3 weeks 17 hours ago

Chapter 11 bankruptcy is occasionally used by individuals, but is more commonly utilized by businesses. Though arguably the most complicated form of bankruptcy Chapter 11 has the power to save a failing business from complete financial collapse when used strategically. Chapter 11 also has an added benefit for business owners: unlike other forms of business bankruptcy, such a Chapter 7, it allows the company to continue operating while the case is pending. In this article, our Roseville bankruptcy attorneys will provide a basic overview of how Chapter 11 works for businesses in California.

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What Does Chapter 11 Mean for a Business?
Under the right circumstances, Chapter 11 may mean the difference between a business permanently closing its doors, and reemerging from debt financially revitalized. By timing your filing strategically, and making sure you are in compliance with bankruptcy regulations, our Chapter 11 bankruptcy attorneys may be able to help stop your company from going out of business.
Chapter 11 bankruptcy is sometimes called “reorganization bankruptcy,” as is Chapter 13. Though Chapter 13 is only available for individuals (including sole proprietors), both types of bankruptcy require the debtor to create a reorganization plan, which is where the term “reorganization bankruptcy” comes from.
The reorganization plan allows the filer to restructure debts without having to surrender property to a bankruptcy trustee, which is a major advantage over filing for Chapter 7. If a business files Chapter 7 bankruptcy in California, its property and assets will be sold by a court-appointed trustee, and the business will be forced to close. If a business owner wishes to file bankruptcy and continue daily operations, he or she must file Chapter 11. If you are a small business owner in California, and don’t know whether you should file Chapter 7 or Chapter 11, our bankruptcy Chapter 7 attorneys can help you figure out which option would be more practical.
In most Chapter 11 cases, the bankruptcy court will allow the business to continue running as a “debtor in possession” (DIP) without assigning a trustee to the case. However, the court may decide it is necessary to assign a trustee if there are unusual circumstances, such as fraud or egregious mismanagement of the company’s finances. Further, even if no trustee is assigned to the case, the DIP must still obtain court approval to make major decisions about business operations, such as opening additional locations or signing a new contract with a vendor.
bankruptcy lawyer roseville ca
Filing for Bankruptcy Chapter 11 in California
Like any bankruptcy case, a Chapter 11 case typically begins when the debtor files a voluntary petition for bankruptcy. There are also situations in which creditors can force a business into filing bankruptcy, but only if certain financial requirements under 11 U.S. Code § 303 are met. For the purposes of this article, our Sacramento business bankruptcy attorneys will focus on voluntary Chapter 11 petitions.
Depending on the situation, the company may file for bankruptcy in its principal place of business (wherever operations are primarily centered), or in its state of incorporation (the state where the business filed articles of incorporation), which is also referred to as the place where the business is “domiciled.” Our Folsom bankruptcy lawyers for small businesses can help you make the right decision about where you should file Chapter 11.
Filing for Chapter 11 requires a substantial amount of paperwork and documentation. In addition to filing your voluntary bankruptcy petition, you will also be required to submit a disclosure statement (Form B 25B), an attachment to the voluntary petition describing debts and assets (Form Form B 201A), and – most significantly – the plan of reorganization (Form B 25A) around which Chapter 11 cases revolve. You and your Roseville small business bankruptcy lawyer must propose a reorganization plan, sign it, and submit it to the bankruptcy court for approval.
In order to be confirmed by the bankruptcy court, your plan must meet certain criteria. For example, the plan must meet the best interests of your creditors, which means that under the proposed plan, your creditors would receive, at minimum, the same amount they would have received if you had filed for Chapter 7. (On a related note, keep in mind that you may be forced to convert your Chapter 11 into a Chapter 7 if you prove unable to meet the terms established by your reorganization plan.)
At first, you will be the only party who has the right to propose a reorganization plan. However, once four months have passed, this exclusivity period will come to an end, and your creditors will gain the right to submit plans of their own, unless you are able to obtain an extension of the exclusivity period.
The duration of Chapter 11 proceedings can vary widely from case to case. Depending on the circumstances, a Chapter 11 may take anywhere from several months to several years to complete successfully. The ultimate goal or purpose of Chapter 11 for a business is to manage debt and continue operations, instead of being forced to sell or shut down.
Roseville Business Bankruptcy Attorneys for Corporations and LLCs
The Bankruptcy Group assists all types of business entities with Chapter 11, Chapter 7, and Chapter 13, including S corporations, C corporations, limited liability companies, partnerships, and sole proprietorships. Whether you run a local, family-owned business with your spouse and children, or a large company with thousands of employees and shareholders, we can help you get business debt under control.
If you own a business in the Roseville, Sacramento, or Folsom area, and you’re worried about financial problems that seem to be growing out of control, we encourage you to contact The Bankruptcy Group to talk about your options in a free and confidential legal consultation. To discuss how a California business bankruptcy could help your company avoid insolvency, contact our law offices at (800) 920-5351 today.
The post What Does it Mean When a Business Files for Chapter 11 in California? appeared first on The Bankruptcy Group, P.C..

3 weeks 1 day ago

Chapter 7 or Chapter 13 For consumers who are thinking about filing for bankruptcy, the advice of which chapter to file from an attorney is the most critical piece of information right from the start. The difference between Chapter 7 and Chapter 13 is significant. Chapter 7 is known as a fresh start which allows+ Read More
The post Filing The Right Bankruptcy Case Under The Proper Chapter appeared first on David M. Siegel.

3 weeks 2 days ago

Filing for bankruptcy is a complex decision. Filing bankruptcy while married brings an entire set of additional legal and financial considerations into the picture. Sacramento bankruptcy lawyers discuss what happens when you file for bankruptcy jointly with your spouse, including whether married couples have to file bankruptcy together in California, and some other important facts about bankruptcy and marriage.

bankruptcy lawyer roseville
What Happens When You File Bankruptcy in California?
Before we examine the relationship between bankruptcy and marriage, let’s start with a quick overview of how bankruptcy works.
The vast majority of debtors in California file for bankruptcy using Chapter 7 or Chapter 13, which are the two main types of personal bankruptcy. Here’s how they compare at a glance:

Chapter 7 Bankruptcy
Chapter 13 Bankruptcy


About 4-6 months
3-5 years

Debts Discharged (Eliminated)
Medical bills, credit card bills, personal loans, more
Medical bills, credit card bills, personal loans, more

Fastest and simplest type of bankruptcy, no monthly payments
Retain more property, possibly prevent foreclosure

Potential loss of property and assets, slightly higher filing fee
Longer duration, higher income requirements, monthly payments required

In Chapter 7, a trustee sells unprotected (nonexempt) assets to repay your creditors. You do not have to make a reorganization plan, and if you comply with all bankruptcy rules, your case should be discharged well within the year you file. In Chapter 13, you can keep your property as long as you continue to make full and timely monthly payments as directed by your reorganization plan. Through the plan, you can even stop foreclosure. The case is discharged after three to five years.
bankruptcy law group sacramento
Filing Bankruptcy While Married
Many couples contact our Roseville Chapter 7 lawyers with questions about bankruptcy and marriage. One of the most common questions we are asked is, “Can one person in a marriage file bankruptcy and not the other?”
The simple answer is yes: you are not legally required to file bankruptcy with your spouse. Nonetheless, many married couples choose to file jointly due to the financial benefits which, in certain cases, may result from joint filing. You should keep the following questions and factors in mind when deciding, with help from your Folsom Chapter 13 lawyer, whether you should file jointly or individually.

  • Are most of your debts shared? Only the filing spouse gets debt relief and protection from creditors. If you and your spouse owe a debt together, but only you file for bankruptcy, creditors can come after your spouse demanding repayment. Your debts may have been discharged, but your spouse’s have not. That means he or she is still liable for:

    • His or her individual debts.
    • Debts he or she shares with you.


  • Likewise, do you share property or assets? When you and your spouse file jointly for Chapter 7, all of your property becomes part of the bankruptcy estate. Unless it is protected by exemptions, property in the bankruptcy estate can be sold by the trustee. If Spouse A owns valuable property or assets, it might make sense for Spouse B to file individually, so that Spouse A’s assets do not become part of the bankruptcy estate and thus vulnerable to creditors.


  • Do the benefits of filing jointly outweigh the initial damage to your credit scores? Though the damage can be repaired – in many cases, more quickly than you’d imagine – you need to prepare for the fact that bankruptcy will have a damaging effect on your credit score. If you file jointly, both of your credit scores will be impacted.


  • Can you double the bankruptcy exemptions by filing jointly? Bankruptcy exemptions help Chapter 7 debtors protect their property. In Chapter 13, exemptions impact payments under the reorganization plan, because certain creditors must receive, at minimum, the amount equivalent to what they would have received from the proceeds of a Chapter 7 liquidation. Though California prohibits debtors from doubling most exemptions, there are a few exceptions for exemptions where doubling may be permitted.


  • Can you both pass the mean test? When you file for bankruptcy, you must take a “means test,” which evaluates your income to determine whether you should file for Chapter 7 or Chapter 13. If you file jointly, all of your income will be counted. If you file individually, only your income will be counted. You may encounter a situation where you would be able to pass (be eligible for Chapter 7) by filing individually, but would fail if you tried to file jointly. Of course, depending on your reasons for declaring bankruptcy, you may want to file for Chapter 13, in which case failing the means test would not be an issue.


  • Are you both willing to file for bankruptcy? Joint bankruptcy filings must have consent from both spouses. You cannot force your spouse to file bankruptcy against his or her wishes. If your spouse does not want to file for bankruptcy, you may have little choice but to file individually.

Though unusual, there are even cases where both spouses file bankruptcy individually, typically due to a disagreement about how to proceed with a joint filing.
Roseville Bankruptcy Lawyers Serving Sacramento and Folsom
The Roseville Chapter 13 attorneys of The Bankruptcy Group have years of experience helping married couples eliminate debt and reap the other financial benefits of strategic bankruptcy. We can help you navigate the confusing waters of state and federal bankruptcy regulations, so that your case proceeds smoothly and efficiently. We will advise you of your rights and options, walk you through the requirements and procedures, and protect you against making errors or decisions that could be detrimental to your case. For a free and confidential legal consultation with our experienced Sacramento Chapter 7 lawyers, contact The Bankruptcy Group at (800) 920-5351 today.
The post Are Married Couples Required to File for Bankruptcy Together in California? appeared first on The Bankruptcy Group, P.C..

4 weeks 12 hours ago

Sunny, star-studded California is an iconic piece of the American dream, a place where entrepreneurs come to transform ideas into realities. While some of the world’s most successful businesses call Hollywood and Silicon Valley home, other companies — including a few familiar brands — have been challenged by chronic financial difficulties that led to filing for bankruptcy. Read on to learn about four of the biggest California companies to declare Chapter 11, ranked by our Roseville bankruptcy lawyers.

bankruptcy lawyer roseville
4 of the Biggest California Businesses to Declare Chapter 11 Bankruptcy
Though occasionally used by individuals, Chapter 11 bankruptcy is almost always utilized by businesses. Large corporations are more likely to use Chapter 11 than smaller, family-owned businesses, simply due to the time and complexity involved in Chapter 11 cases. However, every business owner is strongly encouraged to compare all of their filing options with a Roseville Chapter 11 attorney before making a decision about which chapter to utilize. The “best” option for each business will ultimately depend on:

  • How much debt the business owes
  • How the business is structured
  • What assets and resources are available to the business
  • Why the business is filing for bankruptcy

The following companies determined that Chapter 11 was the right filing option. It could be the best option for your business as well. We encourage you to contact our small business bankruptcy attorneys with any questions you may have, no matter how minor, about how bankruptcy could work to your advantage.
#4: American Apparel
Founded in Montreal in 1989, clothing retailer American Apparel later set up headquarters in Los Angeles. With edgy cuts and bold colors nodding to the styles of the eighties, the brand initially achieved popularity among Millennials and young adults. But in 2015, after six years without making a profit, the company filed for Chapter 11 in the United States Bankruptcy Court for the Central District of California. Unfortunately, sales fell by 33% after the initial bankruptcy, worsening the company’s financial problems. After filing for bankruptcy once more in November 2016 — this time in a Delaware bankruptcy court, with debts and assets listed in the $100 million to $500 million range — American Apparel’s assets were purchased by Gildan Activewear for a figure reported between $66 and $88 million.
#3: BCBGMaxAzria
In a story similar to American Apparel’s, retail company BCBGMaxAzria was also founded in 1989, also became a fashion fixture in the Los Angeles area, and also filed for Chapter 11 bankruptcy, even around the same time as American Apparel — February 2017. The clothing company’s bankruptcy documents were filed in the U.S. Bankruptcy Court for the Southern District of New York. The company was reported to have $485 million in secured debt, meaning debt secured by collateral. Chapter 11 bankruptcy can enable businesses to reduce their operating costs by allowing them to pay the value of the collateral — for example, the value of a company vehicle or piece of equipment — instead of the amount which is actually owed.
#2: Quiksilver
Headquartered in Huntington Beach, Quiksilver carved out a niche manufacturing surfwear, surfboards, and other gear designed for surfers. However, the company filed for bankruptcy in 2015, with assets of $337 million and debts of $826 million, after a 2013 financial plan failed to repair the damage from a six-year streak without profits. The surfwear company’s Chapter 11 plan was primarily managed by Oaktree Capital Management, which is now the majority shareholder.
#1: Avaya
While the other names on our list may sound more familiar to you, Avaya’s bankruptcy was far larger in scope, restructuring approximately $6.3 billion in debt. The Santa Clara-based telecommunications company filed for Chapter 11 bankruptcy in January 2017, but its financial difficulties reached back to 2007, a decade earlier, when Avaya agreed to an acquisition by Silver Lake Partners and TPG Capital. Avaya received a loan of $725 million from an affiliate of Citigroup to continue business operations during the Chapter 11 reorganization plan.
bankruptcy law group sacramento
Sacramento Chapter 11 Bankruptcy Attorneys for Business Owners
Though not always the appropriate solution, Chapter 11 has helped many businesses emerge from debt to become more profitable and successful. In other situations, it makes more sense to file for Chapter 7, which is another bankruptcy option for S corporations, C corporations, and limited liability companies. If you are a sole proprietor who owns a small business, Chapter 13 bankruptcy could also be a potential filing option. The bottom line is that bankruptcy can be a viable strategy for strengthening your business, mitigating your losses, and achieving other professional goals.
To discuss your business bankruptcy options with an experienced California Chapter 7 attorney or Chapter 13 lawyer, contact the The Bankruptcy Group at (800) 920-5351 for a free legal consultation. We assist corporations, LLCs, partnerships, and sole proprietors with business bankruptcy cases in the Sacramento area, including Folsom and Roseville.
The post 4 of the Largest California Companies to File Chapter 11 appeared first on The Bankruptcy Group, P.C..

1 month 1 day ago

Several bankruptcy options may be available to debtors in California. Depending on your disposable income and your reasons for declaring bankruptcy, it may make the most financial sense to file Chapter 7, Chapter 13, or in rare cases, Chapter 11. Our Roseville bankruptcy attorneys compare the different types of bankruptcy and explain how each works. When you contact our law offices for your free consultation, we can help you decide which bankruptcy chapter is right for your needs.

sacramento bankruptcy attorney
Options for Filing for Bankruptcy in California
There are many different types or “chapters” of bankruptcy, each named after its corresponding chapter in the U.S. Bankruptcy Code. While debtors have some flexibility when choosing which chapter to file under, the choice can be limited by means testing, a process that measures a debtor’s disposable income to determine whether he or she has adequate income to cover a Chapter 13 plan. The Chapter 13 plan, and other important aspects of Chapter 13, 7, and 11, are explained in the sections below.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also called “straight bankruptcy” or “ordinary bankruptcy” because it is the simplest, fastest, and most commonly used type of bankruptcy, not only in California but nationwide. According to U.S. Bankruptcy Court for the Eastern District of California, which has jurisdiction over Placer and Sacramento Counties (among many others), nearly 15,000 people filed for Chapter 7 in 2015, with a peak of nearly 45,000 filings in 2010.
Chapter 7, which generally takes about four to six months to complete, is also called “liquidation” because of the process involved. When a debtor files for Chapter 7, his or her non-exempt assets are sold by a trustee to various creditors, which helps pay off the filer’s debts. Filers in California can choose between two sets of exemptions, which are simply named System 1 and System 2. Your Chapter 7 bankruptcy lawyer can evaluate which system of exemptions will protect more of your property.
After the trustee has distributed sale proceeds among the debtor’s creditors, the bankruptcy court grants the debtor a discharge. The discharge has the effect of eliminating the debtor’s liability for most of his or her debts. Debts that are discharged in Chapter 7 bankruptcy include medical debt, credit card, certain tax-related debts, and debt from personal loans. While the debts continue to exist, creditors can no longer pursue the debtor for repayment.
Chapter 13 Bankruptcy
Chapter 13 is also called “reorganization” bankruptcy, or a “wage earner’s plan.” That is because, unlike Chapter 7, Chapter 13 requires filers to propose a reorganization plan, which must be approved by the bankruptcy court before the case can continue. The debtor’s creditors may object to the initial proposal, which is one of the reasons it is important to be represented by an experienced Chapter 13 bankruptcy attorney.
The reorganization plan is a three- to five-year plan under which the debtor makes monthly payments on various debts. The nature of each debt determines the order in, and extent to which, debts must be paid off. All of the debtor’s disposable income, or income left over after necessary living expenses have been accounted for, must be funneled into the reorganization plan.
The benefit of the reorganization plan is that it allows the debtor to keep his or her property, even without exemptions. By filing Chapter 13, a debtor can protect his or her vehicle from repossession, and even save his or her home from being repossessed. In short, the plan gives the debtor extra time to catch up on missed payments.
As long as the debtor stays on track with the plan, he or she can retain property that would otherwise be seized or repossessed. If the debtor misses too many payments, he or she may be forced to convert the case into a Chapter 7 bankruptcy. Once the Chapter 13 plan has been completed successfully, the bankruptcy court will grant a discharge, and, as in Chapter 7, the debtor will no longer be liable for debts that were addressed by the plan.
Because of the reorganization plan, Chapter 13 is more suitable for debtors with higher income, whereas Chapter 7 is usually utilized by debtors who have fewer assets and resources to draw upon. Chapter 13 is fairly common, but less widely used than Chapter 7, with about 3,000 filings in 2015.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is typically used by businesses. Chapter 11 for individuals is exceedingly rare, with just over 50 filings documented in 2015, but occasionally proves to be the most sensible filing option for individual debtors.
Chapter 11 is a complex process, but may be the right filing option if you have too much income to file for Chapter 7, and too much debt to file for Chapter 13. The process is similar to Chapter 13, and may require several years for completion. Our Chapter 11 bankruptcy attorneys can assess your debt and income levels to determine whether Chapter 11 is the most appropriate chapter for you.
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Roseville Bankruptcy Lawyers Handling Chapter 7, 13, and 11
Obtaining a discharge in Chapter 7, Chapter 13, or Chapter 11 depends on your ability to comply with court rules and federal bankruptcy regulations. If you fail to pay filing fees, fail to attend mandatory debtor education or credit counseling courses, attempt to conceal assets, or make any other errors, your case could be dismissed instead of discharged, which means you will still be liable for the debts you are trying to eliminate.
It is in your best interests to consult with an experienced California bankruptcy lawyer before making a decision about which chapter you should use. The Bankruptcy Law Group assists individual filers, married couples, and businesses with personal and business bankruptcy in the Roseville, Sacramento, and Folsom area. To set up a free legal consultation with a Folsom Chapter 11 attorney, Folsom Chapter 13 attorney, or Sacramento Chapter 7 lawyer, contact our law offices at (800) 920-5351 today.
The post The Types of Bankruptcy in California: Chapter 7, 11, and 13 appeared first on The Bankruptcy Group, P.C..

1 month 1 day ago

debt lawyerUnless you’re a debt lawyer, the interplay between bankruptcy and your income taxes can be confusing. However, it is important to understand how income tax debts and refunds impact your bankruptcy claim. A single mistake can be costly.
Chapter 7 Bankruptcy and Income Taxes
In a Chapter 7 bankruptcy, you can discharge some types of income tax debt.  Tax debts are dischargeable if all of the following are true:

  • The debt is for unpaid income taxes (not payroll taxes or fraud penalties),
  • You did not file a fraudulent tax return or willfully evade a tax obligation,
  • The debt is at least three years old,
  • You filed the tax return at least two years ago, and
  • You pass the “240-day rule.”

However, income tax liens cannot be discharged through bankruptcy.
Even if your tax debt cannot be discharged, Chapter 7 may still offer some benefits. For example:

  • Chapter 7 will get rid of most of your other debt. This may leave you with more financial ability to pay off your tax debts through an IRS installment plan.
  • If you have assets that are liquidated by a bankruptcy trustee, these proceeds can help pay off some of your tax debt.

While Chapter 7 bankruptcy has many benefits, it is not always the best solution. Before filing, speak with an experienced debt lawyer. A lawyer can help you understand your options, including Chapter 13 bankruptcy or an IRS installment plan.
Chapter 13 Bankruptcy and Income Taxes
If you have significant income tax debt that cannot be discharged, a Chapter 13 bankruptcy may be your best option. Under Chapter 13, your debt is restructured and you enter into a payment plan. Over a period of three to five years, you will pay off your debts, while keeping your house and other property.
With the help of a skilled debt lawyer, you may be able to negotiate a Chapter 13 payment plan that is more advantageous than the IRS’ repayment system. And, you may be able to stop tax liens, wage garnishment, and additional interest and fees when you file for bankruptcy.
Bankruptcy Stays and Tax Debt
When you file for bankruptcy, you should list the IRS and other tax agencies as creditors in your bankruptcy filing. Once a bankruptcy is filed, debt collectors (including tax agencies) must stop collection efforts. This automatic stay applies to both Chapter 7 and Chapter 13 proceedings.
However, the automatic stay does not stop a tax audit or prosecution for tax evasion or fraud. And, you still have an obligation to file tax returns. Finally, once your bankruptcy is completed, the IRS can restart collection activities on any remaining tax debts.
What Happens to my Tax Refund?
If you receive an income tax refund, it is considered an asset. Your bankruptcy trustee can take any part of your tax return that is not exempt. Depending on your financial resources and where you live, all or most of your income tax refund may be exempt.
Income Tax Strategies
A debt lawyer can help you implement strategies that protect your assets and discharge most of your debts. For example:

  • Once you file for bankruptcy, try to avoid tax refunds by reducing your withholdings,
  • If you are anticipating a large income tax return, consider filing a partial-year return before you file for bankruptcy, and
  • Hold off on bankruptcy until most of your tax debt is dischargeable.

An experienced debt lawyer can help you understand these strategies and incorporate them (and others) into a comprehensive debt solution.
Speak With a Debt Lawyer Today
Without the guidance of a debt lawyer, you may make costly mistakes in your bankruptcy filing. At the Northwest Debt Relief Law Firm, we provide our clients with customized debt reduction strategies and compassionate, detail-oriented advice. Contact us for a consultation today.
 The original post is titled Debt Lawyer: What Happens to Income Taxes in Bankruptcy? , and it came from Portland Bankruptcy Attorney | Northwest Debt Relief .

3 weeks 8 hours ago

US Supreme Court
May 15, 2017: Resolving a split of circuits, the Supreme Court held 5/3 in Midland Funding LLC v. Johnson  6-348 (Sup. Ct. May 15, 2017) that a debt collector who files a stale claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable, or unfair conduct and thus does not violate the federal Fair Debt Collection Practices Act.
“Writing the opinion for the majority in favor of the debt collector, Justice Stephen G. Breyer said that the conclusion on one issue — false, deceptive or misleading — was “reasonably clear.” The second issue — unfair or unconscionable — presented a “closer question,” he said.  The dissent replied that “Professional debt collectors have built a business out of buying stale debt, filing claims in bankruptcy proceedings to collect it, and hoping that no one notices that the debt is too old to be enforced by the courts. This practice is both ‘unfair’ and ‘unconscionable.'”
Despite existing laws governing collection of debts Midland now opens the door for debt buyers to purchase claims that are far outside the deadline for collection (referred to as “stale claims”) for pennies on the dollar and file a proof of claim in a bankruptcy with the hope they will collect money in the bankruptcy.  Why?  Because trustees and debtors normally do not object to this type of claims.  The Supreme Court seemed to think (wrongly in my opinion) that chapter 13 bankruptcy trustees review each and every claim in detail.
(History of Midland: In an action under the Fair Debt Collection Practices Act “FDCPA”, 15 U.S.C. sections 1692e and 1692f, arising out of a Chapter 13 bankruptcy case in which a creditor filed a claim asserting that debtor owed a credit-card debt and noting that the last time any charge appeared on debtor’s account was more than 10 years ago, which exceeded the 6-year statute of limitations.  The US Supreme Court’s decision reverses the Eleventh Circuit Court of Appeals’ decision that the FDCPA applied to the case.  Finding that  the filing of a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the FDCPA.)

Arizona is going to see a flurry of debt buyers suing on “old debt” outside the six year statute of limitations because of this case:
MERTOLA, LLC, v. SANTOS, No. 1 CA-CV 16-0168 (AZ Court of Appeals, Division 1,Decided: March 02, 2017)  “We hold in this case that, absent agreement to the contrary, a cardholder’s failure to make a minimum monthly credit-card payment does not trigger the statute of limitations on a claim for the entire unpaid balance on the account. Absent contrary terms in the account agreement, the lender’s claim for the balance does not accrue, and limitations does not begin to run, until the lender accelerates the debt or otherwise demands payment in full.”

So why the hubbub about these stale debts?
If you read Midland and Mertola together it appears debt buyers can purchase and try to collect on debts that are very, very old because the creditor never accelerated the loan by calling it all due and payable (in writing).  Now the Supreme Court opened the door for debt collectors/buyers to file proof of claims for debts never accelerated (Arizona) and/or stale with the hopes of collecting in a bankruptcy.
Note – remember the statute of limitations is an affirmative defense.
stale debtsSupreme Court gives debt collectors more power.
My concern – in a non-Arizona accelerated situation, normally a debt becomes uncollectable once the applicable statute of limitations expires; only to be reborn if the borrowers make any payment on the debt.  Therefore, under Midland, if the creditor, debt collector or buyer receives just one cent from the bankruptcy claim the debt is reborn and, if the bankruptcy is dismissed (not discharged) that will give the creditor or debt collector the right to sue and collect on the original debt, plus all contractual interest and penalties.
Future business for creditors
I predict that all creditors will set up their own subsidiaries to “buy” stale debts (some have already done so).  For Arizona residents those creditors will let the debt sit for decades and then pounce on the borrower when their finances have improved.  Some of you believe that is only fair “after all they borrowed the money and should pay it back”.  Others will feel that everyone has the right to move on with their lives and not suffer for mistakes or circumstances that happened decades earlier.

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About the Author:
Diane L. DrainDiane L. Drain is a well known and respected Arizona bankruptcy attorney. She is an expert in both consumer bankruptcy and Arizona foreclosure. Since 1985 she has been a dedicated advocate for her clients and spokesperson for Arizona citizens. Diane is a retired professor of law teaching bankruptcy for more than 20 years. As a teacher she believes in offering everyone, not just her clients, advice about the Arizona bankruptcy laws. She is also a mentor to hundreds of Arizona attorneys.
I would be flattered if you connected with me on GOOGLE+
*From Diane: This article/blog is available for educational purposes only and does not provide specific legal advice. By using this information, you agree there is no attorney client relationship between you and me, and that this information should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state.*

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The post Supreme Court Finds Debt Buyers Free to Collect on Stale Debts appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.

1 month 6 days ago

By Ben Leubsdorf

The total debt held by American households reached a record high in early 2017, exceeding its 2008 peak after years of retrenchment in the face of financial crisis, recession and modest economic growth.

The milestone, announced Wednesday by the Federal Reserve Bank of New York, was a long time coming.

Americans reduced their debts during and after the 2007-09 recession to an unusual extent: a 12% decline from the peak in the third quarter of 2008 to the trough in the second quarter of 2013. New York Fed researchers, looking at data back to the end of World War II, described the drop as “an aberration from what had been a 63-year upward trend reflecting the depth, duration and aftermath of the Great Recession.”

In the first quarter, total debt was up 14.1% from that low point as steady job gains, falling unemployment and continued economic growth boosted households’ income and willingness to borrow. The New York Fed report said total household debt rose by $149 billion in the first three months of 2017 compared with the prior quarter, or 1.2%, to a total of $12.725 trillion.

“Almost nine years later, household debt has finally exceeded its 2008 peak, but the debt and its borrowers look quite different today,” New York Fed economist Donghoon Lee said. He added, “This record debt level is neither a reason to celebrate nor a cause for alarm.”

The pace of new lending slowed from the strong fourth quarter. Mortgage balances rose 1.7% last quarter from the final three months of 2016, while home-equity lines of credit were down 3.6% in the first quarter. Automotive loans rose 0.9% and student loans climbed 2.6%. Credit-card debt fell 1.9%, and other types of debt were down 2.7% from the fourth quarter.

Americans' debt has returned to levels last seen before the recession in nominal terms, but the makeup of that debt has changed significantly. Change in total debt balance, by type, since its previous peak in 2008: The data weren’t adjusted for inflation, and household debt remains below past levels in relation to the size of the overall U.S. economy.

In the first quarter, total debt was 66.9% of nominal gross domestic product versus 85.4% of GDP in the third quarter of 2008. Balance sheets look different now, with less housing-related debt and more student and auto loans. As of the first quarter, 67.8% of total household debt was in the form of mortgages; in the third quarter of 2008, mortgages were 73.3% of total debt. Student loans rose from 4.8% to 10.6% of total indebtedness, and auto loans went from 6.4% to 9.2%.

Mortgages continue to account for the majority of overall U.S. household debt, though student and auto loans represent a growing share of the total.  Mortgage lending to subprime borrowers has dwindled since the housing crisis in favor of loans to consumers considered more likely to repay. In the first quarter, borrowers with credit scores under 620 accounted for 3.6% of mortgage originations, compared with 15.2% a decade earlier. Borrowers with credit scores of 760 or higher were 60.9% of originations last quarter, versus 23.9% in the first quarter of 2007. Auto loans have remained relatively available to subprime borrowers, helping fuel the record vehicle sales of recent years as interest rates have been low. Some 19.6% of auto-loan originations last quarter went to borrowers with credit scores below 620, down from 29.6% a decade earlier. The median credit score for auto-loan originations in the first quarter was 706, compared with 764 for mortgage originations.

The share of debt considered seriously delinquent — at least 90 days late — is down from recession-era levels, but varies widely by type of loan. Some 4.8% of outstanding debt was delinquent at the end of the first quarter, little changed from late 2016, with 3.4% at least 90 days late, known as seriously delinquent. Seriously delinquent rates have climbed recently for credit-card debt, 7.5% in the first quarter, and auto loans, 3.8% last quarter, and remained high—11% last quarter— for student loans, according to Wednesday’s report.

Copyright 2017 Dow Jones & Company, Inc.  All rights reserved.

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