Bankruptcy and Credit Cards: "What's In Your Wallet?"

I read over the weekend about Capital One Credit Card's new contract with cardholders.  Capital One has added a creep factor to their slogan, "What's in your wallet".  The new card holder agreement provides that they can personally visit you at your home and at work.  Imagine missing a payment and having a knock on the door from a Capital One representative.  They are probably going to want to know what is in your wallet.  

Bankruptcy does a great job of eliminating debt from credit card companies.  However, more and more cards are taking a security interest in the property you purchase from certain stores.  For example credit card agreements can take a security interest in anything you buy from Best Buy, Big Lots, Furniture stores, Neiman Marcus, or Saks?  Technically, your clothes are in danger if you have a Saks "retail" card.  

I have the most fun with credit companies expressing a security interest with my clients' mattresses.  They call requests whether my client's are willing to reaffirm the debt.  I laugh because a used mattress has virtually no value.  I am waiting for one of these companies to come to my client's house to repo the mattress.  

Here is an example of a typical agreement with a credit company taking a security interest in a personal good:  

Except as noted below, you grant us a security interest (which we may or may not perfect) in the following items financed using your Account:

• any goods you buy with your Card; and
• any proceeds you get from the following:
  a) insurance contracts, and returned premiums: and/or
  b) mechanical failures and/or
  c) extended service contracts. 

Each good you buy using your Account:
• secures your entire Account balance until that good is paid in full; and
• may be taken from you if you do not pay on time.

Thus, while bankruptcy will discharge the debt, a credit card company may still have security interest in the item you purchased.  You just may have to surrender the mattress you bought three years ago.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at jorgensenlaw@gmail.com or by telephone at 1-559-324-1882.

Can I Keep My Car After I File Bankruptcy?

Will You Lose Your Car After Filing Chapter 7 Bankruptcy?   

You should be able to keep your car after filing a chapter 7 bankruptcy.  

In a nut shell, Chapter 7 Bankruptcy allows debtors to keep all exempt property, such as clothes, tools, retirement funds and cars.  In the Fresno area, most chapter 7 cases result in debtors keeping all of their property because after an analysis, it is all found to be protected with bankruptcy exemptions.  The idea of exemptions is to allow for debtors to get a reasonable fresh start.  In other words, there are limits -- you can keep the Honda, but not the Tesla or Porsche.    

Here are the steps to see if you can keep your car: 

Step 1: If You Sold Your Car, How Much Money Would You Profit?      

If you sold your car, how much profit would you make?  If your car is paid off, you will be able keep 100% of the proceeds of the sale of the car.  The profit would be the total amount you sold the car.   

If the car is financed, than the profit would be the money left over after the car lender was paid.  If the car sold for $10,000, and the present loan value was $8,000, than your profit would be $2,000.  If the car is sold for $10,000 and the present loan value is $11,000, there would be no profit ($0.00).  In fact, to make the sale take place, you would have to pay the lender an additional $1000 for the lender to take the lien off of the car.   

Step 2: Apply the Appropriate Exemption Amount.  

In California, debtors have two exemption amounts to choose from with regard to cars.  The two choices are based upon whether you will be protecting the equity in your home. In California, you can protect a lot of equity in your home.  (See How Much Money Can I Keep When I File Bankruptcy?)  As a result, exemptions on personal property is greatly reduced.  

If You Have Equity In Home You Are Claiming Exempt

If you have equity in your home, the amount of equity you are allowed to exempt in cars is reduced.  Presently, the car exemption is $2,725.

If You Are Not Protecting Home Equity

If you are not protecting any equity in your home, you can protect more!  Presently the total exemption value for multiple cars is $4,800.

If there is more equity than $4,800, debtors are allowed to use a "wildcard" exemption of approximately $25,000.

Thus, in many cases, filing a chapter 7 bankruptcy will allow debtors to keep their car.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at jorgensenlaw@gmail.com or by telephone at 1-559-324-1882.

Photo Credit: Wreck at Flickr

How Much Money Can I Keep When I File Bankruptcy?

How much money can I keep when I file bankruptcy?

The goal of Chapter 7 bankruptcy is a fresh start after suffering from financial turmoil. The Chapter 7 trustee is not going to demand the shirt off your back after filing bankruptcy.  However, if you have a lot of assets, it may mean that you will need to surrender these assets to the trustee.  There is a balancing act of providing you a fresh start and providing a resource for creditors to become partly whole.
   

You need to know how you’ll manage and what you’ll have to manage with.  Funding that fresh start is what exemptions are all about.  Exemptions protect certain property property you own that bankruptcy permits the debtor to keep from unsecured creditors. For example, in Fresno and the rest of California, you may be able to exempt all or a portion of the equity in your home, up to $150,000, or some or all “tools of the trade” used by you to make a living.  If you are an auto mechanic, you can exempt roughly $7,000 of your auto tools.  The same goes for any trade, including dentists, hair stylists, and even attorneys.  

We are talking here about California.  The exemptions rules outside of California are different.   

So ... How Much Cash Can I Keep?

The answer is not so simple.  California has two distinct exemption schemes that you can choose from.  And you have to choose one or the other.

The Homestead Exemption

The exemptions originally enacted in California were big on protecting homes.  That is a good thing if you have a lot of equity in your home.  I think California has a great home exemption.  The amount you can exempt from your home ranges from $75,000 to $150,000.  As the real estate market improves, this exemption is becoming more important.  

Unfortunately, this generous exemption has its drawbacks.  If you elect this exemption, your other exemptions to protect equity in cars and cash is very minimal. It is an attempt by the legal system to be fair for to creditors.

The Wild Card Exemption

Have you ever played cards?  The nickname for this exemption comes from card games.  "Jokers are wild" in a card game means that you can turn a Joker into another card to help your hand of cards out.  The same theory applies in bankruptcy.  Let's say that you are an auto mechanic and you have $10,000 in "tools of the trade".  That means $3,000 of your tools are not exempt.  The trustee has every right to seize the $3000 of your tools, sell them, and use those proceeds for the benefit of your creditors.  By using the "wild card" exemption, you can apply an extra $3000 of wild card exemption to protect all of the tools of your trade.  

Presently, the big money "wild card" exemption is $26, 425.  Thus, if you have no equity in your home, and everything is protected by other exemptions, you can protect $26,425 in your checking account.  That’s a pretty good nest egg.

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at jorgensenlaw@gmail.com or by telephone at 1-559-324-1882.

Money photo credit: flickr: Miran

Card table credit: flickr: dcjohn