In its first-ever criminal referral, the new Consumer Financial Protection Bureau, the federal consumer watchdog agency mandated by Dodd-Frank, has referred a case for criminal prosecution against a debt settlement company, Mission Settlement Agency. The indictment was filed in the U.S. District Court in Manhattan, charging that the debt settlement company’s manager and three employees “systematically exploited and defrauded” customers who sought to settle their debts. Rather than offering any real debt relief, according to the indictment Mission Settlement Agency, took about $14 million from its customers between mid-2009 and March 2013, keeping the lion share and paying out only $4.4 million to creditors. And of an additional $2.2 million in fees charged to customers, the government’s indictment states that the debt settlement company “never paid a single penny” to creditors. Read more here.
Those of you who have read my blog any amount of time, know that I harbor little love for the debt settlement industry. That’s because I see so many folks who need to file personal bankruptcy after having tried unsuccessfully to settle their credit card and medical debts through debt settlement companies. Frequently our bankruptcy clients come to us after having been sued by one of the credit card companies, or one of the many litigious assignees of delinquent debt, like Cach, LLC; Midland Funding, LLC; Portfolio Recovery Associates; Persolve LLC; the list goes on and on. Despite having paid hundreds or thousands to a debt settlement company, they still got sued by their creditor. Read More
Chapter 13 bankruptcy trustees in California and elsewhere frequently object to debtors’ Chapter 13 plans in which the debtor proposes to pay very little to his general unsecured creditors (like credit card companies), while nevertheless continuing to make payments on secured debts for so-called “luxury items.” Such plans, some Chapter 13 trustees have claimed, were made in “bad faith” because payments on the secured debts for such luxury items take away money that could have been used to pay more toward unsecured debts. I have had many San Jose bankruptcy cases in which I worried that the trustee might object to the debtor’s driving a luxury car, even where that car might arguably be necessary to the debtor’s business as a real estate broker, for example.
Now, however, California Chapter 13 bankruptcy debtors no longer have to worry that a trustee can prevent a Chapter 13 plan from being confirmed simply because the debtor wants to continue making payments on her luxury car, or her RV, boat, or second home for that matter. I was recently asked to brief the case Drummond v. Welsh (In re Welsh), 465 B.R. 843 (B.A.P. 9th Cir. 2012), before the San Jose Chapter 13 Bankruptcy Committee. The case involved a Montana couple who had filed Chapter 13 bankruptcy wherein they proposed to continue making payments on three vehicles, an RV, and two ATVs in addition to their home mortgage. The trustee had objected that making these payments on these secured debts left very little to pay toward the debtors’ sizable unsecured debt. Those creditors would receive only pennies on the dollar through the life of the Chapter 13 plan. Read More
As many of our clients filing personal bankruptcy get older, we often see clients who have taken reverse mortgages on their homes. Either because they needed income to live on or to deal with a spouse’s end-of-life care, I meet with a growing number of bankruptcy clients who have turned to these types of loans in order to get by. And no wonder, the banks have been pushing reverse mortgages aggressively for several years now. Daytime television is now inundated with commercials for reverse mortgages. I’m not going to get into the financial wisdom of these loans in this post, but I do want to focus on how reverse mortgages are treated in bankruptcy, particularly in Chapter 7 bankruptcy.
Reverse mortgages generally fall into different categories. There are those where the homeowner takes a lump sum from her home equity, and those where she might receive monthly payments that accrue as a loan against her home equity. Typically, the reverse mortgage loan becomes due and payable within a specified time after the homeowner’s death. At which point, either the decedent’s estate representative must either sell the property in order to pay off the reverse mortgage loan, or if the estate is unable to sell the property after a given period of time, then the lender will generally have a right to foreclose on the property in order to recover the balance of the loan. Read More
Today’s post isn’t really about bankruptcy per se, but as a bankruptcy attorney in California, as you might imagine, I have had an up front and personal perspective on the mortgage crisis over the last several years. I was listening to the California Report on my San Francisco Bay Area NPR affiliate, KQED, last week when I heard something that struck me as so preposterous, so deceitful in its specious logic, that it stuck with me for days. The reporter, Rachael Myrow, was interviewing one Ed Gerding, the “Senior Fraud & Risk Consultant for CoreLogic,” which, according to its website, supplies “data, analytics and services” to “financial services and real estate professionals.” The piece was about mortgage fraud in California. Again, as a bankruptcy lawyer, my ears pricked up. I’ve had occasion to witness more than a few “option ARM,” “neg am” and other teaser mortgage loans in recent years as well as the inevitable foreclosures and short sales that resulted from them. And I’ve had the unique perspective of getting to know all the details of the financial lives of hundreds of homeowners stuck with these albatrosses.
I think any of us who learned anything about what led to the Great Recession will recall that the root cause was Wall Street’s invention of mortgage-backed securities, and how lenders like Countrywide, World Savings, et al., encouraged mortgage brokers (literally telling them: “Docs? We don’t want docs anymore”) across the country to peddle absurdly dubious teaser loans to unsophisticated borrowers so they could immediately package them into these exotic derivative securities and sell them to pension funds, etc. That was mortgage fraud to be sure. Read More
No one ever wants to be involved in an accident, but unfortunately, they happen all the time. As the medical bills and other expenses start to pile up because of an injury and/or inability to work, many seek relief by filing for bankruptcy to manage all of the debts that they have accumulated during this period. In fact, medical bills and debts arising from medical treatments not fully covered by insurance are among the chief reasons our San Jose bankruptcy attorneys see people needing to file Chapter 7 or 13.
What happens to the money one might receive from a personal injury award or settlement if he files a bankruptcy case? As I’ve written before, upon filing bankruptcy, every interest in any kind of asset that the debtor might have becomes part of the “bankruptcy estate” under 11 U.S.C. §541(a). This includes claims or causes of action arising from a personal injury and the right to receive awards or settlements from such an injury. To be clear, even if one has not yet filed a personal injury lawsuit before filing a bankruptcy case, he must still disclose to the bankruptcy trustee that he may have a claim. In other words, even if one hasn’t yet received a penny for his injury, he cannot hide the fact that he may in the future receive such an award. It is not good enough to simply delay the filing of his personal injury lawsuit so that the bankruptcy trustee and creditors cannot get to any settlement proceeds. Concealing the fact that one had an injury and a reason to sue for it can still constitute fraud in bankruptcy. Read More
It’s that time again. Time to explain why filing personal bankruptcy can provide enormous tax savings. Every year, several of our bankruptcy clients contact us in January or February because they have received a 1099-C form filed with the IRS by one of their former creditors. In case you don’t know, debts that are “canceled” or “forgiven” by a creditor may in some cases be treated as though you received that amount as taxable income under IRS rules. While this may seem inherently unfair to the ordinary person who receives a 1099-C—after all, she didn’t actually receive any income—the law can in many circumstances nevertheless treat the benefit she received by not having to pay that “canceled” debt as though it were taxable income.
By far the best protection from 1099-C liability, and the one I want to discuss here, is filing personal bankruptcy. If the reason that a given debt was “canceled” was because it was actually discharged in bankruptcy, then that debt is entirely excluded from one’s income, and there is no tax liability for such discharged debt. This is just one more reason why private debt settlement programs can’t offer the kind of debt relief that bankruptcy can. This is a huge relief to bankruptcy clients who are understandably shocked to receive a 1099-C from their former credit card company, or home equity line lender, or other commercial creditor. Imagine, receiving one of these listing $100,000 plus of debt you know was discharged in your bankruptcy case but now thinking that you might owe taxes on that discharged debt! Fortunately, we can quickly assuage our clients’ fears by explaining that, no, they will not owe any taxes on the debts that were discharged in their bankruptcy. Read More
Those filing personal bankruptcy in California in 2013 can now protect a little more of their assets in a Chapter 7 bankruptcy, and potentially pay a little less into a Chapter 13 plan. That’s because the California bankruptcy exemptions have been increased modestly as of January 1, 2013. I’m not complaining as this is the first increase in the amounts debtors can keep in a Chapter 7 bankruptcy in California since April 2010. And anyone needing to file bankruptcy in California should be grateful to Assembly Member Bob Wieckowski for introducing the bill, AB 929, that raised the bankruptcy exemptions. Unfortunately, the California Bankers Association and the National Association of Bankruptcy Trustees (go figure) opposed the passage of AB 929 and were able to prevent the bill’s originally proposed increase in the homestead exemption. The homestead exemptions that had been contained in the bill would have raised the amount of equity that a single debtor could protect in bankruptcy to $150,000 from the current $75,000. Married debtors under the age of 65 could have protected up to $250,000 of equity instead of the current cap of $100,000, and those over 65 could have protected up to $350,000 (up from $175,000).
Although the homestead exemption increases above were ultimately removed from the bill, the new law does increase the income threshold for bankruptcy debtors aged 55 or older in order to be eligible for the $175,000 homestead exemption. That is, those 55 or older and single with incomes of under $25,000 gross annual income can now qualify for the higher homestead exemption usually reserved for those 65 or older. Joint debtors over 55 with income of up to $35,000 can also qualify for the higher homestead exemption in bankruptcy. Additionally, the new law requires that beginning in April 2013 and every three years thereafter, the California Judicial Council will have to submit to the California legislature proposed adjustments to the homestead exemption based upon changes to the annual California Consumer Price Index, so incremental increases to the homestead exemption will be on the horizon for California bankruptcy debtors. Read More
In April 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act, or “BAPCPA” as we bankruptcy attorneys call it. On the day BAPCPA passed, I was interviewed by our San Jose CBS affiliate, KPIX, about the sweeping changes to bankruptcy law contained in BAPCPA. Among consumer bankruptcy lawyers everywhere, there was a good deal of handwringing over what the new bankruptcy law would mean for the typical honest debtor needing a fresh start from Chapter 7 bankruptcy.
Sure, BAPCPA introduced the Means Test, thereby supplanting the insight and good judgment of local bankruptcy judges with standardized living expenses gleaned from the IRS, as to whether a Chapter 7 debtor could afford to make payments on her debts. And, yes, it required debtors to reaffirm their car loans, thus waiving part of their discharge. Perhaps most annoyingly, BAPCPA introduced the fairly inane requirement that all individuals filing personal bankruptcy complete credit counseling and debtor “education” courses in order to receive a discharge. But in the end, the sky didn’t fall, and once we bankruptcy attorneys all became familiar with the new requirements, and once the media hype died down, everyone realized that the powerful debt relief afforded by Chapter 7 bankruptcy remained the best option for many families drowning in debt. Read More
The National Association of Consumer Bankruptcy Attorneys (NACBA) recently published a consumer alert report entitled “The Debt Settlement Trap: The #1 Threat Facing Deeply Indebted Americans,” which detailed the stories of debt strapped consumers who have fallen prey to the numerous scams peddled by so-called debt settlement companies. You’ve probably heard their claims on TV and on the radio a million times. Debt settlement companies that promise to settle your debts for pennies on the dollar and to get you out of debt without filing bankruptcy. Their commercials usually feature a handful of earnest folks who claim the debt settlement company saved them from the supposed stigma of bankruptcy by negotiating with their credit card companies and bill collectors. Their commercials bombard the air waves with the message that bankruptcy is somehow morally wrong, and the debt settlement companies offer a more honorable alternative than filing personal bankruptcy.
What they don’t tell you about is the debt settlement industry’s abysmal failure rate. According to a 2010 Government Accountability Office report compiling data from the Federal Trade Commission and 43 state attorneys general, less than ten percent of consumers successfully complete debt settlement programs! Nor does the debt settlement industry explain in their commercials that creditors can and frequently do accelerate their collection efforts once a person enrolls in a debt settlement program. That means they step up their campaigns of harassing phone calls, and will eventually sue the consumer because they have been instructed by the debt settlement company to stop making payments directly to their creditors altogether. Yes, the credit card companies can and do sue you in spite of the fact that you’ve enrolled with a debt settlement company. They then obtain judgments that include all the interest, penalties, and now attorneys’ fees that they’ve racked up against you while the debt settlement company was supposedly negotiating with them. Read More
Tens of thousands of people in California file Chapter 13 Bankruptcy every year. Filing a Chapter 13 case and getting that case confirmed by your bankruptcy judge, however, are two very different things. The process of getting a Chapter 13 Plan confirmed can be a bit daunting, but like everything else in filing a personal bankruptcy, having an experienced bankruptcy lawyer along with a bit of good humor will make the process smoother. There are many moving parts in getting a Chapter 13 bankruptcy case confirmed, from filing a proper Chapter 13 Plan, to disclosing all of your financial information, to making sure you make your plan payments on time, and all of this can make the confirmation process somewhat dizzying. Because knowledge is power, this post is aimed at arming you with some knowledge about overcoming a Chapter 13 trustee’s objections to confirmation of your Chapter 13 bankruptcy plan.
If you file a Chapter 13 bankruptcy case in the San Jose Division of the Northern District of California, where we primarily practice, then you should know that the trustee assigned to your case, along with her staff of case analysts and staff attorneys, are efficient, fair-minded professionals who work with us to help get your Chapter 13 Plan confirmed. Yes, you may very well receive something called a “Trustee’s Objection To Confirmation” in the early weeks after your Chapter 13 bankruptcy case is filed, and you might be tempted to think that the Chapter 13 Trustee has it out for you and does not want your case to be confirmed. But this is not the case. Yes, the Chapter 13 Trustee does represent the interests of your creditors. But it is also true, that the trustee and her staff generally want your plan to work, as long as it is filed in good faith. Read More