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 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.

In the United States there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Puerto Rico allows property to be owned as community property also as do several Indian jurisdictions. Alaska is an opt-in community property state; property is separate property unless both parties agree to make it community property through a community property agreement or a community property trust.

The state of California considers any property acquired during a valid marriage by a husband or wife community property. Sections 760 and 771 of the California Family Code outline the state law pertaining to community property.

IRMO Walker, Ralph and Elena married in 1993. They separated in January 2008, and, in March 2008, Elena filed a petition for legal separation. Ralph was 47 years old at the time of their separation. He had worked as a public school teacher until January 2008, when he left his employment due to a disability. Ralph has been a member of CalSTRS since 1986, and he had just under 20 years of CalSTRS service credit when he left his employment.

Ralph had applied for a CalSTRS disability allowance after the couple separated, and CalSTRS granted his application retroactive to December 2008.

In August 2009, the court entered a "STIPULATION AND ORDER" under which the parties agreed to "enter into a Domestic Relations Order (DRO) regarding Respondent's right to receive disability benefits from CalSTRS.

After several legal challenges to the characterization of this asset, the court found that his CalSTRS disability benefits were not his separate property.

Continue reading "Post-Separation Disability Benefits Are Not Community Property" »

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?" »

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" »

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 " »

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" »