Sacramento Bankruptcy Attorney Blog

As an El Dorado Hills bankruptcy lawyer, I have informed individuals that certain acts prior to filing bankruptcy can result in the denial of their chapter 7 discharge. The bankruptcy law focuses on debtor actions that would unfairly disadvantage creditors. I discuss a few of the areas of special concern below.

A debtor may be denied a discharge where the debtor transferred, concealed, or removed any property, within one year before the filing of a bankruptcy petition or at any time during the bankruptcy while trying to hinder creditors. An example of this prohibited act is where an El Dorado Hills debtor who has been sued transfers money from the debtor's bank accounts to the debtor's friend in an attempt to shield these assets from creditors action. This rule makes sense because filing of bankruptcy is in effect a declaration by the debtor of the debtor's insolvency. It is not equitable for the debtor to be afforded the benefits of insolvency and yet still maintain control or receive the benefits of misdirected assets.

Additionally, concealing or destroying financial records by a debtor may preclude the debtor's chapter 7 discharge. For example, a small business owner may not eliminate old profit and loss statements, payroll records, or tax documents. The reason is that the business transactions and history must be transparent and coherent so that there is a reasonable basis to qualify for bankruptcy under chapter 7.

Bankruptcy, especially chapter 7, offers debtors a chance to regain financial freedom amidst even tremendous financial distress and burdens in the form of credit cards, mortgages, and other debts. To ensure that this relief is being appropriately granted the trustee and court must have the full cooperation from the debtor. That means that the debtor needs to comply with full candor and disclosure in supplying information.

If assets have already been moved by the debtor then the court must have all of the relevant information. A debtor may not simply claim that they do not know what happened. An explanation from the debtor is necessary and the court will evaluate the sufficiency of the information.

During the case a debtor must generally comply with the trustee as the trustee administers the estate. That may require handing over estate property in a timely fashion. Where there is a court order, the debtor must normally comply with the order. Failure to comply with the trustee or court may even revoke a discharge that has already been granted in a chapter 7 case. Therefore, it behooves the debtor to pay special attention to all mail from the court or trustee in the case.

Loan modification in bankruptcy is usually a more predictable process than trying to modify a mortgage directly with the lender or even using a loan broker. Many Sacramento home owners are unsuccessful in reducing the principle debt on their home loans or lowering the interest rates. Some of my bankruptcy clients have tried to call their lender themselves but the lender offers unrealistic options, presents lengthy time lines to complete the process, or doesn't respond at all. Others have tried to hire a loan expert to negotiate on their behalf and have had mixed results.

Ultimately the mortgage company is normally not compelled to act favorably toward home owners in these types of situations. Having not paid their mortgage in quite some time, borrows usually don't have much leverage in the process. To make matters worse, they are often racing against the clock, trying to lower the mortgage payments and get caught up on late payments before the home is auctioned off at a foreclosure sale.

As a bankruptcy lawyer, I have modified mortgages for my clients in Federal Court. The bankruptcy process provides debtors with rights that they otherwise would not have outside of bankruptcy. In certain situations the mortgage terms can be changed without the creditor's consent. However, with respect to certain types of loans, a debtor's ability to improve their mortgage terms is quite limited, even in bankruptcy. It's important to know whether the mortgage is a first mortgage or a secondary one, and whether the debt was incurred for a primary residence or a secondary residence or business property.

Depending on the type of loan, a bankruptcy chapter 13 or chapter 11 debtor might have the right modify a mortgage secured by their real property. In some cases they can reduce the principle amount of the debt so that it corresponds with the current value of the property or possibly lower the interest rate so that it is closer in line with current market rates. In addition, a debtor usually has the option to repay months of missed payments slowly over time instead of having to repay the amounts in one lump sum payment. That option can be helpful in preventing the foreclosure sale of the home. Most families do not have twenty or thirty thousand dollars to catchup on their missed payments, but if their conditions have recently improved they might be able to pay an extra three hundred or four hundred dollars per month and the loan is still affordable and within their budget.

What if your car payment is too high for your budget?

High car payments are one of the biggest reasons that people file bankruptcy in Sacramento. Under chapter 13 of the bankruptcy code, a debtor, with respect to certain qualifying car loans, usually has the ability to reduce the principle debt on a secured car loan and reduce the interest rate on that same car loan.

If a debtor wants to keep property that is the security for a debt, in a chapter 7, the debtor must normally agree to continue to pay that debt under the preexisting terms of the loan. However, chapter 13 offers a lien stripping option that can be exercised in an individual's bankruptcy case. In addition to locking in a lower interest rate, in some cases a qualifying debtor may also repay missed or late payments slowly over the life of the debtor's plan. This option helps to keep car payments low. In addition, the term of the car loan can be increased in some cases. This also has the effect of lowering the car payments and making them more affordable.

In Sacramento, the value of most automobiles has been sharply reduced in the last few years. The economic impact on car values has caused many owners to have negative equity. They end up owing much more than the car is worth. When a bankruptcy court determines the principle amount of debt to remain on a car, the court usually looks to the value of the car. Kelly Blue Book is a good starting point to determine car values.

Interest rates that are much higher than the market rate can also be modified in some cases. The prime rate is usually a good indicator of the market rate. Of course, there must also be a consideration of the risk that the debtor presents, and therefore a risk margin is often added to the market rate.

What are some of the important factors in the lien stripping determination that a bankruptcy lawyer will make? Here are a few: 1) when was the debt incurred? 2) was it ever refinanced? 3) is the car for personal use? 4) are there any upgrades or options that were added to the car? 5) can the debtor afford to make the payments on the car if the payments are lowered? These are just some of the basic considerations; but there are others in more complex debt reductions plans.

An automobile is an essential item of personal property for most people. We use them to get to work, pick up our children from school, and to take short vacations. Most of us like nice cars but sometimes we buy them only to later realize that we cannot afford to pay the payments on them. When you can non longer pay your car payments you risk losing your car or having it repossessed. Many who are faced with high car payments could afford to keep their car if the car is modified in some way. That's why lien stripping remains a valuable option in a chapter 13 case.

Individuals often approach a bankruptcy attorney when they feel a sudden urgency to respond to pressure from a creditor. In Sacramento that urgency comes in many forms: loss of job, a lawsuit, increasing mortgage payment, and a number of other events that can take anyone off track. When one of these events comes unexpectedly there may be little time to respond and most people don't have the cash reserves or assets to buy enough time to get back on their feet. Most creditors are unwilling to settle with desperate borrowers. Ultimately, when the options to pay a credit card or change the interest on a mortgage are insufficient to help remedy a borrowers issues, the borrower finds themselves in an tough situation. They realize that based on their current finances they are unlikely to ever get back on there feet. With that feeling, debtors lose the motivation to earn a living, accumulate assets, and strive toward retirement and a successful financial outcome.

In turn, those individuals who wish to utilize the resources under the bankruptcy code, will file bankruptcy. Chapter 7 is more common than other types of filings like chapter 11 or chapter 13 because it tends to be the least expensive means to obtain relief from creditor action. That's because a bankruptcy attorney can prepare a chapter 7 in most cases rather quickly. In the Eastern District of California, there is usually only one court appearance, and that is at a creditors meeting, also known as a 341 meeting. In addition, a discharge in a chapter 7 case frequently can be obtained within four months of filing.

Chapter 7 is known as a liquidation chapter, meaning that most debts and most assets are eliminated. However, some debts, like students loans, are not normally discharged unless there is a hardship demonstrated. Some other types of debts are not discharged under any circumstances. Most of the time though, credit card debt is discharged if the debtor qualifies for this type of filing. This result can offer great relief for someone who is on a limited income and would be strained by trying to maintain a high interest revolving account.

Many Sacramento residents ask me whether they can keep their house or car if they file chapter 7. It usually depends on whether there is debt secured by the asset, whether the individual can afford to continue to pay that monthly payment, or whether the individual has any equity in the property. For example, if one of my clients had a mortgage of $200,000 on their home and they decided that they did not want their home foreclosed and to have to surrender it, they would need to have sufficient income to make the monthly payment. What if my client's car was worth $10,000 without any debt secured by this item? If there was a sufficient exemption value remaining, my client could probably keep the car, even one of this value.

Sometimes however, an individuals monthly income is too high for chapter 7 and therefore chapter 13 or chapter 11 might be more fitting. Other times a debtor wishes to reduce the secured debt associated with certain types of eligible property and therefore chapter 7 may not be the best fit even if they qualify.

These are just a few considerations on the subject. This is not legal advice.

From and attorney's perspective, why do individual debtors file chapter 11 instead of chapter 13?

Where an individual or household's income exceeds the limits provided for in Chapter 7, I like to evaluate other options under the bankruptcy code. The first determination that I make is whether the individual debtor(s) are within the debt limits established to meet the eligibility requirements in a chapter 13 case. I look at two categories relevant to this inquiry, secured debt and unsecured debt. Secured debts are normally linked to some kind of property, such as house or a car. In the Folsom and Sacramento California areas it is quite common for home owners to have mortgages that exceed these limits especially where they own more than one home. While the most common unsecured debts are credit cards. If the debt in either one of these categories exceeds the statutory limits, Chapter 13 is probably not a viable option.

Secondly, even if the debtor's debt is below the relevant limits, in a chapter 11 small business sole proprietor's case or an individual case, calculating a debtor's disposable income by incorporating the debtor's actual income deductions, taxes, and expenses is currently possible. This lessons the possibility that a debtor's financial commitment is based on an artificial disposable income figure that might translate into an unrealistic obligation.

Another important consideration is the commitment period commensurate with the debtor's reorganization plan. In chapter 13, a plan usually must be between three and five years. In a chapter 11 there is greater flexibility. This can translate into payment terms that are more reasonable and appropriate for a debtor's particular situation. For example, if a debtor owes $50,000 on the debtor's car, a Lexis Hybrid SUV, and the value of the car is $30,000, and purchased several years ago, and otherwise eligible for a reduction in the secured debt associated with the car, the debtor might want to take the opportunity to do so. If so, the debtor would probably need to pay the debt during the life of the plan. In a chapter 13, this might result in monthly payments that the debtor cannot afford. However, with longer plan terms available in a chapter 11, the debtor could reduce the amount of those payments in such a plan. A longer repayment period can also be effective in preventing foreclosure or modifying a mortgage.

While these are just a few considerations, as a bankruptcy attorney I find them to be frequently relevant. This article is not attorney legal advice.

Are Debt Counseling and Loan Consolidation Services Worth the Trouble?

With the Sacramento debt problems rising, credit card debt has become even more unmanageable. My clients usually ask me if consolidating their credit cards with a debt servicing company is an option they should consider. While debt relief companies certainly make a strong pitch that they can help you get out of debt, I am not convinced that these debt settlement plans truly provide individuals with a fresh start.

Options for Dealing with Credit Card Debt

In a recent New York Times article, Weighing the Options With Credit Card Debt, the author reviews common options available for those with credit card problems. The article highlights the need to carefully consider your budget and the financial advantages of a settlement plan when deciding on a solution for your debt. For example, if you have hardly any disposable income, you may not be able to justify paying a large upfront fee for a company to manage your debt. In addition, there may be monthly fees charged by these companies. In the end, you may end up back where you started, unable to make your monthly payments, even though the payments are in a new form, such as a longer payment term, lower rate, or single consolidated payment.

Credit Card Debt Settlement; When Does it Make Sense?

In my opinion, there are a few challenges for Sacramento residents who want to settle or pay off their credit card debt by using a consolidation company. First, the challenge is to find a proven company that is affordable and actually gets results for its clients. Second, the applicant should have enough money to hire the debt relief agency. Third, the applicant should be able to qualify for the money payment plan to the group of creditors. Fourth, the applicant's income should be low enough to justify a creditor making some concession, like lowering the interest rate on the card debt. Getting a creditor to reduce the principle balance on the credit card account is rare, and it usually takes a large upfront payoff to the creditor. The final hurdle is that the total amount of debt should be low enough so that financing it into a payment plan is reasonable and doesn't stress out the applicants finances for the rest of their life.

As you can see, there are many reasons to disqualify someone from a credit card loan consolidation plan. In limited cases, it might make sense where the individual meets the above criteria. Personally, I have found it to be quite rare that one of my clients will achieve a better financial result in a debt settlement plan. As a bankruptcy attorney in Sacramento, my goal is to navigate through the various options outside of bankruptcy. Admittedly, its not easy to keep up with all of the newest debt elimination advertisements in Northern California. While bankruptcy is not right for all candidates, I do find in my practice that most of my clients realize a more significant debt discharge by filing bankruptcy.

Comparing Bankruptcy to Credit Consolidation Plans

An eligible and qualified Chapter 7 debtor in Sacramento can usually discharge all of their unsecured debt. Credit card debt is usually unsecured. If a discharge is issued in the case, creditors are permanently barred from contacting the debtor to try and collect the old debt. The debtor has a fresh start. The Chapter 7 process usually takes about four months to complete.

Individuals with higher than average income who qualify for Chapter 13 usually pay only what they can afford to pay on unsecured debts. The payment plan in most cases is between three to five years and the interest rate is usually zero. Again, once the payments are completed, the remaining debt is discharged, and the creditors can no longer attempt to collect the debt from you.

Credit card consolidation on the other hand may require the applicant to pay interest on the debt over a longer period of years and to completely eliminate all of the debt the applicant usually must make a large payout offer. The viability of the settlement agreement will often depend on the quality of the company handling the debt services.

Will Bankruptcy Ruin My Credit?

Keeping your credit in tact after bankruptcy is an important consideration. In many of the cases that I come across at my bankruptcy law firm in Sacramento, my clients already have bad credit before they file bankruptcy. Usually, they have missed several payments on their credit cards and mortgage loans. In addition, their credit reports are filled with a large number of accounts, often with large balances. The bottom line is that if you are considering bankruptcy, your credit is probably in need of a tune up. The real question that I focus on is, how to improve your credit?

Bankruptcy Eliminates Most Debts

The fact is that credit card companies have designed their borrowing process in such a way that most people can never afford to pay off their debts. With high interest rates, late fees, and incentives to spend more and more, its no wonder why your credit card debt grows so quickly. Once you have accumulated a maximum limit credit card debt, most of you can only afford to make the minimum monthly payments. This is the biggest obstacle to maintaining a high credit rating.

While filing bankruptcy certainly is a negative item to have on your credit report, it may actually strengthen your credit rating in the long run. Why? Because, clearing away massive amounts of credit card debt, and other delinquent debt raises the likelihood that you can repay new debts. Unfortunately, you won't begin to reap the benefits of your newly cleared balance sheet for a few years. Most banks will not approve a loan to someone who has filed bankruptcy in the last two years. However, ask yourself this: would a bank approve you for a loan based on your current credit status? In other words, how bad is your credit without filing bankruptcy?

The impact of bankruptcy on your credit lessens over time. So while the filing may remain on your credit report for up to ten years, its often possible to obtain new credit cards and loans within just a few years after filing bankruptcy.

On the other hand, for those of you with a strong credit rating now, think seriously before filing bankruptcy. Your credit after bankruptcy will prevent you from obtaining new loans for several years and when you do, you won't be getting the strong credit type of interest rates that you once did. So for some with strong credit and an ability to repay their debts, avoiding bankruptcy might be the best solution.

Does Bankruptcy Protect my Property from Creditors?

In the Sacramento area bankruptcy clients often ask me how to stop creditors from filing a lawsuit against them, garnishing their wages, levying their bank accounts, or placing a lien on their property. In short, they are concerned that a credit card company or other creditor will take property from them because they have a past due debt with the creditor. When you are having trouble making regular monthly payments, the last thing that you can afford is for creditors to take money from your bank accounts or paychecks.

Fortunately, when a debtor files bankruptcy it triggers an automatic stay against most creditor action. With some exceptions, the automatic stay protects debtors by freezing the collection and enforcement actions against them for a certain period of time.

Protection from Lawsuits?

Some of my clients were in default with a credit card company. After several months of nonpayment the creditor filed a lawsuit. Considering the consequences of the creditor's action, I filed a Chapter 13 bankruptcy on their behalf. Had the creditor been allowed to continue its lawsuit and obtain a judgment, my clients' would have been at risk of having a lien attached to their home.

Stopping Wage Garnishment?

In most cases, the automatic stay gives debtors protection against wage garnishment as well, even if the garnishments have already started. While some creditors may obtain relief from the stay, the creditor must have a valid reason for obtain such relief.

Can You Protect Your Home From Foreclosure?

Filing bankruptcy may stop or delay the foreclosure sale of your home, even if the payments are several months late. This is because a foreclosure sale is considered an enforcement action, whereby the creditor attempts to collect on the mortgage debt. While the foreclosure is only barred until the mortgage company obtains relief from the automatic stay, the delay may give the debtor enough time to decide how to deal with the debt on their home.