How Does Filing Bankruptcy Impact My Credit Score?
A common misconception about bankruptcy is that it ruins the debtor’s credit score forever and that no one will ever lend to the debtor ever again. This false assumption is further perpetuated by many “debt consolidation agencies” because they want to dissuade debtors from filing bankruptcy and force them into debt repayment plans, which are not the best option for all people who owe significant debts.
The impact of a bankruptcy filing on the credit score of an individual person is highly-dependent on the chapter of bankruptcy the individual is filing and how the individual acts to repair his or her credit after the bankruptcy is filed.
The first impact on an individual person’s credit score as a result of a bankruptcy filing is the chapter of bankruptcy being filed. If an individual is filing a chapter 7 bankruptcy, he or she will generally notice a greater decline in his or her credit score upon filing than if the same individual were to file chapter 13 bankruptcy. Many individuals will notice a 100-200 point drop in FICO score when a chapter 7 bankruptcy is filed and a 75-150 point drop in FICO score when a chapter 13 bankruptcy is filed. This will vary based on the pre-bankruptcy credit score of the borrower and other myriad factors which are not within the scope of this article. Generally, the higher the credit score pre-bankruptcy, the more points are deducted from an individual’s FICO score when he or she files. Individuals with bad credit experience less of a drop because in many cases these people already have a low credit score due to missed payments, high borrowings relative to total debt, and other reasons. The credit reporting agencies often view chapter 7 bankruptcy as “worse” than chapter 13 bankruptcy because creditors often receive higher distributions statistically from chapter 13 cases than chapter 7 cases. However, in many cases, chapter 7 bankruptcy will often allow individuals to rebuild credit faster than the same individual can in chapter 13 bankruptcy, because chapter 13 bankruptcies usually last much longer (3-5 years) than chapter 7 bankruptcies (3-6 months). Additionally, chapter 13 debtors are prohibited from incurring new debt without approval from the bankruptcy court, which can make it more difficult for chapter 13 debtors to establish new credit and rebuild a credit score. Generally, debtors filing chapter 7 cases can begin rebuilding credit with secured credit cards, auto loans (at higher interest rates), or other loans very soon after receiving the bankruptcy discharge, which usually occurs within 3-6 months of filing for bankruptcy. Some creditors will even lend money to a chapter 7 debtor while in bankruptcy, but generally it is recommended to avoid incurring new debt during the chapter 7 case unless it is an emergency (car breaks down, medical emergency, etc.). In contrast, chapter 13 debtors must wait to accumulate new lines of credit until after bankruptcy unless such debt is incurred with bankruptcy court approval. This can mean that chapter 13 debtors will not actually be able to obtain new credit for 3-5 years after filing bankruptcy, unless a sufficient reason is given for the court to allow the new debt, such as an emergency need to finance a car or other item needed for the debtor’s business or profession. Accordingly, even though chapter 7 bankruptcy often results in a larger credit decline initially than chapter 13 bankruptcy, many debtors filing in chapter 7 can rebuild their credit faster than comparable debtors filing in chapter 13 bankruptcy.
The second impact on an individual person’s credit score as a result of a bankruptcy filing is the action that such individual takes post-bankruptcy to rebuild his or her credit. This credit rebuilding phase usually can begin within 3-6 months after filing for chapter 7 debtors, and 3-5 years after filing for chapter 13 debtors. During this phase, Nova Law Group recommends that a client slowly apply (not more than one application for credit every six months) for new credit lines until they reach a minimum of three. These credit lines can be credit cards, bank lines of credit, auto loans, installment loans, or any other type of loan from a creditor that reports to the credit reporting agencies. However, a client should only obtain credit if it is useful to the client. For example, a client should never get an auto loan if the client doesn’t need a car. With regard to credit cards, even if a client never wants another credit card, Nova Law Group recommends that a client simply obtain enough credit cards to reach the minimum of three credit lines, and then the client can stop accumulating credit for credit rebuilding purposes. As part of rebuilding credit, a client should utilize the credit line or credit offered each month, but can utilize a very small amount of the credit if desired. For example, if a credit card obtained has a limit of $500, a client can simply charge $1/month for a cup of coffee on the card and then pay the credit card off, in full, and on time, every single month. This usage is then reported to the credit reporting agencies and will generally increase a client’s credit score significantly over time as each monthly bill (however small) is paid off in full, and on time, each month.
For the reasons stated above, filing for bankruptcy does not always mean a large credit decline upon filing. Furthermore, most former bankruptcy debtors can quickly rebuild credit over a one to four-year period simply by utilizing the steps listed above for credit repair after the debtor’s chapter 7 bankruptcy or chapter 13 bankruptcy case (or less commonly, chapter 11 bankruptcy case) is completed. Many former clients of Nova Law Group have improved their credit scores 100-200 points over a one to four-year period through the above methods and have gradually developed excellent credit over time. While every client’s situation is different and the above methods are effective to different degrees for each client, the above methods can assist all post-bankruptcy debtors with rebuilding credit to a significant extent.
If you are an individual interested in bankruptcy or have questions regarding the credit impact resulting from a bankruptcy case, feel free to contact Nova Law Group and an attorney will be happy to speak with you. Nova Law Group’s office is located in downtown Mountain View, CA, and we serve bankruptcy clients from all over the San Francisco Bay Area, including mid-peninsula cities like Palo Alto, Menlo Park, Los Altos, Sunnyvale, and Los Altos Hills, as well as from the major metro areas of Oakland, San Francisco, and San Jose, including all cities surrounding such metro areas in the greater SF Bay Area. Feel free to contact us regarding your bankruptcy needs and we will be happy to speak with you.
Non-dischargeability actions by a creditor against a bankruptcy debtor are somewhat rare, but when they occur, the legal fees and costs involved in defending against such an action can be prohibitive. Most debtors in a bankruptcy case will never need to confront a non-dischargeability action under 11 U.S.C. §523(a), but for clients with more complex bankruptcy cases under Chapters 7, 11, or 13, or for clients who have made significant pre-bankruptcy transactions, such actions often are more frequent and must be addressed. At Nova Law Group, we feel that keeping legal costs to as low a level as possible during bankruptcy litigation is just as important as representing the client in the best possible manner given the circumstances of the case. This article will discuss methods in which non-dischargeability actions can be defended in a cost effective manner for bankruptcy clients.
Most non-dischargeability actions against a debtor are based upon either specific allegations of fraud, under 11 U.S.C. §523(a)(2)(A-B), or a presumption of statutory fraud under 11 U.S.C. §523(a)(2)(C). While the specifics of defending against this type of action for a client is discussed in the article “What is a Non-Dischargeability Action?” (also on this website), it is important to note that any non-dischargeability action must allege sufficient facts to state a claim under one or more sections of 11 U.S.C. §523, and that even if a presumption of fraud is alleged to be applicable under 11 U.S.C. §523(a)(2)(C), that such presumption may be rebutted.
For example, many junior attorneys often ask the managing attorney of our firm if they should settle an action on behalf of a client with a creditor, merely because such creditor claimed that the “client made luxury purchases within the 90 day period prior to filing bankruptcy.” Typically, such allegations by a creditor are made without any specific facts alleged as to which purchases made were fraudulent prior to bankruptcy, when the fraudulent charges were made, where they were made, and why such purchases might be considered “luxury goods” under 11 U.S.C. §523(a)(2)(C)(i)(I) for purposes of the statutory presumption. Many creditors attempt to make blanket claims of fraud against the debtor which lack substantive merit, thinking that most bankruptcy debtors will never challenge the action, or will settle to avoid paying legal fees and costs to the debtor’s bankruptcy lawyer.
Accordingly, it is a fair question to ask how a bankruptcy client can afford to pay his or her bankruptcy attorney to defend a meritless non-dischargeability action against the client in a cost-effective manner. The answer is often the statutory language provided in 11 U.S.C. §523(d), which allows for bankruptcy debtors to receive reimbursement for attorney fees and costs from the creditor that sued them, at least where the debtors can prove that such action was meritless (as it often is).
The bankruptcy code states under 11 U.S.C. §523(d) that a bankruptcy debtor can recover attorney’s fees and costs from a creditor that sued such bankruptcy debtor unsuccessfully, if the court finds that the suit filed by the creditor was not “substantially justified,” unless “special circumstances” would make the award of such fees and costs unjust. 11 U.S.C. §523(d) (2012). Essentially, to obtain an award against a creditor for fees and costs in the non-dischargeability action, the bankruptcy debtor must not only win the case, but also convince the judge that the creditor’s original suit in bankruptcy court had no merit to begin with, and that the creditor can afford to pay the legal fees and costs if awarded. While this might seem like a difficult task in most situations, in reality, most non-dischargeability actions filed are objectively meritless and often insufficient to meet federal pleading requirements. As a result, it is often a good idea for a debtor’s bankruptcy attorney to file motions to dismiss meritless actions under Federal Rules of Civil Procedure 12(b)(6), rather than answer a meritless complaint, as a victory at the motion to dismiss stage will often mean that the court views such complaint as not “substantially justified,” and legal fees and costs will be much easier to obtain. Fed. R. Civ. Proc. 12(b)(6) (2012). In essence, it is much easier to argue that a creditor’s action is not “substantially justified” when the court itself has dismissed the action for failure to state a claim multiple times, as it will be difficult for a creditor to argue that its action “was substantially justified” under 11 U.S.C. §523(d) if the court already found the action to be “insufficient to state a claim for relief.” Additionally, it is the experience of Nova Law Group that most creditors’ attorneys have no idea how to litigate a motion to dismiss adequately, and as a result, often will settle such actions in a manner favorable to the bankruptcy debtor when confronted with skilled opposition from the debtor’s bankruptcy attorney.
In conclusion, a client should always be sure that the bankruptcy attorney representing him or her is aware of the necessary steps to effectively defend against a non-dischargeability action, as well as the cost-saving provisions of 11 U.S.C. §523(d) for recovery of attorney’s fees and costs in such an action. This provision can not only serve as a very significant cost-savings to a bankruptcy client, but also can operate as a significant deterrent to any creditor contemplating an action in bankruptcy court against the debtor. If you would like to learn more about effective representation of bankruptcy debtors in non-dischargeability actions or would like to consult with a Nova Law Group attorney regarding your individual situation, feel free to contact a bankruptcy attorney of our office and we will be happy to assist you.
What is a Non-Dischargeability Action?
The vast majority of all debts in bankruptcy are discharged (eliminated) for most debtors in Chapter 7 and Chapter 13, but there are exceptions. Indeed, the main purpose of filing a bankruptcy case is to eliminate or substantially reduce debt owed by the bankruptcy debtor and give such debtor a fresh start, clear of the prior liabilities that once plagued his financial life. However, there are some types of debts called “non-dischargeable debts,” which are not eliminated when the debtor receives his or her bankruptcy discharge. Some of the debts that are often non-dischargeable in bankruptcy include child support, very recent tax debts, debts for drunk driving claims against the debtor, and debts owed an ex-spouse based on a marital separation agreement or divorce. Additionally, sometimes debts that would normally be dischargeable (eliminated), can be rendered non-dischargeable based on the circumstances surrounding how the debt was incurred or the behavior of the bankruptcy debtor prior to filing the case. This article will focus on describing certain situations in which an otherwise dischargeable debt might be rendered non-dischargeable on the basis that the debtor’s conduct was fraudulent, materially misrepresentative, malicious, or otherwise in bad faith.
The bankruptcy code lists several factors that are analyzed by a bankruptcy court in determining whether or not a certain debt, which otherwise would be dischargeable, should be rendered non-dischargeable on the basis of the debtor’s conduct prior to the filing of the case. Most of these factors are encompassed in 11 U.S.C. §523, and include fraud, material misrepresentation, intentional malice, and certain criminal behavior. Often these allegations will be raised by a creditor of the debtor and will assert that a certain debt owed the creditor should be non-dischargeable (not eliminated in bankruptcy) on the basis that the debt was procured by fraud, misrepresentation, or some other bad faith action on the part of the debtor. For example, it is sometimes the case that credit card companies who loaned a bankruptcy debtor money within 90 days prior to the time that the bankruptcy debtor filed the case, will claim that such debtor knew that he or she was going to eliminate the credit card debt borrowed from the company, and accordingly, that such credit card debt should be non-dischargeable after the bankruptcy case ends. The credit card company often alleges that such credit card charges were incurred fraudulently, as the bankruptcy debtor represented that she would pay the credit card company back on the money borrowed, but then allegedly never actually intended to, knowing all along that she would file her subsequent bankruptcy case.
While some bankruptcy clients might normally be concerned that several creditors might commonly challenge the dischargeability of certain debts, in practice, these suits are relatively rare. Part of the reason for the rarity of these actions in most circumstances is that “intent” to commit fraud or misrepresentation is often very difficult to prove. Accordingly, some creditors use what are called “statutory claims” to establish a case for fraud or misrepresentation against the debtor, as the bankruptcy code itself lists certain actions and/or purchases made by the debtor that are presumptively non-dischargeable. For example, using a credit card to pay a non-dischargeable tax claim makes the credit card debt used to pay on the claim non-dischargeable itself. Likewise, luxury goods of more than $600 incurred within 90 days prior to the filing of the bankruptcy case and cash advances taken of more than $875 within 70 days of the filing of the bankruptcy case are presumed non-dischargeable.
A creditor could theoretically proceed against the debtor under 11 U.S.C. §523(a)(2)(A) or 11 U.S.C. §523(a)(2)(B) without any statutory basis for claiming that the debt owed the particular creditor is non-dischargeable, but it is often much more difficult to prove intent to defraud or misrepresent a material fact without a statutory presumption stating that a certain act of the bankruptcy debtor constitutes fraud. When a creditor does proceed without a statutory basis for alleging fraud however, a creditor usually cites to relevant case law establishing certain types of acts of the debtor that tend to indicate fraud. There is a detailed list of factors that bankruptcy courts in the 9th Circuit typically look at to determine non-dischargeability in the case of In re Dougherty, 84 B.R. 653 (9th Cir. BAP 1988). Generally, as long as the bankruptcy debtor intended no bad faith with regard to the purchases and intended to repay such debt at the time it was incurred, the creditor will tend to lose these actions where there is no statutory claim for non-dischargeability that applies to debtor’s circumstances. Nonetheless, it is very important for a bankruptcy client to inform her attorney if she has incurred substantial debt within the 90 days preceding a bankruptcy case filing, and possibly even before this time period if such debt was very substantial or out of the ordinary relative to the bankruptcy client’s typical circumstances.
While it is possible for a creditor to allege that a specific debt owed that creditor by the debtor is non-dischargeable, it is important to note that even if such action by the creditor is successful, it is only that particular debt that becomes non-dischargeable. In other words, the debtor is still entitled to a discharge of all other dischargeable debts in the case, even if the bankruptcy court rules in a particular creditor’s favor with regard to a certain debt.
It is the opinion of Nova Law Group that most non-dischargeability actions filed against debtors are objectively meritless and should be vigorously litigated when such actions are pursued without substantial evidence against the debtor or without statutory claims being credibly alleged. Our firm has substantial expertise in litigating these types of actions, including on appeal, and we invite prospective clients who are considering a defense against a non-dischargeability action to contact an attorney at our office, who will be happy to assist you.
How Do I Find A Great Bankruptcy Attorney?
There are many different elements to consider when selecting a bankruptcy attorney. At Nova Law Group, we believe that clients should consider a variety of factors, both objective and subjective, in making the decision to hire a particular bankruptcy attorney. We have attempted to list some of the factors we think are the most important below.
The first important element to consider when hiring a bankruptcy attorney is whether the attorney focuses on bankruptcy as a core field of his or her practice, or in the alternative, is a “general practitioner” who might only try to perform an occasional bankruptcy case and who doesn’t specialize in the area.
Zachary Tyson, managing bankruptcy attorney of Nova Law Group, thinks it is vitally important for clients to hire counsel who regularly practice in the bankruptcy field, because bankruptcy law can be very complex even for attorneys, and an attorney who doesn’t regularly practice in the field is more likely to make mistakes and be less familiar with the law in this specialized area. It has been his experience that the representation of debtors in bankruptcy is often too complex for attorneys who do not regularly practice in bankruptcy, and it is very important that the client hire an attorney who focuses in bankruptcy to handle the case, and not just “any attorney,” or one who practices in many unrelated fields of law. In essence, clients should not assume that simply because an attorney is “bar certified” or “licensed to practice law” in California, that he or she can handle the client’s bankruptcy case competently, or cost-effectively.
In selecting a great bankruptcy attorney, there are many sources that a client may turn to in making the selection.
First, most serious practitioners of consumer bankruptcy law are members of NACBA, which is an acronym for the National Association of Consumer Bankruptcy Attorneys. If the bankruptcy attorney you are considering is a member of this organization, then it is likely that the attorney you are reviewing considers bankruptcy to be a key focus of his or her practice, and is more likely to be familiar with the law in our field. NACBA is a professional organization that helps provide continuing legal education and professional seminars for bankruptcy attorneys, and most serious bankruptcy attorneys are members of this organization, because it helps us stay on the cutting edge of bankruptcy practice. All Nova Law Group attorneys are members of NACBA and most have been for several years.
Second, the attorney’s website and associated information may indicate whether the attorney focuses primarily on bankruptcy practice, or whether bankruptcy is only one of many fields in which he or she focuses. When viewing the websites of some attorneys, it becomes clear that the attorney doesn’t really practice bankruptcy law at all, and therefore, should not be selected. Other factors might include whether or not the attorney has informative bankruptcy content on his or her website, whether the attorney’s website seems credible, the representative engagements of the attorney and demonstrated experience he or she has in bankruptcy, and the organizations the bankruptcy attorney has worked for prior to entering private practice.
Third, it is advisable to check the educational history of your attorney and what law school he or she attended, as the quality of attorney practitioners who went to law schools of high caliber and those who did not can be very substantial. These qualifications are often posted on the attorney’s website, but if not, then the client can ask the attorney he or she meets with at the initial consultation where the attorney received his or her legal training. High caliber schools like Cornell, Harvard, Stanford, UC Berkeley, Duke, University of Chicago, Columbia, and other top-tier schools are very selective in their admission standards, and as a result, attorneys who graduate from top-tier institutions tend to have significantly better critical and analytical thinking ability, oratory ability, and writing ability than attorneys trained at less selective schools. The educational credentials of all Nova Law Group bankruptcy attorneys are posted in the education section of the attorney’s personal bio on our website.
Fourth, ask your attorney what experience he or she has in handling bankruptcy cases, and whether bankruptcy is a large portion of his or her practice. Do not make the mistake of assuming that an “older attorney” is necessarily a more “experienced attorney.” There are many older attorneys practicing in the bankruptcy field who have no clue how to successfully complete a bankruptcy case of moderate complexity, either because they never learned how to perform legal research or don’t handle complex cases, or because they only recently started handling bankruptcy cases. Please remember that not all bankruptcy attorneys are created equal—every attorney has different levels of expertise, personality, critical and analytical thinking ability, oratory ability, and willingness to work diligently toward the successful completion of the client’s case. Hiring a bankruptcy attorney is not like buying a gallon of milk at the store, and price is definitely not the only variable to consider when selecting a great bankruptcy attorney.
The second element of hiring a great bankruptcy lawyer is also often one of the most overlooked by clients—the ability of the attorney to communicate effectively with the client in a professional and respectful manner. A client should hire an attorney who is courteous, professional in appearance, and who responds to the client in a timely and efficient manner. For example, at Nova Law Group we strive to return all client communications within 24 hours, and often much sooner, but this is not common practice at most bankruptcy firms. Quite to the contrary, there are some bankruptcy attorneys practicing in the field who return client calls late (or not at all), appear to client meetings in jeans and a T-shirt, fail to communicate with clients regarding important court dates, and in some cases, fail to attend the mandatory court dates at all.
At Nova Law Group we strive to not only return all client communications promptly (almost always within 1-24 hours), but also have extended office hours to service our clients. Nova Law Group bankruptcy attorneys schedule client meetings at the client’s convenience, and are available between 9AM and 9PM Monday through Friday, and on weekends by request to schedule meetings. We understand that often clients who are going through financial hardship cannot always take time off work to go see a bankruptcy attorney, and the bankruptcy attorneys of Nova Law Group hold extended evening and weekend hours at our offices in Mountain View, CA for this reason to accommodate our bankruptcy clientele.
In addition to the attorney’s availability, prospective clients should consider the attorney’s personality and whether the client can envision working successfully with the attorney on the bankruptcy case. Clients should find an attorney who can communicate effectively, speaks in a respectful manner, listens to client needs and wants, and answers client questions. Great bankruptcy attorneys are often also available to meet in person with clients, and in most cases, a client should be very skeptical about hiring any attorney who refuses to meet in person, or is frequently unavailable to talk with the client, as the attorney is likely to treat the client with the same level of indifference during the bankruptcy case as well. As stated previously, Nova Law Group bankruptcy attorneys are always available to our clients, whether by phone, email, fax, or in person for a face to face consult, and are often able to book meetings within a 1-3 day timeframe based on client needs. The superior customer service that Nova Law Group bankruptcy attorneys provide our clients is one of the defining characteristics of our firm, and we believe, the reason our bankruptcy firm is rated so highly by clients and recommended so frequently through referral. Whether you are seeking a bankruptcy attorney in Mountain View, CA, or in the Greater Bay Area or San Jose Metro Area in general, feel free to give a Nova Law Group bankruptcy attorney a call and we will be happy to assist you.
The third element of hiring a great bankruptcy attorney actually has nothing to do with the attorney’s credentials or personality, but rather is simply a consideration of where the bankruptcy attorney is located relative to where the client needs to file his or her bankruptcy case. The location of any prospective bankruptcy attorney is not only relevant in terms of convenience to the client and the ability of the client to meet with the attorney in person, but also is legally relevant, as bankruptcy attorneys generally only practice before certain bankruptcy courts and might not practice in the bankruptcy court where the client needs to file.
For example, as of the time this article was written, Nova Law Group’s bankruptcy attorneys are based in Mountain View, CA, within Santa Clara County. From our offices in Mountain View, our bankruptcy attorneys practice in the bankruptcy courts in San Jose, San Francisco, and Oakland, which service clients filing in almost every county throughout the Greater Bay Area. As a result, Nova Law Group bankruptcy attorneys can service clients in almost every county in the Bay Area, but there are bankruptcy courts in other states, or in Southern California, or up in Sacramento, where our bankruptcy attorneys do not practice at this time. Even though our bankruptcy attorneys are based in Mountain View, CA, we service clients filing in Morgan Hill, San Francisco, Walnut Creek, and everywhere in between, including almost all cities throughout the Greater Bay Area region.
John Doe moved from New York, NY to Palo Alto, CA four months before he planned to file his bankruptcy case. John Doe still owns a home in New York, NY, and most of his belongings are still in New York, as he didn’t have the money to move most of his possessions to Palo Alto, CA when he moved.
John consulted a Nova Law Group bankruptcy attorney in Mountain View, CA and asked where he should file his bankruptcy case. The Nova Law Group bankruptcy attorney told John that he must file his bankruptcy case in the San Jose Division of the United States Bankruptcy Court, because the San Jose Division serves Palo Alto, CA, and he has lived in Palo Alto, CA for the greater part of the last 6 months (John has lived in Palo Alto, CA for 4 months). Consequently, John will need to file bankruptcy in the bankruptcy court which services Palo Alto, CA (in this case San Jose Division), because he has lived there for the greater part of the last 6 months—where he lived before or where his belongings are is irrelevant.
This requirement, called “venue,” is a very important element for clients to consider when selecting a bankruptcy attorney, as it will help ensure that your prospective attorney practices in the division in which you must file your bankruptcy case.
Suppose you are told by a reputable heart surgeon at an established hospital that you are about to have a heart attack, and that without a complex, time intensive surgery that only a specialist can perform, you might die within a few months time. This reputable doctor then gives you medical data that substantiates his opinion regarding your condition, proves to you that the surgery is needed, and says that he believes if he performs the surgery himself that it will cost you $10,000 for him to do the work.
Imagine now that you are approached by another surgeon, who you see on “Craigslist,” or meet at the local coffee shop, or see in a tiny web advertisement with cheesy catch-phrases (etc.), and with whom you happen to share your condition when you find out he also “performs surgery” (supposedly). He listens to your story, and then states that he’ll do your entire heart surgery for $500!
If you were in the situation described above, would you hire surgeon #1 or surgeon #2 to perform your life-saving heart surgery? I hope your selection was surgeon #1, or you’d likely end up getting a great bargain, but winding up dead on the operating table.
I give this illustration for one very important reason—to demonstrate to clients that when it comes to hiring a bankruptcy attorney, not all bankruptcy attorneys are created equal. Hiring a lawyer is not like buying a gallon of milk—price comparisons are largely meaningless. This is because so many elements go into the cost of hiring an attorney—experience, intelligence, effective communication, geographical location, quality of work product, attentiveness to client needs, efficiency, reputation, and many others. As a result, a client should never assume that a bankruptcy attorney charging $500 for a bankruptcy case is a “great deal” compared to another bankruptcy attorney charging $2,000 for the same bankruptcy case, as it is likely that the client will get very different levels of service and quality of representation from these two attorneys.
Inform clients that their family-owned bakery business could be kept open in a Chapter 7 case, even though the business was not incorporated. Outcome: The Chapter 7 Trustee shut down the clients’ bakery business permanently and called the U.S. Marshall out to ensure its closure, depriving the attorney’s clients of their only means of support.
File a Chapter 7 bankruptcy case for two clients without checking the value of the clients’ home, resulting in significant non-exempt equity in the home that belonged to the Chapter 7 Trustee and the bankruptcy estate. Outcome: Chapter 7 Trustee informed shocked clients at the 341 meeting that he would likely sell their house for the benefit of the estate, ousting them from their home.
Attorney arrived at the 341 meeting 30 minutes late with no excuse and then proceeded to sit and look bored, while completely ignoring what the trustee or her client was saying.
Attorney arrived at the 341 meeting and didn’t know who the Chapter 7 Trustee was, or even what the Chapter 7 Trustee was there for at the meeting. He also didn’t know that the meeting was recorded, and seemed to have no idea regarding the purpose of the 341 hearing for his client, or how to represent his client.
At Nova Law Group, we strive to provide exemplary service to our clients along with superior work product at an affordable price. Nova Law Group bankruptcy attorneys are neither the least expensive bankruptcy attorneys, nor the most expensive, but rather we believe we provide the best overall value to clients hiring a bankruptcy attorney. For bankruptcy law firms of our caliber and professionalism, we provide a very high-quality of legal work to the client at an affordable price. If you would like to inquire how a Nova Law Group bankruptcy attorney can service your needs in connection with a bankruptcy case, feel free to contact us and we would be happy to assist you.
What Does a Bankruptcy Trustee Do in a Bankruptcy Case?
A bankruptcy trustee is one of many court officials a client will meet as he or she navigates through the bankruptcy process. There are 3 primary types of bankruptcy trustees a client may meet in connection with his or her personal bankruptcy case: 1.) the Chapter 7 Trustee; 2.) the Chapter 13 Trustee; and 3.) the United States Trustee.
The Chapter 7 Trustee is an individual person that all clients who are filing a Chapter 7 bankruptcy case will meet at the 341 hearing, which normally occurs 20-40 days after the filing of the client’s bankruptcy case. The Chapter 7 Trustee has several duties, which include, among other things: 1.) preserving the value of the estate and maximizing the amount of money given to unsecured creditors; 2.) ascertaining whether or not the debtor has hidden assets or committed other types of bankruptcy fraud; 3.) recovering monies that were improperly transferred out of the bankruptcy estate prior to filing (such as preferences or fraudulent transfers); and 4.) distributing any non-exempt assets that exist to pay creditors, if any exist at all. In a Chapter 7 bankruptcy case, the trustee will attempt to determine from the debtor’s statements and schedules, as well as any other information provided or that the trustee can find, what exempt property the debtor gets to keep through the bankruptcy case, and correspondingly, what non-exempt property the debtor must give up to pay creditors (if any). While most Chapter 7 clients do not have any non-exempt assets and get to keep all of their property through the bankruptcy case, some clients that have substantial assets might need to give up some of those assets to pay creditors, and it is the Chapter 7 Trustee’s job to liquidate these non-exempt assets and pay creditors the proceeds to the extent required by law. Many of the exemption rules regarding what property can be kept by the client through the bankruptcy case and what property must be abandoned are very complex, and the assistance of competent counsel is highly recommended to ensure that the maximum amount of client property is protected. If you have questions regarding what property of yours might be exempt in a bankruptcy proceeding, feel free to contact a Nova Law Group attorney and we will be happy to assist you.
The Chapter 13 Trustee is an individual person that all clients who are filing a Chapter 13 bankruptcy case will meet, both at the 341 hearing scheduled 20-50 days after the filing of the client’s bankruptcy case and also at other relevant court hearings regarding plan confirmation. The Chapter 13 Trustee has several duties, which generally include: 1.) ascertaining the value of the client’s exempt and non-exempt property, even though the Chapter 13 Trustee will not liquidate that property; 2.) ascertaining whether or not the debtor has committed any kind of bankruptcy fraud or transferred assets pre-bankruptcy that are disallowed; 3.) distributing available assets to creditors in connection with the payments that are proposed in the client’s bankruptcy plan; 4.) ensuring that the client’s bankruptcy plan pays creditors the proper amounts required by the bankruptcy code; and 5.) ensuring that the client is eligible for Chapter 13 bankruptcy and has secured and unsecured debt below the Chapter 13 debt limits. It is important to note that it is not the Chapter 13 Trustee’s duty to liquidate non-exempt assets and distribute them to creditors, unlike the Chapter 7 Trustee, because in Chapter 13 bankruptcy the client is able to retain even non-exempt property as long as the debtor pays equal value to creditors over the duration of the bankruptcy plan. This is one major advantage of Chapter 13 bankruptcy over Chapter 7 bankruptcy for any client with substantial non-exempt funds, as Chapter 13 allows the client to retain the property anyway by paying creditors an equivalent amount over the next 3-5 years of the Chapter 13 bankruptcy case. If you are in a situation where you think you might have substantial non-exempt assets were you to file bankruptcy, or are considering Chapter 13 bankruptcy for other reasons, feel free to contact a Nova Law Group attorney and we would be happy to service your needs.
The United States Trustee is a branch of the United States Government, closely intertwined with the Department of Justice, which has two primary duties that are performed in both Chapter 7 and Chapter 13 bankruptcy cases. These two duties are: 1.) investigate bankruptcy fraud and other misconduct by both debtors and creditors; and 2.) in Chapter 7 bankruptcy cases, determine whether any client obtaining a Chapter 7 discharge, as opposed to a Chapter 13 discharge, would constitute an abuse of bankruptcy process [11 U.S.C. §§ 707(b)(2), 707(b)(3)]. The first duty of the United States Trustee, to investigate bankruptcy fraud and other misconduct, can take many forms. The United States Trustee, for example, might look into whether or not the client has not reported any assets or liabilities on the bankruptcy statements or schedules, has not reported all of his or her income, has transferred or otherwise hidden assets from the trustee, or has lied about his or her eligibility for bankruptcy. The United States Trustee has very broad powers to look into the financial affairs of any bankruptcy debtor, and in many cases, can subpoena financial records and other documents to uncover bankruptcy fraud or misconduct. However, as long as the client is entirely truthful in all dealings with the court and with the Chapter 7 or Chapter 13 Trustees, the client will never have a problem with the United States Trustee. The one exception to the above has to do with the U.S. Trustee’s second duty, which is to investigate whether or not the use of Chapter 7 bankruptcy by a client would be an abuse of bankruptcy process, and whether that client should be forced to obtain a discharge only in Chapter 13 (or Chapter 11 in rare cases). This duty, a part of which is called evaluating the “Means Test” under 11 U.S.C. § 707(b)(2), is a method the U.S. Trustee uses to determine whether a client could actually pay back a portion of his or her debt in Chapter 13 bankruptcy, and therefore, should not be allowed to file a Chapter 7 bankruptcy. Additionally, the United States Trustee is entitled to make an equitable argument under 11 U.S.C. §707(b)(3) claiming that the debtor’s use of Chapter 7 bankruptcy is “unfair,” and constitutes an abuse of bankruptcy process, the argument being that the debtor can actually afford to pay off his or her debts. It is the experience of Nova Law Group that the United States Trustee generally only objects when the Trustee perceives that the client can actually afford to pay back a portion of his or her debts over time, and due to the overwhelming debt that most clients face going into bankruptcy, these objections are rare. Nevertheless, it is very important to seek competent legal advice in evaluating the “Means Test” and the exceptions to the “Means Test,” as there are many sections of the law regarding this matter that can be effectively raised by competent counsel and sometimes qualify even a high-income debtor for Chapter 7 bankruptcy, even where some amateur practitioners or non-lawyers wouldn’t think it possible. Nova Law Group has extensive experience advising clients regarding the Means Test and similar matters, as well as experience actively litigating such matters with the United States Trustee. If you have questions regarding whether or not you can pass the Means Test or qualify for Chapter 7 bankruptcy, feel free to contact a Nova Law Group attorney and we will be pleased to assist you.
Should I Sell My House in a Short Sale?
Many clients of ours often ask whether selling a home in a short sale is a good idea, either with a bankruptcy case planned or while considering non-bankruptcy alternatives. It is almost always the case that a client’s bankruptcy options are superior to those derived from a short sale, but there are situations in which it benefits a client to at least communicate with creditors regarding a short sale, even if no short sale is eventually completed.
The simple definition of a short sale is a sale in which you sell your home for less than the amount of money you owe to all of your creditors on the property. Short sales require the consent of all lenders, lien holders, and other secured creditors who you owe a debt to secured by your house, and unanimous consent must be obtained. In other words, every creditor you owe money to that is secured by your home must agree to a short sale, and on properties with multiple creditors holding liens, this can be a very challenging goal, particularly where there are multiple mortgages on the property.
For example, if you own a home that is currently worth $600,000, and you owe your first mortgage company $800,000 and your second mortgage company $200,000, then your home cannot be sold for at least the value of the debt that you owe on it. In this situation, if you wanted to sell your home, maybe because you can’t make the payments on the house, you could consider a short sale, if you could obtain the permission of every lender who loaned money to you on the property. In the situation above, to sell your home in a short sale, you would need to convince the first lender to accept only $600,000 for its claim of $800,000 on the property, and somehow obtain the approval of the second lender, even though that creditor would normally get nothing, as there is no money from the sales price that can be used to pay them if the home sells for $600,000. When a second lender does approve a short sale transaction, it is often because either the first lender or the seller has agreed to compensate them in some way, for example, by paying the second lender $5,000 to approve the short sale and waive the remaining $195,000 ($200,000-$5,000) of the second lender’s claim. If unanimous consent from all lenders is obtained, then the property can be sold through a short sale, if there is a willing buyer for the property.
It is the opinion of Nova Law Group that short sales almost never benefit the client, but there are circumstances where merely talking to lenders about a potential short sale might be. For many clients, merely discussing the possibility of a short sale with a lender might buy the client months of living in the house without the lender moving toward foreclosure, as some lenders figure that foreclosure is not cost-effective if you are willing to sell your home to a qualified buyer anyway. This can benefit a client, because it basically means that while your realtor or the lender attempts to find a buyer, you may get to live in the house free of charge, possibly for months or even years. This is particularly true where real estate has dropped significantly, because there may not be many buyers looking to purchase property and it may take a long time for the lender or your realtor to find a buyer, giving you more time in your home. This is of course only true if your lender is willing to stop all foreclosure proceedings during the negotiation of the short sale. Without this, there is really no benefit to the client in talking with them.
While talking with a lender about a short sale can sometimes be beneficial to a client for the reasons stated above, actually completing a short sale is rarely, if ever, a good idea. While the list of reasons why a short sale is generally a terrible option for clients is too large and complex to put in one blog post, some of the biggest reasons are discussed below.
First, when you complete a short sale, you often lose the home right away, or within about a month of the time the transaction is completed. Losing the home quickly in a short sale to a buyer means that you can’t live in the property free of charge, for months or even years on end, because you have voluntarily given it up. For example, if you agree with a lender to do a short sale, and the lender finds a buyer within 2 weeks for your home at a tremendously reduced price, then you might need to leave your home in a total of 6 weeks or so, when the deal closes and the right to possession of the property is transferred. In contrast, if you were to simply do nothing at all and let the lender evict you, you would get a minimum of 90-180 days in your home during the notice of default period (depending on the applicability of Cal. Civ. Code Sections 2923.52, 2923.53), and then another 20 days during the notice of sale period, resulting in a total time in your home of 4-7 months. Additionally, it often takes the foreclosure department of a bank a lot of time to get its act together and actually commence foreclosure proceedings, meaning additional time living in your home free of charge. As a result, it is almost never a good idea to effectuate a short sale on your home, because it deprives you of the ability to live in your house for many months or years free of charge, allowing you to save a lot of money for a subsequent move or other purposes.
Second, it is sometimes the case that a lender will sue you after selling your home in a short sale, for the amount of the difference between the money you owed them and the amount they received in the short sale for the property. This occurs regularly, even in situations where the lender can’t legally sue you, because the lender hopes that you’ll be too broke to hire an attorney to defend your rights, and that they will get away with obtaining a judgment against you for the deficiency as a result. Some deficiency judgments can be for several hundred thousand dollars, and while a short sale does not ensure that you won’t be held responsible for a deficiency judgment, bankruptcy almost always does. Additionally, don’t simply take the lender’s word that they won’t sue you for a deficiency judgment after completing a short sale, as many lenders are not honest with their former clients in this regard. All short sale agreements should be reviewed by a competent attorney to ensure that there is no liability on the client’s part after the short sale. However, it is the opinion of Nova Law Group that a short sale should never be done at all.
Third, many people consider a short sale even on a home they would like to keep, simply because they can’t afford the full payment on the home, or can’t afford to bring the back payments (arrearage) current. At Nova Law Group, we encourage our clients to evaluate whether a bankruptcy alternative might be a more powerful resolution to keeping a client’s home or resolving the debt, instead of completing a short sale that may be completely unnecessary. For example, it is possible in a Chapter 13 bankruptcy to force a secured lender to accept small monthly payments for the arrearage on your house, instead of a lump-sum payment as the lender often demands. In a hypothetical situation where you owe $60,000 in back payments (arrearage) on your home, you might be able to force the lender to accept $1,000 per month over 5 years, instead of all $60,000 upfront, and keep your home instead of selling it. However, this strategy requires that the client be able to afford to make not only the small arrears payments each month, but also the full mortgage payment as well, although other creditors often do not need to be paid (like credit card debt and other unsecured debt). At the same time, making up the arrears is not the only way bankruptcy offers vastly more options to keep your home relative to a short sale, which often quickly disposes of it. For example, in a Chapter 13 bankruptcy it is sometimes possible to permanently remove a junior lien, like a 2nd, 3rd, or 4th mortgage from your home permanently, which often means you never need to pay on the loan ever again. This allows some people who can afford the first mortgage, but not the second or any subsequent mortgage, to strip those liens permanently off the property and keep their home in the process.
In essence, bankruptcy offers many opportunities that simply don’t exist in a short sale to either keep your home, or to live in your home free of charge for as long as possible, saving money in the process. If you are in a position where you are facing foreclosure, Nova Law Group encourages you to consider bankruptcy options in addition to options regarding a short sale, as it is our opinion that bankruptcy is generally a far superior alternative. Although it may sometimes benefit a client to “talk” about a short sale with a lender, it almost never makes sense to actually complete a short sale transaction, and at Nova Law Group we advise our clients accordingly. If you would like to explore bankruptcy options as they might apply to your individual situation, a Nova Law Group attorney would be happy to assist you.
The purpose of this document is to provide a demonstration of merely some of the myriad ways in which the California High-Speed Rail Authority’s (“CHSRA’s”) revised business plan fails to comply with AB 3034. The CHSRA is required to demonstrate compliance with AB 3034 to proceed with the project, and both the “Peer Review Committee” established by AB 3034 and the Senate Transportation and Housing Budget Sub-Committee are committees responsible for ensuring compliance with AB 3034. These “watchdog” committees function appropriately as a check on the compliance (or lack thereof) of the CHSRA’s business plan with AB 3034 and other applicable California law, and have the right to deny funding requests made by the CHSRA should this compliance not be demonstrated.
It is the position of the author of this article that the CHSRA’s revised business plan has not demonstrated compliance with AB 3034, and that further funding requests should be restricted or denied until the Authority complies with the statute and other applicable law.
THE REVISED BUSINESS PLAN FAILS TO DEMONSTRATE THAT A MINIMUM OF 50% OF ALL FUNDS USED TO CONSTRUCT ANY INDIVIDUAL RAIL CORRIDOR OR SEGMENT WILL BE OBTAINABLE FROM NON-STATE FUND SOURCES.
The AB 3034 amendments to the California Streets & Highways Code require that at least 50% of the construction cost of each corridor or usable segment thereof come from sources other than California state bond funds.
“Proceeds of bonds described in paragraph (1) of subdivision (b) of Section 2704.04 shall not be used for more than 50% of the total cost of construction of each corridor or usable segment thereof of the high-speed train system, except for bond proceeds used for purposes of subdivision (g).” Cal. Sts. & High. Code § 2704.08(a) (2010). The California legislature makes clear that the remainder of funding to build the high-speed rail network is to come from federal, local, and private investment, when it states: “the authority shall pursue and obtain other private and public funds, including, but not limited to, federal funds, funds from revenue bonds, and local funds, to augment the proceeds of this chapter. Cal. Sts. & High. Code § 2704.07.
Furthermore, the CHSRA is required to demonstrate that the construction cost of any rail corridor or usable segment thereof is completely funded before any state bond funds are released. This means that the CHSRA must obtain funding commitments from federal, local, and private parties, before it can utilize any of the state bond funds for construction. AB 3034 states in relevant part: “Prior to committing any proceeds of bonds described in paragraph (1) of subdivision (b) of Section 2704.04 for expenditure for construction and real property and equipment acquisition on each corridor . . . the authority shall have approved and concurrently submitted to the Director of Finance and the Chairperson of the Joint Legislative Budget Committee the following: (1) a detailed funding plan for that corridor or usable segment thereof that (A) identifies the corridor or usable segment thereof, and the estimated full cost of constructing the corridor or usable segment thereof, (B) identifies the sources of all funds to be used and anticipates time of receipt thereof based on offered commitments by private parties (emphasis added), and authorizations, allocations, or other assurances received from governmental agencies.” § 2704.08(d).
Even a cursory review of the CHSRA’s revised business plan indicates a substantial failure to comply with the requirements of AB 3034.
First, the CHSRA states that it will receive $4-5 billion from local governments to fund construction of the high-speed rail system. (CHSRA Business Plan, p. 99). This estimate is entirely unsubstantiated in the plan, even though the CHSRA is required to identify the sources of all funds to be used and anticipated time of receipt by presenting offered authorizations, allocations, or other assurances received from governmental entities. (CHSRA Business Plan, p. 99); Cal. Sts. & High. Code § 2704.08(d). Not only is the claim regarding local funding unsupported by any evidence, but the amount of projected funding is also highly-suspect, given the CHSRA’s description of statements made by local governments depicted in the business plan. For example, the CHSRA states in the business plan that Orange County, one of the largest counties in all of California, has signed an MOU committing $7 million to construction of the high-speed rail line through the Orange County Transportation Authority. (CHSRA Business Plan, p. 100). There are 58 total counties in California, of which only a fraction are served by the proposed high-speed rail line. Additionally, given that Orange County is one of the larger and wealthier California counties, it stands to reason that $7 million is likely to be one of the larger amounts contributed by any California county to high-speed rail. Consequently, for purposes of this analysis, I will generously assume that half of all California counties will subsidize the high-speed rail project, and that all of the 29 counties somehow afford to donate the same amount that Orange County has provided, an extremely generous assumption given the lower wealth and population of many other counties. Even under the extremely generous assumptions described above, the CHSRA would only stand to receive a total of $203 million from local governments for high-speed rail, a far cry from the $4-5 billion they expect to receive for the project. This enormous discrepancy between the expectation of local funding the CHSRA has indicated in the business plan and the actual likely subsidy from local governments makes it probable that the CHSRA will have to get most of the $4-5 billion projected from other sources, or lack adequate funding to complete the project.
Second, the CHSRA states that it expects to receive $17-19 billion from the federal government to fund the construction of the high-speed rail system. (CHSRA Business Plan, p. 94). However, it is entirely unclear how the CHSRA intends to receive $17-19 billion from the federal government when this amount is more than the entirety of all federal funding to be distributed throughout the nation. As the CHSRA accurately states in other parts of its own business plan, the American Recovery and Reinvestment Act only provides for $8 billion total for high-speed rail systems throughout the entire country, with an additional $5 billion total over 5 years ($1bil./year), for a total of $13 billion. (CHSRA Business Plan, p. 96). These are amounts to be distributed to projects in all states by the federal government, and as a result, it is likely that California will only receive a portion of this available funding for its project. Indeed, the CHSRA seems to recognize this fact when it projects that it will receive only $6 billion of the initial ARRA funding, and that only $4.7 billion will be devoted to the high-speed rail system. (CHSRA Business Plan, p. 96). Consequently, if we assume that the CHSRA receives the same portion of future ARRA funding that it projects to receive of the initial ARRA funding, then the CHSRA stands to receive only $4.7 billion plus (.75)($5 billion), totaling only $8.45 billion from the ARRA. With regard to funding under other federal programs, the CHSRA has provided no evidence or other indication that it has applied for, or been granted, financing under any of the other federal programs. (CHSRA Business Plan, p. 94-100). AB 3034 requires that these funding commitments be described with great specificity as to the amounts, sources, and timing of disbursements of funds, and the CHSRA business plan fails to provide sufficient data to comply with the statute. Cal. Sts. & High. Code § 2704.08(d). As a result, the CHSRA’s claim that $17-19 billion of the construction cost of the high-speed rail project will come from federal funds is highly-suspect, and more clarity is needed on this point before state bond funds are released under the premise that at least 50% of the cost of any corridor will come from non-state bond fund sources.
Third, the CHSRA states that it expects to receive $10-12 billion from private investment sources, even though the CHSRA presents no evidence that it has obtained any funding commitment or letter of intent whatsoever from any of the financial firms it claims have interest in the project. See generally, CHSRA RFEI, CHSRA Business Plan. Furthermore, it seems that the CHSRA has only found a total of 5 financial institutions interested in providing funding for the project, on terms undetermined and in amounts unstated. (CHSRA RFEI, p. 3). In fact, the CHSRA states that even among the 5 financial institutions it claims are interested in the project, that many have “specific concerns centered on the extent to which private investment is to be repaid through ridership revenues.” (CHSRA Business Plan, p. 105). These concerns are likely justified, as for an unexplained reason, the CHSRA has predicted that between the years 2000 and 2030 the population will increase 42%, but rail traffic will supposedly increase five-fold, by 400%. (CHSRA Business Plan, p. 68). Given that this prediction of future demand for rail goes to the heart of the profit assumptions by the CHSRA to pay on private debt, it is a dubious assumption that the high-speed rail network will obtain private funding for the project, and the CHSRA has demonstrated no evidence to the contrary. Combined with the likely inadequate local and federal funding on the project, the lack of private investment will cause the CHSRA to have insufficient funding to complete the proposed segments of the project, and render compliance with AB 3034 improbable.
THE REVISED BUSINESS PLAN FAILS TO PROVIDE FUNDING FOR PUBLIC OUTREACH TO REMEDY THE CHSRA’S CURRENTLY INADEQUATE OUTREACH PROGRAMS.
The CHSRA states in the revised business plan that “public outreach” is critical to the scoping and alternatives analysis required by law. (CHSRA Business Plan, p. 28-29). This purported goal by the CHSRA is consistent with the recommendations of the Senate Budget Sub-Committee, including specific comments by Senators Simitian and Lowenthal, made to ensure a public discourse of important issues regarding the project.
Given the purported commitment of the CHSRA to “public outreach,” and the explicit advice of the Senate to engage in enhanced public outreach, it is shocking that the revised business plan has no budget for “outreach” whatsoever. (CHSRA Business Plan, p. 8). In fact, according to the CHSRA’s own statement of funds expended, the CHSRA has expended nothing on “outreach” since 2006, when it expended only $50,000. (CHSRA Business Plan, p. 8). There are two logical deductions to be taken from the CHSRA’s failure to list any outreach expenditures in the business plan, but both demonstrate the inadequacy of the CHSRA’s plan. First, it is possible that no expenditures were listed in the chart when expenditures were in fact made. However, this possibility would then seem to indicate that all of the data in the chart should be suspect, as potentially incorrect. Second, it is possible that the CHSRA spent no funds on “public outreach” over the last 4 years, or such inconsequential funds that the failure to state this funding should constitute an admission that very little outreach funding existed. Under either assumption, the CHSRA’s lack of funding for public outreach is a material concern of many residents, who feel disenfranchised with the process.
Furthermore, although the CHSRA states that “statewide and regional outreach efforts have always included significant steps to engage, inform, and take input from California’s diverse communities,” and that “Multi-lingual printed materials and legal advertising have been a compulsory part of the Authority’s outreach,” the author can find no link whatsoever from the main page of the CHSRA’s website to receive documentation in any other language than English. (CHSRA Business Plan, p. 56; CHSRA’s website at www.cahighspeedrail.ca.gov). Additionally, the author performed a search for over ten minutes on the CHSRA’s website, individually clicking on each major section of the site, which requires English-language proficiency, and could require only one single promotional video in one language (Spanish), that provided any information regarding the CHSRA’s plan. This video also contained almost no detailed information regarding the project, and appeared to be only a marketing video for high-speed rail, clearly inadequate to reach an educated disposition regarding the costs and benefits of the project. The CHSRA should be required to provide meaningful data and documents in other languages, so that an educated decision can be reached among non-english speaking California residents.
THE REVISED BUSINESS PLAN FAILS TO PROVIDE PLAUSIBLE RIDERSHIP FORECASTS AS REQUIRED BY AB 3034.
The CHSRA is required by AB 3034 to provide accurate ridership forecasts and projected operating revenue for the high-speed rail project before state bond funds are released. Cal. Sts. & High. Code § 2704.08(c)(2)(E). While the CHSRA revised business plan attempts to provide such figures, these estimates are totally implausible and should be considered highly-suspect without further verification.
The CHSRA claims that “the [ridership] forecasts assume that high-speed train travelers will not face airport-style security checks and processing time.” (CHSRA Business Plan, p. 69). This tremendous assumption by the CHSRA results in one of two substantial problems. If the CHSRA is correct, and no substantial security is implemented on high-speed trains, even those traveling at 200+ miles per hour through densely populated areas, then it would seem that substantial security risks would arise, particularly with regard to terrorism or other sabotage of the rail network. A high-speed train traveling through densely populated areas would likely be a prime target for any terrorist, and any likely “incident” would cause billions in damage. This fact will not be lost on the Department of Homeland Security, and it is likely that any high-speed rail network of the kind planned in California would require substantial security, delaying travel times for high-speed trains between destinations and increasing cost. In fact, given that high-speed rail is a vastly slower mode of transportation than air travel, the only advantage of traveling on a high-speed train from a consumer perspective is, perhaps ironically, the lack of security, which for reasons aforementioned, is likely to be promptly required. Given the likelihood that security on the high-speed rail network will be as extensive as airport security, there are no substantial comparative advantages from a consumer perspective to utilizing a high-speed train over air travel. Therefore, it is likely that the CHSRA’s estimates of ridership, and the corresponding estimates of revenue, are grossly overstated.
Is there a way to Stop Foreclosure without Filing Bankruptcy?
There are many ways to stop a foreclosure action against your home without filing for bankruptcy. This article will focus on some of the most common options. Many of the legal options listed below utilize what is called a temporary restraining order and preliminary injunction to temporarily prevent the lender’s foreclosure of a primary residence of the borrower. While not all of these options may apply to your situation, a Nova Law Group attorney would be happy to assist you in determining what causes of action might apply in your individual case.
The first and most common method of contesting a foreclosure action against the borrower’s primary residence is to bring a lawsuit against the lender for violations of the Truth in Lending Act and its related provisions. While in some cases the lender may have complied with the provisions of the Act, in many cases, the lender has failed to comply with one or more provisions of federal law. Certain provisions allow for rescission of the note and deed of trust, and when claimed as a defense to a foreclosure action, can result in a temporary or permanent stop to a foreclosure action if a good faith claim can be made against the lender. Common TILA violations are too numerous to count, but some important examples include: interest rates above the maximum cap defined by statute, inaccurate disclosures on the Truth in Lending Statement, failure to give two copies of the right of rescission to the borrowers after the loan closing, negative amortization provisions in some instances on home equity loans, and non-disclosure of finance charges or hidden fees. While not every loan will state a good faith cause of action for a TILA violation, there are many situations in which the lender has made material errors in the loan documentation, and these errors can sometimes form the basis of a good faith cause of action for a TILA violation and a valid foreclosure defense.
A second common method to contest a foreclosure action is to assert a violation of California state law, and in particular, a violation of the foreclosure statutes California recently passed to combat the deleterious effects of the foreclosure crisis. For example, California Civil Code Section 2923.52 requires lenders in most instances to discuss loan modification options with borrowers and then wait 3 full months before posting a notice of sale on the property. Unfortunately, many lenders refuse to comply with the statute or maintain in bad faith that the property is non-owner occupied, and therefore, that they don’t need to comply with the statute. Often people have to sue the lender or otherwise block the foreclosure action to obtain relief as California law requires, but this relief is available in some instances.
A third common method to contest a foreclosure action is to assert a violation of California Civil Code Section 2923.5, which requires lenders to take steps to offer borrowers financial options before a notice of default is posted on the property. Sometimes lenders will proceed to post a notice of default on the principal residence of the borrower without ever contacting the borrower to work out options, and this kind of behavior by the lender is illegal. Violations of Section 2923.5 can sometimes offer borrowers a basis to challenge the foreclosure action and delay foreclosure until the lender complies with the California law.
Not all of the above options apply to all clients or all situations, but a Nova Law Group attorney would be happy to assist you in determining which options might apply to your individual situation and if any good faith claims can be made against the lender in your circumstance.
How Much does Corporate Bankruptcy Cost?
Corporate bankruptcy can become very expensive, and the cost of corporate bankruptcy when compared with other non-bankruptcy alternatives, like a General Assignment for the Benefit of Creditors, is a disadvantage of seeking corporate bankruptcy protection. Fees vary depending on the quality of the law firm performing the corporate bankruptcy work and the complexity of the case, but many corporate bankruptcies, particularly in Chapter 11 proceedings, can easily cost 5-20% or more of the total assets of the company. This amount is likely to be a lower percentage for large corporate bankruptcies and a higher percentage for small corporate bankruptcies, due to the high fixed costs inherent in the Chapter 11 process and the complexity of the work required. Consequently, Chapter 11 bankruptcy proceedings are often less expensive relative to the total assets of the corporation for large bankruptcies than they are for smaller bankruptcies. In general, Chapter 7 corporate bankruptcies are also less expensive than Chapter 11 bankruptcies, mainly because the proceedings are often much shorter and do not involve the extended management required in operating the business of the debtor. Nova Law Group recommends that most small and mid-sized companies consider a General Assignment for the Benefit of Creditors rather than a Chapter 11 corporate bankruptcy, unless there is sufficient legal reason to file a bankruptcy case. If you would like to consult with an attorney regarding your corporate insolvency needs, a Nova Law Group attorney would be happy to assist you.
Chapter 11 bankruptcy is technically available to both businesses and individuals for the reorganization of debt, but it is almost never used by individuals for this purpose due to the substantial expense of such reorganizations. As a result, this article focuses on the use of Chapter 11 reorganization proceedings to manage corporate debt, and some considerations to make regarding Chapter 11 bankruptcy versus other types of reorganization.
Chapter 11 is the corporate reorganization chapter of the bankruptcy code and is designed to allow for the continued operation of the debtor’s business when this is needed to maximize its value for creditors. Chapter 11 typically allows the debtor to remain in control of its business as the “debtor in possession,” although it must get approval from the bankruptcy court to carry out most major transactions after filing. Many corporate debtors are able to emerge from a Chapter 11 bankruptcy months or years after filing and operate as a viable business once more.
Within a few months of the filing of a Chapter 11 bankruptcy petition, the debtor in possession typically proposes a corporate reorganization plan to creditors and the court for confirmation. Interested creditors vote on the plan, and if sufficient votes are present, the plan can be confirmed by the bankruptcy court. Debtors in possession normally have a time period in which they have the exclusive right to propose a corporate reorganization plan, often 120 days. After that time, creditors may also propose corporate reorganization plans for possible confirmation. When confirmed, the plan will dictate the elements of the corporate reorganization process. If a debtor in possession is no longer able to comply with the plan, the plan can sometimes be modified, or the debtor can convert the Chapter 11 restructuring into a Chapter 7 liquidation bankruptcy.
Filing Chapter 11 bankruptcy has many advantages for the debtor in possession and its management. The debtor in possession is allowed to gain access to below-market rate financing through the ability to grant new debt higher priority than other similar pre-existing debt. In addition, the bankruptcy court can allow the debtor to cancel contracts and other executory obligations if the termination of these obligations would benefit the bankruptcy estate. Generally the management team of the debtor in possession stays on board to manage the company, as they are typically the most familiar with the debtor’s business operations.
If you own or manage a business and are considering a Chapter 11 bankruptcy filing, Nova Law Group is pleased to offer you a free consultation to discuss the legal needs of your organization.
Chapter 7 bankruptcy can be used by debtor corporations, partnerships, limited liability companies, and certain other types of organizations to liquidate the assets of the company and distribute any proceeds to creditors. In essence, Chapter 7 bankruptcy is used to permanently wind-down the assets of a distressed company or to sell all, or substantially all, of the corporate assets. It should be noted that businesses in Chapter 7 do not receive a discharge at the end of the bankruptcy case, but rather merely become judgment proof at the end of the case, unlike real people in an individual Chapter 7 proceeding. This means that a Chapter 7 debtor company cannot go back into business immediately after the conclusion of the bankruptcy case if it obtains new assets, as creditors can target these assets until the expiration of any statute of limitations period on the claims.
Chapter 7 bankruptcy is an appropriate solution to permanently end the operations of a distressed business. Chapter 7 is not an appropriate solution where the board or officers decide that the business should be operated for an extended period of time to achieve maximum monetization of business assets for creditors. If continued operations are essential to maintaining the value of the business assets, then a Chapter 11 bankruptcy filing or a General Assignment for the Benefit of Creditors are the more appropriate contexts to resolve the distressed financial situation of the business.
When a Chapter 7 corporate bankruptcy case is filed by the debtor, a Chapter 7 trustee is appointed by the court to liquidate the debtor company. The court-appointed trustee may, but need not, hire any professionals or employees of the company to wind-down the debtor’s business. While Chapter 7 bankruptcy trustees generally are familiar with winding down company operations, they are not always experts in the particular aspects of the debtor’s business. This frequent lack of expertise relevant to the business of the specific debtor can lead to inefficiency in the administration of the debtor’s assets and difficulty liquidating the estate within a time frame that provides maximal monetization of a debtor’s assets for creditors. Consequently, where the best monetization of the debtor’s business can be obtained by a trustee with specific expertise in the debtor’s industry, Nova Law Group recommends considering a General Assignment for the Benefit of Creditors, where the debtor selects the assignee (role of trustee) itself.
How Much does a General Assignment for the Benefit of Creditors Cost?
Typically the assignee of a General Assignment for the Benefit of Creditors will charge between 5-10% of the value of the assignment estate in exchange for its services. This fee varies however, and can often range from as low as 1% to as much as 20%, depending on the size of the assignment estate and the complexity of the resolution of the assignor’s business. Our opinion is that General Assignments for the Benefit of Creditors almost always cost substantially less than the administration of a Chapter 7 or 11 bankruptcy proceeding, and this is a large advantage of utilizing general assignments over corporate bankruptcy.
What Can I do When my Home is in Foreclosure?
If your home is in foreclosure, you have many options, both legal and non-legal. This section is designed to explore the basics of some options that either delay foreclosure, or prevent the foreclosure from proceeding permanently. This article is not designed as a comprehensive demonstration of foreclosure strategy and litigation, but is rather a description of some constructive responses to foreclosure. If you would like to consult with an attorney regarding your situation, a Nova Law Group attorney would be happy to provide you with a free consultation to discuss your legal options.
Filing for Chapter 7 Bankruptcy: This generally delays foreclosure proceedings about 2-3 months while the creditor files a motion for relief from stay to continue the foreclosure. Some creditors will wait until the bankruptcy case is over, rather than file a motion for relief from stay, in which case the foreclosure might be delayed 3-4 months instead. We strongly advise consulting an attorney in this situation, as a bankruptcy that is filed at the wrong time will provide absolutely no delay whatsoever during the foreclosure. In addition, Nova Law Group does not advise clients to declare Chapter 7 bankruptcy merely to delay foreclosure proceedings.
Filing for Chapter 13 Bankruptcy: If a debtor can make the payments for the home under the bankruptcy plan, then Chapter 13 bankruptcy can theoretically allow the debtor to keep the home entirely. Even if a debtor does not complete the plan due to unexpected circumstances, the good faith attempt by the debtor to pay under the plan will delay foreclosure many months or years. The substantial challenge in using Chapter 13 bankruptcy to delay or avoid foreclosure is that the debtor must be able to afford the plan payments, which means the debtor must be able to pay the creditor on the loan. Chapter 13 is usually appropriate as a foreclosure avoidance method when the debtor has missed multiple back payments on the home and cannot bring the mortgage current, but can afford to make payments going forward, perhaps due to recently finding a job or recovering from physical injuries. Nova Law Group does recommend filing for Chapter 13 bankruptcy to avoid or delay foreclosure, as long as the filing represents a good faith attempt on the part of the debtor to resolve his debts.
Consumer Protection Litigation: The federal government and the states have passed legislation protecting borrowers from unscrupulous acts on the part of lenders and other creditors. Many lenders fail to comply with the requirements of these federal and state consumer protection statutes, and these lending violations can lead to damages and injunctive relief against lenders in some instances. In some cases, this type of litigation can delay foreclosure or bring a creditor to the table for negotiations. Some common consumer protection statutes that lenders violate are the TILA (Truth in Lending Act), the HOEPA (Home Owner Equity Protection Act), the RESPA (Real Estate Settlement and Procedures Act), and numerous state statutes governing lending and foreclosure procedures. While all of the above statutes are frequently violated by creditors, not all of our clients will be able to pursue these options or have a valid good faith legal claim to challenge a foreclosure proceeding. If you would like to explore whether these options apply to your situation, a Nova Law Group attorney would be happy to discuss whether any of these options might be available to you.
Bring the Loan Current: This option is the best option, but also generally not a viable option for most people in foreclosure. However, if you are able to bring the loan payments current, including any fees and costs the lender has incurred over the course of the foreclosure, then you are legally allowed to do so until 5 days before the foreclosure sale. After this period, you must pay the entire loan balance to stop the sale.
Work out a Deal with the Lender: Many lenders hate foreclosure just as much as you do. For the most part, lenders do not want to own your house. Lenders only want their money and to be paid regular payments as agreed. If you can propose a viable plan to bring the loan current, or at least pay regular on-time payments going forward, most lenders will negotiate. However, you should negotiate with the lender yourself or hire an attorney to negotiate on your behalf. Do not ever hire a “mortgage consultant” or anyone trying to give you a “quick fix” to your mortgage problems, as these businesses are frequently scams. Even the reputable companies in the industry cannot do anything that you or a good lawyer cannot.
Execute a “Short-Sale”: A short sale is a sale to a third-party buyer where the proceeds from the sale are not enough to cover the debt you owe on the home. The lender must approve a short sale, because it is basically agreeing to receive less than the money you owe it on the home. Some lenders will agree to this arrangement when it seems that the alternative is a long and expensive foreclosure, but you will have to find a buyer for the home. If you intend to execute a short sale, it is our strong advice that you consult an attorney, or you could remain liable for any money still due the lender on the sale. In our firm’s opinion, short sales are almost never the best option to resolve a foreclosure on your home.
Execute a “Deed in lieu of Foreclosure”: A deed in lieu of foreclosure is a transaction where you essentially give the keys back to the lender and walk away. Like a short sale, if you plan to execute a deed in lieu of foreclosure, we advise you to consult with an attorney, or you might still be liable for any debt owed the lender if the lender cannot recoup its losses on the home. Our firm rarely, if ever, advises clients to execute a deed in lieu of foreclosure, as this is almost never the client’s best option.
Our firm hopes that you find the above discussion informative and that it helps you have a greater understanding of your legal options. If you would like to discuss any of these options with an attorney, feel free to contact Nova Law Group to discuss whether any of the above options might apply to your situation.
How long does Bankruptcy stay on my Credit Report? Will Bankruptcy Affect My Credit?
One disadvantage of a bankruptcy filing is that the credit of the debtor will be negatively affected for a long period of time, but not forever. While the length of time that creditors consider a bankruptcy filing in making a credit determination varies, the following provides the “conventional wisdom” regarding the effect of bankruptcy on credit determinations. Most creditors consider a Chapter 7 bankruptcy filing in making credit decisions for a period of 7-10 years, and a Chapter 13 bankruptcy filing for a period of 4-7 years. The more years that have passed since a bankruptcy filing, the fewer creditors consider it a factor in their decision-making. In addition, on-time payments to creditors after bankruptcy can affect your credit positively, helping to combat the negative effects of a bankruptcy filing. In addition, a home foreclosure is generally considered by creditors for a period of about 4 years, and this is a useful comparison when evaluating the negative effects of bankruptcy on credit. Fortunately, if you are in foreclosure and then declare bankruptcy, the time periods do not stack. In other words, if you file a Chapter 7 bankruptcy while in foreclosure or not in foreclosure, the effect on your credit is the same.
Can my Employer Fire Me for Declaring Bankruptcy? Will I lose my Job?
Federal law requires that no private or government employer fire you because you have filed for bankruptcy. If a government or private employer violates federal law against bankruptcy discrimination and fires you anyway, you can sue them in state court or federal bankruptcy court. Additionally, government employers are prohibited from considering your bankruptcy filing when you apply for a job, although unfortunately, private employers can. If a private employer denies your job application (as opposed to firing you which is prohibited), you probably have little recourse. Fortunately, many employers do not consider credit when making employment decisions, and government employers are prohibited from doing so.
There is no requirement that a married couple file jointly for bankruptcy. Both spouses can file for bankruptcy separately or jointly, and they need not file bankruptcy at the same time. Some of our clients choose for one spouse to file bankruptcy, usually in cases where the filing spouse is liable for most of the debts, or when the non-filing spouse has excellent credit to protect. The analysis below attempts to cover some of the major legal issues that apply to discharge in the marital bankruptcy context. Additionally, this analysis will focus only on bankruptcy effects in community property states, like California.
The general rule in community property states regarding spousal liability for debts is that any debts accumulated during the marriage are the debts of both spouses, regardless of whether only one spouse signed the agreement. Debts that were incurred prior to the marriage are generally the separate debts of the spouse who originally incurred them.
Given the general rule, most debts accumulated during marriage are debts of both spouses, whereas most debts accumulated before marriage are debts of one spouse. In situations where only one spouse is liable for the debt, it generally does not make sense for the other spouse to declare bankruptcy to remove a debt for which he or she is not liable. However, in situations where both spouses are liable for the debt, the analysis is much more complex, and an attorney should be consulted. If both spouses are liable for a debt (called a “community debt”), then both spouses must file for bankruptcy or the non-filing spouse will still be liable for the debt. However, because all of the filing spouse’s property is still community property and the filing spouse’s discharge prevents creditor attachment to the community estate, it is possible that all community property (including all property of the filing spouse and the non-filing spouse) may be protected by only the bankruptcy of the filing spouse. In other words, the filing of one spouse may protect all community property, including the community property of both spouses, as long as the community exists (the spouses remain married). However, the separate property of the non-filing spouse can still be targeted by creditors, and should the spouses later divorce, no property of the non-filing spouse would be protected as the community estate would cease to exist. If the above situation applies to your case, it is highly recommended that you contact Nova Law Group and seek the advice of an attorney, as the law in this area is quite complex.
Most people filing for bankruptcy are able to keep the vast majority of their personal property, and sometimes, real property such as the family home as well. While the actual determination of what property a debtor can keep is very complex and beyond the scope of this article, the following analysis is designed to give readers an idea of what property they can normally claim as exempt in bankruptcy (property that can be kept). It should also be noted that the property a debtor can keep varies substantially based on whether a Chapter 7 or a Chapter 13 bankruptcy is filed.
Personal property, like clothing, furniture, games, automobiles, art, musical instruments, and other personal effects can almost always be kept. The one major exception to this general rule is if the item is very valuable and you have far less debt on the item than it’s worth (in bankruptcy terms, your non-exempt equity in the item is high). An example of an item that you might not be able to keep is a $40,000 BMW that you own free and clear. However, if you own the $40,000 BMW, but still owe $45,000 on the car to the lender, then you might be able to keep it, because you have more debt on the car than it is worth (i.e. no non-exempt equity in the car). Another exception is if the property is security for a debt. If a creditor has a security interest in your personal property as collateral for non-payment of the creditor’s debt, seek the advice of an attorney.
Real property, generally known by the more common term “real estate,” is treated very differently in bankruptcy than is personal property. In a Chapter 7 bankruptcy case, the debtor will not be able to discharge most debts that are secured to the home, like mortgages, and will have to remain current on the mortgage in order to keep the home. This is because a Chapter 7 bankruptcy case discharges the liability to pay the debt, but not the lien on the home, which still allows the lender to foreclose on the home in the event of non-payment. On a more positive note, the amount of equity a debtor can claim as exempt in a home is generally much higher than the exemption amounts for personal property. This means that some debtors can keep their homes even if they have substantial equity in the property (owe less than the home is worth), as long as they remain current on the mortgage.
In a Chapter 13 bankruptcy the debtor generally maintains control of all of her personal and real property, as long as she can make the payments under the bankruptcy plan. This is an advantage of utilizing Chapter 13 bankruptcy, as long as the debtor can make the plan payments over the 3-5 year period of the plan—a very challenging task. It is also possible to give up some property in a Chapter 13 bankruptcy and keep other property. Generally this is done where the debtor can afford to make payments on some property under the plan, but not all of the property.
What Debts are Discharged in Bankruptcy? What Debts Survive Bankruptcy?
Most clients find that a bankruptcy discharge eliminates the vast majority of the debt the client owes to creditors. While some debts survive a bankruptcy filing, most clients are able to drastically reduce or eliminate their debt entirely through bankruptcy. It should also be noted that the types of debts that are dischargeable in bankruptcy vary somewhat in a Chapter 7 as opposed to a Chapter 13. The lists of dischargeable and non-dischargeable debts below are not designed to be comprehensive, but rather are a useful starting point to determine what general debts are dischargeable in a client’s bankruptcy case under most circumstances.
In addition to the above types of dischargeable and non-dischargeable debts, some types of debts are dischargeable in Chapter 13 bankruptcy, but not in Chapter 7 bankruptcy.
While the above lists are not comprehensive examples of all debts that can be dischargeable and non-dischargeable in bankruptcy, we hope that this discussion will lead to informed choices regarding your legal options regarding your debt. If you choose to seek legal counsel regarding a debt or have further questions, a Nova Law Group attorney will be happy to assist you.
Can I Transfer Property to Friends and Relatives before I File Bankruptcy?
Clients often ask our lawyers if they can transfer valuable property to friends and relatives right before filing bankruptcy and not list it on their bankruptcy papers. This question has a simple answer, which is probably the answer you expected—you cannot. The bankruptcy code requires that all gifts and other transfers of property for the previous 2 years be listed in your bankruptcy papers, which you must sign under penalty of perjury. Knowingly failing to list a property transaction in your bankruptcy papers is a felony. In addition, if the bankruptcy court finds that you defrauded your creditors in connection with your bankruptcy case, it can refuse to discharge any or all debts in your case. In other words, transferring property to friends or relatives (or anyone else) for the purpose of concealing it from your creditors is a very bad idea.
In contrast, a completely legal way to retain most property in connection with your bankruptcy case is to claim it as exempt and list it in your bankruptcy papers. In our professional opinion, much of the property that clients are sometimes tempted to conceal can be legally claimed as exempt under one of the state or federal exemption rules, and therefore, can be saved in a completely legal manner.
In summary, concealing transfers of property prior to your bankruptcy case is illegal and a very bad idea. However, most personal property can generally be claimed as legally exempt in a bankruptcy case, and this is a legal, ethical, and smart method to retain your personal property after bankruptcy.
What is a Budget Counseling Requirement?
The bankruptcy code requires that all debtors obtain personal financial management counseling (also called “budget counseling”) prior to receiving a discharge in the bankruptcy case. After you declare bankruptcy, but before you obtain any discharge in the case, you must obtain a certificate indicating that you received this approximately 2 hour long seminar. Nova Law Group recommends that this personal financial management counseling occur with the same organization that performed your credit counseling before the filing of your bankruptcy case, although this is not required. In any event, you should select an organization that is listed on the United States Trustee’s website as being a certified service.
Budget counseling must be obtained within 45 days of the first meeting of creditors, but after the filing of your bankruptcy case. Failure to present evidence of a certificate of budget counseling to the court will likely result in the dismissal of your bankruptcy case without a discharge.
What is a Credit Counseling Requirement?
The bankruptcy code currently requires that all people filing for bankruptcy receive mandatory credit counseling from a certified credit counseling agency before filing. Credit counseling is required even if it is unlikely to culminate in a workable plan for the client, and the bankruptcy code requires that this credit counseling be obtained by the client within the 6 month period preceding the bankruptcy filing. Additionally, Nova Law Group advises that clients not obtain credit counseling the same day as a bankruptcy filing; it is preferable to obtain the counseling at least one day in advance of the bankruptcy filing date.
When a client attends credit counseling, the credit counselor will attempt to work out a viable plan for repayment of the client’s debts outside of bankruptcy. In some cases, this is likely to be an exercise in futility, but all clients must go through the process before filing for bankruptcy. Typically a credit counseling meeting takes 1-3 hours, and at the end of the meeting, the counseling agency will give the client a certificate demonstrating completion of the program. It is this certificate that the bankruptcy court will require you to present to prove that you went through the counseling before filing for bankruptcy. Without this certificate, the court will likely dismiss your case.
A list of certified credit counseling agencies can be obtained on the website of the United States Trustee. Nova Law Group recommends that clients make certain that the credit counseling agency chosen is an agency that is certified on the U.S. Trustee’s website.
Will Bankruptcy Stop Creditors from Calling Me? How do I Stop Creditor Harassment?
Many of our clients initially consider filing bankruptcy because they want to stop bill collectors and other creditors from harassing them at work or home. Creditor harassment is illegal and can be stopped, and there are many options that accomplish this result.
Bankruptcy will stop creditor harassment immediately. If a creditor ignores your bankruptcy filing and disregards the automatic stay, there are severe consequences for the creditor, including hefty fines and contempt of court charges. If a creditor calls you after your bankruptcy petition is filed and attempts to collect a bill, simply inform the creditor of your bankruptcy filing, including the case number and filing date and the creditor should back down. If a creditor persists in harassing you in violation of federal law, contact a lawyer immediately.
While bankruptcy will stop creditor harassment, you don’t need to declare bankruptcy to stop creditors or bill collectors from contacting you. The Fair Debt Collection Practices Act also prohibits many types of creditor harassment and applies to bar creditor communications with a debtor in most contexts.
In summary, no client should ever have to cope with creditor harassment, and illegal harassment can be stopped both in and out of bankruptcy. If you have been the victim of creditor harassment, Nova Law Group will be happy to consult with you regarding your legal options.
Is Bankruptcy Confidential? Will my friends know that I filed for Bankruptcy?
Many clients of our firm are concerned that their friends, relatives, or business associates will learn of their bankruptcy and have a negative reaction. It is our professional opinion at Nova Law Group that these concerns are unwarranted in the context of the vast majority of bankruptcy filings. In other words, except in the most unusual of circumstances, it is likely that no one you care about will learn of your bankruptcy filing unless you tell them.
Bankruptcy filings are technically matters of public record, and in theory, someone you know could go down to the courthouse and search for non-confidential information involving your filing. Confidential information, like your social security number, is not available as a public record for security reasons. The public nature of bankruptcy filings makes it possible, although extremely unlikely, that a friend, relative, or business associate of yours would find information regarding your bankruptcy case. Most people have better things to do than stalking the local courthouse to uncover potential information regarding possible bankruptcy filings of their friends and relatives. This would be an enormous waste of free time, and many people don’t know that information regarding bankruptcy filings is even available. As a result, although it is theoretically possible that someone you know could learn of your bankruptcy filing, it is very unlikely that they ever would.
Perhaps the only exception to the above rule is that a friend, relative, or business associate of yours will be aware of your bankruptcy case if that person is also your creditor. When you file bankruptcy, all of your creditors will receive notice from the court regarding your bankruptcy filing and how to protect any rights they may have regarding payment from the bankruptcy estate. Accordingly, friends, relatives, and business associates who are also creditors of yours will know about your bankruptcy filing.
In our experience, in the very rare instances when a personal connection of our client finds out about the client’s bankruptcy case, it is generally not an issue. Most people understand that bankruptcy exists for a reason—to get people on their feet again, and that the vast majority of bankruptcy filers are hard-working people who have just hit very challenging times. Many of our clients are reluctant to discuss bankruptcy with friends, relatives, and colleagues, only to find that these same people are generally compassionate regarding the client’s situation. In the humble opinion of our firm, we believe that people who reach an educated decision to explore bankruptcy options are taking charge of their financial situation and the cards life has dealt them. These choices should be viewed as positive empowerment on the part of the client and a demonstration of resolve to work through the client’s debt problems toward a constructive solution. In our view, any negative stigma to these positive decisions is almost always misplaced, and is a reflection only of ignorance relating to bankruptcy’s purpose. Our firm commends our clients for taking affirmative steps to resolve their debts and move on to a fresh start in life.
What is the Means Test? How do I pass the Means Test?
The “means test” is a computation designed to determine whether some higher-income bankruptcy filers should be forced to file a Chapter 13 plan rather than a Chapter 7 plan. This means that some higher-income people who fail the means test may not have the choice to file a Chapter 7 bankruptcy case.
While the means test prevents some high-income people from filing for bankruptcy under Chapter 7, most people filing for bankruptcy either do not need to take the means test, or pass the means test and can file a Chapter 7 bankruptcy case anyway.
Any person filing for bankruptcy who earns less income than the median state income for the state in which he lives, adjusted for the number of dependents in his household, does not need to take the means test. In other words, if you make less than the median income for your state, adjusted for the number of your dependents (children, elderly grandmother, etc.), then the means test will not prevent you from filing a Chapter 7 bankruptcy case. There are many other factors you may have to meet to file a Chapter 7 bankruptcy case, but the means test will not present a problem for you. However, if you earn more income than the state median, then you must proceed to the second step and see if you pass the means test.
The actual means test calculation is very complex and is beyond the scope of this article, but the simple way of looking at the test is to compare your total income from all sources with your total expenses and see if there is anything left at the end of the month. In other words, if you are a high-income filer, but you have almost no money left at the end of every month after paying your reasonable expenses, then you might pass the means test and be eligible to file Chapter 7 bankruptcy. However, if you have a lot of money left after paying your expenses, then it is likely that you will not pass the means test. If you fall into this second category of people, it is highly-advised that you consult with a lawyer, as there are legal arguments that can still be made on your behalf should you choose to file a Chapter 7 bankruptcy case. It should be noted that you can still file for bankruptcy under Chapter 13 even if you do not pass the means test.
The differences between Chapter 7 and Chapter 13 bankruptcy are numerous, but this article is designed to cover some of the biggest differences between a filing under each. The following provides a comparative analysis of the some basic distinctions between each bankruptcy chapter as applied to some typical concerns of debtors.
What Property do I have to Give Up in Bankruptcy?
Chapter 7: Generally all property that is not covered by a bankruptcy exemption must be given up to pay off the debtor’s creditors. It should be noted that there are many exemptions under State and Federal law to be claimed and that frequently many debtors are able to keep all property of minor to moderate value. Some notable exceptions are homes or cars with substantial equity (but not those without equity or minor equity), expensive luxury goods, investments, and anything of high value not covered under an exemption. Talk with an attorney to see if the property you want to protect can be exempted. If an exemption is available, then you will not need to give it up in bankruptcy.
Chapter 13: Generally the debtor gets to keep all of his property, as long as he can make the plan payments allocated the specific creditor in question over the term of the bankruptcy case. This is a major advantage of Chapter 13 bankruptcy, as the debtor gets to keep control of the property as long as he can afford the payments. However, the debtor must continue making all payments under the bankruptcy plan as ordered by the court. If at any time the debtor fails to make payments on the property, control of the property may be lost depending on the situation. In addition, debtors are entitled to claim the same exemptions as they would be entitled to take in a Chapter 7 case.
How Long does Bankruptcy under each Chapter Last?
Chapter 7: Normally lasts 3-4 months from filing until discharge.
Chapter 13: Normally lasts 3-5 years, assuming the completion of a successful plan by the debtor. It is very difficult to make plan payments for 3-5 years and only the most diligent of people will be able to accomplish this task, as it requires living very modestly for a very long period of time. This is a disadvantage of Chapter 13 bankruptcy.
How much will Each Type of Bankruptcy Cost?
Chapter 7: Fees and costs change, but you can generally expect bankruptcy under Chapter 7 to normally be about 30-50% of the cost of a similar Chapter 13 case.
Chapter 13: See above. More expensive than Chapter 7 bankruptcy due to the complexity of the case and the number of attorney hours required.
This section is designed to provide guidance regarding eligibility to file a Chapter 13 bankruptcy case. Please note that people who do not qualify to file a bankruptcy case under Chapter 13 of the bankruptcy code may still be able to file bankruptcy under Chapter 7 of the code.
The most important consideration when a client decides she would like to file a Chapter 13 bankruptcy case is whether or not she has the income to propose a confirmable Chapter 13 plan. The essence of Chapter 13 bankruptcy is a commitment to pay your creditors back over a long period of time, usually 3 to 5 years, and your proposal to repay the creditors is called the “plan.” Similarly, a “confirmable plan” is basically a plan where the debtor has enough income to pay all types of creditors which the bankruptcy code says must be paid in full, and some portion, although not always, of creditors who need not be paid in full. Creditors who must be paid in full in a Chapter 13 case include: child support not owed state agencies; Chapter 13 trustee fees; most tax debts; and secured debts that will outlive your plan (like most mortgages).
While the exact calculation for proposing a plan is extremely complicated and beyond the scope of this article, the simple way of calculating whether or not you can propose a confirmable plan is to do the following: add up all income earned or received from all sources; add up all of your expenses on everything that you intend to keep after filing bankruptcy, including cars, homes, food, utilities, etc.; add up all payments that you would have to make to creditors that “must be paid in full” (described above) and divide by 36 or 60 (3 or 5 year plan); add 10% to your expenses for the Chapter 13 trustee’s fee; and now compare your income to the sum of all the expenses listed above. If you’re income is still higher than the sum of all of the above expenses, then you can possibly propose an eligible Chapter 13 plan. However, the list above is by no means an accurate representation of every step in determining your eligibility for Chapter 13, and you should definitely seek the counsel of an attorney if you want to consider filing a Chapter 13 case. The list is only designed as a rough estimate to determine your eligibility, and the actual computation is much more complex. If it seems like you may be able to propose a confirmable plan, then you can move on to the final steps for determining eligibility to file Chapter 13 bankruptcy.
To file a Chapter 13 bankruptcy, you must have secured debt of under $1,010,650 and unsecured debt of under $336,900. These numbers change regularly however, so consult with an attorney to ensure that accurate numbers are used. A “secured debt” is basically a debt whereby the creditor can seize the property itself if you don’t pay. Examples of secured debts are car loans and most home loans. An “unsecured debt” is a debt where the creditor can sue you if you don’t pay, but can’t take away any of your property directly. Examples of unsecured debts are your personal debt to Aunt Mary Jane, your unpaid dentist bill, parking tickets, credit card debts, medical bills, and so on.
To propose a confirmable Chapter 13 plan, you must also pay your creditors at least what they would have received if you had filed for Chapter 7 bankruptcy. One of the advantages of a Chapter 13 bankruptcy is that you generally get to keep even valuable property with substantial equity, if you can afford to make the payments. This provision ensures that creditors aren’t in a worse position because you filed for Chapter 13 bankruptcy than they would be in Chapter 7 bankruptcy.
If it seems like you meet all or most of the requirements posted in this section and are interested in filing a Chapter 13 bankruptcy case, then we recommend you consult with an attorney regarding the possibility of filing. Nova Law Group is pleased to provide you with a free consultation to consider these options in greater depth.
This section is designed to describe the major categories of people who can file for bankruptcy under Chapter 7 of the bankruptcy code. While not all people are permitted to file for bankruptcy under Chapter 7, most people can if they choose to do so.
Debtors who have primarily business debts to discharge as opposed to personal debts.
Debtors who meet the status of a disabled veteran under the statute.
Debtors who earn less than the median income for the state, adjusted for both the number of dependents in the debtor’s household and also averaged over the six months leading up to the bankruptcy filing.
The means test was designed to determine whether any given debtor can pay back some of the debt he owes over time in connection with a Chapter 13 plan. As a practical matter, the means test is designed to force some debtors who prefer to file a Chapter 7 bankruptcy case into Chapter 13 instead, where they will be required to pay back a portion of what they owe to creditors over 3 to 5 years. The application of the means test is a highly-complex calculation involving certain income and expenses applied in different proportions to calculate your payment ability, and it is advised that you contact an attorney if you fall in this category of people and want to file a Chapter 7 bankruptcy case. If you pass the means test, you will likely be able to file a Chapter 7 bankruptcy case. If you fail the means test, then you may be required to file a Chapter 13 bankruptcy case instead.
A person cannot file a Chapter 7 bankruptcy case if he obtained a discharge in a separate Chapter 7 case within the past 8 years, or a Chapter 13 case within the past 6 years, unless you paid at least 70% of your unsecured debts in the prior Chapter 13 case.
A Chapter 7 bankruptcy case cannot be filed if a prior Chapter 7 or Chapter 13 case was dismissed in the past 180 days due to the violation of a court order or your request for dismissal after a creditor requested relief from stay from the court.
A Chapter 7 bankruptcy case can be dismissed after filing if it is found that the debtor has defrauded his creditors or seeks to defraud the bankruptcy court.
The law regarding eligibility to file a Chapter 7 bankruptcy case can be very complicated, and it is highly recommended that the advice of an attorney be obtained before proceeding with filing. This is especially true in the event that a filer exceeds the median income for the state and wants to file Chapter 7 bankruptcy nonetheless. Note that should a filer be unable to file for bankruptcy under Chapter 7, he may still be able to file for bankruptcy under Chapter 13.
The length of any bankruptcy case generally varies based on the chapter of the bankruptcy case and the complexity of the case. Typically, most individual Chapter 7 bankruptcies last about 3 to 4 months from the time of filing to the time that discharge is granted. A Chapter 13 bankruptcy case lasts much longer than a Chapter 7 case, and typically extends 3 to 5 years from the time of filing before a discharge is granted.
There are times when I seriously wonder if the California State legislature has considered the ramifications of a specific bill that becomes law. California Public Utilities Code Section 185038 is one such statute.
In connection with Nova Law Group’s litigation practice, our firm represents plaintiffs Halstead Nursery Inc. and Russell Peterson in active litigation against the High-Speed Rail Authority and the Peninsula Corridor Joint Powers Board. Our lawsuit seeks to obtain a declaration of the rights and obligations of each of the parties to a Trackage Rights Agreement, signed in 1991 between the PCJPB and Southern Pacific Railroad (now owned by Union Pacific Railroad). It is our position that the Peninsula Corridor Joint Powers Board has no contractual right to grant the High-Speed Rail Authority any right of way to the track going up and down the SF peninsula, including the Santa Clara County Line and the Peninsula Main Line, among others. Our clients brought a declaratory relief action to define the rights of defendants in connection with the contract.
One of the foremost considerations made by an attorney when bringing a lawsuit is a decision of venue, or in other words, which court will hear the action. In the Peterson/Halstead Nursery v. HSR/PCJPB case, our firm brought suit for our clients in San Mateo County Superior Court, because this choice of venue would be most convenient for the vast majority of the parties to the case. All of the plaintiffs were San Mateo County residents. Half of the defendants were San Mateo County residents. A large portion of all of the contested land exists in San Mateo County. Most of the contracts were entered into in San Mateo County. In fact, basically all evidence, of every kind, was present in San Mateo County.
Given the overwhelming prevalence of parties and evidence regarding the litigation in San Mateo County, one would think that venue would appropriately be in San Mateo County as well. According to defendant HSR however, this is not the case.
Defendants claim that venue for any action against the California High Speed Rail Authority (HSR) must only be had in Sacramento County. They claim that Public Utilities Code Section 185038 mandates that all actions, regardless of whether or not HSR is the only defendant or one of many, must be had in Sacramento County. Instructions to obtain my legal response in connection with our opposition to Defendants’ Motion to Change Venue are posted at the end of this article, but I think it is interesting to consider the public policy ramifications of defendants’ interpretation of Public Utilities Code Section 185038.
If defendants’ interpretation of 185038 is correct, then the legislature would have intended all actions against the California High-Speed Rail Authority to be brought in Sacramento County, regardless of other considerations. This interpretation would stand in stark contrast to the normal venue rule, which can accurately be described as “venue proper to one defendant is proper to all,” or in other words, that plaintiff can choose a court where at least one defendant resides.
The public policy ramifications of this interpretation are startling. According to defendants HSR and PCJPB, if HSR is even one defendant of fifty defendants in an action, then venue must be had in Sacramento County. This is true even if the remaining 49 defendants live in San Diego, New York, Rome, Moscow, London, and Hong Kong. It is true even if there are 200 plaintiffs, who all live elsewhere in California, or across the globe. It is also true even if all property disputed in the action and all contracts giving rise to the litigation are made in counties, or countries, outside of Sacramento or even the United States. In essence, if defendants’ interpretation is followed, then the California High-Speed Rail Authority would be entitled to drag all plaintiffs, defendants, property, evidence, and all other materials hundreds, if not thousands of miles across the state, country, or globe to Sacramento County–simply for the convenience of HSR. Given that venue laws are designed to promote the convenience of the parties, this is an almost comically absurd result. Our clients (and our firm) find it incomprehensible that this could be what the legislature intended, and we are currently involved in active litigation to determine this issue. Whatever the outcome of the litigation, I recommend that the legislature modify the statute to make clear its intent regarding this issue, and to hopefully avoid the preposterous outcome that the California High Speed Rail Authority is currently advocating.
If you are interested in reading Nova Law Group’s legal response to Defendants’ Motion to Change Venue on this issue, it is available on the San Mateo County Superior Court’s website.
A general assignment for the benefit of creditors is an efficient out-of-court alternative to corporate bankruptcy for many businesses. General assignments often provide our clients with superior results when compared to corporate bankruptcy, and are generally the preferred method of liquidation for both our debtor clients and creditor clients alike.
General assignments are created by state law and are very different than corporate bankruptcy proceedings in a federal bankruptcy court. In a general assignment, the debtor/assignor corporation selects an assignee to unwind the corporate business and take control of the assets and liabilities of the company. Once the assignee is appointed and the assets and liabilities of the company are transferred, then the corporate management team, investors, and board members of the company are free to move on with other opportunities. Any personal liability of the corporate management team and its directors is removed after the assignment of assets and liabilities occurs.
How does a General Assignment for the Benefit of Creditors Work?
The debtor/assignor company signs an agreement with the assignee transferring all assets and liabilities to the assignee, which fulfills the role of an independent trustee in the transaction.
The assignee in its capacity as trustee has a fiduciary relationship with creditors and monetizes the assets of the company for distribution to the company’s creditors. Additionally, the assignee has the flexibility to run the business as a going concern if operating the company will maximize its value.
Secured creditors of the debtor/assignor are distributed any assets from the sale of collateral securing their debts, allowing them to forego the expensive and time-consuming process of foreclosing on the collateral.
Unsecured creditors are allowed to file proofs of claim with the assignee to be paid pro-rata distributions of any amounts owed them by the debtor/assignor.
An assignee is chosen by the officers of the debtor company, as opposed to a bankruptcy trustee appointed by the bankruptcy court.
Assignments are generally less expensive than bankruptcy proceedings and can be completed over a much shorter period of time, often without court approval.
Assignments are less formal than bankruptcy proceedings and most actions by the assignee can be accomplished without court appearances or approval. This level of speed and efficiency greatly increases the probability that the assets of the company will be monetized for the greatest value.
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The information contained in this Blog is designed to be helpful and informative, but it is not a substitute for the legal advice of an attorney and does not purport to be legal advice for your individual situation. The law is an ever-changing field, and while we believe that this information is accurate as of the time of publication, the law can, and often does, change. As such, the information on this Blog and the Nova Law Group website is not legal advice and does not establish an attorney/client relationship with Nova Law Group. If you make the choice to consult with an attorney regarding your legal needs, we are pleased to offer you a free consultation to explore your options with Nova Law Group.
Nova Law Group is a firm specializing in Bankruptcy and Litigation. Our firm’s headquarters is located in Mountain View, California, within Santa Clara County. Feel free to browse our website and visit our Contact Nova page if you would like to consult with Nova Law Group regarding your legal needs.
The filing fee for a Chapter 7 bankruptcy is currently $299 and the fee for a Chapter 13 filing is $274. These fees are subject to change however, as the fees are determined by the court system. Additionally, many courts impose fees for various services provided to debtors, including copying documents, official certificates, additional filings, documents involving adversarial proceedings, and many others. The Trustee may also impose fees on some debtors for services provided, particularly in Chapter 13 proceedings where the Trustee is often paid monthly out of the debtor’s plan.
In addition to the basic fees submitted to the court and the Trustee, many people also choose to employ the services of an attorney to represent them in bankruptcy proceedings and to ensure that all paperwork is done correctly. Nova Law Group offers clients some of the lowest rates in the industry for law firms of our caliber. Our fees typically vary depending on the services provided, the complexity of the issues presented, and the number of court appearances required to represent your best interests. We invite you to attend a free consultation to explore how Nova Law Group can help you meet your legal needs in a cost-effective manner.