Sacramento Bankruptcy Lawyer Blog

This post will complete our look at Chapter 13 bankruptcy issues.

For the past week we've been examining the nature of Chapter 13 cases wherein debtors repay their debts over time using a repayment plan approved by the bankruptcy court. But what happens if the court approves your plan and then due to unforeseen circumstances you are unable to complete it?

The trustee in charge of your case will usually work with you if it appears your difficulty in completing your plan is truly unexpected. He or she may modify your plan by reducing your monthly payments or even grant a grace period in which payments need not be made. Some of the situations in which this may occur include sudden unemployment and unforeseen medical problems.

Trustees can also use their discretion and simply discharge your debts due to hardship. This is relatively rare, but does occur sometimes if the debtor suffers a heavy burden.

If the court rejects your request for a plan modification or a hardship discharge you'll still have a couple of alternatives at your disposal. First, you could shift your case into a Chapter 7 action. This option would be available assuming you haven't received a discharge in a Chapter 7 case during the last eight years. Second, you could simply request a dismissal of your Chapter 13 case. In this case you may owe less due to your payments but then your creditors could also add interest to your debt to make up for the freeze which was imposed on your debts once your petition was accepted by the court.

I hope you've enjoyed our posts on Chapter 13. Keep in mind this is often an effective remedy for high-income earners or people with substantial property holdings.

This post is part of our series dealing with Chapter 13 bankruptcy issues.

Today we'll look at the filing process and what you'll need to complete the transaction.

The forms used for Chapter 13 are the same as those used for Chapter 7. There is a lot of information that must be provided and it is very important that it be completely accurate. Along with this packet you'll have to file your last tax return and show that you're up to date with your taxes going back four years.

The heart of Chapter 13 is the repayment plan. You'll submit this plan along with your forms and also serve a copy on your creditors.

Each month you'll make payments toward your repayment plan. These payments will go to the trustee assigned to your case. He or she will then distribute these funds to your unsecured creditors. But you'll most likely continue to make monthly payments to your secured creditors, such as your mortgage lender.

The great thing about Chapter 13 is that you won't have to pay down all of your debts completely in order to finish your plan. Certain debts must be paid in full, however. These include family obligations, such as child support and alimony, and back taxes. But debts incurred from credit cards and medical expenses

This post is part of our series dealing with Chapter 13 bankruptcy issues.

If you've been following these posts you now know that Chapter 13 calls for debtors to enter into a repayment plan in order to pay down their debts over time. But how much will you actually have to pay into your plan? We'll address this issue in today's post.

In order to calculate how much you'll have to contribute each month toward your plan you'll have to analyze your income and compare it to your state's median family income. Once you know how your income compares to the state average, you'll know how much you'll be required to pay each month.

If your income exceeds your state's median family income you'll have to pay all of your disposable income into your repayment plan over a five-year time period. But here's the catch: if your income exceeds the state average your expenses will be determined by the IRS for purposes of figuring out your disposable income. Your actual expenses are will not be taken into account if you fall into this category; rather, the IRS will determine just how much you should be spending on everyday items and necessities.

If, on the other hand, you make less than your state's median family income you can enter into a three-year plan to repay your debts. And here you can use your actual monthly expenses to determine your disposable income - not the IRS norm.

In this post we'll continue our look at Chapter 13 bankruptcy.

Yesterday I gave a brief overview of how Chapter 13 works. The gist of Chapter 13 is that you agree to pay down your debts over time using a repayment plan approved by the court. Today, we'll look at the issue of who can file a Chapter 13 plan.
In order to qualify for a Chapter 13 repayment plan you must meet three basic requirements.

First, you must file as an individual person. Corporations or other business organizations are not eligible for Chapter 13 relief.

Second, your total debt must be below certain limits. Your debt is divided into secured and unsecured debt. (Secured debt is debt which is guaranteed by collateral: if you fail to make payments this property can be repossessed). For Chapter 13 purposes, your total secured debt must be below $1,010,650. Your total unsecured (regular) debt must be below $336,900.

Third, your repayment plan must actually be possible. Your repayment plan hinges on how much disposable income you have. In order to calculate your disposable income you add your secured debt payments (such as mortgage and car payments), and your priority debt payments (such as tax and family obligations). If you have enough money left over to devote to paying back your unsecured creditors, you'll probably be able to qualify for a Chapter 13 plan.

I

This will be the first in a series of posts on Chapter 13 bankruptcy. Today, I'll give a brief overview of this remedy.

Perhaps the best way to understand Chapter 13 is to compare and contrast it to Chapter 7. In Chapter 7, debtors agree to give up their non-exempt assets in exchange for a discharge of their dischargeable debts. In Chapter 13, on the other hand, debtors keep their property, but have to agree to a plan approved by the bankruptcy court wherein they'll pay their debts back over time. The repayment plan can last from three to five years.

Not all debts under Chapter 13 must be paid in full. Certain debts will have to be paid entirely (such as tax obligations), but for other debts partial payment is accepted.

The gist of the Chapter 13 remedy is that you agree to apply all your disposable income to paying off the debts contained in your plan. This entails a serious commitment, but for some people Chapter 13 makes the most sense.

For high-income earners, for example, Chapter 13 is often the only way to get debt relief. This is because in order to qualify for Chapter 7 your income must fall below a certain level - the median family income for your state. Another reason some debtors prefer Chapter 13 is that it allows them to hang on to cherished property.

We'll discuss Chapter 13 in more detail in the days to come. Until then, remember that I offer free consultations to familiarize people with their options in terms of bankruptcy.

Yesterday we looked at the issue of exempt property. Today we'll examine non-exempt property. This is the stuff you'll be forced to give up if you file for Chapter 7 bankruptcy.

Bankruptcy offers this basic bargain: in return for giving up your non-exempt property, you receive a discharge of your dischargeable debts. So what assets are considered non-exempt property?

Keep in mind that the bankruptcy court does not want to deprive debtors of the basic necessities of life. Property that is not indispensable must be handed over to the trustee. This typically includes a second home, boats and extra vehicles, business assets, bank accounts and stock holdings, valuable collections, electronic equipment such as cameras, and expensive instruments (such as a piano).

Some people might be tempted to hide their cherished possessions from the trustee. This is not recommended as you could be prosecuted for perjury if you lie on or omit items of property from your bankruptcy paperwork. Your case could also be dismissed on the grounds of abuse of the bankruptcy system, forcing you to wait another six months before you could file again.

If you have a lot of non-exempt property Chapter 7 might not be the way to go. Chapter 13 allows you to keep all your property (exempt or not) and pay off your debts over time. Alternatively, it is sometimes possible to buy back your non-exempt property from the trustee in a Chapter 7 proceeding or even negotiate with the trustee regarding your exempt and non-exempt property.

Today we'll continue our discussion of exemptions and examine how property is valued for the purpose of claiming exemptions.

While states have different exemption schemes, the kind of property that can be claimed as exempt is fairly uniform. The difference lies primarily in the amount you can assign to a particular item of property. For example, states allow debtors to claim as exempt equity in a vehicle up to a certain amount. This amount ranges from $1000 to $5000 depending on the state.

As a general rule, states provide exemption categories for the following property: equity in a home, equity in a vehicle, basic clothing, furniture, kitchen appliances, personal items, and tools of a trade. (This is not a complete list.) In addition, some states have what is known as a wildcard exemption. This is a specific amount you can apply to property that ordinarily could not be claimed as exempt.

The main issue facing people filing for bankruptcy is how to assign value to an item of property. What exactly is a fair estimate? In the past, states were a little more lenient in terms of assigning a value to goods. You could typically assign the amount that you'd receive at a garage sale. Under the new bankruptcy law, however, the standard has been raised somewhat. Now, you must value an item at the cost a retail vendor would charge (taking into account the condition of the property). In this context, eBay provides a good guide: check on this site to see how much a similar item is going for.

Tomorrow we'll look at the kind of property that usually cannot be claimed as exempt.

While federal law governs bankruptcy matters in general, states can pass laws which complement the federal system and address specific areas where the federal law is silent. Exemptions are one area where state law is particularly important.

Exemptions are important because filing for bankruptcy means that you are willing to part with your non-exempt property. This is the downside of receiving a discharge of your debts.

California has its own set of regulations governing what and how much property can be claimed as exempt. In order to use California's exemption laws, however, you must meet California's residency requirements.

The basic rule is that you can use a state's exemptions if you've been domiciled in that state for at least two years before filing for bankruptcy. A person's domicile is his or her true home base. In other words, it's the place you intend to return to no matter where you may roam. Imagine military personnel. They may be stationed in myriad places around the world but will inevitably return to their true home base. That's their domicile.

If it turns out you've been domiciled in California for at least two years before your filing date, you can use California's exemptions in determining the property you are allowed to keep.

I'll discuss exemptions in more detail in upcoming posts but remember that you must pass this threshold residency requirement in order to use California's exemption scheme.

This article continues our series of posts on possible bars to filing for bankruptcy under Chapter 7. Recall that in previous posts we examined bars based on receiving either an earlier discharge of your debts or an earlier dismissal of your case. Here we'll look at another ground for possible disqualification: fraudulent conduct.

Debtors can commit fraud on their creditors or the court. Here we'll look at fraudulent conduct vis-à-vis creditors.

Basically all fraudulent action in this context boils down to trying to conceal your assets. This is what you don't want to do. The following are some actions which will alert the court that fraud may be afoot:

1) Giving away property to family or friends in the time leading up to filing;
2) Buying big-ticket items when don't you have the resources to pay for them;
3) Hiding assets from your spouse while going through a divorce.

All these actions will raise red flags with the court. Remember, bankruptcy is designed to help out honest people who unfortunately fell into a hole. Any action that smells of fraud will diminish your chances of obtaining a discharge of your debts.

In tomorrow's post we'll examine what fraud upon the bankruptcy court looks like.

If you have questions pertaining to bankruptcy, I offer free consultations at my offices in Walnut Creek, Fairfield, and Sacramento.

Chapter 7 and Chapter 13 bankruptcy cases usually follow a very straightforward path. Litigation in other areas of the law can be extremely time-consuming and expensive. Bankruptcy matters, on the other hand, follow a regular timeline and are usually paid for on a flat-fee basis. This certainty in the progress and cost of your case can be reassuring.

This article will examine the steps involved in a typical case and when these steps occur.

Once your petition is filed, the bankruptcy court will mail a notice to your creditors. This notice informs your creditors you filed for bankruptcy (invoking the automatic stay) and sets the date for the meeting of creditors. A trustee (the person who oversees your case) is also assigned at this time.

The meeting of creditors takes place three to six weeks after you file your petition. Please refer to last week's article for more information on this important meeting.

After the creditors' meeting the trustee will conduct the means test. The means test compares your income to the state average and the fate of your case largely hinges upon the result. If your income exceeds the state average, you may have to convert to a Chapter 13 plan. This involves entering into a repayment plan designed to pay your creditors off over time.

There are two additional steps in a bankruptcy case that involve your property. The first relates to non-exempt property. If you have property that doesn't qualify for an exemption, the trustee will likely give you an option to buy the items back (typically on a discounted basis). The second step relates to secured property. If you own property that is secured by a mortgage, you'll be asked if you wish to reaffirm this debt and keep your property. These two steps occur within the two months following the creditors' meeting.

One additional step involves completing a counseling session in financial management. This must be completed within six weeks of the meeting of creditors.

If all goes well, the court will send you a notice of discharge about three months after you file your petition.

In the days or weeks that follow the trustee will allocate your non-exempt property to the creditors and your case will be closed.

I am a bankruptcy attorney with offices in Walnut Creek, Sacramento, and Fairfield. I offer free consultations to people considering bankruptcy. Please call today for your free consultation: 925-932-7086.

Some people considering bankruptcy think that giving away property to friends and family before they file would be a good idea. As long as I have to turn everything over to the court, the thinking goes, why not benefit those close to me before this happens? Unfortunately, this practice is unethical and is prevented by the Bankruptcy Code. The legislators who enacted the bankruptcy laws foresaw this potential for abuse and included penalties for debtors who try and circumvent the spirit of the bankruptcy laws in this way.

When people file for bankruptcy their property becomes the jurisdiction of the court. That means that once the petition is made, the court will control the debtor's property. The property that comes to be controlled by the court is called the "bankruptcy estate".

In general, everything the debtor owns and possesses is part of the bankruptcy estate. However, the law goes further and holds that all property unloaded in the time leading up to the petition being filed is also part of the bankruptcy estate and subject to the court's control. This means that the trustee can recoup property that was given away prior to the petition being filed and sell it for the benefit of creditors.

How does the court keep tabs on gifted property? In the petition there is a form on which debtors must list every property transaction they entered into during the past two years. The failure to record a certain sale or gift of property is considered perjury and punished accordingly. What's more, if the court finds the debtor lied on his or her petition it could dismiss the entire case.

In sum, while it may be tempting to give away property before you file for bankruptcy, this is a dangerous practice which could backfire and hurt your case. I am a bankruptcy lawyer with offices in Sacramento, Fairfield, and Walnut Creek and I offer free consultations to people considering filing for bankruptcy and loan modifications. Please call our office to set up an appointment at 925-932-7086.

The decision to file for bankruptcy involves a substantial trade-off. Sure debtors get to wipe their debts off the books, but don't they also lose everything they've worked for all their lives? Not necessarily. The Bankruptcy Code allows for certain property to be claimed as exempt. The exempt property is then removed from the bankruptcy estate, meaning that the trustee cannot sell these assets in order to pay off creditors.

In 2005, the Supreme Court handed down an important decision dealing with whether or not Individual Retirement Accounts (IRAs) can be claimed as exempt property.

The Supreme Court's bankruptcy cases do not often make the headlines. But the case of Rousey v. Jacoway was of great significance to retirees and the millions of baby-boomers nearing retirement age. The plaintiffs in this case filed a joint Chapter 7 petition and sought to exempt their IRA from the bankruptcy estate (ie, they wanted to shield the IRA funds from the trustee.) The trustee objected to the exemption of the IRA on the grounds that an IRA operates like an ordinary savings account and should therefore be accessible for distribution to creditors.

The Supreme Court disagreed with this contention, however, and highlighted two aspects of the provision the plaintiffs relied on in exempting their IRA. The provision in question provides that debtors may withdraw from their estate their "right to receive... a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of ... age."

First, the Court held that an IRA was indeed a similar plan or contract to those listed in the provision (such as an annuity). This is because an IRA provides income that acts as a substitute for wages earned. Second, the Court held that the right to receive this payment was indeed on account of age. The reasoning here is based on the fact that if the couple had made an early withdrawal (before age 59), they would've had to pay a 10% penalty.

The important thing to remember here is that IRAs can be exempted from the bankruptcy estate. This is great news for debtors who contributed money to IRA accounts and do not want to see this investment go for naught.

As a bankruptcy attorney with offices throughout the East Bay, I specialize in advising clients on how to maximize the amount of property they can claim as exempt. Please call to set up a free consultation where we can discuss the bankruptcy process in general and specific areas of concern. I have offices in Walnut Creek, Sacramento, and Fairfield. Our phone number is 925-932-7086.