Bankruptcy Filings Drop Again!

Total bankruptcy filings in the United States dropped 14 percent in January from the same period last year.  Local results saw even larger decreases.

California saw a 23% drop in cumulative filings.  California ranked 1st compared to all other states with the largest decrease in bankruptcy filings when compared to 2013.  For the first time in a long time, fewer than 100,000 bankruptcies were filed in the Golden State.  During the height of the Great Recession in 2010, more than 255,000 bankruptcy cases were filed.

Other states seeing a drop in cumulative bankruptcy filings when compared to 2013 include Alaska (-22%), New Hampshire (-21%), Vermont (-22%) and Wyoming (-23%).

The San Joaquin Valley saw bankruptcy case filings drop 23.5% from 2013.  This area includes Sacramento, Fresno and Bakersfield,  Total cases filed were 20,355.  In 2013, the San Joaquin Valley Valley filed 26,606.  In 2010, the valley had more than 54,000 bankruptcy cases filed.

 Why the decrease in bankruptcy filings? American Bankruptcy Institute Executive Director Samuel J. Gerdano said, "High costs to file and sustained low interest rates continue to reduce the number of consumers and businesses seeking the fresh financial start of bankruptcy."  January Bankruptcy Filings Decrease  

Click here to read the full statistical release.

Will the last bankruptcy debtor remember to turn off the lights on the way out?


Photo courtesy of Francesca Gallo on Flickr

Will Bankruptcy Get Rid Of My Student Loans?

Bankruptcy Courts Make It Tough To Rid Student Loans

Bankruptcy courts around the country toughened up on helping students discharge student loans beginning in 2006.  Many still do not realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. Student loans are preventing thousands of college graduates from purchasing their first homes.  After all, living expenses are higher and salary levels are lower than anticipated, making student loan debt repayment difficult if not impossible.

If this is you, you might be wondering if you can turn to bankruptcy for relief and a fresh start. The chances of bankruptcy being the solution is slim.  That is because not all debt is not treated equally in bankruptcy. While bankruptcy is great for getting rid of medical bills and credit card bills it is terrible for getting rid of student loan debt.  Most chapter 7 and chapter 13 debtors accept that this debt will remain after filing for bankruptcy.

While Tough, It Is Still Possible Rid Student Loan Debt  

Bankruptcy courts will not discharge student loans except in one narrow circumstance. You have to show undue hardship.  This is a very tough standard to meet.  Some bankruptcy courts require showing not being able to maintain a minimal standard of living, with no hope of a positive change in financial circumstances for some time.  The bankruptcy judge will also look to see whether there was a good faith effort to repay student loans in the past.  

In short, this is what the bankruptcy court is looking for when determining whether is will discharge a student loan from a debtor:

• PRESENT INABILITY TO PAY

What kind of lifestyle is the debtor living?  A bankruptcy court will want to see that after living a frugal life, i.e. paying for apartment rent, food and other necessaries, a debtor does not have any money left over to pay his Lenders. 

• PERSISTENCE OF FINANCIAL CIRCUMSTANCES DURING THE REPAYMENT PERIOD

A bankruptcy court not only requires a present inability to pay, but also requires a prediction about future ability to pay. Factors to consider include a debtor's mental and physical health, dependent's needs, age and other conditions affecting earning capacity. Also considered are prospects for income in the debtor's profession. One bankruptcy court noted that the "most important factor" to satisfy this element is that the debtor's circumstances must "be beyond the debtor's control, not borne of free choice."

• GOOD FAITH EFFORT TO REPAY 

Finally, bankruptcy courts will analyze whether the debtor had made a good faith effort to repay the loans. One court found that even though a mother made over $18,000 in payments, the debtor failed to show good faith by only making one payments and not applying a tax refund he had received.  

In denying the debtor's attempt to discharge the student loans, the bankruptcy court wrote that Debtor and the Lenders "will have to live, uneasily it seems, with the consequences of the bargains they improvidently struck at the beginning of their relationship."


Ouch! present day students need to take heed and understand that today's student loans will have consequences that can effect their financial situations throughout their life.

Southeastern Seminary at Flickr

What Happens at a Chapter 7 Meeting of Creditors?

After filing a chapter 7 bankruptcy, you will be required to attend "the meeting of creditors".  The meeting takes place at court around 45 days after you file bankruptcy. If you have to attend the hearing.  If you do not attend, the trustee, who runs the meeting will likely file a motion asking the court to dismiss your case.   

The meeting is referred to as the "meeting of creditors" because creditors are notified that they may attend and question you about your assets and any other matter relevant to the administration of the case. The good news is that creditors rarely attend the meeting.  On the rare occasions when they do, they are usually trying to locate secured property.  Commonly I see jewelry shops shops asking for the location and return of jewelry where the debtor defaulted on the loan.  Other creditors may ask questions to see whether a debtor should be in a chapter 7 when they can afford to pay back their creditors.  Again, it is rare that a creditor shows up to ask questions.  

The meeting usually lasts only a few minutes and may be continued if the trustee is not satisfied with the information provided by the debtor. Often meetings are continued when the debtor fails to provide acceptable identification and proof of Social Security number. Also, many debtors fail to send the trustee tax returns and pay stubs 7 days before the hearing, per California Eastern District Bankruptcy Court rules.  In short, make sure you are prepared for the meeting.  If you have hired an attorney, the attorney will make sure to send the documents to the trustee and remind you to bring your driver's license and social security card to the meeting.  

If you fail to provide the information requested at the meeting, the trustee will likely set another date for you to return to provide the information.  Multiple instances of non-compliance will likely lead to the trustee requesting that the bankruptcy case be dismissed or that the debtor be ordered by the court to cooperate or be held in contempt of court for willful failure to cooperate. 

The information enables the trustee to understand your financial circumstances for filing bankruptcy and speeds up the questioning process. The trustee will ask questions to ensure that your financial information is correct, that you do not have assets that can be sold with proceeds going to creditors and to make sure you understands the positive and negative aspects of filing for bankruptcy. 

Photo Credit: IAEA Imagebank at Flickr

When Will Creditors Stop Harassing Me After I File Bankruptcy?

You probably do not even bother answering the phone because you know it is a creditor calling.  It would be nice to have some peace, right?

Creditors will stop calling you immediately after you hire a law firm to file your bankruptcy case. This is even before your bankruptcy case is filed with the bankruptcy court!  You tell your creditors that you hired a lawyer and that all contact must go to that attorney.  They have to follow your instructions.  Under the Fair Debt Collection Practices Act, once a creditor is made aware that you are filing for bankruptcy or that you have representation to file bankruptcy, they are prohibited from contacting you and they must go through your attorney.

Most bankruptcy attorneys can be retained for a small down payment toward your bankruptcy fee. Many debtors take several months of saving money to afford a lawyer to file their bankruptcy case. Those months of saving are done without the hassle of creditors calling all the time.

Photo credit: Atilla KeFeli at Flickr

How Zillow and Trulia Can Ruin Your Bankruptcy

Bankruptcy attorneys are hired to navigate debtors through the murky waters of the bankruptcy court. One concern for a debtor is when they own a home that is worth more than what is owed to a lender. Some debtors unwarily rely sites like Zillow or Trulia to determine their property values.  Zillow and trulia are too unreliable.  As a result, debtors filing bankruptcy can ruin their bankruptcy because their property values are higher than what Zillow or Trulia believes.

How You Can Keep Your Home In Bankruptcy: Exemptions for Residence

Under current bankruptcy rules, debtors are allowed to keep up a certain amount of home equity.  However, this amount of equity should not exceed your jurisdication's limit.  In California, bankruptcy courts allow debtors to keep between $75,000 and $150,000 of home equity.

For example, if you own a home that is worth $100,000, and you owe a lender $75,000, you have $25,000 in home equity.  In California, bankruptcy courts allow you to exempt all the equity in the home from the creditors.  However, by choosing to exempt your home equity, you reduce the amount of money that you can exempt other items, such as car equity and cash savings accounts.  Sometimes by choosing to save the equity in a home, a debtor will have to let the bankruptcy court take other personal property.

Let us look at another example.  You own a home that is worth $100,000.  You owe $99,000 to a lender.  Thus, you have $1,000 in equity.  Most California bankruptcy attorneys will choose not to use house exemption to protect this equity so that they can protect more equity in other property, such as car equity and cash savings accounts.  Under this scenario, the $1000 of equity will be protected under the "wild card" exemption.

Can You Trust Zillow or Trulia?

Therefore, it is important to have accurate house valuation.  What is the best way to determine house value?  Hire an appraiser.  Unfortunately, an appraisal will cost $350.  Another reliable source would be to have a competent Realtor tour your house and compare your house to homes that have sold in your neighborhood recently.  While less reliable than an appraisal report, a Realtor report should be pretty accurate a fraction of the price of an appraisal.

How about Zillow?  Or Trulia?  Why not just look at home values through these symstems because they are free?  Bankruptcy courts have held time after time that Zillow is not credible evidence of value.  (In re Phillips, 491 BR 255, 260, n.7 (Bankr. D. Nev. 2014).)

Debtors relying on Zillow are often surprised when the trustee tells them that their homes are worth more than what Zillow says.  Typically, debtors can recover from this surprise by changing their exemptions so that they choose the house exemption.  However, often that leads to other personal property as not being exempt.  The trustee is allowed to sell those items for the benefit of the creditors.

Will I Have To Go To Bankruptcy Court After I File Chapter 7 or Chapter 13?

After filing bankruptcy, you will be required to go to bankruptcy court after filing a chapter 7 or chapter bankruptcy.  All debtors must appear at the meeting of creditors.  Some will need to appear to reaffirm car debt.      

1. Bankruptcy Court's Meeting of Creditors

When filing a personal bankruptcy under a chapter 7 or chapter 13, you will be obligated to attend the "meeting of creditors."  A "meeting of creditors" is not in front of a judge. --That's good news!-- Instead, you are examined by a trustee.  For meetings held at the Fresno Federal Courthouse, there are 5 different trustees that run the meetings.  These trustees have legal or accounting backgrounds.  


Do you want to know where Fresno's bankruptcy court is located and details of what happens at a meeting of creditors?  Here is a link to one of my more popular articles: 

What to Expect At Meeting of Creditors at Fresno's Bankruptcy Court

Usually the creditors meeting takes place between 20 and 40 days after filing chapter 7.  Chapter 13 meeting of creditors occurs a few weeks later.  

The main goal of the meeting of creditors is for the trustee to ask questions of the debtor related to their financial condition.  They want to see whether the debtor has any non-exempt assets that can be sold and paid to creditors. They also want to ensure the debtor is being honest about their financial situation.  The meeting is set with other debtors.  On average, the meeting lasts about 5 minutes.  Some meetings, however, can last longer if there are complicated issues involved.  Meetings can last longer because the debtor is represented by an unprepared attorney, or if the debtor is not represented by an attorney at all. 

The meeting permits the trustee to review the debtor's petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury.   

2. Reaffirmation Hearing

Do you own a car with a loan?  If so, your car loan is secured to the car, which means the creditor can repossess the car if you breach your contract.  Most car creditors have the right to repossess the car, even though the debt owed to the car is discharged. 

If you wish to keep your car, you will need to decide whether to "reaffirm" the debt. A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. The agreement must generally be filed within sixty (60) days after the first date set for the meeting of creditors, but before the discharge is entered. You do not have to reaffirm a debt.  This is a voluntary agreement.  

If you decide to reaffirm your secured property, like your car, the protections of the automatic stay are terminated.   Since a reaffirmation agreement takes away some of the effectiveness of your discharge, legal counsel is advisable before agreeing to a reaffirmation. 

If you are not represented by an attorney, you and the creditor will file an application for approval of the agreement, along with a request for hearing. An order approving the agreement should be brought to the hearing. You must appear in person at the hearing. The judge will ask you questions to determine whether the reaffirmation agreement imposes an undue burden on you or your family and whether it is in your best interests. The judge will only reaffirm those secured debts that you can afford and is important to you to make a living. The judges in Fresno do not reaffirm home loans.  

Photo: Phil Roeder at Flickr

More Families Soon To Qualify For Chapter 7 Bankruptcy

Photo by: torbakhopper at Flickr

Do you need to file a chapter 7 bankruptcy? Do you make too much money? Beginning November, rule changes will allow a few more higher income households to file Chapter 7 bankruptcy in California.

Too Rich To File Chapter 7?

One hurdle to a bankruptcy discharge in a Chapter 7 is the "means test".  This test guards against bankruptcy abuse--those debtors that can afford to pay back their creditors.  The "means test" analyzes your household income and expenses.  The goal is to determine whether you can pay back your creditors.  "Passing" means it is presumed you cannot.  "Flunking" means you may be able and may need to file bankruptcy under another chapter, like a Chapter 13 bankruptcy.     

Step One: How Much Do You Make?

Below is the newest median yearly income for a households in California, effective November 1, 2014:   

If your single and your gross income is less than $49,185, than you pass.  (See the graph above.)  If you live with a spouse, you and your spouses combined grossly income must be below $63,745.  And so on...

If household income, compared to family size, exceeds the numbers permitted in the graph, further "testing" is required.  You will need to deduct permitted household expenses.

Step Two: Analyze Monthly Expenses

The amount a household earns is just one factor.  If your family income exceeds the permitted median income listed above, you may still be able to pass the means test.  This part of the means test is too fluid and therefore too complicated to attempt to explain it in a blog.  You will want a bankruptcy attorney take over at this point.  However, here is a quote from the Department of Justice about analyzing household expenses inside the "means test":

National Standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount for their family size, without questioning the amount actually spent.

National Standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount on a per person basis, without questioning the amount actually spent. 

Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less.

Generally, the total number of persons allowed for necessary living expenses should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that using the standards is inadequate to provide for basic living expenses, we may allow for actual expenses. However, taxpayers must provide documentation that supports a determination that using national and local expense standards leaves them an inadequate means of providing for basic living expenses.

Copied from Department of Justice, Trustee, website on October 17, 2014

Because the analysis is so fluid, you will want to analyze your monthly expenses with a bankruptcy attorney.  As a starting point, here is the present national standards for food clothing and other items:  

Copied from Department of Justice, Trustee, website on October 17, 2014

Sometimes, even when you "flunk" the means test, the court could consider your specific circumstances that will allow you to file chapter 7 bankruptcy.  A common one relates to permitting additional expenses that relate to treating a medical condition.  Bottom line, consult with an expert to effectively navigate the "means test".