Blogs
Chapter 13 bankruptcy trustees in California and elsewhere frequently object to debtors’ Chapter 13 plans in which the debtor proposes to pay very little to his general unsecured creditors (like credit card companies), while nevertheless continuing to make payments on secured debts for so-called “luxury items.” Such plans, some Chapter 13 trustees have claimed, were made in “bad faith” because payments on the secured debts for such luxury items take away money that could have been used to pay more toward unsecured debts. I have had many San Jose bankruptcy cases in which I worried that the trustee might object to the debtor’s driving a luxury car, even where that car might arguably be necessary to the debtor’s business as a real estate broker, for example.
Now, however, California Chapter 13 bankruptcy debtors no longer have to worry that a trustee can prevent a Chapter 13 plan from being confirmed simply because the debtor wants to continue making payments on her luxury car, or her RV, boat, or second home for that matter. I was recently asked to brief the case Drummond v. Welsh (In re Welsh), 465 B.R. 843 (B.A.P. 9th Cir. 2012), before the San Jose Chapter 13 Bankruptcy Committee. The case involved a Montana couple who had filed Chapter 13 bankruptcy wherein they proposed to continue making payments on three vehicles, an RV, and two ATVs in addition to their home mortgage. The trustee had objected that making these payments on these secured debts left very little to pay toward the debtors’ sizable unsecured debt. Those creditors would receive only pennies on the dollar through the life of the Chapter 13 plan.
The court held that when Congress enacted BAPCPA in 2005, and specifically by enacting the Means Test in bankruptcy, Congress took away bankruptcy judges’ discretion to determine how much of a Chapter 13 debtors’ current monthly income is available to pay toward unsecured debts. Instead, Congress put in place a rigid, formulaic determination of a debtor’s “Current Monthly Income,” allowable withholdings from that CMI, and remaining “Disposable Monthly Income.” In other words, these amounts are determined by formula, not by judicial discretion. The Bankruptcy Code rigidly defines Current Monthly Income in a certain way. For example, it expressly excludes any social security income. Therefore, a Chapter 13 debtor is not required to put any social security income into a Chapter 13 plan. Similarly, all secured debt payments are, by definition, allowed withholdings when determining a debtor’s disposable monthly income available for the Chapter 13 plan. This means that the bankruptcy court no longer gets to decide whether it is fair to unsecured creditors that a Chapter 13 debtor will keep making payments toward a “luxury” car or other secured property, even if doing so limits the amount the unsecured creditors will receive from the Chapter 13 plan.
This means that now, if you file a Chapter 13 bankruptcy in San Jose or elsewhere in California, and you want to keep your luxury car, boat, or RV, the bankruptcy trustee won’t be able to object to your plan solely because you propose to keep these items. As long as you can afford to continue making the payments on these secured debts, and provided that your overall Chapter 13 plan is feasible and meets the liquidation test, for example, then just because you propose to keep making payments on such a luxury item your Chapter 13 plan can’t be attacked as being proposed in bad faith, even if your general unsecured creditors get much less than they would otherwise have received.
Our San Jose bankruptcy attorneys always offer a free initial consultation to Bay Area residents interested in filing Chapter 13 or Chapter 7 bankruptcy. Call us to schedule your free consultation at our San Jose offices.
Bankruptcy can help taxpayers deal with tax debt either by eliminating qualifying debt or creating an affordable monthly payment to put toward what you owe. Each bankruptcy chapter has regulations and requirements for handling tax obligations. In some cases you can get them discharged, if they don’t qualify for elimination, having them included in a [...]
Recently, the Missouri State House of Representatives passed a bill that would supersede the ordinances requiring mediation before a lender forecloses on a home in St. Louis or St. Louis County. The bill is now being sent to the Senate and would likely prevent the city and county from enforcing their ordinances. The ordinances [...]
Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for April 16, 2013 Energy Future Holdings Offers Bankruptcy Plan AMR Submits Formal Plan to Exit Bankruptcy Former TXU Plays for Time To Pursue Bankruptcy Deal
Many business owners are confused on whether a personal bankruptcy filing has the ability to wipe out business-related debt. In many cases, this is possible depending on the type of debt and whether you are indeed personally liable for the debt. The way your business is structured may also affect your ability to obtain a [...]
Thinking of cosigning a loan? What could possibly go wrong?
When you cosign for someone else, you are considered to be equally responsible for repayment. If the other person doesn’t pay then you’re going to need to do so.
The lender can take all collection activities against you, including starting a lawsuit. Your wages can be taken, your bank account frozen, and a lien placed on your real estate.
It doesn’t matter if you’re first on the loan or second – you’re 100% liable for repayment when you cosign, just like the other person.
It Requires Trust
When deciding whether to cosign for a loan, it’s not enough that you love someone. You need to have an objective belief that they’re going to live up to their end of the bargain and make the payments.
A little while ago I had a woman come into my office to talk about her bill problems. We didn’t think bankruptcy was her best option – until she started talking about cosigning for a friend’s car loan. The friend didn’t pay, moved away and left my client holding the bag for the deficiency judgment after the car was repossessed.
There was also the father who had cosigned for student loans for all four of his children, none of whom had made any payments on them after graduation. With over $300,000 in unpaid student loans at the age of 61 years old, the father found himself talking with me rather than spending his time elsewhere.
You Probably Can’t Get Out Of It Later
When you cosign for a loan, don’t assume you can get your name off the documents later on. If the other person makes timely payments then perhaps the lender will do so, but if the loan goes into default for nonpayment then there’s no chance you’re getting out of it.
If the other person doesn’t pay, you need to assume you’ll be on the hook for the money.
Cosigners And Bankruptcy
If the other person files for Chapter 7 bankruptcy, that impacts their responsibility for repayment – not yours. If you want protection, you’re going to need to file for bankruptcy as well.
If the other person files for Chapter 13 bankruptcy, collection activities against you have to stop while the Chapter 13 is going through the court system (assuming it’s a consumer debt as opposed to a business one). But at the end of the other person’s case, the lender will come knocking on your door for the unpaid balance (plus interest).
Again – if you want to get out from under your cosigner liability, you’re going to need to think about coming to see me.
Cosigners And Debt Settlement
If you cosign for a loan and the other person settles the account, that’s going to impact them as well. The only way the lender settles with you is if your name is on the settlement document. More often than not, settlement with the other borrower doesn’t mean a thing for you.
Before It Becomes Trouble
If you’re thinking about cosigning for a loan, assume the worst happens and the other person doesn’t pay the debt. What will you do, and how will you react?
How badly will it influence your personal relationship with the other person?
Can you afford to keep the payments going if you need to do so?
In the words of Dirty Harry – do you feel lucky?
These answers will help guide you as you dive into the world of the cosigner.
Image courtesy of quinn.anya
Cosigned For A Loan Or Thinking About It? Consider The Risks First. was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Robert “Jeff” Johnson, 46, was recently sentenced to 15 months in prison for fraud, along with being ordered by a federal judge to pay $1.6 million to the Internal Revenue Service (IRS) and a bank he defrauded. Johnson was indicted on 12 counts in 2010 that included theft, larceny, obstruction of correspondence, falsification of records, [...]
The Atlanta Journal Constitution ran a front page story on Sunday, April 14 entitled More than 40% of Georgia Homes Underwater. The AJC reporter notes that “there’s not another metro area in the United States with as many concentrated pockets of mortgage holders who are underwater in their homes. No place else comes close.”Your house is considered underwater if it is worth substantially less than what you owe. From the mid-1990′s through the mid-2000′s, home values in metro Atlanta rose and mortgage lenders offered outrageous deals to encourage residential purchases. It was common to see interest only loans or 100% financing which required nothing down from the purchaser.As long as home prices kept rising, you could refinance over and over, and even take cash out. Rising prices minimized the risk to lenders so loan underwriting standards were lax. I regularly spoke to potential bankruptcy clients who earned $50,000 to $70,000 annually but were living in $350,000 to $400,000 homes. They were meeting with me to deal with excess credit card debt – in many cases, these folks kept their expensive homes even while filing bankruptcy.When the real estate market crashed in 2008, your home value may have plummeted, but the mortgage obligation remains. Thus, as the AJC points out, there are many areas in metro Atlanta where homeowners are making mortgage payments on homes that may never increase in value to the balance on the loan – the mortgage is kind of a permanent rental.So, you may find yourself in a frustrating situation where you make enough money to cover your monthly expenses and pay your mortgage(s) but because your home is worth far less than you owe, you are stuck with a house you cannot leave.What are your options if your house is underwater?First, you can try to ride out the storm by continuing to make the payments with the hope that your property value will someday increase. If you like your neighborhood and plan to stay, or if your are within sight of break even, this may be your best option.A second option is to simply walk away and turn the keys back to the bank. This option has some risk because the mortgage lender does have the legal right to sue you for breach of contract. If the lender forecloses, it can pursue a deficiency balance claim, or, if the lender chooses not to foreclose, it can simply sue you on the note to get a judgment.In recent years I have not seen much inclination by banks and mortgage lenders to pursue claims against homeowners, but that could change. You could walk away today and find yourself with a lawsuit at your door in 5 years. Further, walking away from a mortgage will damage your credit profile severely.You can try to convince the bank to accept less than the amount due as a payoff if you receive a purchase offer. This is called a “short sale” and in certain circumstances mortgage lenders will accept short sale offers. You will have to fill out reams of paperwork and wait for a decision, and you may still end up owing a balance and/or find yourself with a debt forgiveness tax bill.The bankruptcy process offers additional options that can produce predictable and definitive results. And you do not have to be down to your last dime to file bankruptcy – it offers a much broader form of relief than it once did.If you file Chapter 13, you can surrender your home and walk away, while paying back your other debts 100% if you wish or less than 100% if you qualify. Your lender becomes an unsecured creditor whose claim will be treated like every other unsecured debt and discharged, and there are no debt forgiveness tax penalties in a bankruptcy.If you qualify for Chapter 7, you can surrender your home and walk away, and your unsecured mortgage balance will be discharged when your Chapter 7 discharge is issued – usually about 5 months after filing. A discharged debt can never be collected, and you can move on with your life.If you have a first and a second mortgage, bankruptcy also offers an opportunity to strip away your second mortgage. Available in both Chapter 7 and Chapter 13, a lien strip can work if your home is worth less than the payoff balance on your first mortgage. A lien strip thus offers a process whereby you can keep your home but reduce the total balance due by eliminating the second mortgage.You cannot strip away or modify a first mortgage, but you do have options with your second mortgage.While it may seem odd to consider bankruptcy if you are earning enough money to pay your bills, Chapter 7 or Chapter 13 may function as method to solve your underwater mortgage problems. Bankruptcy may be a viable option or not – but you won’t know if you don’t call. If you’d like to learn more about your bankruptcy and non-bankruptcy options, please contact Jonathan Ginsberg or Susan Blum at 770-393-4985 or contact us by email at ginsberg.bankruptcy (at) gmail.com.The post File Bankruptcy if You are not Broke? Maybe Not Such a Crazy Idea appeared first on theBKBlog.
Sometimes you need to change your thinking to change the outcome.
There’s a saying in Alcoholics Anonymous that goes, “Your best thinking got you here.” In the context of recovery from addiction, the phrase means that your best ideas about a happy life nearly you killed.
Now, you need to change how you think you can reach happiness in a way that doesn’t involve addiction.
The same lesson applies when it comes to money.
Best Thinking And The Road To Debt
If I think back on the thousands of people I’ve spoken with over the years, I can’t recall one who got into debt realizing how bad of an idea it was.
Everyone figures they’ll get a credit card to start building up good credit.
They’ll use the card a few times, pay it off over a few months to show a good payment history, and be done with it.
But one use turns into a few, either by necessity or accident. The minimum payments are so low, it’s not a problem.
Suddenly, It’s A Problem
Then there’s a bump in the financial road, a time when the minimum payment suddenly feels impossible to make. Maybe you needed to use the credit cards for a larger purchase because you didn’t have the cash at the ready. Perhaps if you hadn’t been using credit cards in the past, you wouldn’t have been short in the bank account.
People in the throes of addiction report skipping the rent to buy drugs or alcohol. They talk about dropping the kids off with a relative for the weekend so they could go on a bender.
Sacrifice in the face of feeding the addiction in a tale told time and time again.
Looking at my clients’ finances, they do the same thing.
Let The Rent Slide A Few Extra Days
The credit card bill comes due. You can choose to pay it or mail in a rent check. The landlord won’t kick you out if you’re a few days late, but the credit card company will cut you off and send you to collections if you’re 20 minutes past the due date.
So you skip the rent, paying the credit card instead.
Next month the bill’s a bit bigger because you’ve been using, so you’re a few days later on the rent.
You continue down the spiral until one day, there’s nothing left. You either pay the rent or the card – and you can’t do both, even with some fictitious grace period to the landlord.
Time To Change Your Best Thinking
You had the best of intentions when you started using your credit cards – who would knowingly act in a certain way knowing they would end up broke?
Now, you’re powerless over your bill problems and your life has become unmanageable.
Time to take stock of things in the harsh light of reality, set a course for ending your bill problems, and move forward.
Learn how to live a life free of debt. Change your best thinking and stop robbing yourself of a stable financial future.
Image courtesy of Haleyface
In Matters Of Debt, Change Your Best Thinking was originally published on Consumer Help Central. If you're seeing this message on another site, it has been stolen and is being used without permission. That's illegal, a violation of copyright, and just plain awful.
Chapter 7 bankruptcy can last anywhere from 100 to 120 days from start to finish. It basically works like this: once the Chapter 7 bankruptcy case is filed, there is a notice that goes out to all creditors, the debtor and the debtor’s attorney advising of an upcoming meeting called a 341 Meeting of Creditors. + Read MoreThe post How long does the bankruptcy process take? appeared first on David M. Siegel.
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.