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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.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
While it is possible to change bankruptcy attorneys in the middle of the case, it often will not make a difference in the outcome of the case. The relationship between a client and a bankruptcy attorney is one of trust, confidence, respect, diligence and communication. If there is a breakdown in any one or more+ Read More
The post Changing Bankruptcy Attorneys Mid-Case: Does It Ever Make Sense? appeared first on David M. Siegel.
In a recent decision, the Bankruptcy Appellate Panel of the Sixth Circuit (the “Court”) considered the issue of asset “abandonment” in a Chapter 7 case[1]. The Court reversed the bankruptcy court’s decision to allow the Chapter 7 trustee to compromise a claim that the debtor argued the trustee had abandoned. [1] In re: Wayne L. Wright, Docket No. 16-8019 (6th Cir. BAP, April 17, 2017). Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
In a recent decision, the Bankruptcy Appellate Panel of the Sixth Circuit (the “Court”) considered the issue of asset “abandonment” in a Chapter 7 case[1]. The Court reversed the bankruptcy court’s decision to allow the Chapter 7 trustee to compromise a claim that the debtor argued the trustee had abandoned. [1] In re: Wayne L. Wright, Docket No. 16-8019 (6th Cir. BAP, April 17, 2017). Read More ›
Tags: 6th Circuit Court of Appeals, Chapter 7
It’s that time of year again: tax season. While the 2017 tax filing deadline has already passed, thousands of Californians who applied for extensions are still sorting through their financial paperwork. Some of them – perhaps yourself included – are probably wondering whether they can discharge (eliminate) income tax debts by filing for Chapter 7. This is a common bankruptcy question, but the answer can be complicated. Our Roseville bankruptcy attorneys explain whether you can discharge income tax debt by filing Chapter 7 in California, and discuss how other tax-related debts are treated in liquidation bankruptcy cases.
Can Income Tax Debt Be Discharged in Chapter 7?
Thinking about filing a tax return leads many Californians to think about filing something else, too: a Chapter 7 bankruptcy petition. But when can Chapter 7 help with income tax debt? And is filing for bankruptcy a potential solution for other tax-related debts as well?
To answer these questions, we need to start by explaining the difference between dischargeable and non-dischargeable debt. Put simply, a dischargeable debt is any debt for which the filer will no longer be liable when his or her case is discharged. The debt itself continues to exist, but the filer can no longer be pursued by the creditor or debt collectors. Common examples of dischargeable debts in a Chapter 7 bankruptcy include medical debt, credit card debts, and debt from personal loans.
In contrast, non-dischargeable debts are debts for which the filer remains liable, even after his or her case has been discharged successfully. In other words, the filer will still be responsible for paying the debt, regardless of the discharge.
Income tax debts are generally non-dischargeable in Chapter 7 bankruptcy, but there are also a few exceptions that allow for certain tax-related debts to be eliminated. The standards you will need to meet in order to eliminate income tax debts are explained in the next section.
5 Requirements to Eliminate Tax Debt in Bankruptcy
You might be able to discharge tax debt if all five of the following facts are true:
1. The debt is an income tax debt. Federal income tax debt is the only type of tax debt that can be discharged in Chapter 7 bankruptcy. For example, you cannot discharge debts related to payroll taxes. But the nature of the debt isn’t the only important factor; the age of the debt is also critical. You can only discharge income tax debt if…
2. The debt is from at least three years ago. If the debt is less than three years old, it cannot be discharged.
3. The debt meets the 240-day requirement. In addition to being due at least three years prior to the date on which you intend to file for bankruptcy, the debt must also be able to pass another time requirement called the “240-day rule.” This rule requires that the IRS assessed the debt at least 240 days before the date you file for bankruptcy. (For quick reference, 240 days is just under eight months.) Having prior bankruptcies in your past can affect the 240-day rule, as well as other critical aspects of bankruptcy (such as the duration of the automatic stay), so it’s particularly important to review your situation with a Chapter 7 bankruptcy lawyer if you’ve filed for bankruptcy on a previous occasion.
4. You already filed a federal income tax return. The third time requirement is that you filed a tax return for the debt you want to discharge a minimum of two years before the date on which you plan to declare bankruptcy. Meeting this requirement is more complicated if you filed your tax return late–in which case, you are strongly advised to discuss your filing date with a Folsom Chapter 7 lawyer from The Bankruptcy Group.
5. You did not commit tax evasion or other forms of fraud. If you committed tax evasion, concealed income in offshore bank accounts, or committed or attempted to commit any other types of tax fraud, the bankruptcy court will not grant you a discharge.
Again, you must be able to meet all five of these criteria in order to eliminate income tax debt in Chapter 7 bankruptcy.
California Bankruptcy Lawyers Serving Roseville, Sacramento, and Folsom
The Sacramento Chapter 7 lawyers of The Bankruptcy Group can help determine whether you may be able to wipe out your tax debts, and if so, how to time filing your bankruptcy petition strategically. We can also discuss with you the potential effects of filing under Chapter 13 as an alternative; though, in many cases, Chapter 7 is the more suitable option for eligible debtors who seek to eliminate tax-related debt. Our experienced attorneys will take the time to assess the entire financial picture, including your debts, assets, and disposable income, to aid you in a decision about filing for bankruptcy in California.
To review your legal options in a free and confidential bankruptcy consultation, contact The Bankruptcy Group today at (800) 920-5351. We serve residents of the Sacramento, Folsom, and Roseville area.
The post Can You File Chapter 7 on Back Taxes in California? appeared first on The Bankruptcy Group, P.C..
There is nothing in state or federal law that prohibits a California resident from filing for bankruptcy without an attorney, which is called “filing pro se” (“for oneself”). However, declaring bankruptcy without a lawyer exposes the debtor to grave legal and financial perils, particularly if the petitioner intends to file for Chapter 13 or Chapter 11, which are among the most technically complex forms of bankruptcy. Our Sacramento bankruptcy attorneys discuss eight reasons to avoid filing bankruptcy without a lawyer in California, and explain why legal representation is beneficial for debtors in a Chapter 7, Chapter 11, or Chapter 13 case.
Can You File Bankruptcy without a Lawyer in CA?
The short answer to this question is yes. Legally speaking, any adult resident of California may file for bankruptcy without an attorney. However, there are numerous reasons to avoid filing bankruptcy pro se – today more than ever before.
While filing for bankruptcy has always been a complex procedure in the United States, the process became substantially more convoluted in 2005. In April of that year, Congress passed comprehensive bankruptcy reform legislation called the “Bankruptcy Abuse Prevention and Consumer Protection Act,” or BAPCPA.
While this piece of legislation was well-intentioned, having been enacted primarily to reduce the abuse of bankruptcy regulations pertaining to Chapter 7 eligibility, it also had the effect of complicating bankruptcy regulations to the point where the average person is now effectively rendered unable to file pro se successfully, particularly if he or she is filing under Chapter 13 or Chapter 11, both of which require the debtor to propose – and gain court approval to proceed with – a long-term debt reorganization plan. Continue reading to learn some of the reasons we urge California residents – and, for that matter, all U.S. debtors – to seek legal assistance from a qualified Chapter 7, Chapter 13, or Chapter 11 bankruptcy attorney.
8 Reasons to Hire an Attorney for Your Bankruptcy Case
Though it is not necessarily impossible to obtain a bankruptcy discharge after filing pro se, it is very difficult. But don’t simply take our word for it – listen to what the website of the United States Courts has to say on the matter:
[S]eeking the advice of a qualified attorney is strongly recommended because bankruptcy has long-term financial and legal outcomes. Filing personal bankruptcy under Chapter 7 or Chapter 13 takes careful preparation and understanding of legal issues. Misunderstandings of the law or making mistakes in the process can affect your rights. Court employees and bankruptcy judges are prohibited by law from offering legal advice.
As these warnings go on to point out, “Pro se litigants are expected to follow the rules and procedures in federal courts and should be familiar with the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the local rules of the court in which the case is filed.” Unfortunately, this is no simple task.
Not only are bankruptcy regulations vast in scope, they are also written using legal terminology that is unfamiliar to most debtors and often poses a barrier to the clear understanding so vital to success in a bankruptcy case. That does not even begin to touch on the many local rules, court procedures, and deadlines which are applicable to a given case.
In a worst-case scenario, the petition will suffer from errors or omissions that ultimately lead to dismissal of the case by the bankruptcy court, which for Placer and Sacramento County residents is U.S. Bankruptcy Court for the Eastern District of California. Even in a scenario where there are no critical errors, the debtor is likely to miss or be unaware of small but impactful details that can result in higher monthly payments, greater loss of property or assets, or inability to discharge certain debts.
How, for instance, do you know whether you are better off using System 1 or System 2 of California’s bankruptcy exemptions? How do you know whether it is more advantageous to file immediately or delay filing? How do you decide which chapter of bankruptcy you should file under? And what is your plan if an unforeseen obstacle develops, such as a creditor objecting to your Chapter 13 plan, or failing to file a proof of claim?
With a skilled and experienced Chapter 7, Chapter 11, or Chapter 13 bankruptcy attorney by your side, you will not have to worry about handling any of these problems or challenges by yourself. Your Chapter 7 lawyer will be there to:
- Help you decide which chapter to file under, and when.
- Determine which exemptions are most advantageous for protecting your property.
- Prepare and file your bankruptcy paperwork.
- Represent you in proceedings with your creditors.
- Protect you from harassment by creditors or debt collectors.
- Explain your rights and responsibilities under bankruptcy regulations, such as your responsibility to undergo credit counseling and debtor education.
- Prepare you for any tax-related consequences that may result from filing for bankruptcy.
- Help you explore alternative options to bankruptcy, where applicable.
Without legal representation, you will lose all of these advantages, and will have a more difficult time getting the debt relief you need.
Roseville Bankruptcy Lawyers for Chapter 7, 11, and 13
The Bankruptcy Group serves Californians who reside in the Sacramento, Folsom, and Roseville areas. We handle business bankruptcies and personal bankruptcies, and represent both single filers and married couples who wish to file jointly.
If you’re thinking about filing for Chapter 7, Chapter 11, or Chapter 13 bankruptcy in the Sacramento area, make sure you get the legal help you need to give you the greatest chance of success. For a free and confidential legal consultation with an experienced Folsom Chapter 7 lawyer, Folsom Chapter 13 lawyer, or Folsom Chapter 11 attorney, contact our law offices at (800) 920-5351 today.
The post Can I File for Bankruptcy in California without an Attorney? appeared first on The Bankruptcy Group, P.C..
In our continuing posts about issues related to the decrease in the value of taxi medallions in New York City, this month we are covering two lawsuits regarding the dramatic drop in taxi medallion values. The first lawsuit involves two taxi medallion owners who have filed lawsuits against the New York City and the Taxi and Limousine Commission (“TLC”). This lawsuit was reported in the New York Daily News on May 3, 2017. The plaintiffs, driver Marcelino Hervias and medallion owner William Guerra argue that: (1) the apps for hailing cars and burdensome rules have made taxi medallions practically worthless and have created unfair competition; (2) New York City and the TLC are bound by a rule to create standards ensuring medallion owners remain financially stable; (3) New York City allows the apps to dominate the streets and provide rides similar to taxis, but with none of the financial and legal burdens that medallion owners and drivers face; and (4) the driver has to work harder and longer to cover his monthly medallion loan payments and expenses. Mr. Hervias estimates that his business is down 30% and that he must work extra shift hours each day to make up the difference. Mr. Hervias also states that there is no market for medallions because financial institutions will not lend money to buy a medallion. The attorney for the plaintiffs indicated that this is the first suit of its kind as it pertains to the taxi industry. The article states that Mayor de Blasio and the City’s Corporation Counsel (the entity that defends the City against lawsuits) did not return requests by the Daily News reporter for comments.
The second case involves New York City credit unions that manage more than 2 billion dollars in taxi medallion loans are appealing a court ruling that rejected their argument that the TLC treatment of medallions violates the equal protection clause under the United States Constitution. (information about this lawsuit can be found in a May 4, 2017 post on cutimes.com). The credit unions’ legal argument was that medallion owners are required to comply with state regulations, while Uber, Lyft, Gett and other ridesharing services operate without being required to comply with the same regulations. The credit unions argue that such disparate treatment violates the equal protection clause of the 14th Amendment of the U.S. Constitution. However, on March 30, 2017, United States District Court Judge Alison J. Nathan ruled that there was no disparate treatment because a mobile app is not the same as hailing a medallion on the street. The judge wrote that “[q]uite simply, medallion taxicabs are not similarly situated to hire vehicles because medallion taxicabs… have . . . a monopoly over one particular form of hailing.” The ruling also notes that several courts around the country considering similar Equal Protection claims also came to the same holding. The original lawsuit was filed in November 2015 by Melrose Credit Union (‘Melrose”), Progressive Credit Union, LOMTO Federal Credit Union (“LOMTO”) and taxicab industry organizations and individual investors. The credit unions filed a notice of appeal on April 27, 2017 with the Second Circuit Court of Appeals in New York City.
It is this author’s opinion that individual lawsuits like that described in the Daily News article are expensive, could take years to conclude and the outcome or result is uncertain. With respect to Judge Nathan’s ruling, many taxi medallion owners would argue that “this is a distinction without a difference”. But Judge Nathan’s ruling is the law, unless it is reversed on appeal.
The cutimes.com article noted that Melrose was placed into conservatorship in February by the New York State Department of Financial Services. The article also states that LOMTO is undercapitalized, with a net worth of 5.87% according to the National Credit Union Administration.
These two lawsuits would seem to suggest that litigation will not assist medallion owners whose medallions have dramatically decreased in value.
Many taxi medallion owners who’ve consulted with Shenwick & Associates own medallions, which, to use a finance term, are “underwater.” Underwater means that the value of the asset is less than the loan collateralized by the asset. In simple terms, many medallion owners have loans against the medallions totaling $700,000-$900,000 (or more) and the medallions presently are worth approximately $240,000. As Mr. Hervias noted in the Daily News article, if banks are not providing loans to medallion purchasers, in the future it will become increasingly difficult for buyers to buy medallions because of the lack of financing (unless they are all cash buyers).
What options are available for medallion owners? One possible solution may be for medallion owners and their organizations to lobby the City of New York and Mayor de Blasio to create a fund to compensate medallion owners due to the disparate treatment faced by medallion owners and the ridesharing services. Another solution is for the city or state to create an entity or mechanism to provide funding or financing for future medallion purchases. The city or state could also look to the ridesharing services to contribute to those funds, though the ridesharing services would argue that their technology is merely “disruptive” and that competition has decreased the value of medallions, not inappropriate actions on their part. Recent articles about the Uber culture would seem to suggest that Uber would not voluntarily contribute to such funds.
The issue for medallion owners is: (1) whether they should continue to make loan payments on their medallions, if the value of the loans exceeds the value of the medallions; (2) competition from the ridesharing services has reduced their earnings; and (3) banks are not lending money to finance medallion purchases. If a medallion owner stops making loan payments, he or she will be in default under their loan(s) and the banks can commence litigation to foreclose on the medallions and/or seek repayment of their loans.
As we discussed in a prior article dated February 2nd, medallion owners who stop paying their loans have four options: (1) arrange their financial affairs so that they are “judgment proof”; (2). negotiate an out-of-court settlement with the banks that financed their medallion purchases; (3) file for bankruptcy protection or (4) litigate with the banks that loaned them money to purchase their medallions (an expensive and often times losing proposition). The option that is best for an individual medallion owner depends on his or her facts and circumstances.
Medallion owners who need such counseling are urged to contact Jim Shenwick.
Chapter 13 is sometimes referred to as “reorganization” bankruptcy. That is because the core feature of Chapter 13 bankruptcy is a reorganization plan, which will last from three to five years depending on your disposable income, the nature of your debts, and other factors. Generally speaking, California debtors who file for Chapter 13 are able to keep their vehicles, provided they continue to make full and timely car payments throughout the duration of their reorganization plan. However, there are also some situations where a filer may be in danger of vehicle repossession. Our Roseville bankruptcy lawyers explain what happens to your car when you file for Chapter 13 bankruptcy in California.
Chapter 13 Car Repossession
If you live in the Roseville, Sacramento, or Folsom area and are worried about losing your vehicle to repossession, you should contact a Sacramento Chapter 13 attorney immediately for legal guidance. You may be able to prevent your car from being repossessed if you file for Chapter 13 bankruptcy, but it is vital to act quickly. While it may be possible to get your car back if it has already been repossessed, the simpler course of action is to prevent repossession before it occurs.
On the other hand, there can also be strategic advantages to delaying a bankruptcy filing under certain circumstances, which is one of the reasons it is so crucial to consult with a knowledgeable bankruptcy attorney prior to filing a petition in U.S. Bankruptcy Court for the Eastern District of California (which has jurisdiction over Placer and Sacramento Counties, among others). An experienced Chapter 13 lawyer will be able to review your debts, assets, disposable income, and financial objectives to help you make an informed decision about the drawbacks and benefits of filing immediately versus filing at a later point in time.
What Happens to Your Car Payments in Chapter 13?
Getting back to the subject of car payments under Chapter 13 bankruptcy, you will generally be able to keep your vehicle provided you comply with the terms of your reorganization plan, which must be approved by the bankruptcy court. In the period between filing for bankruptcy and getting court approval of your plan, it is very important that you continue to make payments. Car payments made after filing but prior to plan approval, which are known as “adequate protection” payments, are meant to compensate for the depreciation of the vehicle while you are waiting on the court’s approval. In most but not all cases, filers should expect adequate protection payments to be equivalent to their normal car payments.
Once your plan has been approved by the bankruptcy court, you will continue to make payments toward the vehicle. This is known as “secured debt,” because it is secured by collateral (the vehicle). Secured debts generally must be paid off in full in Chapter 13. The benefit of filing is that you will be granted time to catch up on late or missed payments, which are known as “arrearages,” enabling you to keep your vehicle. While it is sometimes possible to keep a vehicle in Chapter 7 bankruptcy by using exemptions, Chapter 13 is generally the better option for eligible filers who do not wish to surrender their property.
Not only does the Chapter 13 reorganization plan give the petitioner time to catch up on missed payments; a court order known as the “automatic stay,” which takes effect automatically (hence the name) upon filing for bankruptcy, generally prevents creditors from collecting debts while the case is underway. However, there is an exception in cases where the creditor is granted court approval to lift (remove) the automatic stay after filing a document known as a “motion for relief from the automatic stay.” If you fall behind on your auto loan payments, the creditor may file this motion in an effort to repossess your vehicle. The protective powers of the automatic stay can also be diminished by multiple bankruptcy filings, so be sure to consult with an attorney about this potential issue if you have filed for bankruptcy in the past.
There is another additional point that is important to mention. Chapter 13 bankruptcy regulations require that all of the debtor’s disposable income – that is, any income remaining after Chapter 13 payments and reasonable living expenses – goes toward his or her reorganization plan. If you own an expensive luxury vehicle, the bankruptcy court might determine that your car payments are not actually a reasonable living expense, and require you to claim a lower expense instead.
CA Bankruptcy Lawyers Serving Roseville, Sacramento, and Folsom
Are you a California resident who is worried about losing your vehicle to repossession, or your home to foreclosure? Are you struggling to pay off car loans or other debts that have become overly burdensome and difficult to manage, including medical debt and credit card debt? You may be able to solve all of these problems by declaring bankruptcy with assistance from a Folsom Chapter 13 lawyer. To speak confidentially about your legal options in a free bankruptcy consultation, contact the attorneys of The Bankruptcy Group at (800) 920-5351 today.
The post Can You Keep Your Car if You File Chapter 13 in California? appeared first on The Bankruptcy Group, P.C..
Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.