The bankruptcy process begins with a petition filed in bankruptcy court that triggers an automatic stay which prohibits further collection efforts of creditors.

The role of the bankruptcy trustee

The National Association of Bankruptcy Trustees describes the Trustee role as follows:

Trustees review the debtor’s petition and schedules after they have been filed with the Court.  At times they may request additional information from the debtor to review in conjunction with the debtor’s petition and schedules.  They are careful to review the debtor’s exemption schedules to determine whether the debtor has properly followed the state or federal exemption laws.

The Panel Trustee serves as the hearing officer for the 341 hearing.  Each debtor is sworn and examined by the Panel Trustee and the creditors are allowed the opportunity to ask questions which is moderated by the Panel Trustee.  After the Section 341 hearing, the Panel Trustee will object to exemptions that have been improperly claimed.

The Panel Trustee will seek turnover of assets held by the debtor or other parties and will arrange for their eventual sale.  The Panel Trustee may also seek to recover assets conveyed by the debtor prior to the filing of the bankruptcy.  The Panel Trustee will cause a notice to be given to all creditors to file their claims with the Bankruptcy Court.  The Panel Trustee will then pay creditors according to the priority level they have been given by the Trustee.  After all funds held by the Panel Trustee are distributed, the Trustee will seek approval of the Court to close the bankruptcy case.

Sifting through exempt and non-exempt assets

While the court appoints a trustee to liquidate assets to pay existing creditors, most assets are subject to existing liens or are exempt from liquidation. Generally, things like household goods, clothing and personal items are fully exempt. Property which is particularly valuable, such as oil paintings, coin collections, or rare items may have higher value than what can be protected under the exemption rules. In those circumstances, the debtor could be required to turn over the property to the trustee or offer to buy the trustee out of his interest in the non-exempt property.

Once the trustee collects any nonexempt assets and pays creditors from their proceeds, any remaining debt is discharged, subject to certain limitations such as secured debt, taxes, student loans, alimony and fraudulent acts.

If the debtor is concerned about losing certain assets in a Chapter 7 bankruptcy, he or she may be able to reaffirm certain assets, which permits them to keep the property outside of the bankruptcy by entering into a reaffirmation agreement if the debtor has sufficient disposable income and is relatively current on payments and the creditor agrees to reaffirm.

If you’ve gotten this far you probably have reason to call for a free bankruptcy counseling session. Picking up the phone is often the hardest step. We’re standing by to take your call.

Related posts:

1. Things You Must Do Before Filing for Chapter 7 Bankruptcy Protection
2. Chapter 7
3. Chapter 7 Process

If you are in default on a loan obligation be smart. Do not to keep funds on deposit with any financial institution where you are in default on a loan, in order to avoid the possibility of the lender “sweeping” the account and applying the balance to your debt.

For example, if you have a credit card and checking account with Inland Empire Bank & Trust and have missed payments on the credit card, Inland Empire Bank & Trust will “sweep” funds from your checking account to pay the delinquent credit card balance. Most likely this will result in bounced checks, leading to bank fees and a general mess.

Chase and Pacific Marine Credit Union are aggressive with their right to take action

We find that some lenders are more aggressive with their right to sweep your account than others, but as this recession drags along it is not unlikely that all lenders will step up this form of collections activity.

In our clients’ experience, Chase will levy the checking and savings accounts to pay a credit card balance as soon as they learn of a bankruptcy filing (or even if a client mentions they are going to file for bankruptcy protection).

Credit unions, notably Pacific Marine Credit Union, will act on a clause in their service agreement allowing them to close your account if you are behind in paying a loan or have defaulted.

Wells Fargo well also hold funds until the bankruptcy is either discharged or receives a release letter form the trustee.

If  you find yourself in the situation described here, it is time that you consulted an attorney about the role that bankruptcy can play in your financial recovery. Contact us for a preliminary consultation today.

No related posts.

Life without a credit card is complex, so it is no surprise that those contemplating bankruptcy often ask us whether they can  “keep a credit card” out of their bankruptcy – in order to have access to emergency funds, for business expense purposes, for frequent flyer miles or other so-called loyalty rewards.

Not so fast

The bankruptcy and credit bureau systems are set up to prevent this strategy. The bankruptcy code provides that all creditors listed in a bankruptcy petition must receive written notice of the bankruptcy filing.  Credit card companies and others who extend consumer credit receive regular reports from the three credit bureaus – and the credit bureaus will pick up the bankruptcy filing and report it to creditors, even those who were “left out” of the filing.

This results in the card being cancelled even though the debtor did not list it.

Credit cards after bankruptcy

Bottom line, there is no way to “keep a credit card out of a bankruptcy.”  It is our clients’ experience that Chapter 7 debtors will receive credit card offers in the mail about six months after the date of filing (not the date of discharge), and Chapter 13 debtors will receive credit card offers about six months after the entry of their discharge (about five and a half years after the date of filing).

Interest rates will be higher due to the bankruptcy, and credit limits may be lower; however, the most significant consideration appears to be the debtor’s income, and what debt it can service.

While it is a myth that debtors can never get credit again, it is true that debtors should not expect to have credit cardsduring their bankruptcy case.

Related posts:

1. Bankruptcy and Your Credit Score
2. How Long does the Bankruptcy Process Take?
3. What Stays In Your Bankruptcy Estate

We find that our clients with student loans are often confused about their options for putting that debt behind them. This month The Atlantic ran a column on settling student loans and discharging them in bankruptcy including these paragraphs:

In fact, the default rate on student loans during the first two years out of school is almost 7%.  Once they’ve consumed the education, a large number of students seem to decide that it wasn’t worth it, and that therefore someone other than them should have to eat the cost.

Because it’s such a common idea, Congress has made it very difficult to shed student loan debt.  No student loans, not even the private ones, can be discharged in bankruptcy.

The long arm of the debt collectors

A government website outlines the powerful collections tools available to student loan lenders, both public and private:

Once your loan is assigned to a guaranty agency or the U.S. Department of Education (Department) for collection, the following steps may be taken to recover the outstanding balance due:

• The Department of the Treasury may offset your federal and/or state tax refunds and any other payments, as authorized by law, to repay your defaulted loan.
• You may have to pay additional collection costs after your loan is assigned to a private collection agency for collection.
• Also, you may be subject to Administrative Wage Garnishment, whereby the Department will require your employer to forward 15% of your disposable pay toward repayment of your loan.
• Federal employees face the possibility of having 15% of their disposable pay offset by the Department toward repayment of their loan throughFederal Salary Offset.
• The Department may take legal action to force you to repay the loan.
• Finally, credit bureaus may be notified, and your credit rating will suffer.

Bottom line: bankruptcy may be a good option for most of your debt. Student loans will not discharge in bankruptcy, but restructuring or discharging the rest of your debts through bankruptcy will make it easier to pay the student loans off.

Related posts:

1. Student Loans
2. Chapter 13 vs Debt Consolidation
3. Things You Must Do Before Filing for Chapter 7 Bankruptcy Protection

The March jump in foreclosure activity(35% over February)  is seen by many as a sign that lenders are coming to grips with the documentation problems that led to the robo-signing scandal last fall.   Meanwhile,  private mortgage loan modifications were up significantly in March while the  government’s Home Affordable Modification Program (HAMP) rates have not been updated as of today.

What to do if you can’t get a mortgage modification

Most people DO NOT successfully modify their mortgages. There are too many built-in incentives for mortgage companies to deny them. We’ve said before that those facing foreclosure might, under certain circumstances, be able to keep their homes through a Chapter 13 bankruptcy filing.

Where an individual is on the verge of losing their homes or vehicles, filing a Chapter 13 bankruptcy can halt the process. The court will issue an automatic stay and will then restructure the debts so that mortgage and car payments become more manageable.

By lowering the interest and reducing monthly payments, Chapter 13 bankruptcy provides a way to catch up on payments.

If you are behind in making your mortgage payments, but you still have income and can pay the monthly mortgage payment, a bankruptcy counseling session will help you determine whether Chapter 13 or some other strategy is in your interests.  Call our offices today.

Related posts:

1. Chapter 13 Bankruptcy: A Court-Supervised Mortgage Modification
2. Chapter 13 Bankruptcy Explained
3. Foreclose, Modify or Seek Bankruptcy Protection?

Sports fans may have followed the continuing saga of Lenny Dykstra’s financial woes and wondered what is meant by defrauding a bankruptcy estate, one of the latest charges against him.

“The criminal case filed in U.S. District Court alleges that Dykstra removed, destroyed and sold property that was part of the bankruptcy estate without the permission of the bankruptcy trustee.

It is a federal crime to conceal assets or to make false representations in a bankruptcy proceeding, and the maximum penalty for each offense is five years in prison and a $250,000.00 fine.  18 U.S.C. §157.

What is in and out of the bankruptcy estate

The bankruptcy estate is all of the debtor’s property as of the date of the bankruptcy filing, wherever located and by whomever held. The concept of the estate applies to property owned at the time of filing.

Most of what the debtor acquires after the date of filing will remain the property of the debtor. However, there are a few exceptions to this general rule:

• If the debtor inherits money or property within six months after his case is filed, that money or property will become property of the estate to the extent that it cannot be exempted.
• If the debtor receives marital property settlements that arise from a pre-bankruptcy divorce or separation, then that property becomes property of the estate to the extent that the property cannot be exempted.
• Tax refunds that are received after the date of filing become property of the estate to the extent that they cannot be exempted.

Southern California Legal Group lawyers are always careful to factor in things like marital property settlements, tax refunds and inheritance issues when recommending the timing of our clients bankruptcy filings. We never recommend filing for bankruptcy protection without qualified legal representation.

Related posts:

1. The Bankruptcy Estate
2. NFL Strike and Bankruptcy
3. Can I Keep My Car After Bankruptcy?

Most people we counsel would rather not file for bankruptcy protection. They go to great lengths to weather this terrible recession and too often by the time they come to our offices they’ve made some devastating choices, like raiding their 401-k, IRA and other tax-qualified retirement funds.

Here are a couple of reasons why this is a bad idea:

1) 401(k)s, IRAs, and other ERISA-qualified retirement plans are exempt (protected from creditors).

(2) Here are a couple of problems you create for yourself when you raid your ERISA-qualified retirement plans:

• First, taxes and penalties. Your early withdraws are subject to income tax and a 10% penalty.
• Second, if you later decide to file for bankruptcy protection, the income taxes incurred through early retirement distributions are not immediately dischargeable.  Who wants to deal with the IRS ?
• Third, what will you live on when you retire?
• And fourth, if you decide to declare bankruptcy after raiding your qualified retirement plan, the early retirement distributions are income that may mess up eligibility for a Chapter 7 bankruptcy.

If you’re thinking of liquidating your retirement fund to pay today’s bills, you owe it to yourself to consult with a bankruptcy attorney to learn what legal protections might be available to you.

Related posts:

1. Unemployed in Riverside-San Bernadino-Ontario?
2. Foreclose, Modify or Seek Bankruptcy Protection?
3. What’s it Cost to File Bankruptcy in the Inland Empire?

Last week the Daily Bulletin filed a story about rebuilding credit scores after bankruptcy. The article broke down the credit score by contributing factors as follows:

• 35% of a credit score reflects a payment history (missed payments, collections, bankruptcies, etc.),
• 35%  is the amount of credit you have used compared to your available credit,
• 15% on how long you’ve had various accounts open,
• 10% is based on credit inquiries,
• 10% reflects the types of credit a consumer has, including mortgages, auto loans and revolving credit.

Rebuild credit or file for bankruptcy protection?

Many clients we see tell us they have delayed filing for bankruptcy protection because they don’t want it to hurt their credit scores. This USAA article demonstrates that if you’ve already missed payments or succumbed to a foreclosure the damage is already done.

1. Bankruptcy: 165 to 365 points, depending on number of delinquent accounts and your score when it’s reported. Scoring models usually give the most weight to payment history, and bankruptcy is included in that category.

2. Foreclosure: 105 to 160 points.

3. Short sale mortgage A lower sales price than outstanding balance was negotiated, but a delinquency was reported: 115-140 points.

4. Settling a credit card debt for less than is owed: 65 to 125 points.

5. 30-days late on a payment: 60 to 110 points.

6. Maxing out a credit card: 10 to 45 points.

Begin your journey to a good credit score with a bankruptcy counseling session

During your initial consultation with a bankruptcy attorney your financial situation will be evaluated and alternatives to bankruptcy considered. Next, the attorney will discuss the suitability and benefits of filing a Chapter 7 or Chapter 13 bankruptcy.

If you are an individual with relatively few assets and most of your debt is unsecured, filing a Chapter 7 bankruptcy would be in your best interests.

On the other hand, if you are a high income individual or have substantial assets which you want to protect or want to restructure the repayment of secured debts over time, a Chapter 13 bankruptcy would be more appropriate.

For more information on consumer bankruptcy, please visit the following links:

Chapter 7 Bankruptcy (Liquidation)
Chapter 13 Bankruptcy (Reorganization)

Related posts:

1. Repair Your Credit
2. Arrowhead Credit Union: Small Business Owners, Asset Protection Counseling is in Order
3. Chapter 13 Bankruptcy: A Court-Supervised Mortgage Modification

We always want our clients’ bankruptcy filings to go smoothly. This list will help you do your part.

1.  Stop using your credit cards and don’t incur any additional credit.

Once you have made the decision to file bankruptcy, you should neither use your credit cards nor incur any additional credits from that point forward. Any recent purchases or advances can be held as still due and owing after you file bankruptcy.

2.  Take the required credit counseling briefing

Before a Chapter 7 bankruptcy case can be filed, a person must take a credit counseling briefing from an approved credit counseling agency. This credit counseling briefing can be done on the internet or by telephone and must be completed within 180 days prior to filing bankruptcy.

3.  File your taxes
You must file your most recent year’s taxes to qualify for Chapter 7 bankruptcy relief.. A copy of the return will be forwarded to your assigned bankruptcy trustee after your case is filed. You must also provide your most recent tax return to any creditor who requests it.

4.  Provide your most recent paychecks
You must provide the most recent 60 days worth of paycheck stubs at the time your case is filed. These will be forwarded to your assigned bankruptcy trustee or may be filed with the clerk of the bankruptcy court. When you file bankruptcy, expect that the trustee will perform a thorough investigation of your assets and your financial transactions for a year or more prior to the bankruptcy.  If the trustee determines that you have sold or given away valuable items before filing for bankruptcy protection, this can cause your case to be dismissed.

5.  Get Your Paperwork in Order

• Collect all statements from bill collectors.
• Go online and get complete addresses of creditors who may have stopped billing you.
• Check the balances at financial institutions where you bank.
• Look at your recent tax returns to provide your gross income over the past three years.

6. Read your credit reports

If you are unsure of exactly who you may owe, you may want to consider acquiring a copy of your most recent credit reports. Each year you may request a free copy of your credit reports from the three major credit reporting companies.

Even if you are unaware of the creditors listed on your reports, provide those to your attorney anyway. The rule to remember is to list everybody and their grandmother on your bankruptcy petition and schedules. This way you can be assured that you are not leaving anyone out of the bankruptcy filing.

Do not wait until you’ve got all these things finished to call for a free initial bankruptcy counseling session.

Related posts:

1. Things to Do Prior to Filing
2. Documents to Collect
3. Chapter 13 Bankruptcy Process

Inland Empire customers of Arrowhead Credit Union know about its seizure by the National Credit Union Administration, of course, but some small business owners have been affected by the conservator’s decision to discontinue SBA lending.

“It is the conservator’s prerogative to determine the specific services the institution will offer,” said Eric Richard, general counsel for the Credit Union National Association, a trade group representing credit unions. “At a time when the need of small businesses for affordable sources of credit is acute, however, we hope the conservator will continue to operate the institution with sensitivity to the ongoing credit needs of the community.”

We’ve had some calls from small business owners doing business with Arrowhead who are concerned that it will be difficult to renew a line of credit or seek forbearance, modification, refinance, or deal with other issues affecting commercial loans. These business owners have guaranteed their business’ loans and wonder whether they should seek bankruptcy counseling proactively.

We refer to this kind of counseling as “asset protection” and is part of our bankruptcy counseling process.

If you are a business owner or self-employed and struggling to pay your personal and business debts, a proactive bankruptcy counseling session is in order. We do not charge for our initial consultation.

Related posts:

1. Asset Protection
2. Foreclose, Modify or Seek Bankruptcy Protection?
3. Repair Your Credit