California Bankruptcy Attorney Blog

Our Moreno Valley consumer bankruptcy attorneys were interested to read a bankruptcy case that considered whether a debtor must be compelled to sell his house and turn over part of the proceeds to a creditor with a legal judgment against him. Smith v. H.S. Smith Wholesale Drug Co. is not exactly a foreclosure case because Michael Ray McCombs of Texas sold his home voluntarily. Rather, the dispute was over whether H.S. Smith, which obtained a lawsuit judgment against McCombs, was entitled to enforce a lien on the home and thus collect a portion of the proceeds. The case was further complicated by an agreement between McCombs and his non-debtor wife, Alicia Atkinson McCombs, providing that Atkinson was entitled to the proceeds of the home sale. Ultimately, the Fifth U.S. Circuit Court of Appeals concluded that H.D. Smith's lien was unenforceable.

McCombs and Atkinson purchased their home and the adjoining vacant lot in 2004. In 2006, H.D. Smith won a lawsuit against McCombs for a judgment of about $538,000, and a few months later filed an abstract of judgment against his property. During that year, McCombs and Atkinson signed an agreement that Atkinson would be entitled to proceeds from sale of their house, and then found a buyer. While that sale was pending, in November of that year, McCombs filed for Chapter 7 bankruptcy. The trustee filed a petition to sell the house free of any encumbrances, and all parties agreed to put the proceeds in escrow until the bankruptcy court determined how they should be divided. A later sale of the adjacent lot was subject to the same agreement; together, the sales netted $514,095. H.D. Smith then filed an adversary proceeding seeking to recover its debt. The bankruptcy court ultimately found for H.D. Smith, holding that its lien was perfected prior to the bankruptcy and rejecting Atkinson's various claims. The trustee and Atkinson both appealed and were granted a direct appeal to the Fifth Circuit.

The Fifth Circuit ultimately found against H.D. Smith, though not because of Atkinson's homestead right. Rather, it found that the lien was per se unenforceable under Texas law. When property is a debtor's homestead, the Texas constitution creates only limited circumstances under which a lien is enforceable, and the appeals court found that this is not such a circumstance. It rejected H.D. Smith's argument that the bankruptcy code's homestead cap converts the lien to an enforceable one, noting that state law controls this analysis. However, the court stressed that while it rejected the lien, it did not rule on whether H.D. Smith had another interest in the estate; it said the company should have the same priority as a creditor that it would have if there was no bankruptcy. The Fifth next ruled that Atkinson's claims on appeal were waived by her failure to bring them up properly in a statement of issues on appeal. Because the case was certified for direct appeal to the Fifth Circuit rather than heading first to district court, the appeals court took the trouble to rule that a statement of issues to a lower court can be applied in direct appeal cases.

As Anaheim personal bankruptcy lawyers, we're pleased that this case got a quick resolution. It appears that the lien ruling in favor of McCombs was not difficult to reach under Texas law, which suggests that the bankruptcy court simply erred. Regardless of how much money ultimately gets distributed to Atkinson, the ruling means McCombs will have more money to meet his obligations to all creditors, including but not limited to H.D. Smith. The company is still likely to receive some of its judgment, but it has to get in line with other creditors. The ruling is also good news for other Texans with liens on their homes, who may be able to address the issue with bankruptcy if that's appropriate in other areas of their financial lives. As Leucadia individual bankruptcy attorneys, we are generally in favor of any rulings that help debtors get back on their feet faster.

Continue reading "Fifth Circuit Reverses Ruling Allowing Lien to Be Enforced on Chapter 7 Debtor's Home - Smith v. H.D. Smith Wholesale Drug Co." »

As Chino personal bankruptcy lawyers, we caution our clients that not every debt is dischargeable in bankruptcy. Certain debts, most notoriously student loans and child support obligations, can hardly ever be discharged and must simply be repaid. However, when a dispute arises about this, the bankruptcy court has the prerogative of deciding on a case by case basis. In Reshetar Systems v. Thompson, Scott and Kirsten Thompson of Minnesota filed for bankruptcy about six months after Reshetar obtained a legal judgment against Scott. Scott is the president and sole member of Construction 70 Inc., which had failed to pay Reshetar for its subcontracting work on an Applebee's. Reshetar moved to make the debt exempt from discharge, but the bankruptcy court and the Eighth Circuit both disagreed.

Reshetar completed its drywall and carpentry work, but Construction 70 never paid. Construction 70 did end up in litgation with Applebee's, but obtained most or all of the payment owed it. Thus, Reshetar successfully sued Construction 70 in Minnesota state court, obtaining a $78,000 judgment that covered both the unpaid debt and attorney fees. Scott Thompson was personally liable. After the bankruptcy filing, Reshetar filed for determination of the dischargeability of the debt. It cited laws exempting debts from discharge when they arise from fraud in the performance of a fiduciary duty; embezzlement; and willful and malicious behavior. After a trial, the bankruptcy court found in favor of the Thompsons. Reshetar appealed.

On appeal, the Eighth Circuit focused first on whether Thompson had a fiduciary duty to Reshetar. Reshetar looked for one created by Minnesota state law -- but as the bankruptcy court found, the law expressly precludes finding a fiduciary relationship. Nor could Reshetar find a fiduciary duty in a constructive trust created by Construction 70's insolvency, the panel said, because the bankruptcy code does not allow a fiduciary duty created by a constructive trust. The panel next rejected the argument that Construction 70 had embezzled funds owed to Reshetar, noting that nothing in any of the three companies' contracts required Construction 70 to hold funds in trust for Reshetar. Nor did Construction 70 commit larceny, since the funds paid to it were lawfully obtained. Finally, the appeals court looked at the allegation of willful and malicious injury, which refers to debts created by an intentional tort that was directed at the creditor. Reshetar argued that failure to pay was the tort of conversion, but the Eighth agreed with the bankruptcy court that there was no property of Reshetar's in Construction 70's hands to convert. Nor, according to the bankruptcy court, was the conduct maliciously aimed at Reshetar. Thus, the Eighth Circuit upheld the lower court and denied Reshetar exemption from discharge.

This decision is surely upsetting for Reshetar, a small business that never got paid for perfectly good work through no fault of its own. But as Fullerton consumer bankruptcy attorneys, we know one mission of the bankruptcy courts is to help debtors make a fresh start, without heavy debts hanging over them. In this case, in fact, Thompson may very well have ended up in bankruptcy because he knew he couldn't pay the $78,000 judgment within a reasonable amount of time, and could get into even more serious financial trouble by trying. The bankruptcy code allows exceptions to bankruptcy for debts created by criminal or tortuous conduct -- but in this case, none of the circumstances fit the exceptions. As Temecula individual bankruptcy lawyers, we appreciate that the balancing of interests here considers debtors' ability to start over.

Continue reading "Eighth Circuit Upholds Non-Exemption From Discharge for Legal Settlement Owed to Subcontractor - Reshetar Systems v. Thompson" »

As Fontana individual bankruptcy lawyers, we were interested to see a case involving a debt made under apparently informal circumstances -- and apparently without a contract. In Heide et al. v. Juve et al., debtors David and Mona Juve do not dispute that they owe $400,000 to the Heide family. The controversy is over whether the loans were obtained through misrepresentation, as the Heides claim, and therefore should not be dischargeable. The bankruptcy court in Minnesota agreed that the debt should not be dischargeable and granted summary judgment exempting it. However, the Bankruptcy Appellate Panel of the Eighth U.S. Circuit Court of Appeals reversed and remanded that ruling, saying there were genuine issues of material fact as to whether all of the debt was obtained by misrepresentation.

Heide worked on-site at Juve's used car dealership. Juve asked Heide for a loan to increase his inventory of cars, and by the end of December of 2004, Heide had lent $300,000. The checks were made out to the dealership, Imports Plus, but Heide claims the transactions were directly with Juve, the majority shareholder of the dealership. On two separate occasions in 2007 and 2008, the Heide family again lent $50,000 to Juve. Juve made interest payments monthly until 2008, but eventually was unable to continue paying. When he and his wife filed for Chapter 7 bankruptcy, Heide brought an action seeking to exempt the $400,000 they owed him from discharge, for multiple reasons including false representations or fraud. The court eventually granted summary judgment to Heide only on the fraud claim against David Juve. The Juves appealed to the Bankruptcy Appellate Panel.

Debts are non-dischargeable under the relevant section when the debtor knowingly made a false representation, deliberately for the purpose of deceiving a creditor who relied on it, and that reliance caused damage to the creditor. In this case, parties disputed whether the loans were made to David Juve or to Imports Plus. After examining the record, the panel concluded there was no evidence that the loans were made directly to Juve. There are no loan documents, it said, but the checks were made out to Imports Plus. The bankruptcy court sided with Heide but failed to give any reasoning for doing so, the panel said, aside from Heide's disputed statements. Thus, it said summary judgment was not appropriate on this issue. It next turned to Heide's allegations that Juve misrepresented that the dealership's cars were unencumbered and easily liquidated when seeking the first $300,000 in loans. Juve denies this -- but even if the bankruptcy panel sided with Heide, it said, that's not enough to support the claim that the loans were obtained by fraud. Indeed, the panel said, evidence suggested that there were enough vehicles on the lot to liquidate as of the $300,000 loan; any misrepresentations came later. Thus, this issue was also unsuitable for summary judgment. The panel reversed on both counts and remanded to the bankruptcy court.

Our Yorba Linda personal bankruptcy attorneys are pleased to see that this debtor is going to have a chance to make his case. For a debt to be non-dischargeable in bankruptcy, an important issue must be at stake, such as fraud when the debt was issued or the health of the federal student loan program. In this case, the BAP found that Heide simply didn't have strong enough evidence to win his claim without any hearing. The decision means only that the bankruptcy court will be obliged to look into the issue further. Of course, a great deal of the arguing could have been avoided if the parties had made a written contract governing their loans. When this kind of written record doesn't exist, it's important to tell your Laguna Niguel consumer bankruptcy lawyer right away.

Continue reading "Eighth Circuit BAP Rules Bankruptcy Court Should Examine Whether Personal Loan Is Dischargeable - Heide et al. v. Juve et al." »

We've written many times as Claremont debt settlement attorneys about the dangers of private debt settlement companies. Some debt management organizations can help people with serious debt, but others take advantage of their clients' stress and bad financial situations to exploit them further, taking money without providing any help. The state of Pennsylvania responded with the Pennsylvania Debt Management Services Act (Act 117), which licenses and regulates debt management services. One such company filed a lawsuit, giving rise to the Pennsylvania Supreme Court's decision in United States Organization for Bankruptcy Alternatives v. Pennsylvania Department of Banking. USOBA alleged that the law was unconstitutional, and the trial court agreed in part and disagreed in part. Following an appeal by both USOBA and the state, the Pennsylvania Supreme Court found the lower court's order was not appealable.

Act 117, adopted in 2008, required all debt settlement services to apply for licenses with the state and comply with regulations including restrictions on fees. USOBA is an industry group representing debt settlement services, and it sued for a declaratory judgment invalidating the law in 2009. USOBA claimed Act 117 violates state and federal constitutional rights to due process, equal protection and non-delegation, and requested an injunction as well as attorney fees and the declaratory judgment. The Department moved for summary judgment for failure to state a claim, which was denied. Ultimately, the trial court found that Act 117 violates the Pennsylvania constitution's non-delegation clause by granting authority to the Department to make regulations for debt settlement services, and to regulate fees charged to consumers. The court declined to find other areas of the law unconstitutional or find the entire law inseverable.

Both parties appealed, and the Pennsylvania Supreme Court requested briefs on whether the trial court's order was a final, appealable order, in light of its recent decision in Pennsylvania Bankers Association v. Department of Banking. Before the high court, the Department argued that the order was final and appealable because it is a final declaration of the parties' rights on the particular issues it addresses. The Department noted that the parties cannot pursue their rights on those issues in the lower courts. It agreed that this order is normally appealable, but under the Declaratory Judgment Act,the state legislature had authorized this type of appeal to keep government working. By contrast, USOBA argued that the trial court's order was interlocutory and not appealable. It said it had filed the case to strike down all of Act 117, not just the two provisions struck down, and that the DJA did not intend to alter rules of appealability. The high court ultimately sided with USOBA. Under Pennsylvania Bankers, it held that an order in a declaratory judgment case is not appealable when it merely dismisses one or more of several theories of relief. Similarly, in this case, the lower court never ruled on USOBA's full request -- thus, it had no authority to decide either the appeal or the cross-appeal, and remanded both to trial court.

Our Costa Mesa debt settlement lawyers would be disappointed if the Pennsylvania court ultimately decided not to enforce regulations of the debt settlement industry. As we said, not every debt settlement company is honest; debtors are best off with a non-profit organization. Unfortunately, the field is full of dishonest companies, some of which have misleading names designed to fool a casual reader into thinking they are connected to the federal government. And no matter what kind of debt settlement you use, debt settlement is an alternative to bankruptcy that only works if you have the finances to climb back out of debt. If you aren't sure, or you know you cannot pay your debts back within a few years of responsible money management, you should consider calling our Gardena consumer bankruptcy attorneys for a free consultation.

Continue reading "Pennsylvania Court Upholds Law Regulating Private Debt Settlement Companies - US Org. for Bankruptcy Alternatives v. Dept. of Banking" »

As Rubidoux personal bankruptcy attorneys, we often have clients who are fighting repossession of their vehicles or have already had vehicles repossessed. Here in California, we are fortunate to have laws that protect consumers during this kind of transaction (though they do not generally stop repossession). One such law is the Rees-Levering Act, which gives auto companies certain responsibilities when they repossess a debtor's vehicle. That Act was the basis for the lawsuit in Aguayo v. U.S. Bank et al., a Ninth U.S. Circuit Court of Appeals decision that reinstated a lawsuit by Jose Aguayo of southern California. The Ninth ruled that Aguayo may sue U.S. Bank under the Act for illegally attempting to collect the balance of his car loan after repossession.

Aguayo bought a car in Glendale in 2003, but fell behind a few years later. The loan was assigned by the dealership to U.S. Bank, which repossessed the car in August 2007. It then sent Aguayo a letter containing various legally required legal notices. This letter contained some, but not all, of the notice requirements set down by the Act. U.S. Bank later sold the car, but did not receive enough to pay off the loan, so it sought to recover the rest from Aguayo. Aguayo then filed a class-action lawsuit against the bank to stop its debt-collection efforts, arguing that under the Act, it cannot seek to recover the loan deficiency when it failed to provide all of the legally required notice. U.S. Bank moved the case to federal court, then sought to dismiss it under the federal National Bank Act, arguing that the NBA and federal regulations put forth by the Office of the Comptroller of the Currency preempt the Act because they interfere with federal authority to regulate banking business. The district court agreed and dismissed the case, and Aguayo appealed.

The Ninth Circuit started by observing that there are two cornerstones of preemption: Congressional intent is paramount, and courts must assume the States retain their traditional policing powers unless Congress clearly intended otherwise. U.S. Bank's claims failed this test. Consumer protection, the purpose of the Act, is a traditional state concern, it said. The district court overcame this by finding express preemption written into the NBA, because it found that notices required by the Act were "disclosures" within the meaning of the NBA. The Ninth Circuit disagreed. The notices required under the Act were not "disclosures" as the word is generally understood, the court said, because they were not general disclosures of previously hidden information, but rather, communications of a specific claim or demand. Furthermore, the NBA contains a "savings" clause that expressly says the NBA does not preempt state laws regarding rights to collect debts. And finally, the Ninth also found that OCC regulations do not preempt the Act because of a similar savings clause reserving debt collection regulations for the states. Thus, the Ninth reserved the district court and remanded Aguayo's lawsuit.

This decision is good news for Californians facing deficiency collection proceedings and for clients of our Fullerton individual bankruptcy lawyers. Because a deficiency collection or deficiency lawsuit only happens after the property has already been repossessed, the person being sued is generally already struggling financially. This decision gives debtors another avenue to defend against deficiency collection efforts, although of course it only applies when the lender fails to follow the Rees-Levering Act. For that reason, it may indirectly benefit far more consumers, by giving lenders another incentive to follow the law. As Los Angeles County consumer bankruptcy attorneys, we always prefer that lenders follow consumer protection laws now over having to file a lawsuit later to stop unfair collection efforts.

Continue reading "Ninth Circuit Rules Federal Law Does Not Preempt California Debtor Protection Law - Aguayo v. U.S. Bank" »

As Riverside personal bankruptcy lawyers, we frequently have to tell our clients that child support and spousal support (alimony) debts are not dischargeable in bankruptcy. This doesn't mean that debtors may not restructure the debts in order to catch up on missed payments, but they must pay the full amount of the debt. The logical extreme of this was tested in Burnett v. Burnett, an Eighth U.S. Circuit Court of Appeals case centering around interest on unpaid spousal and child support owed by a Chapter 13 bankruptcy debtor. Clarence Burnett's appeal asked the court to deny his former wife, Nancy Jo Burnett, the right to pursue him for payment of unpaid child and spousal support and interest. This demand was made shortly after Clarence Burnett and his current spouse finished their Chapter 13 bankruptcy, which discharged other debts and paid some but not all of his support arrears.

The Burnetts had a child in 1971 and divorced in 1983. In their divorce, Clarence Burnett agreed to pay $750 a month in child support and alimony, without specifying how much of each type of support. However, he didn't pay, and by 2001, when the child was 30, a West Virginia court determined that he owed more than $57,000. Before that court could calculate the interest he owed, he and his current spouse filed for bankruptcy. There followed "protracted bankruptcy litigation" on the support payments, which finally resulted in a bankruptcy plan in which Clarence Burnett agreed to pay $300 a month for the term of the bankruptcy and as long after as it took to pay off his debt. The plan also gave Nancy Jo Burnett the right to go back to court for interest on the child support arrears.

Clarence Burnett finished his bankruptcy plan in 2007. One month after his discharge, the West Virginia Bureau of Child Support Enforcement went to court to ask for a determination of the interest owed on the child support arrears. The court eventually awarded Nancy Jo Burnett child support arrears for the full $750 a month, plus interest, plus spousal support of $375 a month continuing from the child's eighteenth birthday to the present, plus interest. It ordered withholding of a bit more than $700 a month from Clarence Burnett's military pension. He then asked the bankruptcy court to reopen the case and reduce the withholding to the $300 monthly payment in his bankruptcy plan. The bankruptcy court reduced the withholding, but on appeal, the Bankruptcy Appeals Panel reversed, finding that the bankruptcy plan specifically left open the issue of interest and any post-petition debts to Nancy Jo Burnett. Clarence Burnett appealed.

On appeal, Clarence Burnett argued that his confirmed bankruptcy plan gave his ex-wife the right only to child support interest. The Eighth Circuit decided in his favor for a different reason. Under the bankruptcy code, it said, a confirmed bankruptcy plan is binding even if a creditor has no relief under it. This gives the plan res judicata effect -- courts must respect it as a binding decision. This means that Nancy Jo Burnett may not return to court to litigate her spousal support claim, even though spousal support is non-dischargeable in bankruptcy -- even a plan that violates the law is fixed. However, she is entitled to litigate interest on both types of support because they are post-petition debts And because she is entitled to collect that debt, the West Virginia court may withhold more than $300 from Clarence Burnett's income. Thus, it reversed the order on spousal support, upheld the other awards and asked the West Virginia court to determine withholding again.

Our Santa Ana individual bankruptcy attorneys are pleased to get some clarity on the complicated issue of family support debts. As a rule, clients with family support debts who end up filing for bankruptcy do so for other reasons, since any reputable bankruptcy attorney will tell them they cannot discharge their family support obligations. This ruling helps us give more precise advice to clients in situations like Clarence Burnett's, especially if it is extended to the Ninth Circuit. It should be noted that the child who is the focus of these child support efforts is now 40, which shows that the courts do not care whether the child actually needs the financial support at issue -- a debt is a debt. That's why it's so important to face your debt obligations head-on, with help from an experienced Torrance consumer bankruptcy lawyer if necessary.

Continue reading "Former Spouse of Bankruptcy Debtor May Not Collect Support Payments Not Included in Plan - Burnett v. Burnett" »

Our San Bernardino bankruptcy attorneys know that divorce and bankruptcy often go hand in hand, since money problems can be hard on a marriage. So we were interested to see a bankruptcy appeal on a subject that confronts many couples going through divorce and bankruptcy: What to do with the couple's jointly owned home. In Lovald v. Tennyson, a trustee for debtor Theodore Wolk sought to sell the home Wolk co-owns with the wife he was divorcing, Kathryn Tennyson, free and clear of Tennyson's interest. Tennyson was not a party to the bankruptcy. The bankruptcy court held a hearing and concluded that Tennyson contributed more to the equity in the home than Wolk, and thus selling it would not benefit the bankruptcy estate. It denied the motion.

The trustee made an earlier appeal to the Eighth U.S. Circuit Court of Appeals, which sent the case back down to trial court for consideration of arguments not raised at trial. Specifically, the bankruptcy court was asked to determine whether the trustee's ability to sit in the place a bona fide purchaser or judicial lienholder under bankruptcy law can stop the court from examining exactly how much interest each spouse has in a co-owned home. The bankruptcy court examined the issue and again denied the trustee's request to sell the home clear of Tennyson's interest. This appeal followed.

The Eighth agreed with the bankruptcy court that at best, the trustee's hypothetical lien attached to only half of the home's equity, which came to about $31,500 (minus closing costs). The bankruptcy court found that this was insufficient benefit to overcome the harm to Tennyson. Again, the Eighth agreed. The trustee had not proven that any funds from the sale would be made available to creditors, it said. Furthermore, substantial evidence was presented about the harm to Tennyson from such a sale: She had contributed all of the home's equity, and her therapist testified that a sale would likely lead to depression. The Eighth found no flaws in the bankruptcy court's reasoning, and thus upheld its ruling.

As Westminster bankruptcy lawyers, we frequently hear from clients who are trying to resolve similar co-ownership situations. Even if divorcing spouses can agree -- which is not always easy -- the trustee for a bankruptcy estate is not obligated to do what they prefer, since he or she stands in the shoes of a creditor. One way to avoid this situation is to finish a divorce before bankruptcy, if possible, so there is no dispute about who owns what. Of course, in a case like this, filing before divorce may be more advantageous because it allows claims on property that might get taken away later. To make sure you have the best possible timing, you should speak to an experienced Oceanside bankruptcy attorney as early as possible in your case.

Continue reading "Trustee May Not Sell Jointly Owned Home Over Objections of Co-Owner - Lovald v. Tennyson " »

Our Rancho Cucamonga consumer bankruptcy lawyers were interested to see a recent Ninth U.S. Circuit Court of Appeals decision on how a second bankruptcy affects tax debts. Normally, tax debts, including debts to states as well as the IRS, are dischargeable if they were due more than three years ago. However, that three-year rule can be suspended if the debts not collectable, for example, because of an automatic stay in a previous bankruptcy. That was the allegation in In re Brenda Marie Jones, concerning a California woman seeking a Chapter 7 bankruptcy. Jones owed a debt to the California Franchise Tax Board that was more than three years old. The FTB argued that it should not be dischargeable because Jones had previously been through another bankruptcy that included an automatic stay on collections. The Ninth Circuit ultimately disagreed.

Jones filed a joint Chapter 13 bankruptcy with her husband in 2002. Like all bankruptcies, this created an automatic stay against attempts by any creditor to collect debts, including tax debts. The Joneses filed a tax return with an extension in October of 2003 but did not pay what they owed. Their bankruptcy was ended in September of 2006. In October of 2007, Jones alone filed a Chapter 7 bankruptcy. At that point, the tax debt for the 2003 tax filing was more than three years old, so it could be and was discharged when the bankruptcy ended in January of 2008. In 2009, the FTB moved to reopen the bankruptcy and collect the debt from Jones, arguing that the three-year deadline should have been extended because of the prior bankruptcy. The bankruptcy court reopened the case but decided against the FTB, saying it could have collected the debt during or after the Chapter 13 bankruptcy. The Ninth Circuit's Bankruptcy Appeals Panel agreed and the FTB appealed to a three-judge panel of the Ninth.

The Ninth started by noting that the three-year rule specifically refers to the newer Chapter 7 petition, not any bankruptcy. It then looked at whether the three-year rule should have been suspended by the previous bankruptcy, and concluded that it should not. In relevant part, the law says the rule can be suspended when a stay is in effect in a prior bankruptcy case. After looking at legislative history, the Ninth said the stay must apply specifically to tax agencies. It then looked at whether the FTB in this case was stayed from collecting the tax debt owed by Jones, and concluded that it was not. The Ninth held that at least some property re-vests in the debtor when a bankruptcy plan is confirmed. Because the tax debt of the Joneses arose after the plan was confirmed, the FTB would have been able to collect from that property anytime before the second bankruptcy was filed. Indeed, it said the FTB had a year between the bankruptcies when there was no question that it could have collected. For that reason, the Ninth ruled that the three-year rule could not be suspended and the tax debt was properly discharged.

As Santa Ana personal bankruptcy attorneys, we think this ruling is a victory for our clients and potential clients with tax debts. In this case, the Ninth Circuit clarified when the three-year rule can and cannot be suspended. By ruling that it may only be suspended for stays specific to tax debts, it narrowed the number of situations where stays are appropriate -- thus increasing the chances that tax debts will be discharged. Tax debts are harder to discharge than most other debts, so our Corona individual bankruptcy lawyers still advise clients to tackle these first.

Continue reading "Tax Debt to California Can Be Discharged in Second Bankruptcy, Ninth Circuit Rules - In re Brenda Marie Jones" »

As Rubidoux foreclosure defense attorneys, we know serious debt can sometimes go on so long that there's a risk of a court judgment against the debtor. This is bad news, in part because creditors in this situation can end up with a judicial lien -- a court order giving them an interest in a property, often a home. In Botkin v. DuPont Community Credit Union, a bankruptcy debtor and the holder of a judicial lien disputed whether the debtor could avoid the lien for bankruptcy purposes. Anne Botkin of Virginia owed more on residential property than the property was worth when she filed for Chapter 7 bankruptcy. DuPont had a judicial lien on the property for $9,800, for reasons not specified in the opinion. The Fourth Circuit ultimately concluded that Botkin could avoid the lien even though she hadn't claimed an exemption for equity in the property.

When Botkin filed for bankruptcy, she claimed the homestead exemption allowable in her situation, which was $5,500. About half of that amount covered balances in her bank accounts and her anticipated tax refunds, but the other half remained unused. Because she had no equity in her home, she did not claim the remainder of the homestead exemption that way. The trustee later moved to avoid the lien because it impairs an exemption the debtor would otherwise have been entitled to. DuPont did not respond before the deadline, but the bankruptcy court ruled in its favor anyway, saying Botkin had not claimed an exemption in the property subject to the lien. The trustee appealed to the federal district court and won a reversal. That court ruled that the bankruptcy code does not require debtors to claim an exemption in the property subject to the lien they are trying to avoid. DuPont appealed to the Fourth Circuit.

Examining the issue de novo, the Fourth agreed with the district court. Under bankruptcy law, debtors may avoid liens when the lien impairs an exemption the debtor would have otherwise been entitled to. A lien impairs an exemption to the extent that the sum of the lien, all other liens on the property and the amount of the debtor's exemption exceed the value of the debtor's interest in the property if there were no liens. It was not disputed that Botkin meets this test (her interest in the property was zero), but DuPont argued that debtors must claim an interest in the encumbered property in order to avoid the lien. Citing Supreme Court precedent in Owen v. Owen, the Fourth disagreed. The code does not ask whether the debtor currently has an interest; it asks whether the debtor would have an interest in the absence of any liens. Debtors are free to amend their exemption claims after the lien is avoided, and lien holders are free to object to this, the court noted. It upheld the district court and allowed Botkin to avoid the lien.

Our Costa Mesa foreclosure defense lawyers often see bankruptcy cases with multiple debts secured against the home. Homes are one of the most common types of large property that can be encumbered with a judicial lean, and their high value also makes them attractive. A judicial lien might be a factor in a case where the homeowner has been successfully sued over a debt or owes long-overdue taxes. Of course, homes are typically also encumbered by the mortgage -- and as with Botkin, it's common these days for bankruptcy filers to be underwater on that mortgage, leaving little for the lienholder to collect. As Vista foreclosure defense attorneys, we wouldn't be surprised to learn that lien avoidance cases like this are becoming common across.

Continue reading "Fourth Circuit Rules Debtors Not Required to List Properties as Exempt to Avoid Liens - Botkin v. DuPont Community Credit Union" »

Our Moreno Valley foreclosure defense attorneys were amused to see an item about a rare instance of a bank's mistakes coming back to haunt it (rather than its borrowers). According to the June 3 Naples News, a couple from Florida nearly ended up repossessing furniture from their local branch of Bank of America after the bank refused for months to pay its debt. A court ordered the bank to pay Warren and Maureen Nyerges $2,500 in attorney fees because it tried to foreclose on their home incorrectly. The bank did not own the home, but it took weeks and hiring an attorney for the Nyergeses to prove this to Bank of America's satisfaction. The bank was similarly unhelpful when they tried to collect, leading them to lead a foreclosure effort of their own.

The Nyergeses bought their house outright for cash in 2009, which means they had no mortgage to default on. So they were extremely surprised to receive a foreclosure notice in early 2010. It took Warren Nyerges two months to convince the bank it had made a mistake, working with a branch manager, over the phone and in court. Last December, judge ordered Bank of America to pay the couple's attorney fees. However, five months of calling the bank and its local counsel got no results -- again. Part of the problem, the article noted, was that the local counsel was the David Stern law firm, which has folded and is in legal trouble for shoddy and illegal foreclosure practices. However, Warren Nyerges noted that he called Bank of America employees and even sent a certified letter to the president.

After their efforts got no response, the couple hired a foreclosure defense attorney to help them collect the debt. After further warnings went unanswered, the attorney got a court's permission to seize assets and got the Sheriff's Office to help with the repossession of furniture at a Bank of America branch. The maneuver got the bank's attention, and after a call to new local counsel, it cut a check for the judgment, sheriff's fees and about $2,500 more, whose purpose wasn't clear. Their foreclosure defense lawyer said he would still seek his own attorney fees from Bank of America.

This story is getting a lot of attention because it turns the notion of foreclosure upside down. But as Gardena foreclosure defense lawyers, we're sorry to say that this behavior from a major lender is not unusual -- the only unusual thing is that this couple could hold the bank financially responsible. Since the very beginning of the housing crisis, borrowers have come to us, the media and regulators with complaints about lenders not responding to phone calls or letters, giving contradictory instructions and foreclosing while considering them for loan workouts. And while attempting to foreclose on a loan the bank doesn't own is unusual, it's also not the first case we've seen. Fortunately, in the wake of the robo-signing scandal, judges have gotten more aware of problems with banks -- so homeowners have a stronger chance of fighting back.

Continue reading "Florida Couple Who Were Nearly Wrongly Foreclosed Turns Tables on Bank of America" »

New regulations on for-profit debt settlement companies seemed like a welcome change to our Colton consumer bankruptcy attorneys, when they took effect in October. So we were disappointed by a Dec. 21 article from CNNMoney.com, saying many of those companies have been accused of breaking or skirting those regulations. Nonprofit debt counselors, who are not covered by the new rules, wrote a letter to the Federal Trade Commission earlier this month, asking it to look into practices that seem to be attempts to find loopholes in the law, or even outright ignore it. Some are also hiring attorneys in an effort to pose as law firms, which would make them exempt from the new regulations. This is concerning because some debt settlement companies take advantage of desperate people by taking their money up front and delivering nothing.

The rules that took effect in October apply to companies that advertise their services through the telephone. They ban debt settlement companies from taking money before delivering any services. Instead, they must show agreements with creditors disclosing how much debt they can reduce. Only after the consumer agrees can the companies charge a fee. To escape the telemarketing aspect of the rules, some companies have switched to soliciting via text message or online, or setting up in-person meetings. Another way they try to create loopholes is by claiming to be law firms, or actually hiring attorneys, and calling their fees a "retainer" rather than fees. A presentation from an industry group of for-profit debt settlement firms also suggested that relocating overseas could help them escape the rules. A spokesperson for that group said the presentation was merely explaining the law, not suggesting a way for members to avoid it.

We doubt that. As Stanton personal bankruptcy lawyers, we strongly support the ban on up-front fees for the same reason we supported California's ban on up-front fees for loan modification companies. In both cases, there's a strong component in the industry of shady companies that are willing to take money from desperate people and then simply disappear, without providing actual services. In fact, we think the loopholes these companies have found are good examples of how they can be shady. Texting the customer rather than calling may technically not be telemarketing, but it's still clearly within the spirit of the law. And misleading people into believing they are represented by an attorney when they are not is actually a crime. In fact, the article mentions a successful lawsuit by North Carolina's attorney general against a Florida company posing as a law firm.

Continue reading "Consumer Advocates Ask FTC to Police Debt Settlement Firms That Break the Law" »

One of the most common parts of our work as Rancho Cucamonga individual bankruptcy lawyers is counseling clients on whether bankruptcy is the best idea in the first place. Many clients are anxious to avoid bankruptcy if they can, so they want a professional to help them decide or confirm what they already know. In other cases, they have specific needs that they want to be sure will be met before they take the plunge. This post is an attempt to address this question, looking at some common questions about whether to file and reasons to file. But because no blog post is a substitute for a detailed review of your finances, you are also invited to contact us to set up a free consultation on your specific situation and needs.

The first thing to consider, of course, is whether you have enough debt for bankruptcy at all. As our partner and Norco consumer bankruptcy attorney Vincent Howard has written, you can estimate this informally by comparing your household expenses to your debt. Write down your expenses for basics like food and housing, including only debts for your home and car payments -- not debts from credit cards, medical bills or other expenses. Then, calculate how much of your income is left over. Using that leftover disposable income, can you pay your debts back within three years? If not, you should consider bankruptcy.

However, it's important to realize that bankruptcy is not a solution to every type of debt. Certain debts cannot be erased in bankruptcy court. These include debts for child support or spousal support (alimony); tax debts; criminal penalties or fines; and most student loans. Filing for bankruptcy can still help you deal with those debts, by eliminating debts elsewhere in your life and freeing up money. But you will still be required to pay them in full.

If you're considering bankruptcy to deal with an unsustainable mortgage loans, you should know that mortgages get slightly different treatment from other debts. In a Chapter 13 bankruptcy, in which you make a plan to repay your debts more slowly, the court is permitted to reduce your debt on most loans secured with physical property. That is, if you are repaying a car loan and the value of the car has gone down, the court may reduce the debt to the current value of the car. That's also true for second homes, boats and any other secured property except your primary home. Homeowners may still find bankruptcy helpful, because it frees up money to make mortgage payments, but it cannot change the repayment terms of your mortgage.

Continue reading "Deciding Whether Bankruptcy Is Your Best Choice Requires Thought and Expertise" »

As Costa Mesa debt settlement attorneys, we have been guardedly optimistic about the CARD Act for some time. This credit-card reform bill was passed last year and some of its provisions took effect in August, but the remainder became active Feb. 22. According to an article by McClatchy Newspapers, the law may help consumers avoid some of the most costly deceptive practices by credit card companies. However, other abusive practices remain unchecked, and credit card companies have already raised their rates to compensate for anticipated losses.

As of last August, credit card companies could not raise interest rates without 45 days' notice, and had to send bills at least 21 days before the payments were due. This week's new provisions add to those protections considerably. Companies may no longer raise customers' interest rates on existing balances until a bill is at least 60 days overdue. If a cardholder pays on time for six months after this happens, the credit card company must drop the interest rate back to its original size. Among other things, this will stop the practice of "universal default," in which a credit card company raises rates on all cards because of a late payment on one card. The article estimated that this alone will save U.S. cardholders $10 billion a year. Other provisions include:

• A requirement to get permission before allowing cardholders to spend over their credit limits.
• A prohibition on a practice called "double-cycle billing," in which the credit card company charges interest on the average daily balance over the past two months to determine the interest charge, rather than using the current month's balance.
• A requirement to put any payment over the minimum payment toward the balance with the highest interest rate. This applies only when there's more than one balance, of course.
• For cards with a high annual fee, a limit on that fee in the first year to no more than 25% of the total credit limit.

When the Act was passed, our Fontana debt settlement attorneys were disappointed that it didn't go further. Nonetheless, we believe this will help many credit-card holders avoid becoming financially entrapped by provisions that they didn't expect and had little way to learn about. Double-cycle billing, for example, was perfectly legal before the CARD Act, but not at all intuitive and arguably deceptive. By reducing that kind of deception in credit card lending, the law will give people fuller information with which to make good decisions about their money. It will also reduce the amount of money companies can charge their customers, which will slow the growth of debts. In the long run, this may actually benefit credit card companies, because it may keep their customers from getting so deep into debt that they're forced to file for personal bankruptcy.

Continue reading "CARD Act Protecting Buyers From Unfair Policies Finally Takes Effect " »

Part of our job as Riverside personal bankruptcy attorneys is to explain the ripple effects that our services can provide. At this time of year in particular, that means explaining the tax implications of a bankruptcy, loan modification or other major financial move. As a New York Times blog post set forth Jan. 29, taxes may look substantially different this year for people who underwent major financial changes in 2009. For many of our clients, this includes cashing out investments, having debt forgiven or losing a job.

People who settled debt without bankruptcy, were foreclosed on or had principal forgiven on a loan may be surprised to learn that the forgiven debt is taxable. That's because the IRS counts it as "income," even though a lack of income is likely what led to the debt forgiveness in the first place. There are several exceptions to this rule. Debts discharged in bankruptcy don't count as income. Thanks to a 2007 law, the federal government will also ignore forgiven debt that comes from a foreclosure or forgiven mortgage on your primary home, as long as it doesn't exceed $1 million for individuals and $2 million for married couples. However, this only applies in specific circumstances, so you should talk to a tax professional before making decisions. Finally, you can avoid paying taxes on forgiven debt if you can convince the IRS that you're insolvent, which means your debts exceed your assets.

Unfortunately, many of our clients who get into financial trouble make financial moves that will also complicate their taxes. Cashing out retirement savings, for example, will mean paying income tax on what you took out as well as a 10% penalty. Selling investments can qualify you for a capital gains tax. And unemployment insurance payments are taxable after the first $2,400. The plus side is that if you lost income in 2009, you will drop into a lower tax bracket. And very high medical expenses, which bring too many of our clients into our office, are tax-deductible under certain circumstances.

Our Lakewood consumer bankruptcy attorneys can't overemphasize the importance of understanding these rules before you file your taxes. Innocent mistakes may not be harshly punished, but by failing to take the steps needed to show you're insolvent, for example, you could be locked into higher taxes than you need to pay. Worse, you could end up in a tax debt situation that you'll need professional help to change. To make matters worse, recent debt to the IRS cannot be discharged in bankruptcy. When working with clients, we provide individual counseling about tax implications of bankruptcy and other financial moves. We also counsel clients on related matters, like discharging difficult debts like student loans or unpaid child support.

Continue reading "Financially Distressed and Bankrupt People Should Plan Carefully for Taxes" »

As Fontana debt settlement lawyers, we know that the new year typically brings in a few people who have resolved to get their financial lives under control. Fortunately for those with credit card debt, a Dec. 30 article in the Chicago Tribune suggests that this may be an excellent time to settle that debt. As the economy goes downhill and unemployment rises, many people are having a hard time making their credit card payments. That means credit card companies are seeing more and more defaults -- in fact, the article says defaults are tracking the unemployment rate. And that, in turn, means credit card companies are hurting and eager to negotiate settlements with people who can no longer handle their debt -- even if that means the company gets less than the full amount.

The article suggests several ways to approach settling your credit card debt. The most direct way is simply to call the credit card company, explain your situation and request a reduction in your debt in exchange for paying it off quickly. However, negotiation is not for everyone, and the stress of debt can make some people shy. That's why the article also suggests a nonprofit credit counseling agency. These agencies may charge a fee, but they also do the negotiation for you, help you set up a payment plan and provide education on how to avoid overwhelming debt in the future. A third alternative is a debt settlement company, which the article recommended with reservations because they are for-profit companies that may be dishonest and will likely harm your credit. A debt settlement company uses missed payments as leverage to negotiate a settlement for a reduced amount.

We offer a fourth option: representation from a licensed Orange County debt settlement attorney. Like credit counselors, our law firm negotiates directly with creditors to settle debts, generally for less than the full amount owed. We can do this because credit card companies know that they could get nothing at all if the client is forced to declare individual bankruptcy -- and when bankruptcy lawyers are on the job, they get nervous. Once the debt is settled, we have partners who help follow up to ensure that official records reflect the settlement and that old debt won't come back to haunt you. And unlike some debt settlement firms, we believe it's part of our job to explain the financial implications of the actions we take on clients' behalf, such as taxes owed on forgiven debt.

Continue reading "Bad Economy Means Settling Credit Card Debt May Be Easier Than Ever" »