing, no one can take their retirement or social security. Nevertheless, for their peace of mind they elect to file a simple chapter 7 bankruptcy case and wipe out the debt once and for all. No more debt, no more phone calls.

Order a Free Book on Debt and the Elderly

I have written a book entitled Debt and the Elderly: A Guide for SF Bay Areas Seniors, Their Family Members and Caregivers. It’s available for free to Oakland-area residents who might be considering bankruptc. Just fill out the form below and I’ll send it right out to you. It will answer a lot of questions that seniors or those who care about them or for them are asking these days about debts and bill collectors.

Difference Between Secured Debt and Unsecured Debt and Why It Matters in Bankruptcy

This Alameda County craftsmen cottage is probably collateral for a loanThe difference between secured debt and unsecured debt is an issue that I bring up with every single one of my bankruptcy clients here in the Oakland-East Bay area. The basic difference is this: Secured debt involves collateral as well as the obligation of the person who signed the loan documents, while unsecured debt just involves the personal obligation of the person who signed up for the loan. In the United States, the collateral we’re most familiar with in consumer (non-business) situations is either a car or a house.

If you borrow money from a bank to get a new truck, the truck will be collateral for the loan.The idea is that the collateral provides an additional assurance to the lender that it will get repaid what it is owed. For instance, while a bank might hesitate to loan Average Joe $50,000 based only on Joe’s signature, that same bank might be more willing to consider lending the money when it gets to use the new Made-In-America pickup that Average Joe is going to buy with the $50,000. The pickup acts as collateral which means that if Average Joe doesn’t make the payments, the bank can repossess the pickup, sell it and then use the proceeds (the money from the sale) to pay off or at least pay down the loan.

It’s the same with a home loan. The house itself is the collateral for the loan. If the borrower fails to make payments, the bank can begin a process of selling the house called foreclosure. When the house sells in the foreclosure, the bank uses the proceeds to pay off or at least pay down the loan.

So why does this all matter in bankruptcy? Well, bankruptcy wipes out personal liability (an individual’s legal responsibility to pay) on debts, but in most cases, it doesn’t wipe out the bank’s right to go after collateral. That right to go after collateral is called a lien, a french word that means a leash. Basically the bank holds your car or your house by a leash. If you don’t pay, they grab a hold of that leash and yank the collateral out for from underneath you.

[There are, however, times when a bankruptcy can wipe out a lien as well as personal liability. One of those times is when you have a second mortgage or a line of credit on your house and the home has lost a lot of value. If the circumstances are right, you can wipe out that lien in a chapter 13. Click here to learn more.]

So for most unsecured debt, you file bankruptcy, get your discharge and your liability is wiped out forever. You’ll never have to pay on that debt again, the lender can no longer do anything to collect on it. For secured debt, while the discharge wipes out your personal liability, you will still have to decided whether you want to keep the collateral or give it up. If you want to keep it, you will have to continue making the payments. If you don’t want to keep it, you can give the collateral back to the lender that will be the end of it. Since your personal liability has been wiped out in your bankruptcy case, giving the collateral back to the lender means that the lender no longer has any power to collect on that debt from you.

When you meet with bankruptcy attorney James Pixton, one of the things he’ll discuss with you is what you want to do with loans and collateral. If you want to keep the collateral there are a few different options. Go ahead and make an appointment today. Call (510) 451-6200 or fill out the handy form below:

Bankruptcy | Did You Know Rembrandt Filed?

Rembrandt, the celebrated Dutch painter, filed for bankruptcy at the age of 50.

Rembrandt (1606-1669), the celebrated Dutch painter, filed for bankruptcy in his fifties. Like many of the world’s finest minds and talents, he struggled financially for much of his career.

Rembrandt van Rijn, the celebrated painter, went bankrupt.
Fame did not bring unlimited fortune to Rembrandt.

Considered one of Europe’s greatest painters and printmakers, he remains the pride of Holland. During his life, however, Rembrandt lived large. He spent well beyond his means and demonstrated a lust for expensive art, antiques and rarities. In 1656, at the age of 50, Rembrandt was compelled to file for bankruptcy. Over the course of the next two years, all his paintings and prints as well has his house were sold at auction to pay his creditors.

Because of the way bankruptcy worked back then, he couldn’t thereafter sell his art directly to the public, so he devised a method of skirting the law by selling his work through the intermediary of his son who ran an art business. Rembrandt was famous but he was not financially sound.

In any event, one thing we learn from Rembrandt is that even people with tremendous talent and genius may find themselves unable to pay their bills. Bankruptcy has a stigma of failure, but maybe we should look at it more as a red badge of courage. Many innovators throughout the centuries have put money on the back burner to pursue the wonder of creation. Sometimes it worked and sometimes they had to file for bankruptcy.

Oakland bankruptcy attorney strongly believes that bankruptcy is not a symbol of failure. It is one of the few truly compassionate laws in our current legal system. As a people, we decided a long time ago, that it was appropriate to protect those who are no longer able to pay their bills from the bill collectors.

Oakland bankruptcy attorney has a by-appointment-only office at 1300 Clay Street, Suite 600, Oakland, CA  94612. His telephone number is (510) 451-6200 x101. You can call for an appointment. If it’s an emergency, a same-day appointment is often available. Be sure to ask James Pixton for one of his many bankruptcy-related books.