October 4

Someone That Owes Me Money Just Filed For Bankruptcy. What Does It Mean For Me?

Someone That Owes Me Money For A Personal Loan Just Filed For Bankruptcy. What Happens To My Debt? Will I Be Compensated?

Someone Filed Bankruptcy What Do I Do

When a Debtor files a bankruptcy case, an order for relief is automatically entered. As the name implies, the order for relief grants the Debtor some strong protections under the bankruptcy code. Regardless of whether the Debtor filed a Chapter 13 or Chapter 7 case, they obtain the full protections of the automatic stay once they’re in bankruptcy. The automatic stay refers to a portion of the bankruptcy code that mandates that all collection efforts must cease once a Debtor files a bankruptcy case. There are some exceptions to the automatic imposition of an automatic stay, such as Debtors who are recent repeat filers, or for certain specifically excluded types of debt, but those are rare and if you believe for some reason that the automatic stay doesn’t apply in your situation, you should contact an attorney to help you. Violations of the automatic stay, even if not intentional, quickly become very costly. It may not seem fair, but if you do not heed the Debtor’s bankruptcy filing and cease all collection, you very likely may end up facing an order for you to pay the Debtor money on top of having your debt wiped out.

So, the first step is cease all collection efforts. This means no calls, no letters, no demands for payment, or any other furtherance of collection. If you have already filed a civil suit against the Debtor, then you are under an obligation to stay and dismiss the pending lawsuit. Any furtherance of a civil suit against a Debtor who has filed bankruptcy is a violation of the automatic stay. There are grounds to seek relief from the automatic stay but they are rare and if you are considering such a request, you should first seek consult with a bankruptcy attorney to determine if you have appropriate grounds to do so.

If the Debtor has filed Chapter 7, your options as an unsecured creditor are limited and in almost all cases you should expect that the debt is not likely to ever be paid. That being said, if someone has filed for bankruptcy there are some things you can do. First, as a creditor you have the right to appear at the 341 meeting and question the Debtor. This right, however, is almost never exercised and is probably not worth your time. The meeting of creditors, despite the name, is usually only a meeting with the Debtor and the bankruptcy Trustee assigned to the case. The Trustee will have reviewed the Debtor’s bankruptcy schedules and will ask questions of the Debtor to verify the accuracy of the information in the Debtor’s bankruptcy paperwork.

Bankruptcy Trustees are very busy and the purpose of the 341 meeting is not to allow creditors to conduct broad discovery. Most bankruptcy Trustees will quickly get frustrated with creditors who appear and ask questions beyond the scope of the meeting, or whose questions really are not appropriate for the 341 setting. Unless you have specific information about assets the Debtor has failed to disclose (i.e., you know they have a house they didn’t list), or you can prove that the Debtor has dramatically falsified their income, it’s probably not going to be worth your time to appear and ask questions at the 341 meeting.

Certain types of debts do survive bankruptcy, but you usually need to prosecute the dischargeability issue in bankruptcy court. 11 U.S.C. §523 lays out specific claims creditors can try to prove to establish that their debt is non-dischargeable in bankruptcy. Specifically, the types of claims held by non-institutional creditors that may be non-dischargeable are those related to fraud, willful and malicious injury, domestic support obligation, or death or personal injury including by negligence if the injury was due to the Debtor being intoxicated from alcohol or drugs. An Adversary Proceeding is a lawsuit in bankruptcy Court held to determine any adversarial issue between parties. Debts from domestic support obligations and debts due to to the Debtor causing injury or death while intoxicated do not require the creditor to file an Adversary Proceeding. Debts based on fraud, or willful and malicious injury require the creditor to timely file an Adversary Proceeding to determine whether the claim meets the requirements for non-dischargeability. Failure to timely file an Adversary Proceeding will result in discharge of the underlying claim.

In a Chapter 13, the main difference from a creditor’s point of view is that all creditors should receive a copy of the Debtor’s Chapter 13 bankruptcy plan. The plan is a complex document that will lay out what amount, if anything, creditors of each class (type of claim) will receive. Often, the plan will pay some fraction of what is owed to unsecured creditors. For example, if a plan proposes to pay 30% of the unsecured claims, then as an unsecured creditor you would receive 30% of the face value of your debt. You will be required to timely file a Proof of Claim form to verify the debt owed to you if you wish to be paid. As a creditor, you also have standing to oppose the Confirmation of the Debtor’s Chapter 13 plan, but non-institutional creditors should be weary about pursuing this unless they have valid grounds to do so. If you plan on opposing the confirmation of a Debtor’s Chapter 13 plan, you should seek out an experienced bankruptcy attorney to represent you, otherwise the most likely outcome is a very uncomfortable hearing with an unhappy bankruptcy Judge. Nobody enjoys unhappy bankruptcy Judges.

This is just an overview and of course, there are plenty of minor exceptions or additions to this general answer, so if you have a claim against a Debtor who filed bankruptcy and you want to know your options, we strongly recommend you seek out a bankruptcy attorney for a consultation. Remember, one misstep with a Debtor who has filed bankruptcy and you could end up paying them.

The Bodie Law Firm is a California bankruptcy law firm with offices in Encino, Ca and Ventura, Ca. You can find us on Facebook, Twitter and G+!

September 17

7 Ways To Recover After A Bankruptcy

7 Ways to Recover After Filing Bankruptcy Encino Bankruptcy Attorney

When people file for bankruptcy one of the most common concerns is how long it takes to recover from a bankruptcy filing. Although many of the downsides to bankruptcy are overblown, it’s not without consequences. The biggest concern clients voice is, “When will this be off my record?” What they typically want to know though, is a slightly different question – when will the bankruptcy stop negatively impacting credit?

A bankruptcy remains on a credit report for 10 years, but it is not a dramatic negative mark for that period. Most clients’ credit scores rise to the high 600 to low 700 range within 2-3 years. Beyond that, they continue to go higher. I’ve had clients who have recovered even faster, with scores above 700 one year after filing bankruptcy. Each person is different but there are things you can do help your credit score recover more quickly. Here are some ideas:

1. Wait a month or two after your bankruptcy case has closed and then obtain a credit report. Credit monitoring services can be particularly useful and these days there are some great free providers like CreditKarma and CreditSesame. All debts that existed prior to filing bankruptcy (assuming they weren’t reaffirmed), should show up as “included in bankruptcy” or something similar. They should not continue to show delinquent each month. Credit reporting, however, is fraught with errors and bankruptcy is no different. If you notice some of your creditors are not properly updated after filing bankruptcy, the easiest way to resolve it is to dispute the item with the credit bureaus. Include proof of you bankruptcy filing, the date you filed and your case number. The credit bureaus will then update the information to show that the debt was included in a bankruptcy. Ensuring you don’t have ongoing derogatory items due to credit errors is an important part of rebuilding your credit after a bankruptcy.

2. Learn to live off of cash. This doesn’t mean don’t ever use credit again. It means that you should budget so that you don’t ever have to live using credit again. If you learn to budget and live off of income, not credit then you have complete control over when and where you use your credit. Doing that will ensure you only use credit in the future in ways that benefit you.

3. It may sound crazy but go get a credit card. Many clients get offers for new credit cards mailed to them immediately after filing bankruptcy. Most of these will have very high interest rates, but for the recently bankrupt these cards can help. Take out one or two cards and just run a few charges each month. Pay the balance off every month so you don’t incur any interest charges. This will provide positive credit reporting each month and help push your score up faster.

4. If you can’t get any traditional credit cards, go for a secured credit card. A secured credit card is one where you provide the bank with a deposit equal to the credit limit on the card. The banks report secured credit cards the same as traditional credit cards and the positive reporting is just as beneficial. Not all banks provide secured cards, but Bank of America, Wells Fargo, CapitalOne, and US Bank all offer them.

5. Make sure and pay all your bills on time. It’s imperative that all your utilities, medical bills and new credit bills are paid on time every month after bankruptcy. Nothing will derail a fledgling credit score faster than newly reported defaults after a bankruptcy filing.

6. Don’t apply for multiple new credit accounts in the first two years after bankruptcy. Each time you apply for new credit, it appears on your report as an inquiry. Each inquiry hurts your credit score very slightly, so having frequent credit inquiries can add up to bring down your score.

7. Try to keep the same address. A portion of your credit score is based on your stability. One of the factors used to determine this is your FICO score. The statisticians at FICO know that a borrower who has lived in their home for 20 years is less likely to default than a renter who moves every year or two. Although it’s a small portion of what goes into your score, every little bit helps.

If you follow these simple steps, you should see your credit score rise faster than you might expect after bankruptcy. For most clients it’s a 2-3 year recovery where the score gets a little better each month. Following these steps may make your score recover even faster.

September 14

10 Signs You May Be Headed For Bankruptcy

10 Signs I m Headed For Bankruptcy

When a bankruptcy is filed, it begins with the bankruptcy Court entering an Order For Relief.  There’s a reason it’s called that.  Nobody wants to file for bankruptcy, but sometimes it’s the only way to get relief from crushing debt.  Most clients who end up fling bankruptcy, however, would never have thought they were going to file.  Here are some signs that you may be on the path to bankruptcy.

1.  Your credit cards balances are near their limits.  The people at FICO are pretty smart.  They’ve spent tons of money and have some of the world’s best statisticians working to figure out items that correlate to defaulting on debt.  One thing they care a lot about is how much of your available revolving credit is being used.  They know that when people start using up all their available credit, it’s a big warning sign that they probably cannot afford to keep maintaining the status quo.  If you find your credit cards are all about to hit their limit, that’s a sign that something is wrong.

2.  You have no way to save.   Whether it’s for a rainy day, a vacation fund, just in case, or for retirement, we all want to save money.  If you find that you have to stop contributing to your retirement account, or are unable to save any money each month, that’s a sign your finances may be in trouble.  Debt shouldn’t swallow up so much of your income that nothing is left for savings,

3.  You’re unable to earn enough to pay down debt.  If you find yourself unable to make any meaningful dent in your balances, that’s not a good sign.  Credit cards can be a very useful tool.  They can also spiral out of control.  If you find that the minimum costs each month to maintain the balances is all you can afford, the fist step is trying to lean down your monthly budget.  You can also try to work overtime.  If  after leaning down your monthly budget or trying to add overtime you still can’t get any traction paying down debt, then you may have reached a point where it’s no longer realistic to ever get out from under your debt without bankruptcy.

4.  You forego needed items to keep up with your debt.  Not going shopping as often, or not buying the newest smartphone is not a problem.  Those things are all part of smart money management.  If you find yourself foregoing necessary items however, such as health insurance coverage, or vehicle repairs, then there may be a problem.  When you’re skipping on necessities to keep up with debt, that’s not a good sign.

5.  You’re taking out loans against retirement accounts or life insurance policies to stay current on debt.  Raiding your retirement account to try to finally get a hold of debt is never a good idea.  Retirement account loans may seem like a solution, but they come with large monthly payments that get automatically deducted right out of your paycheck.  Almost always the retirement account loan is a precursor to being right back where you were, but this time with the added problem of a large retirement account loan payment.

6.  Despite balancing payments, you can’t seem to get new credit any more.  Remember what we said above about those people at FICO being pretty good at rating who to give credit to.  If you’re current on payments but you still can’t seem to get approved for anything, it’s probably because your overall debt load is so high that you look like a big risk to lenders.  When they see your debt, they know that the odds of paying it back are not good.

7.  Robbing Peter to Pay Paul.  If you find yourself borrowing from one creditor to make payments on another that’s a sign of a serious  cash flow problem.  The worst version of this is when people alter their income tax deductions and reduce the amount of income tax deducted from their paycheck to have a larger amount available each month.  That decision always catches up with them when it’s tax time.  The end result is you probably still owe the other creditors but now you’ve added one of the most difficult debts to get rid of and one of the most powerful creditors out there.

8.  Your bank account goes negative during a month.  You’re bank account shouldn’t be going negative.  If you find that you’re bouncing payments and keep going negative before that next paycheck, that’s a strong sign that the current plan isn’t working and that bankruptcy is likely on the horizon.

9.  You’re behind on your home or vehicle loan.  Homes and cars are priorities one and two.  A home is most people’s largest lifetime investment and it’s the place their family lives.  People don’t go into default on their mortgage unless the situation is dire.  Similarly, without a car, you can’t get to work.  If you’re in default on your mortgage or car loan, you’re past the point where you need to call a bankruptcy attorney.

10.  Creditors are calling and sending letters, or have sued you.  Once you’re far enough in default that you’re being hounded by creditors, it’s undoubtedly bankruptcy time.  Debt collection starts a cycle that is nearly impossible to get rid of.  Creditors calling incessantly and sending harassing letters means things have reached a breaking point.  Eventually they will sue and you will face garnishment or levy.  If you’re at this stage, it’s time to get relief – by calling a bankruptcy attorney to see about your bankruptcy options.

August 19

Surrendering Your Home In Bankruptcy

Surrender Home

Although many clients use bankruptcy (in particular, Chapter 13 bankruptcy) as a way to save their home from foreclosure, sometimes hanging on to an underwater, unaffordable home is a financial nightmare.  Owning a home comes with many additional costs other than the mortgage.  Often, when you factor in additional monthly costs such as mortgage insurance, homeowner’s insurance, property taxes, and HOA dues, the actual monthly cost for a home can be significantly higher than just the monthly mortgage amount.

In either Chapter 7 or Chapter 13 bankruptcy, debtors in California have the option of telling their mortgage lender that they want to “surrender” their home.  By indicating this on the bankruptcy forms (the particular form is called the Statement of Intention), the Debtor is simply stating that they don’t want the property any more, and have no intention of continuing to pay the debt attached to it.  The bankruptcy discharge eliminates the Debtor’s personal liability for the loan.  It does not, however, extinguish the lender’s security interest.  The net effect of all this is that the individual is “off the hook;” the lender cannot come after the Debtor personally (sue, garnish wages, levy bank accounts, etc…) but the lender can still foreclose on the property in the future.When a client decides their home has become an albatross they no longer want to try to save, bankruptcy offers options to get out from under the debt.  In California, when you have a mortgage loan, there is both personal liability and a security interest in the underlying real estate.  Personal liability refers to the obligation that the individual has to repay the loan.  The security interest grants the lender a right to foreclose on the property if the loan goes unpaid.

In California, the ability of the lender to “come after” an individual for an unpaid mortgage debt is a complex area of law with overlapping rules.  In almost all cases, the lender elects to pursue foreclosure through a noticed Trustee sale.  When a home is foreclosed on through a Trustee sale, the lender who initiated the foreclosure (almost always the 1st Mortgage) does not also have the right to pursue a deficiency balance (any money unpaid after the home is sold) from the borrower.  If there is a second lienholder on the property (such as a 2nd Mortgage or a Home Equity Line of Credit), then they may have the right to pursue a deficiency against the borrower when the 1st lienholder has foreclosed on the property.  In some cases, such as when a 2nd mortgage was taken out as part of a purchase transaction, the 2nd lienholder may not have the right to pursue a deficiency judgment.  In any scenario where there could be money owed, a bankruptcy can resolve the problem by letting the homeowner walk away from the property without owing any mortgage lender any money after the home is gone.

To find out if this is an option for you, or if you might have liability to a junior lienholder in the event of a foreclosure, contact us and we’ll be happy to analyze your situation and let you know what your options are. And don’t forget to Like us on Facebook, Follow our Twitter  and G+ page for even more Bankruptcy news and updates!