Sonoma County Lawyer Blog

In response to the recent Chapter 11 bankruptcy filing by ResCap, the mortgage arm of Ally Financial, formerly known as GMAC Mortgage, NACBA will be seeking global relief from the automatic stay to allow consumers in bankruptcy cases of their own to bring actions in those cases related to ResCap/Ally/GMAC claims. NACBA is committed to quickly obtaining the broadest and most efficient relief from the stay as possible, so that consumers and their attorneys can continue to bring lien-strip actions, objections to claim, and other actions in bankruptcy cases, without having to individually seek permission from the bankruptcy court in New York. NACBA is both working with the U.S. Trustee and retaining counsel to bring appropriate motions.

This will benefit any debtor who is in bankruptcy and has a mortgage from Ally Financial or GMAC Mortgage. This way debtors will still be able to obtain all the benefits of bankruptcy without any additional work or attorney fees.

The Law Offices of James V. Sansone assists individuals file for bankruptcy protection under the United States Bankruptcy Code and assists creditors to protect their rights when a bankruptcy is filed. We are located in Santa Rosa, California and serve clients throughout Sonoma County, Mendocino County, and Lake County, including Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, and Kelseyville.

This dispute arose in the bankruptcy court when the debtors defaulted on the terms of their prepetition lease, which was terminated as a result of it being deemed rejected.
These Chapter 7 debtors filed for bankruptcy 10 days after signing an apartment lease. They did not schedule the landlord as a creditor. They did not disclose the lease on Schedule G. Pursuant to Section 365, the lease was deemed rejected 60 days postpetition because the trustee did not assume or reject it. Two months after the debtors received their discharge, the debtors stopped paying their rent. The landlord sued the debtors, obtaining a judgment for $8,929 for past due rent. The debtors asked for reconsideration on the basis that any rent obligation was discharged in their Chapter 7 bankruptcy.

The court was not persuaded by the debtors' arguments. The court ruled that the landlord's rent claim was not a claim for damages resulting from termination of the lease agreement upon rejection. The deemed rejection of the lease resulted in a prepetition breach under section 365(g)(1). However, the court reasoned that a breach of a lease does not result in the termination of a lease. If the parties treat the lease as remaining in effect, then the lease continues in force. "If there is a future breach of the lease, the resulting claim does not arise from the rejection of the lease but from the tenant's subsequent default, and the lease is than subject to enforcement under applicable law," the court said.

If you are a landlord attempting to evict a tenant who has filed for bankruptcy or a tenant who needs to file bankruptcy we can help. The Law Offices of James V. Sansone assists individuals with landlord tenant disputes, including evictions, and file for bankruptcy protection under the United States Bankruptcy Code. We are located in Santa Rosa, California and serve clients throughout Sonoma County, Mendocino County, and Lake County, including Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, and Kelseyville.

The changes made to the Bankruptcy Code in 2005 significantly increased the cost of filing for bankruptcy for consumer debtors without producing a statistically significant increase in creditor recoveries, according to a recently completed study funded by the American Bankruptcy Institute H.N. Schnelling Endowment Fund and the National Conference of Bankruptcy Judges Endowment for Education.

The study looked at what it cost a consumer to file for bankruptcy before and after the changes took effect. The study showed that the hardest hit were debtors who filed no asset Chapter 7 Bankruptcy Cases, with an increased cost of approximately 51 percent.

In Chapter 13 cases, the TDAC increased by 24 percent dismissed cases and by 27 percent in cases where the debtor received a discharge.

"It takes more skill and experienced to responsibly and professionally represent consumer debtors--especially in this economic climate--than it used to. "Moreover, the system is less tolerant of mistakes and yet there are so many more opportunities presented by BAPCPA for even seasoned attorneys to make errors. Without a detailed understanding of how to make the system work, the temptation is there for lawyers to 'cut corners' in order to minimize time spent on a client's case, or conversely, to spend so much time on a case that the legal fee exceeds what an insolvent client can reasonable afford.

Efficiency coupled with a high level of skill, while important to every area of law practice, is crucial to the success of a consumer bankruptcy practice. Best practices' for consumer bankruptcy lawyers requires finding a balance between comprehensively addressing a financially distressed client's interests, and doing so in a time sensitive and efficient manner", the report stated.

The Law Offices of James V. Sansone assists individuals file for bankruptcy protection under the United States Bankruptcy Code. We are located in Santa Rosa, California and serve clients throughout Sonoma County, Mendocino County, and Lake County, including Santa Rosa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport, and Kelseyville.

The National Association of Consumer Bankruptcy Attorneys (NACBA) prepared a report regarding the dischargeability of student loans in the bankruptcy court. I have summarized the report below, but click here to review the entire report .

According to the NACBA, Americans now owe more on student loans than on credit cards. The amount of student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans and exceeded $1 trillion for the first time last year. The reason: Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training. In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands.

How big is the danger to the U.S. economy? "Evidence is mounting that student loans could be the next trouble spot for lenders," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs.

With rising debt comes increased risk, both to borrowers and to the economy in general. Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children. Piling up student loans in middle age is even more troublesome. Aside from the simple truth that there is less time to earn back the money, it also means facing retirement years still deeply in debt. And, parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.

Continue reading "The Student Loan Debt Bomb: America's Next Mortgage Economic Crisis" »

According to the National Association of Consumer Bankruptcy Attorneys (NACBA), the proposed principal paydown plan has hit a road block.

According to an e-mail update issued by the NACBA, NACBA's Principal Paydown Plan to help underwater homeowners in chapter 13 bankruptcy avoid foreclosure, has been endorsed by a substantial number of Members of Congress who in turn have pushed for action by the Federal Housing Finance Agency (FHFA) to implement the plan. In a series of private meetings and in letters to FHFA, Senators and Members of Congress have asked the FHFA to use its authority over Fannie Mae and Freddie Mac to require them to agree to the Principal Paydown Plan when proposed by a homeowner trying to save a home in chapter 13 bankruptcy.

Despite FHFA Director DeMarco's initial positive comments about the Principal Paydown Plan, which he said struck him as "being responsible," and a "credible way to address the crisis while recognizing various interests mortgaged properties," he recently wrote to Congress informing them that the agency would not be implementing the Principal Paydown Plan. FHFA concluded that few GSE borrowers have filed for chapter 13 bankruptcy and are underwater and therefore the proposal would not be all that helpful. They did, however, commit to doing what they can to help eligible borrowers in bankruptcy get the HAMP modifications they qualify for.

While the FHFA response is disappointing and inadequate, and we believe wrong, we are gratified that the many Members of Congress who have pushed for this solution continue to be engaged and are looking for ways to get the Principal Paydown Plan implemented despite the FHFA's position. These Members of Congress recognize, as so many of us do, that the foreclosure crisis is not going away anytime soon and so long as it continues, the nation will not enjoy the kind of recovery that is needed to stabilize the economy and get people back to work.

The debtor and West Vernon Energy Corporation had been engaged in lengthy litigation. Prior to the debtor's bankruptcy filing, a jury awarded West Vernon a verdict of $178,207. The debtor's bankruptcy included a debt owed to "West Vernon Petroleum" at an address different than West Vernon's address.

Although it appeared that West Vernon's never received notice of the bankruptcy filing from the Clerk of the Bankruptcy Court, the company received actual notice of the filing from the debtor's attorney. This notice was received two months prior to the claims bar date. Despite this opportunity to file a claim before the deadline, West Vernon filed its claim several weeks after the deadline.

West Vernon then asked the court to have its claim deemed timely filed. The court denied the request, and disallowed the claim, stating that since Section 502(b)(9) was added to the Code, bankruptcy courts have almost uniformly ruled that proofs of claim that are untimely filed in a Chapter 13 case may not be deemed timely filed.
As such, the bankruptcy court denied an improperly scheduled creditor's request that its tardily filed claim be deemed timely filed.

If you are a creditor in a pending bankruptcy case there are very quick critical deadlines that must be followed to preserve your rights. The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients, debtors and creditors, with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

Bankruptcy courts rely on the "Brunner Test" for determining whether a student loan is dischargeable in bankruptcy based on a claim of undue hardship. This test is based on a U.S. Court of Appeals decision, Brunner v. New York State Higher Education Services Corp, and requires a debtor to prove:

(1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

Four years after a debtor received her Chapter 7 discharge, she moved to reopen her bankruptcy case for the purposes of seeking an undue hardship discharge of her student loans. The case was reopen and the debtor filed an adversary complaint seeking the discharge of $19,726 in student loans.

Continue reading "Debtor Discharges Student Loans After 25 Years" »

In the case of Cragen v. Maxwell the plaintiff (Cragen) believed he contracted a sexually transmitted disease from debtor (Maxwell) and threatened to sue her. To avoid suit, Maxwell agreed to pay Cragen $35,000. She signed a promissory note to which the plaintiff agreed to release her from any claims sustained by or resulting from contracting a sexually transmitted disease from Maxwell.

11 USC 523(a)(6) provides that debts for willful and malicious injury by the debtor to another can't be discharged in bankruptcy.

Pursuant to Section 523(a)(6), after Maxwell filed for Chapter 7 protection, Cragen filed a complaint alleging his claim was nondischargeable.

He alleged that Maxwell willfully and intentionally exposed him to human papilloma virus by engaging in unprotected sexual intercourse with him without informing him of her diagnosis. Maxwell denied having a past diagnosis and argued that her actions did not rise to the level of willful and maliciousness.

Continue reading "Unprotected Sex Is Not Willful and Malicious Act For Purposes of Non-Dischargeability" »

In the case of Dannielle Lewis, 22 CBN 29, 2011 WL 3962817, the debtors filed a petition for Chapter 7 Bankruptcy on July 22, 2011. The credit counseling certificate stated that she received credit counseling on August 1, 2011. The US Trustee moved to dismiss pursuant to Section 109(h)(1). At the hearing, the debtor's counsel said his legal assistant inadvertently filed the petition while he was on vacation and before the debtor obtained her credit counseling certificate.

The debtor said that she was delayed in completing the credit counseling because she was recovering from an injury at work. She argued that the court had discretion to waive the credit counseling requirement. The court, however, found that is discretion was limited to application of Section 109(h)'s stated exceptions. "Debtor did not file a certification of exigent circumstances under Section 109(h)(3) with her petition in order to receive a waiver of the credit counseling requirement. She has not asserted that she was unable to complete counseling due to incapacity, disability or active military duty. To the contrary, Debtor received credit counseling ten days after the bankruptcy petition was filed," the court said. "Section 109(h) does not contain an exception for the grounds raised by Debtor, i.e. lack of intent, de minimus delay, possible creditor confusion and judicial economy."

It appears the requirements of obtaining credit counseling pre-petition are clear and mandatory.

The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

Credit card delinquencies have reached a six-year low, according to the latest Credit Card Index from Fitch Ratings according to Consumer Bankruptcy News. The report also shows credit card charge-offs ticking up for the first time in the past several months.

Credit card accounts more than 60 days past due dropped to 2.15 percent in August, marking the 19th straight month of decline from a record high of 4.5%. Accounts on which consumers have missed one payment declined from 3.34% to 3.02%.

Credit card defaults increased from 6.33% to 6.41%. The Fitch Ratings Report said the increase was driven by two of the larger trusts--Citibank and Bank of America--posting higher losses. The report added that charge-off rates of 6% are considered normal.
Consumers repaid 21.14% of their credit card debt in August. That figure was less than the 21.76% paid in July, but was well above the index average of 16.3%.

Some may point to this as an indication that the economy is improving. I'm not convinced. Is it possible that credit card delinquencies have decreased because credit is harder to get? Can it be that credit is no longer considered an American citizen's right but a qualified privilege?

If you are suffering from an unhealthy amount of credit card debt the Law Offices of James V. Sansone can help. We are located in Santa Rosa, California and serve clients with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

I recently wrote a blog post entitled "No Lien Stripping in Chapter 20 Cases In The Ninth Circuit - Santa Rosa Bankruptcy". In that post, I overstated the meaning of that case when I represented the issue is now settled in the 9th circuit. As the case I was discussing, In re: Ricardo and Jenny Victorio, was a bankruptcy district court case, it is not binding on other California Bankruptcy Courts, it is only persuasive.

In fact, another bankruptcy court in the 9th circuit has come up with a different opinion. In the case of Jose Manuel Garcia and Maria Garcia, Judge Stephen Johnson held that a debtor may lien strip in a Chapter 20 bankruptcy.

Judge Johnson held that the availability of a Chapter 13 Discharge is not a predicate to lien stripping in Chapter 13. In coming to this conclusion the judge relied, at least in part, on Judge Jellen of the Oakland Division analysis of this question. Judge Jellen analyzed this question of whether a debtor in what has been called a "no discharge" chapter 13, (aka Chapter 20), can confirm a plan which modifies the rights of secured creditors using sections 506(a) and 1325(a) of the Bankruptcy Code. Judge Jellen found that the power to strip off wholly unsecured junior liens on real property is not conditioned on a debtor's right to a discharge under section 1328(f), but on the debtor's compliance with chapter 13 plan and confirmation requirements under sections 1322 and 1325.

So what is the answer to this question? Can you lien strip in a Chapter 20 Bankruptcy filing? Right now, it depends on who you ask. This question is sure to make its way up to the United States Supreme Court in time.

The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

A couple was arrested with possession of and trafficking in heroin and crack cocaine after receiving a Chapter 7 discharge. What is that? It is an elimination of debts as if they never existed. A "discharge," when granted by the Court, terminates all liability for repayment, all obligations, rights and duties associated with the claim.

The U.S. Trustee (UST) attempted to prove that wife and debtor Lisa Shiloh, illicitly sold drugs and profited from doing so in order to revoke her discharge. The debtor was found guilty on six counts of delivery of a controlled substance, one count of criminal conspiracy, four counts of criminal use of a communication facility, and one count of child endangerment.

The UST used evidence documents from the criminal trial that revealed the amount of drugs and the frequency of the purchases but there was no proof of the amount of money Lisa allegedly accrued from the sale of drugs up until the filing of her Chapter 7 petition.

The court said there was testimony regarding the sale of drugs but the UST did not prove that Lisa derived income from the transactions during the prepetition period. The court noted that the state needed to prove only that the debtor sold drugs, not that she earned income from doing so, which they didn't. The moral of the story, even criminals can receive a discharge.

The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients with their bankruptcy and criminal defense needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

How do you know if you have violated the automatic stay in bankruptcy? A debtor filed for Chapter 13 relief, and then later received a mortgage loan statement from Chase Home Finance. The debtor and his wife sued Chase alleging violations of the automatic stay, the Pennsylvania Fair Trade Extension Uniformity Act, the Pennsylvania Unfair Trade and Consumer Protection Act, and the Fair Debt Collection Practices Act.

The bankruptcy court granted Chase's motion to dismiss. Because the debtor's wife was not a debtor, she was not protected by the automatic stay. The court said the statement did not state that the account was past due nor demand immediate payment but did include a disclaimer that did not violate the stay as to the debtor.

The court characterized the Statement as being informative rather than an attempt to collect a prepetition debt. The language of the Statement was unambiguous and makes it aware that the Debtor is protected by the automatic stay and the statement is for compliance and informational purposes only which does not constitute an attempt to collect debt.

The court did not accept that the automatic stay prohibits all communication between a creditor and a bankruptcy debtor. The court granted the motion regarding consumer protection violations based on the court's lack of subject matter jurisdiction. The cause of the action was due to the debtor's property rather than the bankruptcy.

The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients, debtors and creditors, with their bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

Well, maybe a bankruptcy trustee can't be sued in state court under an intentional tort theory; this does not mean a trustee can't break the law. Former bankruptcy trustee Marika Tolz was sentenced to 81 months in jail, followed by 18 months of house arrest. In May, Tolz pleaded guilty to one count of conspiracy to commit wire fraud in a $16 million conspiracy. Tolz had been a member of the panel of Chapter 7 trustees for the US Bankruptcy Court, Southern District of Florida, for more than 20 years.

According to court records, Tolz and others conspired to misappropriate money from bankruptcy estates, receiverships, and other matters in which Tolz had been appointed as trustee, receiver, or personal representative, by writing or causing the writing of unauthorized checks from various fiduciary accounts which contained funds she was appointed to safeguard, without authority or legal justification. The money was then used for her own benefit, and to conceal her previous misappropriations by using the money to restore the balance of other fiduciary accounts from which she had previously taken funds.

Debtors are not the only players in the bankruptcy system that have an obligation to be honest. A trustee, obviously, can't rob Peter to pay Paul. The Law Offices of James V. Sansone is located in Santa Rosa, California and serves clients with their criminal defense and bankruptcy needs throughout the North Bay area of California, including Sonoma County, Mendocino County, Lake County, Santa Rosa, Napa, Petaluma, Cotati, Rohnert Park, Sebastopol, Healdsburg, Sonoma, Kenwood, Glen Ellen, Windsor, Bodega Bay, Ukiah, Willits, Clearlake, Lakeport and Kelseyville.

This is an interesting legal question. I know many debtors who feel a certain local panel trustee goes too far with his investigation and treatment of debtors at the Meeting of Creditors. So, if a trustee goes too far, is there a state court tort action available to the aggrieved parties? Debtors in the sixth circuit are locked into this holding as the Sixth Circuit US Court of Appeals says no!

In the case of Steve McKenzie, the bankruptcy court denied a law firm's request for permission to sue the Chapter 7 trustee in state court for malicious prosecution and abuse of process.

The court stated, "[a]lthough the presence of a tort action might weigh in favor of allowing [the movant] to proceed in state court, the court concludes that because the alleged torts are so intertwined with the trustee's duties pursuant to 11 USC § 704 and the turnover provisions of 11 USC § 542(e), these claims are better suited to be heard in bankruptcy court."

Continue reading "Can The Panel Trustee Be Sued In State Court Under An Intentional Tort Theory?" »