BE WARY – FILING BANKRUPTCY WITHOUT AN ATTORNEY: The Liquidation Nightmare

Filing bankruptcy without an attorney for people who own their own home is a big misstep.  There are many reasons why you would want an experienced bankruptcy attorney to assist and guide you through your case whether you are a homeowner or not, but homeowners should be especially wary as they have a lot to lose.

 

A Chapter 7 case is often referred to as a liquidation case, and that is because the Chapter 7 Trustee has the power to sell real property, and personal property.  The Chapter 7 Trustee can hire a broker to sell your real property, market it, and sign the sale documents.  Also, a Chapter 7 case once filed cannot be voluntarily dismissed.  This can be a lethal combination – if you find yourself in an improperly filed Chapter 7 you may not be able to stop the train once the Trustee moves to sell your property.

 

To add to the pain of the improperly filed Chapter 7 is that you (the debtor) are required to pay for the Chapter 7 Trustee’s time, their attorney’s time, and any other people they hire, such as a broker or real estate agent.  The attorney that the Chapter 7 Trustee employs usually has astronomical fees that can range up to $800 an hour.  If the Trustee is selling your real property then the fees will be taken out of the proceeds from the sale.  

 

I have been hired multiple times in the past to help distressed homeowners convert to a Chapter 13 to stop the sale of their home after they had improperly filed a Chapter 7 by themselves, with a paralegal, or with an inexperienced attorney.  It is possible to stop the sale in some situations, but this is fact driven and varies for each person.  If the person is successful in converting their case to a Chapter 13 they will still be required to pay for any time expended by the Trustee and their professionals, and there will be the added expense of the attorney’s fees to convert the case. 

 

If this individual had consulted with an experienced bankruptcy attorney in the first place the cost of the bankruptcy would have been much lower and the outcome would be better. 

 

BE WARY – FILING BANKRUPTCY WITHOUT AN ATTORNEY: Trouble with the Automatic Stay

          Whether you are filing bankruptcy on your own behalf, or if you have chosen to hire a paralegal you should be wary.  There are many intricate nuances to the bankruptcy code that an individual debtor or a paralegal will not be able to navigate.  One wrong misguided step could cost you dearly.

          Case in point – the weekend before Christmas our office was receiving frantic calls on our emergency line from a debtor whose lender had foreclosed on his home a couple of days after his Chapter 13 case had been filed.  He said that he was representing himself (although I believe that he was getting help from a paralegal).  The man was desperate to save his home that had already been foreclosed on, and when he spoke to the lender they said that they had a right to foreclose.  After looking into this problem for him it came to light that he had two prior cases that were dismissed in the same year as the most recently filed Chapter 13 case.  This meant that the bank was correct and that the foreclosure was valid. 

          When a bankruptcy case is filed the debtor is protected by a federal shield called the automatic stay.  The automatic stay was created to protect debtors from any and all collection attempts including (but not limited to) pursuing a lawsuit, foreclosing on a home, garnishing wages, and even calling or writing letters to collect on a debt.  This protection comes into existence automatically when a bankruptcy case is filed and is taken very seriously by judges, but it is not without limitations.  The code contains provisions which in some cases weaken the protections for the debtor. 

One such limitation is when a debtor files multiple cases within one year.  If the debtor had one case that was previously dismissed then their second case within the same year will only have an automatic stay for 30 days unless certain steps are taken.  If the debtor had two or more cases that were dismissed then the next case filed in the same year will have no automatic stay at all unless proactive steps are taken and the Judge orders a stay into effect. 

Therefore, when attempting to use the bankruptcy code to save a piece of real property make sure that you consult with an experienced bankruptcy attorney who can properly advise you.  If you have proper help you can ensure an outcome that does not result in the loss of assets.  The attorneys' fees are usually more affordable than people think, especially before any problems arise in a case filed without an attorney. 

SETTLEMENT OF MEDICAL DEBT

          Some people who are knocking on the bankruptcy door, just have one or may have a handful of debts that are primarily medical debts.  Before jumping into the bankruptcy arena, settlement may be pursued.  Evans Law Offices has had great success settling medical debt.  The key to working out an arrangement that benefits everyone is to know how to tactically position the settlement, and to assist in any state court defense.  Medical debt does have some peculiarities in the settlement process, especially if the debt is a large bill from a hospital.  The key is tenacity and reasonableness.  If this is your problem, maybe settlement is the answer.  Plan ahead, in advance of any lawsuit.  This kind of strategy can ensure success, if at all possible.

CHAPTER 7 BANKRUPTCY FAILURE -- Rapper DMX's Bankruptcy Dismissed

            Recently, a judge in New York, threw out the bankruptcy filing of rapper and hip hop star, DMX.   DMX had filed for Chapter 7 relief due to crushing debt, including over $110,000 owed in child support obligations (which is non-dischargeable).  The case failed, and the Federal Bankruptcy Court dismissed the case with an 18 month bar to refiling.  The dismissal was due to failure to satisfy trustee demands for information, and to properly document income of DMX.  This set back does not mean that he cannot seek bankruptcy relief in the future (once the time period of the filing bar has elapsed).  He could re-file once he is able to properly document his earnings, and possibly his assets.  DMX is not unlike any of us, who got into debt, slowly, over time, and now, it is out of control.  We hope that his financial affairs can be straightened out, so the can get control of his financial life.  Read more here. 

Can Debtors in California Discharge Traffic Tickets in Bankruptcy?

Whether or not a debtor in bankruptcy can discharge a traffic ticket is dependent on federal and state law, and the answer may be different depending on the Chapter the individual files.

The answer is clear for Chapter 7 cases and for a hardship discharge in a Chapter 13 case, NO.  Traffic tickets may not be discharged in a Chapter 7 case or in the case of a hardship discharge in a Chapter 13 case because Bankruptcy Code Section 523(a)(7) provides that those cases do not discharge debts to the extent the debt is a fine or penalty payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.

Whether or not a debtor can discharge a traffic ticket in a Chapter 13 case depends on how the particular state classifies the traffic violation.  If the state considers the offense a crime then the debt will not be discharged pursuant to Bankruptcy Code Section 1328(a)(3) which makes criminal fines non-dischargeable.  In California traffic violations are classified as either infractions, misdemeanors, or felonies.  In California all three of these classifications are included in the definition of a crime.  See California Penal Code Section 16.
In California debtors will not be able to discharge traffic tickets, but in a Chapter 13 case the debtor can provide for payment over time for the priority traffic fines.

Popstar Files Chapter 7 & Bankruptcy Misinformation Reported

Stars file for bankruptcy protection too!  Aaron Carter, pop star and brother to Backstreet Boy singer, filed for Chapter 7 bankruptcy protection.  Yahoo OMG! is spreading news of Aaron's Chapter 7 bankruptcy filing in an article written by Lauren Shutte.  The article gives some history as to how Aaron Carter got into the financial upheaval.  According to Lauren Shutte, the debt was accruing over years, and much of it can be blamed on forces beyond Aaron Carter's control.  This article is spreading misinformation about Chapter 7 by intimating that Aaron Carter will be turning over all of his assets to the Chapter 7 Trustee (including his dog).  The article also misstates the dischargeability of tax debt in a Chapter 7 case.

This is simply not true.  A Chapter 7 is a liquidation proceeding, and the Chapter 7 Trustee does have the power to sell a debtor's assets.  However, Chapter 7 debtors are entitled to certain protections for their personal and real property.  These protections vary from state to state and are provided in the form of exemptions.  Aaron Carter is able to exempt the majority of assets listed in his bankruptcy schedules.  There are some assets which are not exempted or protected.  The unprotected assets include publishing rights to certain songs, a portion of a Brietling watch, and a judgment that was assigned to him.

For assets that are not protected by an exemption the Chapter 7 Trustee will assess whether or not there will be a potential value to creditors if that asset is pursued.  If the Trustee believes that there are assets of value unprotected the Trustee will pursue the assets and administer any funds for the benefit of creditors.  However, in order for the Trustee to pursue an asset it must not be protected by an exemption, and it must have value.  Therefore, Aaron's dog listed with a value of zero will never be picked by the Trustee for sale.

Also, most people who owe more than $20,000 in tax debt will have a lien recorded in the county that they live in.  The result, is that when the bankruptcy case is filed, the taxing authority will have a security interest for plus dollar sum of the value of the assets.  For those in the know, Aaron Carter had to file either a Chapter 7 or Chapter 11 because he exceeded the debt limits for the Chapter 13.  The result of this, for poor Aaron Carter, is that he will not exit with a fresh start, because some of that debt will follow him later, and not dischargeable in the Chapter 7.  Still, we are glad that Bankruptcy can help.  Good luck Aaron Carter!

Garnishment Basics in California

One collection method that creditors can use is the garnishment of wages.  This is when money is withheld by an individual’s employer to pay back the individual’s debt.  The wages subject to garnishment will be turned over to the levying officer (usually the sheriff) who turns the funds over to the creditor. 

Usually, a creditor must first sue the individual in state court and obtain a judgment.  Once the creditor has a judgment the creditor can apply to the court for permission to garnish the individual’s wages.  This is not true for all creditors.  Some creditors such as the IRS can garnish an individual’s wages without first initiating a lawsuit and obtaining a judgment.

Once the creditor gets permission from the court to garnish the individual’s wages an earnings withholding order is served upon the employer.  The employer is instructed to give the employee 10 days notice of the garnishment.  The employee’s wages can be withheld 10 calendar days after service is effected on the employer.

The maximum withholding is 25% of the individual’s disposable earnings (in some instances the maximum withholding will be lower than 25% -- see our article Blueprint of a Garnishment in California for more detail).  This is true even if more than one creditor is attempting to garnish the individual. 

If the garnishment is for spousal or child support the amount garnished can range from 50% to 65% of the individuals earnings.

Some earnings are exempt from garnishment through action of the individual (application for exemption through the court) or through the nature of the funds (such as social security or veterans benefits).

Bankruptcy can help stop a garnishment (for most types of debts).  Once the case is filed the automatic stay comes into play and acts as a shield to protect the individual from collection attempts by creditors (including garnishments).  Any funds garnished after a bankruptcy case is filed must be returned to the debtor, as the garnishment violated the federal bankruptcy law.