JaredGMS

After seeing another thread here regarding credit card debt, and some terrible misinformation therein, I've decided to start this thread.

I'll take questions here regarding bankruptcy. Also, if you have any preconceived notions re: bankruptcy and want to know if they are true, post them up and I'll try to comment on them.

I figure with the way the economy is, and the now record breaking numbers of Americans filing for bankruptcy protection, I can do a little to make the AZ community more well educated on the subject.


While I am a licensed attorney in CA, I cannot know every answer to every question, and there are some answers you need to receive from a local BK attorney to get the best advice. Therefore, be aware that this thread is NOT meant to give legal advice, but rather to help improve understanding of BK matters.

Fire away!

LaCostaRacer

^ I got one:

For the typical individual (not a business). What is the typical liability someone has when they contemplate bankruptcy?

To make this more appropriate for all people, perhaps a years of salary to pay off liabilities factor would be best for us to use. For example, if I owed 500,000 but only make 100,000 I would have a factor of 5. I'm suspecting that most individuals might have a factor of 20+ before contemplating BU but inquiring minds want to know.

Thanks for any enlightenment.

Professor

What happen's if you are in the middle of Chapter 13 and lose your job or get divorced? Can you petition the court to refile under Chapter 7? Or will Chapter 13 be redone to pay pennies on the dollar?

Also, if you file as a married couple, are you bound by you initial petition status?


Thanks

JaredGMS

That's actually a really interesting question, and very difficult to answer.

Most of the time, I see people with debt:income ratios of approximately 2:1, not including secured debts (houses, cars and the like).

But more so, when I meet with a potential client, I don't look at these types of ratios - what's more important to me is whether they are cash insolvent - basically, can you make your minimum payments and meet all necessary living requirements every month from total net income. That answer, with almost every chapter 7 and most chapter 13 clients, is yes.

JaredGMS

There are a few things that you can do, but they all depend on the exact circumstances of your case.

In most cases you may file a motion to convert the case to one under chapter 7, if you now meet the requirements for filing under the code. In that circumstance, it's almost as if the case restarts - you have a new meeting of creditors, any non-exempt assets are liquidated, and your discharge is generally granted in about 4 months.

In some cases, you will find you need to modify the plan to account for the new living arrangements and costs therein. Most of the time this is possible simply by lowering the dividend paid to unsecured creditors, but in certain cases where that is not possible, the case should be converted or dismissed.

And in all cases you must continue the case with the people as married, if that is how the original petition was filed.

LaCostaRacer

Thanks, I figured there was a better term to use (debt-to-income) that I wasn't thinking of. With so many houses 'under water' now, seems like even secured debt is suspect and may need to be uses too. If I understood your answer correctly, then even people that CAN make minimal payments and can meet living expenses pursue bankruptcy? I can understand if they can't make payments but am surprised if they could make payments unless BU is a way to renegotiate terms.

Thanks for starting this thread- I think there will be some good discussions here

JaredGMS

Most of the time they are cash insolvent, but not always.

Such as - what if you could BARELY make ends meet now, but you know you have to pay for daycare due to a change in work schedule starting in a few months? At the time you are cash solvent, but you will not be for long.

And people who file sooner rather than later almost always save on attorney's fees because the case is not as messy.

Whiskers

What should I do if my wife ever leaves me?

JaredGMS

Be a gentleman and try to end the marriage amicably...

Cut that bitch.....

Professor

Do you know of the states that allow to keep your home and basic living needs and still fill Chapter 7? I'm thinking Florida.

Also what if the real hit in your FICO score of declaring Chapter 7 versus living paycheck to paycheck and haven't made a dent in repayment 8 years later?

Professor

One other question... what are the things that can't be wiped away under Chapter 7 like student loans, IRS payments, etc. And what do they (judge) do if you have no income when you file? Is it like leprosy and follows you around your entire life?

JaredGMS

Each state has the option to go with federal exemptions (as outlined in 11 U.S.C. §522), or to use a set of state exemptions (as in CA, with CCP §§703 and 704).

All states (that I know of) will allow you to keep basic necessities, and some portion of equity in your home. The amounts are usually what differ, and it can also depend on your circumstances - i.e. married couples in CA can exempt more than a single person in a home, and a senior can exempt even more.

As far as credit - a BK (of any chapter) stays on your credit under the public records section for 10 years from the date of filing. Credit scores, however, can increase dramatically, if you use credit well after the BK. For instance, I tell my clients to figure out something they spend between $100-$150 on per month that is a necessity (gas, for example). Instead of using a debit card, get a credit card after filing, and use it only for that thing - then pay it off every month. You should stay below 50% of your total credit, and pay it off every month during a grace period, so little if any interest accrues. You are building credit without spending on something the cash would have been used on anyways. I have some clients with FICO's >700 in 24-30 months after a chapter 7 discharge.

JaredGMS

Non-dischargeable debts are enumerated in 11 U.S.C. §523. Notable exceptions to discharge are
- Student Loans (Presumption - can rebut presumption but it's almost impossible)
- Income Taxes (most - but older may be in some circumstances)
- Any money obtained by false pretenses, fraud, etc.
- Governmental fines/penalties
- Personal injury claims resulting from a motor vehicle accident and the debtor's use of alcohol, drugs, etc.
- Debts owing to former spouses by order of a family court (alimony, child support)


These debts are non-dischargeable and you still owe them at the conclusion of a chapter 7 case. What happens to them from there is up to the individual creditor

subinf

Have you found any case law supporting the marital adjustment for 13s regarding truly separated spouses and the exclusion of the income for both the applicable commitment period and the DMI calculation?

dallison

forge a prenup...

JaredGMS

In the EDCA we simply argue family law on the subject - if they are truly separated, the community has ended, and the filing spouse has no interest in any ongoing income of the non-filing spouse.

JaredGMS

Or listen to some Eminem - he's got plenty of ideas on the subject...

subinf

Damn. Here the response is "the trustee flatly opposes any amount listed for the adjustment. Unless there is a divorce we are objecting." Assholes.

outersquare

Is this for any accident or only accidents resulting from when the driver was intoxicated??

subinf

Only when alcohol was involved.

JaredGMS

Since this thread all but died, I may start using it as a sort of blog - to let people have tidbits of info on BK law and how it can help those in financial problems......

One of the newer things that Chapter 13's can assist with (in most jurisdictions) is removing junior deeds of trust from undersecured real property.

I personally have gone through almost 150 Ch 13s (as a clerk, or now in my own practice), where we can get rid of any and all junior deeds on real property, while allowing people to keep their homes.

If you think doing this might help your financial situation, contact a local BK attorney and find out if this relief is available in your area.

Or if you have any further questions, hit me up.

Hapa DC5

Where in CA are you located?

subinf

If you don't put any secured debt through the plan do you shoot for a percentage to unsecured in order to avoid a bad faith motion by the trustee?

JaredGMS

Sacramento

JaredGMS

I always shoot to get at least a couple of percent to unsecured, but it all depends.

Things that generally go into that analysis for me include -
- Past Chapter 7 which precludes another
- Reasonableness of deductions in B22C and on Schedule J
- Any priority debts?
- Liquidation analysis?

That said - each district has it's own quirks regarding bad faith under §1325...

EDCA is much more forgiving than NDCA in terms of low percentage plans - I've done a couple where $2500 of my fees go into the plan, and they are $75 a month for 36 months. After the 7.5% to the Trustee, Creditors get $12.50 over three years

That said, I've also had plans that paid upwards of 75% over 5 years, and had bad faith objections due to the debtors taking a charitable deduction of B22C.

Sometimes I think it just depends on whether the trustee had a good shit that morning, or whether he's got a cinder block jamming his ass.

subinf

Yeah ND sucks for that - especially Oakland and SF.

JaredGMS

Yup - main reasons I refuse to do 13's in NDCA - although I do have some 7's there.

subinf

If you are personally appearing on the 18th I'll see you there

JaredGMS

In San Jose? Yeah, I'll be there.

Hey, does Poonja have an issue with an attny not wearing a full suit to a 341? We are pretty casual up here in 341s

subinf

No issue - slacks and a polo are fine.

Just make sure you sent in the 521s a week ahead of time and let him know if you need a translator a few days before. Little things set him off and its pretty funny to listen to unless you are being lectured.

JaredGMS

521's always get sent the day after filing in my office. Anything to make those asshats happy.

JaredGMS

WTF? I was there today, and no SubInf.

I cried a little.

subinf

Sorry. I was planning on going (my paralegal had his same time you had yours) but I had to be in Oakland instead. Found out the night before.

extremetls

Jared, how many times did it take you to pass the bar?

JaredGMS

HAHAHA - far too many, unfortunately. I took the test 4 damned times prior to passing.

My first, I was going through a separation/divorce, so studying was low on my list of priorities.

2nd and 3rd I was within 5 points (out of 2000), but my essay scores were trash.

4th time I changed the way I wrote the essays (not what I wrote about, just the format) and passed.

MR1

How do state and fed tax the 1099 capital gain from a foreclosed investment property? Is it treated like income for the former owner? If so, how do they expect to get paid by someone who is very broke? Thanks.

JaredGMS

For both the IRS and FTB (in CA), investment property 1099's you're basically fucked. And remember - they have the rest of your life to add interest/fees and collect on that amount. Hope you never wanted a tax return again. (Oh, and if you are working, they will simply start a wage garnishment).

It's not a capital gain, actually. It's seen as either "other income" on line 21 of 1040, or sometimes "other gains or losses" on line 14. I never do taxes, so I'm not sure why some CPA's put it in each place.

Basically, the IRS sees cancelled debt as gross taxable income. So let's say, after all your deductions, you have $50K in taxable income. If you have $100K in cancelled debt from a foreclosure or short sale (and the SS agent sucked), you now have $150K in taxable income. Not only odes it raise your income, it usually puts you in a new tax bracket, so you're paying a higher rate on your actual income too.

Most of the time people in these situations need to talk to a BK attorney ASAP. If you file the taxes and owe that amount, you just turned a dischargeable debt into (mostly) non-dischargeable tax debt. Bad.

If you think you have reason to do so, you can discuss IRS form 982 with a tax pro. I know whenever I have a BK client with this issue, I always prepare them to fill out that form on next year's tax return, in case they get a 1099-C. (This form reduces taxable income due to different circumstances related to insolvency).

Also, good to know - many attorneys, myself included, think there may be issues with filing an amended 1040 with an attached 982 just to get rid of that tax debt. Basically, if you file with the IRS, and tell them you owe them that huge amount, and THEN file BK, it may be too late to reduce that tax debt using form 982 after a BK discharge.

MR1

Wow, thanks for the heads up and the fast response. Also, congratulations to you.

JaredGMS

Bump - since my biz has gone up a bit, I figured there may be more questions now...

subinf

^ - You going to the conference on Friday and Saturday?