Sonoma County Lawyer Blog

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" »

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.

Chapter 13 who are repaying loans from their 401(k) retirement plans when they file for bankruptcy do not necessarily need to step up their plan payments after the loans are repaid. They may be able to increase their plan contributions instead.

In this case the debtor's attempted to avoid filing for bankruptcy by taking out loans from their 401(k) plans. The payments for those loans were included in the debtors Means Test deductions. The debtors intended to increase their 401(k) contributions when the loan payments ended. The trustee objected on the basis that the amount of the loan payments needed to be added to the plan payments when the loans were paid off. The trustee did not object to the continuation of the 401(k) contributions being made prepetition, but argued that the debtors could not increase those contributions postpetiton.

In disagreeing with a holding in the 6th circuit, the Court stated, in part, "section 541(b)(7) contains no language from which this Court may infer a basis to adopt a per se rule prohibiting the debtors from increasing the amount of their postpetition contributions to their respective 401(k) plans," Judge Magdeline D. Coleman stated in In re Egan, 22 CBN, 2001 WL 3902817 (Bankr. E.D. Pa. 08/30/11). Finding that all the debtors disposable income was committed to plan payments, the court overruled the trustee's objection to confirmation.

So debtors may still be able to adjust their retirement savings to a higher amount even in a Chapter 13 Bankruptcy.

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.

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 wedding ring, college degree and a well-paying job: the American dream or a recipe for bankruptcy? Some of the factors often associated with financial success are increasingly becoming correlated with personal bankruptcy filings, a study released Tuesday by the Institute for Financial Literacy found, according to Bankruptcy Beat. The study found that from 2006 to 2010, bankruptcy filings increased among college graduates and those earning $60,000 a year or more.

What's more, last year, 64% of bankruptcy filers surveyed were married a number that also increased from five years ago.

Why is this you ask? I think the answer is simple. The more we make the more we spend.

Continue reading "Marriage, College, And A Job Won't Ward Off Bankruptcy - Santa Rosa Bankruptcy " »

A Pennsylvania couple was convicted in federal court of fraudulently trying to give new hope to homeowners facing foreclosure. Edward and Jacqueline McCusker face up to 240 years in prison for their involvement in what US Attorney Zane David Memeger described as a $14.6 million mortgage fraud scheme that resulted in at least 35 fraudulent mortgage loans.

The McCuskers operated Axxium Mortgage Inc., along with co-defendants John Bariana, Jeffrey Bennett and Stephen Doherty, owners of the law firm Bennett & Dohnerty.

The defendants targeted financially distressed homeowners facing foreclosure, falsely promising to help them save their homes. They said they would find investors, but what they did was arrange for a straw purchaser to obtain a fraudulent mortgage and then transfer title of the homeowner's residence to the straw purchaser.

Continue reading "If It Sounds Too Good To Be True, It Is: Couple Convicted of Foreclosure Rescue Fraud" »

Harriette King, a bankruptcy petition preparer who was convicted of bankruptcy fraud and other charges in February 2011, was sentenced to 27 months in prison followed by three years of supervised release, according to the KNOE-TV in Monroe, LA. King was also ordered to pay $20,359 in restitution.

According to trial testimony, King committed numerous criminal violations as a bankruptcy petition preparer. The testimony revealed that King wrongfully received legal fees and court costs from three debtors after fraudulently representing herself as an attorney. King refused to obey multiple bankruptcy court orders to return the money to the debtors.

King added to her criminal violations when she later filed her own bankruptcy petition and fraudulently claimed to own property she did not own and fraudulently omitting debts she was required to disclose.

I have been retained by several clients who first went to a bankruptcy preparer to "save money". The preparer butchered their case and it took me double the time, and cost the debtors, double the money, to fix all the errors the preparer created.

It's not worth it! If you are considering filing bankruptcy you must consult with an experienced bankruptcy attorney. There is no suitable substitute.

Continue reading "Bankruptcy Petition Preparers, Not A Good Idea - Santa Rosa Bankruptcy Lawyer" »

Well, that depends on who you ask. In the case of Julianne Arnoux (Case Number: 09-04778-FLX), the United States Bankruptcy Court for the Eastern District of Washington held that income, within the 6 month look back period had to be earned as well as derived.

In Arnoux, supra, the trustee filed a motion and asked the Court to declare that the income listed on the debtor's Means Test was incorrect and to order her to enter a different amount, which would have made her an above median income debtor. The issue was whether the debtor had to include her final pay period in the income listed. The debtor argued that the final pay period was excluded because she did not actually receive that income during the applicable six month period. The trustee argued that the income was derived or earned during the statutory period and therefore had to be included.

Continue reading "Does Current Monthly Income Include Income Received But Not Derived Within The 6 Month Look Back Period?" »

In Pennsylvania, MERS filed a motion for relief from the automatic stay seeking permission to resume foreclosure proceedings against the debtor's residence, purportedly acting on behalf of its principal, to enforce the mortgage on the debtor's property. The debtor asserted that MERS had not established that it had the legal authority to enforce the mortgage and therefore, it lacked standing, or it was not a "party in interest" or it was not the "real party in interest." The court held that, on the evidence presented, MERS had not established that it was a party in interest entitled to seek relief from the automatic stay in order to prosecute a foreclosure action against the property. MERS had not presented sufficient evidence to permit a finding that it was either: (1) the holder of the mortgage, with the concomitant right to enforce it under state law or (2) an agent authorized by the holder of the mortgage to initiate court proceedings to enforce the mortgage on the holder's behalf.

Stay relief is available to a party in interest. To enforce a creditor's rights under a mortgage, courts have recognized that to have the "legally protected interest" that makes a party a "party in interest," the movant must be the party that has authority to enforce the mortgage under applicable nonbankruptcy law.

Continue reading "MERS Relief From Stay Denied Since It Had Not Established Legal Authority To Enforce Mortgage - Santa Rosa Bankruptcy" »

In the case of David and Candice Henderson, the above median income Chapter 13 debtors proposed a 36-month plan because according to the Means Test, Form 22C, they had negative disposable income. The bankruptcy trustee object to confirmation of the Chapter 13 Plan on the theory that the debtors were required to propose a 60 month repayment plan, since their household income was above the applicable median income for a family their size.

The case bankruptcy attorneys rely on is the Kagenveama case which holds that a debtor with positive projected disposable income must pay all of his projected disposable income to unsecured creditors for a period of 5 years. The court went on to say that if the debtor does not have any projected disposable income the 5 year requirement does not apply.

The trustee argued that "Kagenveama" no longer was controlling because of the holding of Hamilton vs. Lanning, which held that the court could look forward when determining if a debtor had sufficient disposable income available to creditors notwithstanding the results of the Means Test.

Continue reading "Santa Rosa Above Median Income Debtors With No Disposable Income May Propose A 36 Month Chapter 13 Bankruptcy Repayment Plan" »

Robert and Penny Baker, In re: Robert & Penny Baker, Debtors, filed a voluntary Chapter 13 bankruptcy petition and listed three vehicles in their schedules. On Form 22C, the Means Test, the debtors calculated their disposable income on Line 59 of Form 22C as $607.02. Debtors calculated their monthly disposable income by deducting $836.00 on Line 27(a) of Form 22C.

The debtors argued that they were entitled to deduct an additional $200.00 for each of the two vehicles as ownership expenses as allowed by the Internal Revenue Manual, since the manual allowed debtors to deduct an extra $200 per vehicle for vehicles that are more than 6 years old or that have more than 75,000 miles on them.

The trustee objected, stating that the court should not consider the IRS Manual because it was not subject to the publication and notice standards required under the Administrative Procedures Act. The court disagreed, relying on the fact that the United States Supreme Court in Ransom vs. FIA Card Services stated that is was appropriate to look at the Internal Revenue Manual for guidance when it decided the issue of whether debtors may claim an allowance for car ownership costs.

What this means: Debtors were allowed to deduct an extra $200 per vehicle for operating costs. This saved the debtors $400 per month and $24,000 over the life of their plan.

This is a prime example of why debtors should hire an experienced bankruptcy lawyer as opposed to filing themselves or utilizing the services of a document preparation company. It took a bankruptcy attorney to figure out an argue in favor of this extra $400 per month deduction. If it were not for this lawyer's research and legal argument, the debtors would have paid an extra $24,000 in the Chapter 13 Plan, a fact creditors would have loved.

The Law Offices of James V. Sansone is located in Santa Rosa, California and helps people file for bankruptcy relief under the United States Bankruptcy Code 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

Most people I talk to are painfully aware that under current bankruptcy law the general rule is that student loan debt can't be discharged in a bankruptcy. This, of course, begs the question, can student loan debt ever be discharged. The answer is yes, but it is very difficult.

The exception to discharge for student loans resulted from publicity over a supposed flood of bankruptcies in the early 1970s filed by students who were just finishing their education with the purpose of discharging their student loans before they started earning money. Generally, if a student loan debt is nondischargeable, postpetition interest on the debt is also not discharged. Some courts have held, however, that contractually imposed liquidated damages for nonpayment of student loans are dischargeable, because the penalties are not debts for an "educational loan."

Currently, the sole exception to the nondischargeability of student loans is available when excepting the debt from discharge would cause the debtor of the debtor's dependents "undue hardship."

Continue reading "Are There Any Circumstances Where I Can Discharge My Student Loan In A Santa Rosa Bankruptcy?" »

The most common types of bankruptcy for individual consumers are Chapter 7 and Chapter 13.

Chapter 7: Chapter 7 is the "operative" chapter of the Bankruptcy Code that normally governs liquidation of a debtor. Liquidation involves the collection, liquidation and distribution of the nonexempt property of the debtor and culminates, if the debtor is an individual, in the discharge of the debtor. Chapter 7 allows for the discharge of unsecured debts including credit cards, medical bills and personal loans. In the average case, a person is usually able to exempt all their personal property to avoid a sale. The Chapter 7 process can be completed in as little as 90 days, allowing you to begin rebuilding your financial standing.

Chapter 13: Chapter 13 of the Bankruptcy Code is titled "Adjustment of Debts of an Individual with Regular Income." Chapter 13 permits a debtor to deal comprehensively with both unsecured and secured debts. This is accomplished through the chapter 13 plan, which only the debtor may propose. The plan sets out, within statutory parameters for plan confirmation, how the debtor desires to make payments to various creditors.

A chapter 13 plan can provide for the payment of secured claims to permit the debtor to retain collateral for those claims and may provide for the cure of arrearages on long-term debts, such as home mortgages. The debtor may retain nonexempt property if the plan provides that unsecured creditors will receive the property's present value in the form of plan payments.

If the debtor completes the chapter 13 plan, the debtor receives a discharge on all remaining eligible debt.

The bankruptcy codes also provides for bankruptcy under Chapter 11, 12, 9, and 15.

Continue reading "Santa Rosa Bankruptcy Basics "101" Part II, Types of Bankruptcy" »

Chapter 7 bankruptcy is the "operative" chapter of the Bankruptcy Code that governs liquidation cases. Chapter 7 is the chapter most frequently chosen by individual debtors. A chapter 7 case is commenced by a petition, which may be filed voluntarily by a debtor or by a husband and wife jointly, or may be filed by creditors seeking an involuntary bankruptcy case. A case also may be converted to chapter 7 from chapter 11, chapter 12 or chapter 13.

The filing of a voluntary petition constitutes an "order for relief" under chapter 7. In an involuntary case, the court enters an order for relief if the involuntary petition is not controverted or if the debtor is found to meet the criteria for involuntary relief.

The filing of a petition brings about the creation of the bankruptcy estate. Section 541 defines the property of the estate. After the order for relief, an interim trustee is appointed by the United States trustee to administer the case.

The filing of the petition, with certain exceptions, also effectuates the automatic stay of section 362(a), protecting the debtor and the estate from most creditor actions.

In today's troubling economic climate, it has become more commonplace than ever to fall behind on your financial obligations. Whether you are swimming in high credit card debt, have incurred extensive medical bills from an injury, or have been laid off and fallen behind on your mortgage, you may be able to find effective relief by filing bankruptcy through the Chapter 7 or Chapter 13 bankruptcy process.

The Law Offices of James V. Sansone is located in Santa Rosa, California and helps clients determine if bankruptcy is the right option for their individual needs 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.

Involuntary bankruptcy cases constitute only a small portion of the total number of bankruptcy cases filed. Yet the threat of creditors forcing a business or individual into bankruptcy is significant for all parties and can affect a potential debtor's decision-making, such as furthering an early filing of a voluntary case or encouraging an out-of-court settlement.

Section 11 USC 303(a) limits the Bankruptcy Code chapters under which an involuntary petition can be filed and the persons that can be the subject of such cases. An involuntary case can be commenced only under chapters 7 and 11 and specific persons are expressly precluded from being subjected to an involuntary filing, namely farmers, family farmers and corporations that are not moneyed, business or commercial corporations. An involuntary bankruptcy case can be commenced only against a person that may be a debtor under chapter 7 or chapter 11 of the bankruptcy code.

The bankruptcy code provides that the only entities that can commence an involuntary case are those holding claims that (1) are not contingent as to liability and (2) are not subject to a bona fide dispute as to liability or amount. The aggregate of the claims of such entity or entities must be at least $14,425 of unsecured debt.

The basic requirement under section 303(b)(1) to determine how many creditors must file the involuntary bankruptcy is that if the debtor has 12 or more eligible "creditors" three or more petitioning creditors are needed. If the debtor has fewer than 12 creditors one petitioning entity is sufficient, although more are permitted.

Forcing a debtor into bankruptcy may be a powerful tool for creditors in very factual specifics cases, but involuntary filings must be in good faith. If it is determined that an involuntary petition has not been filed in good faith, the petition may be dismissed by the court and/or a debtor may be awarded damages, including punitive damages.

When does an involuntary petition make sense?

Continue reading "Involuntary Bankruptcy May Be A Useful Tool For Santa Rosa Creditors To Protect Their Rights" »