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.

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" »

It is well established that the holder of a first mortgage can't modify the terms of the loan if the loan is on his primary residence. However, what if the mortgage is on a rental property which is not the debtor's primary residence, can the terms of the first mortgage be modified? Yes in a Chapter 13 bankruptcy, subject to strict rules.

You can use a Chapter 13 bankruptcy to cramdown the mortgages on your investment properties. Investment property generally means any property other than your principal place of residence such as rental or commercial properties. You cannot use a mortgage cramdown to reduce the balance of your mortgages on your principal residence. However, you may still be able to get rid of your second mortgage on your principal residence in Chapter 13 bankruptcy through a process called lien stripping.

I have advised debtors that, under certain very specific circumstances, to move out of the home, rent it out on a month to month basis, rent an apartment, file a chapter 13 bankruptcy, cramdown their first mortgage, and then move back into their home. (Since the debtor rented their home on a month to month basis, they can terminate the tenancy at any time). Is this bad faith? That can only be answered on a case by case basis.

This brings up the very next question, at what point in time is it determined if the subject piece of property is the debtor's primary residence or rental property not his primary residence?

Continue reading "Mortgage Cramdown In A Chapter 13 Bankruptcy?" »

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.

Under the current state of bankruptcy law, a debtor can't cram down the mortgage on the principal residence in a Chapter 13 Bankruptcy. However, a Principal Paydown (PPP) bill may soon pass thanks to the National Association of Consumer Bankruptcy Attorneys (NACBA). Thirty-two members of the California delegation in the U.S. House of Representatives sent a "call to action" to President Obama that read in relevant part:

"One promising possibility would be a temporary reduction in the interest rates of certain homeowners who file for Chapter 13 bankruptcy, so that the entirety of their monthly payments would go to paying down their principal balances for five years. Coordination with the bankruptcy process would make these reductions more likely to succeed than other types of loan modifications, while also limiting the program to those who truly need it and avoiding the administrative failures that have plagued many other initiatives. Such a plan could be implemented for mortgages held by Fannie Mae and Freddie Mac, as we believe that such a plan would be entirely consistent with FHFA's obligation to minimize taxpayer losses in the Enterprises. This plan could also be implemented as part of the nationwide settlement currently being negotiated by a group of state attorneys general."

Continue reading "Support Growing Among Policymakers For NACBA's Principal Paydown Plan" »

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.

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 " »

The issue of whether or not a debtor can strip a lien in a "Chapter 20" bankruptcy is split throughout the United States. However, the issue was just settled in our circuit.

In re Ricardo and Jenny Victorio, the bankruptcy court sustained the trustee's objection to confirmation of the debtors'' plan, holding that debtors in a Chapter 20 case cannot obtain a permanent avoidance of a wholly unsecured junior lien on their principal residence unless they pay the clam amount in full, or obtain a discharge.

Continue reading "No Lien Stripping in Chapter 20 Cases In The Ninth Circuit - Santa Rosa Bankruptcy " »

I just recently successfully filed suit against Bank of America to enjoin a pending foreclosure sale based on their bad faith behavior by not negotiating a loan modification in good faith. A federal court in Massachusetts apparently agrees with me.

In an unrelated case, a federal court in Massachusetts has enjoined a foreclosure action in order to give the homeowner a chance to prove that the lender should be required to negotiate a loan modification in good faith. In denying the lender's motion to dismiss the homeowners' complaint, Judge William G. Young found that their common law claim of equitable estoppel was not preempted by the Home Owners Loan Act. (Dixon vs. Wells Fargo Bank)

Continue reading "Federal Court Enjoins Foreclosure - Santa Rosa Bankruptcy " »