MY DRIVER’S LICENSE IS SUSPENDED, WHAT CAN I DO?

         Driver’s license suspension is an enforcement mechanism for various types of unpaid debts or fines.  In California, debt owing to an individual may be the basis for a license suspension.  This can occur if you have been sued, and a judgment has issued for damages (property or personal injury) caused by a car accident.  The good news is that many of these types of judgments can be discharged in a bankruptcy case.  Depending on the injury and the type of damages, a Chapter 7 case may be the solution.  Otherwise, a Chapter 13 case can be filed.  Chapter 13 allows for a greater scope of dischargeability of various types of difficult debts, and can often be the necessary step toward obtaining a release. 

        There are various legal grounds for suspension in the State of California.  California’s vehicle code section 16370 provides that an individual’s driver’s license can be suspended if the individual fails to pay a judgment within 30 days of the judgment being issued.  The judgment must be for property damage exceeding $750 or for damage in any amount on account of bodily injury to or death of any person resulting from operation of a motor vehicle on a highway in California.  Cal. Vehicle Code § 16251.

        The driver’s license will remain suspended until the judgment is satisfied (or one of the other enumerated steps have been taken).  Cal. Vehicle Code § 16371.

        Bankruptcy can, for some, be a safe harbor that will allow an individual to have a fresh start on life.  It is possible to get a driver’s license reinstated that has been suspended due to an unsatisfied judgment related to a vehicle accident in California.  To get the driver’s license released an individual must receive a bankruptcy discharge and then provide a certified copy of the discharge to the Department of Motor Vehicles. 

       However, not all individuals will be able receive a discharge of the underlying debt.  Bankruptcy Code Section 523(a)(9) provides that a debt for death or personal injury caused by the debtor’s unlawful operation of a motor vehicle while the debtor was intoxicated from using alcohol, a drug or another substance is not discharged.  Thus, a driver’s license cannot be reinstated through the bankruptcy process if it was suspended due to a judgment related to a motor vehicle accident that involved drugs or alcohol, and the driver was cited for a DUI. The specific facts of the case need to be reviewed by an experienced attorney who will research the current state of the case and statutory law, and review the judgment for the legal basis for the debt.  Often there is a loophole that can be utilized to gain a favorable outcome for the client.

       Another common basis for license suspension is non-paid child support.  The best avenue for a driver’s license release is to go to family court, with a properly noticed motion, requesting the affirmative relief, with a plausible argument regarding the current state of non-payment.  Most judges are somewhat sympathetic, and will issue a release if the proper documents are filed and noticed with the Court.

DEFENSE OF MARRIAGE ACT, PROPOSITION 8 AND THE COURT RULING OF JUNE 26, 2013

            June 26, 2013 marked a fateful day in our country's history as the U.S. Supreme Court's long awaited decisions came down on the Defense of Marriage Act ("DOMA"), and California's Proposition 8.  The effect of the Court's ruling was to strike down central portions of the DOMA act as violating the equal protection and liberty clauses of our U.S. Constitution.  The Court found that certain provisions of DOMA were enacted to harm a discrete segment of our society and were therefore unlawfully discriminatory.

            As the ripple effect of the Court's ruling on DOMA is felt, those most affected by lack of access to federal benefits, our friends in the gay and lesbian community, can now enjoy equal access to privileges previously only conferred upon a marriage between a man and a woman.

            A second opinion handed down by the U.S. Supreme Court on the landmark day of June 26, 2013, is their decision finding that the appellant proponents of California's Proposition 8, which prevented gays and lesbian's from marrying in the State of California, lacked standing to bring the action before the Court.  And, for this reason, Gov. Jerry Brown has ordered the State of California officials to immediately allow the issuing of marriage licenses to same sex couples.

            The Court's holding with respect to DOMA changes the landscape to clearly give rights where a complete lack of rights previously existed, such as areas of filing joint tax returns, probate laws with respect to the tax allocated upon death of a spouse, verses a non-spouse, social security benefits, ERISA Qualified Retirement Benefits, and other federal retirement benefits, military benefits conferred upon spouses including housing, living and death benefits.  In other areas the boundary of clarity, which may have been hazy, is now brighter.  Gays and Lesbians have been denied the equal rights in the federal bankruptcy arena.  Needlessly, thousands of dollars are spent by same sex couples, as duplicative cases are filed due to the lack of clarity the previous status of the law brought to all of us.

            Fortunately, it may be possible to recoup losses, as there may be some retroactive application of the law.  Couples should go to their tax professionals to see if amending the last 3 years of tax returns, including 2010, 2011 and 2012, can either lower any current tax obligation, or allow for a tax refund.

            For many, the outcome of the Court's decisions will be most felt in the area of healthcare, health insurance, and retirement planning.  Now, gays and lesbians can enjoy the lower cost of adding a "spouse" to their health insurance plans, and can elect to add their spouses as "surviving spouses" for the benefits conferred under any ERISA Qualified Retirement Plans.

CAN BANKRUPTCY HELP SOMEONE WITH MEDICAL BILLS?

Unfortunately, in our present economic times, many people with medical insurance still incur large medical debt when an illness requires hospital care, or protracted medical treatment.  Depending upon the medical diagnosis, certain strategic planning may be necessary in order to protect a person's or families' personal budget, and in order to qualify for important medical financial assistance programs. 

Unfortunately, a recent article in Forbes told a story that is all too common for people who have gotten sick. 

The choice of which bankruptcy chapter to file, and when is the correct time to file the bankruptcy case varies from case to case.  Medical debt is dischargeable in bankruptcy in both Chapter 7 and Chapter 13 cases.  The timing of when the medical debt was incurred, and what procedures were obtained should be considered.  If you are thinking about filing bankruptcy for medical debt reasons, then the possibility of not filing bankruptcy, and seeing if other alternatives are available should usually be explored before a bankruptcy case is filed.  Many hospitals have internal programs that will reduce the debt, and allow for a portion of the debt to be paid by the uninsured.  Many health care providers will accept a stepped down, or compromised payment from the sum owed.  Before filing for bankruptcy, these programs should be explored. 

When no payments are made on medical debt, like other unpaid debt, the debt will be assigned to collection agencies or attorneys.  Again, this debt can be settled or compromised without filing for bankruptcy.  Usually, collection agencies will be reasonable with settlement offers if the person does indeed qualify for a bankruptcy filing.  If a person finds themselves in this situation, then it is wise to consult with a bankruptcy professional, and perhaps have this person work on settling the debt.  The debt can often be settled for 25 percent, based upon the face amount of the debt.

Bankruptcy should be considered if there is no way to make some sort of compromised payment to the creditors.  However, it is wise to time the bankruptcy filing so that no new significant medical debt will be incurred after the bankruptcy case is filed.

See this article for more information on bankruptcy and medical debt.  

Can I get rid of my second mortgage through a bankruptcy case?

In today’s economic climate many individuals are able to “get rid” of a second mortgage through their bankruptcy case.  The legal jargon for getting rid of a junior lien in a bankruptcy case is “strip off,” or “lien avoidance.”  In a Chapter 13 bankruptcy case an individual debtor can strip off or remove a junior lien from their home and treat it as an unsecured debt if certain conditions are met.  That means the second mortgage will be treated as an unsecured creditor (the same as credit cards and medical bills).  In a typical case the second mortgage will not receive any money, but this is not true in all cases.  Depending on different factors such as income and assets owned some individuals are required to pay a percentage of their unsecured debts.

A junior mortgage can be stripped off in a Chapter 13 bankruptcy case if the value of the home is less than the amount owed to the senior liens.  An example is shown in the chart below:

	Value of Home	Principal owed to 1st Mortgage Holder	Principal owed to 2nd Mortgage Holder	Is a lien strip possible?
Scenario 1	$500,000	$600,000	$75,000	Yes, the 2nd mortgage of $75k can be treated the same as other unsecured debts
Scenario 2	$500,000	$490,000	$75,000	No, the 2nd mortgage remains in place and must be treated as other secured debts

            To be able to get rid of your second mortgage in your bankruptcy case certain procedures must be followed: (1) a Chapter 13 plan that states that the lien will be stripped or removed; (2) a motion and accompanying documents must be filed with the court, and (3) a court order must be obtained.  The creditor has a chance to object to the motion if the creditor believes that the home is worth more money (that the value exceeds the amount of debt owed to senior liens as in scenario number 2).  A creditor's objection can in a small number of cases turn into a mini trial on the value of your home (this is called an evidentiary hearing).

            The typical lien strip order issued by the court requires the individual to complete their bankruptcy case and receive a discharge before the lien is actually removed.  So if for some reason your case is closed before you actually complete it you will still owe the second mortgage creditor and they still have the ability to foreclose on your home (once you are no longer protected by your bankruptcy case).  

            At the end of the case, a judgment can be applied for from the court which says that all conditions have been met and the lien is officially stripped.  This judgment should then be recorded at the county recorder’s office to put the world on notice that the second mortgage is no longer valid.

            As the economy stands today there are many individuals who are able to take advantage of the bankruptcy code provisions allowing the removal of a second mortgage.  However, this may not be true for long as housing prices are increasing.

DEBT, CREDIT REPAIR AND BANKRUPTCY

            As a bankruptcy lawyer with 19 years of experience representing debtors through the bankruptcy process, I am all too familiar with the common misgiving that everyone that goes through bankruptcy has, that is, how will their credit be affected? And, how can they get their credit back?

            Common threads that many people have who are struggling with the concept of filing bankruptcy are that their credit may already be damaged.  For these people a bankruptcy filing will likely not decrease their credit score.  The question thereafter becomes, "how will I get good credit back?" or "will the bankruptcy ruin my credit for 10 years?"

            The concept of good credit is something that we all need to be aware of, because when we have good credit, we have greater opportunities in our life to have and acquire "things" that we may want, like cars and homes on credit, or just credit cards to help us ease some of the stresses of our daily lives.  Some of us feel that good credit is beyond our reach.  But really, each one of us can have good credit.  It is not beyond the reach of any one of us if we care to work on the process.  So, if there is old debt on the credit report, the solution to the problem can be solved in one of three ways. 

 

            The first would be to conduct credit repair in an aggressive manner.  This can be done by writing demand letters to remove debt on the basis that it is disputed.  When pursuing this, the consumer must write letters to each of the credit bureaus (Experian, Transunion, and Equifax).  You may be able to electronically submit your credit dispute as well.  The purpose of the letter is to use the law under the FairDebt Collections Practices Act to your benefit.  I have personally seen the effectiveness of this path through friends and family.  This process can be time consuming, but is worth pursuing to raise the credit score, and remove old debt that serves to pull the credit score down.  If you don't have time to work on this yourself, firms like the Lexington Law Firm have a proven reputation for success, and for a reasonable fee, can complete all the steps in this process for you.

            The second way a person can effectively deal with debt to increase their credit score is to negotiate debt settlements with their creditors.  This process entails usually the offer of a lump sum settlement that approximates a percentage of the debt, usually 25% of the face amount owing when the offer is made.  The problem with this course is that their may be one or two creditors who will not negotiate, and who refuse to make any settlement at all.  When this occurs, this forces people to file bankruptcy, as they may not have the liquid funds to settle all the debt in lump sum payments.

            When the debt is too high to settle, or too new to be effective with credit repair, people often turn to the bankruptcy system for assistance.  The bankruptcy, when used as a financial tool, can be filed for the purpose of receiving a "clean slate" or "fresh start."  This avenue should be seriously considered when looking at the following aspects of a person's life:  age, total savings, including retirement and other savings and the present state of your credit score.  Age is considered in the context of savings and investments., because as we age we have less time to save.  The immediate future needs for the credit should also be considered.  Many people don't have significant savings and investments, and unless you are planning on buying a new home in the next two years, a bankruptcy filing will weigh positively in the balance of pros and cons.

            Once the bankruptcy is concluded, the process of credit repair should begin.  This process is different from the credit repair conducted without a bankruptcy filing.  What becomes necessary after the case is concluded is that new solicitations for credit are accepted by the consumer and properly managed.  For the major credit bureaus, it is a numbers game.  Once the bankruptcy is completed, you will not have personal liability on debt.  In order to have a good credit score, their must be a history of paying on debt.  The greater the number of accounts, and credit extended, the higher a person's credit score will be or become.   This means that once a bankruptcy case is finished, the person must apply for new credit cards to improve their credit score.  In the beginning, it may be that all the person might obtain would be "secured" credit cards.  There are companies that cater to assisting a person increase their credit score by offering these sorts of cards (see Bankrate.com for more information about secured cards).  Although it may not seem like a good deal, these sorts of cards go on a person's credit report and assist greatly in increasing their overall scores. 

           If new credit cards are obtained, then the next step is to manage the cards well.  No late payments should be made.  Ideally, the credit cards would be paid in full at the end of each cycle.  After 24 months of charging and timely payments, a person's credit score will dramatically improve.  I know of one individual who with successful management of his credit was able to bring his credit score to the mid 700's in two short years after his bankruptcy filing. 

            Over the years of my practice, I have personally witnessed the successes of many clients who have filed bankruptcy and rebuilt their credit in a short time, and go on to becoming real estate investors or the owners of new and successful businesses.

Bankruptcy Chapters for Individuals in a Nutshell

Bankruptcy is a financial tool that you are guaranteed by the United States Constitution.  There are different bankruptcy structures for different situations.  The different structures are defined in bankruptcy law as “Chapters.”  Individuals have three bankruptcy chapters available to them:

(1)   Chapter 7

(2)   Chapter 13

(3)   Chapter 11

Chapter 7 – Liquidation

Chapter 7 bankruptcy cases are the most common chapter for individuals.  Chapter 7 is sometimes referred to as a liquidation proceeding.  The Chapter 7 Trustee (an individual appointed to oversee the Chapter 7 case) has the power to sell property if it is not protected by an exemption.  California provides two sets of exemptions that individuals can use to protect their personal and real property. 

A Chapter 7 bankruptcy case with no unexempt assets typically lasts for three months.  Some cases are open for more than three months depending on different variables, such as the Trustee may research specific asset values, among other reasons.  Once the case has run its course the Court will issue a discharge of debt, which means that the individual no longer owes money on their debts.  Some debts are not discharged, such as student loans, most taxes, and spousal support or child support arrears. 

If Trustee is selling assets then the case will stay open longer before the Court issues a discharge.  Cases can be held open for a year or longer depending on the specific facts of the case.

Chapter 13 – Reorganization

Individuals who file Chapter 13 cases receive a similar discharge as those in Chapter 7 (additional debts not discharged in a Chapter 7 case may be discharged in the Chapter 13’s superdischarge).  A common misperception about Chapter 13 cases is that individuals are required to pay their debts back.  This stems from the fact that Chapter 13 debtors are making monthly payments to the Chapter 13 Trustee.  These payments usually go to secured creditors (car lenders, mortgage arrears), or to taxes that will not be discharged and/or to pay attorneys fees.

This Chapter can help individuals who have fallen behind on their mortgage payments, who are having difficulties with their car loans, have problem tax debt, and many other situations.  The case typically lasts from three to five years.  Many will close much earlier depending on how the case was set up and the claims filed. 

Chapter 11 – Reorganization

Individuals only file Chapter 11 when they do not qualify for Chapter 7 or Chapter 13.  Chapter 11 is more burdensome in terms of the tasks required by law.  Chapter 11 cases are for secured debts exceeding $1.1 million and unsecured debts exceeding $380,000 for individuals (approximate numbers as of May 2013), or for corporations or other shell entities that need to reorganize their debt obligations.

Common Elements:

In each Chapter an individual acts as a Trustee for the bankruptcy estate (in Chapter 11 proceedings the debtor normally acts as their own trustee).  One thing the Trustee does is to ensure that the bankruptcy case is in line with the bankruptcy law.

Also, in each Chapter the individual is required to attend a hearing called Meeting of Creditors.  The Meeting of Creditors is where the Trustee asks the individual questions under oath related to their bankruptcy schedules.