Bankruptcy Law – Page 4 – Law Office of Rick Morin, PC

Business Bankruptcy

corporation While the main focus of my bankruptcy practice is consumer bankruptcy, I do run across folks that own their own business and need to file bankruptcy. The cost and complexity of business bankruptcy mostly depends on two main factors: 1) whether the business is incorporated or is a sole proprietorship; and 2) the assets and liabilities of the business.

Let’s discuss the first factor. If a business is formally incorporated, such as a California Corporation or a LLC, the the business is a separate entity. This means that the business itself is not the same as the person or persons that own the business. A corporation or LLC can file bankruptcy, but they can not receive a bankruptcy discharge. Therefore, most businesses file Chapter 7 to liquidate and wind-down operations, or Chapter 11 to reorganize.

Business bankruptcy for sole proprietors is different. Because the business and its owner are the same thing, a business owner may file for bankruptcy and receive a discharge of his or her business debts. Business bankruptcy also allows a business owner to get out of long-term leases that would otherwise result in civil liability for breach of contract.

Another way that sole proprietorships and Chapter 7 bankruptcy interact is if a business owner wants to keep operating during the bankruptcy. Some bankruptcy trustees do not like a business continuing to operate throughout the Chapter 7 process. This is because the liability of the business belongs to the Trustee during the pendency of the bankruptcy.

Some Bankruptcy Trustees will require a Chapter 7 debtor to stop operating his or her business. Others will require a liability insurance policy that names the Trustee as an insured. Others will require the debtor to file a motion with the court asking the court to abandon the business back to the debtor before the case is over. Because a sole proprietor will typically rely on his or her business income to survive, you can see that it is very important to plan a Chapter 7 bankruptcy carefully in this situation.

If you own a business and are considering filing bankruptcy, please call my office at (916) 333-2222 for more information about business bankruptcy.

October 16, 2014/by Attorney Rick Morin

Bankruptcy Law, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

How to Get a Student Loan Bankruptcy Discharge

For the 40 million Americans who currently have student loans, many assume that student debt cannot be discharged through bankruptcy. However, this is simply not true.

Receiving a student loan bankruptcy discharge can be difficult. However, in some cases student loan debt can be discharged during a Chapter 7 or a Chapter 13 bankruptcy.

First, the debtor must file an adversary proceeding, which is a separate lawsuit within their bankruptcy. During this proceeding, the court will decide if the debtor faces an “undue hardship” in repaying their student loans. Bankruptcy courts have been very strict in determining if debtors meet this qualification. Typically, the Brunner Test, or a similar evaluation, will be used. It states that a debtor faces “undue hardship” when they answer, “yes” to these 3 questions:

1. Is it impossible for the debtor to maintain a “minimal” standard of living?

2. Will the debtor be stuck in this situation for the foreseeable future?

3. Has the debtor actually attempted to repay their loans?

Debtors rarely meet all of these criteria and the court proceeding alone can be intimidating enough. To the majority of filers, the process seems impossible.

Yet, these are the main factors that promote the student loan myth. According to a 2011 study cited in US News & World Report and published by Jason Iuliano, of all the debtors with student loans, only 0.1% attempted to include their student loan debt in their bankruptcies. Of that tiny percentage, at least 40% got some or all of their student debt discharged. This shows that while discharging student loan debt may be difficult to do through bankruptcy, it is not impossible.

If you are struggling with your student loan debt or have questions bankruptcy, please call our office at (916) 333-2222.

October 7, 2014/by Attorney Rick Morin

Bankruptcy Law, Bankruptcy Rules, Chapter 7 Bankruptcy

Bankruptcy and Separate Households

A separated couple have the option of filing a Chapter 7 bankruptcy together. Despite keeping separate households, they can still qualify for bankruptcy. However, there are some important things to be considered. Keep reading to avoid some common problems in these type of cases.

First, separated couples will have to file two Schedule Js. Schedule J is a listing of household expenses. Because each spouse maintains a separate household, the bankruptcy court wants to see the breakdown of expenses. This should not be used as an opportunity to inflate expenses to def

Just like with expenses, each spouse must list their respective incomes on Schedule I. A full and accurate accounting of household income is required in order for the court to determine whether the bankruptcy is an abuse. This can be difficult for some couples who may be living with other folks that are bringing income into the household.

Another trap for the unweary is the listing of assets. Just like with all cases, fulling accounting for assets is extremely important in a Chapter 7 Bankruptcy. You must carefully apply the appropriate exemptions to all of the couple’s assets. If not exempted in the correct manner, assets can be seized by the Bankruptcy Trustee and sold for the benefit of your creditors.

Lastly, family transfers of property need to be fully disclosed on the Statement of Financial Affairs. Occasionally I see transfer of cars or even houses amongst separated spouses in anticipation of becoming divorced. These transfers can be a problem if they are not explained correctly on the Statement of Financial Affairs. This issue also comes up after one person files divorce recently after being divorced. The Bankruptcy Trustee will be looking at the marital settlement agreement and any pre-petition transfers. The Trustee looks at these documents to make sure that any transfers were fairly made, and not intended to defraud creditors in a bankruptcy.

Bankruptcy and Separate Households can be tricky. But it is not impossible to file if you are in this situation. Please call my office at (916) 333-2222 if you have any questions about filing bankruptcy as a separated couple.

September 30, 2014/by Attorney Rick Morin

Bankruptcy Law, Bankruptcy Rules, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

Qualify for Bankruptcy

To qualify for bankruptcy, there are multiple things to look at. Debt, income, and other factors all play a role. This article will focus on qualifying for Chapter 7 Bankruptcy.

The first qualification is that you must have debt. There is not necessarily a hard and fast rule about how much debt you must have to qualify for bankruptcy. As a general rule, I look to see that a person has at least 25% debt-to-income ratio.

Having a smaller debt-to-income ratio does not automatically disqualify you from bankruptcy. The bankruptcy court looks at each case individually. There are many reasons why a smaller debt-to-income ratio would still result in a successful bankruptcy.

Speaking of income, this is the most important qualification there is for Chapter 7 bankruptcy. If you have too much income, you might not be able to file Chapter 7 bankruptcy. Instead, the law will require you to enter into a Chapter 13 reorganization.

The income limits for Chapter 7 are constantly changing. The limits are based upon the median income for your household size in your state. As of today, the median income in California for a family of two is $62,917. If you have a family of two and less income than that on a yearly basis, then you are presumed to be eligible for bankruptcy. Please call my office for up-to-date income limits for your household size.

Now here’s the interesting part. If you have more income than the median for your household size, you automatically fail. BUT, there is still a possibility that you can qualify for Chapter 7 bankruptcy. In this case, you are required to take the “means test.” The means test is a bankruptcy form that determines whether your case would be an “abuse” of the bankruptcy process. This is a complicated subject that I will discuss in a later blog post.

The thing to remember is that it is still possible to file Chapter 7 bankruptcy even though your income might be “too high” at first glance.

There are other important factors when considering bankruptcy, including, but not limited to: 1) whether you have filed prior bankruptcies recently; 2) where you lived for the past two years; 3) the amount of your assets; 4) whether you have transferred or given any large assets or property to family or close friends recently; and 5) your marital status.

I go over each important bankruptcy consultation with you during your free bankruptcy consultation. I want to make sure that you make best decision possible when considering something as important as bankruptcy.

Please call my office if you have any questions about whether you qualify for Chapter 7 or Chapter 13 bankruptcy. My office phone number is 916-333-2222.

September 15, 2014/by Attorney Rick Morin

Bankruptcy Law, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

Can Bankruptcy Stop Lawsuits?

Can bankruptcy stop lawsuits? Yes! This is one of the most powerful features of filing bankruptcy.

The instant a person files a bankruptcy case, the “automatic stay” goes into effect. The automatic stay is intended to give a debtor (the person that filed bankruptcy) some breathing room to sort out his or her finances. Crucially, the automatic stay immediately pauses all civil legal proceedings against the debtor.

Lawsuits are complex and time-consuming. Defending a lawsuit in court will cost a substantial amount of money. Some defendants prefer to file bankruptcy to avoid the consequences associated with protracted litigation.

A typical lawsuit that I see in this office is a debt collector suing someone over a defaulted credit card. Lawsuits from auto repos are also very common. Most of the time there is not a good basis to defend the lawsuit. The defendant probably has to admit that they owe the money. Despite the liability, the person can not afford to pay the debt associated with the lawsuit. Bankruptcy can help.

Many times a judgement in a debt-collection lawsuit will be significantly larger than what was originally owed. This is because a plaintiff may add on certain costs to the judgement. Typical costs included: 1) court filing fee; 2) process server fees; 3) back interest; and 4) attorney’s fees. These various add-ons can easily double the amount of the judgement once your lawsuit is over!

Once your bankruptcy case is filed, the plaintiff in your original lawsuit will have to seek permission from the court to proceed. This almost never happens.

Filing bankruptcy to stop a lawsuit will have the additional benefit of eliminating your other unsecured debts.

As you can see, filing bankruptcy to stop a lawsuit and has many benefits. Please contact my office if you have any questions about filing bankruptcy to stop a lawsuit. My office number is (916) 333-2222.

September 8, 2014/by Attorney Rick Morin

Bankruptcy Law, Chapter 7 Bankruptcy, Creditors

How to Stop Wage Garnishment

Here in California, a judgement creditor can garnish your wages. A creditor can take up to 25% of your gross paycheck each pay period. For many of my clients, this is a disaster waiting to happen. Let me tell you how garnishments start, and how to stop it.

Before a creditor can take money from your bank account your garnish your wages, they must first sue you. Sometimes you might not even be aware that you are being sued. For instance, you might have moved recently, or the creditor failed to serve you properly.

The end result of many of these lawsuits is a “judgement.” When the court issues a judgement against you, it means that you have lost the lawsuit and the court has determined that you legally owe someone else money.

Only after a judgement may a creditor be able to garnish your wages.

After a creditor has its judgement, they can seek a “writ of execution.” This is an order from the judge that tells your employer that they must withhold money from your paycheck. Once your employer is served with the writ of execution and levy instructions, they are required by law to start turning over money to the levying officer.

The levying officer is the Sheriff’s office in the county of your employment. The levying officer is tasked with collecting funds from your employer. Once the levying officer has your funds, they turn over the funds to the judgement creditor to satisfy your debt. This will continue each paycheck until the debt is payed off, or you take action to stop the garnishment.

The most effective way to immediately stop your garnishment is to file bankruptcy. Bankruptcy will not only stop the garnishment in its tracks, but bankruptcy also eliminates your obligation to ever pay the debt again. For these reasons, a good percentage of my clients file bankruptcy just to stop a garnishment.

Once you file bankruptcy, I request that the Bankruptcy Court notify everyone involved in the garnishment process. This means your employer, the judgement creditor, the levying officer, and the court that originally issued the judgement. Once everyone is notified, your garnishment will stop!

Because of the devastating effect that a garnishment may have on your personal finances, I can quickly file your bankruptcy case to stop a wage garnishment. Please call my office if you need help stopping a garnishment. My phone number is (916) 333-2222.

September 2, 2014/by Attorney Rick Morin

Bankruptcy Law, Bankruptcy Rules, Chapter 7 Bankruptcy

How to Keep Your Car in Bankruptcy

Almost everyone that calls my office wants to know whether they can keep their car despite having filed for bankruptcy. The answer is almost always yes!

In a Chapter 7 Bankruptcy, also known as a liquidation, a debtor’s assets are subject to being taken by the Bankruptcy Trustee. However, in most consumer cases, this never happens. This is because California law allows debtors to retain a certain amount of their property. Lawyers refer to this as the “exemption” process.

What really matters when looking at cars and bankruptcy is the amount of equity in the car. For instance, if Kelly Blue Book on your car is $8,000, but the outstanding loan balance is $10,000, you don’t have any equity at all. This is because the car is encumbered by loans more than the value of the car. So if the Bankruptcy Trustee were to take your car and sell it on the market, the Trustee would actually lose money. In cases like this, there is no risk of losing the vehicle.

For debtors with equity in their car, there is good news too. Let’s say you own your car outright and Blue Book on the car is $3,500. Currently, California 703 exemptions allow you to exempt up to $5,100 of equity in your car. That means that $5,100 worth of car is yours to keep — the Bankruptcy Trustee can’t take it from you. So you’re covered here too!

Let’s take an extreme case. You own your car outright and it’s worth $15,100. The car exemption under 703 is only good for $5,100, so does that mean you lose your car? No! There is a “Wildcard” exemption that I can use to exempt the remaining $10,000 equity in the car. Because I can exempt all of that equity in your car, the Trustee can’t take it from you and sell it.

As you can see, there are many ways to keep your car in a Chapter 7 Bankruptcy when using California’s 703 exemptions. The key thing to remember is that it is important to carefully look at all of your property before you file bankruptcy. You must do this to apply your exemptions as needed. It’s not good enough to blunder into your case and clean up the mess afterwards. It might be too late.

If you have questions about how to keep your car in bankruptcy, please call my office at (916) 333-2222.

August 26, 2014/by Attorney Rick Morin

Bankruptcy Law, Bankruptcy Rules, Chapter 7 Bankruptcy

How to File Bankruptcy

Want to file bankruptcy? The bankruptcy process can be very intimidating and confusing. And that’s for good reason. Bankruptcy is a critical life decision that has long-lasting implications. But at its core, the bankruptcy process is comprised of a few important areas.

1. Assets

The bankruptcy court and the bankruptcy trustee want to know about the stuff that you own. Your assets are listed in various bankruptcy schedules. Assets include things like houses, cars, household goods, bank accounts, and even your clothing! Some people make the mistake of not listing certain assets because they don’t think the asset is worth anything. The rule is that you list everything you own, no matter where it is in the world and no matter how much it is worth!

2. Debts

This should be obvious, but it isn’t always so. You need to list every single one of your debts in your bankruptcy case. This includes debts such as student loans that do not get discharged at the end of your bankruptcy. You even have to list loans from family and friends! Another area where people make mistakes is that they want to keep a particular credit card — so they don’t list it. The bankruptcy code is clear: you must list all of your debts, even ones that you want to keep!

3. Income

Your income is important in a bankruptcy because you must first qualify for bankruptcy using the Means Test. The Means Test looks at your prior six months of income to determine your eligibility. The court will also look at the “totality of the circumstances” of your case to make sure that you really do need bankruptcy assistance. By comparing your monthly income with your monthly expenses, the court will determine whether your bankruptcy would be an “abuse” of the bankruptcy process.

4. Transfers of Assets Prior to Bankruptcy

Moving property around prior to a bankruptcy can cause big problems. The bankruptcy petition tries to catch these “pre-petition transfers” using lots of different questions. The court is trying to determine whether you sold or transferred a large asset in order to make yourself appear in need of bankruptcy. Even worse, some people try to move property out of their own name because they would have lost the property in the bankruptcy proceedings. This is illegal and can wreck your bankruptcy from the very beginning.

A typical Chapter 7 bankruptcy petition can easily consist of 60 or more pages. Preparing the bankruptcy petition is very complicated, but the four areas above are where a majority of the action takes place.

If you have any questions about how to file a Bankruptcy in Sacramento, please call my office at (916) 333-2222.

August 18, 2014/by Attorney Rick Morin

Bankruptcy Law, Chapter 7 Bankruptcy, Creditors

How to Surrender a Car in Bankruptcy

Tow Truck Did you know that you can easily surrender your car in a Chapter 7 bankruptcy? You can escape high loan payments, punishing interest, and avoid lawsuits.

If you lease or finance a car and attempt to surrender the car outside of bankruptcy, your lender will likely charge you all sorts of fees. Many times, a lender will sue a borrower for the “deficiency balance” of the loan.

A deficiency balance is the amount of money you still owe the lender even after surrendering the car. Deficiency balances can easily be many thousands of dollars after the dust has settled. It doesn’t matter if you voluntarily surrender your car or whether it is repossessed — often time there is a debt owed.

Surrendering a car during the bankruptcy process is completely different. At the outset of your case, we notify the Bankruptcy Court and your lender that you intend to surrender your vehicle.

After your case is started, your lender may attempt to talk you out of surrendering your car. They would prefer that you keep the car and continue making payments. However, the decision is 100% yours to make.

Some lenders may wait until after your bankruptcy case is over to retake possession of your car. Others are more aggressive and will seek the return of the car before your bankruptcy is over.

Once you make the decision to surrender your car in the bankruptcy, it is best that you start making alternative transportation arrangements. Most lenders will communicate with my office or my clients directly to set up a day and time to voluntarily surrender the car. Others, like Wells Fargo, are very inconsistent and have mislead my clients in the past. Therefore, once the surrender date approaches, it is wise to remove all of your possessions from the car just in case it is taken without your knowledge.

If you are not sure what you want to do with your car, the safest bet is to indicate that you want to keep the car and continue making payments. You have until the end of your bankruptcy case to change your mind. In fact, this is fairly common.

Please call my office at (916) 333-2222 if you have any questions about surrendering your car in a Chapter 7 Bankruptcy in Sacramento.

July 6, 2014/by Attorney Rick Morin

Bankruptcy Law, Bankruptcy Rules, Chapter 7 Bankruptcy

Sacramento Bankruptcy Filing Fee Installment Request

I have written about the cost of Chapter 7 Bankruptcy in Sacramento as well as recent increases to the filing fees here in town. One question I often get is whether the Bankruptcy Filing Fee can be paid in installments. The answer is yes!

Currently the Chapter 7 Bankruptcy filing fee is $335. This amount does not go to the attorneys. Rather, it is the fee that the United States Bankruptcy Court charges to start a new bankruptcy case. Think of it as the “price of admission” to bankruptcy court.

Part of the fee pays for the court itself, including staff and facilities. Part of the filing fee compensates the Chapter 7 Trustee that is assigned to your case.

While bankruptcy can be expensive both in attorney’s fees and the court filing fee, there are ways to help reduce the burden. One option my clients ask for is the Chapter 7 Bankruptcy Filing Fee Installment Plan.

At the start of a case, we can ask the Judge to pay the filing fee over time. This can be helpful to a person that needs to file a case immediately to stop a wage garnishment or bank levy. Most of the time the requests are granted.

Currently, the Bankruptcy Court will allow a person to request up to four installments. Because the filing fee is $335, that works out to be just over $83 per month over four months.

Typically I will propose to the Court that the first payment be due one month after the filing of the case. Each subsequent payment is due a month after that, until all $335 has been paid in full.

A person considering the payment plan for filing fees needs to be careful! The Bankruptcy Court can close your Chapter 7 case if you do not make all of your payments on time. Or, if at the end of the case, you owe any money to the court, they will dismiss your case without discharge. If this happens, you will have to pay additional attorney’s fees and a new filing fee to reopen your case — just to pay your remaining balance.

If you have any questions about the filing fee for Chapter 7 Bankruptcy in Sacramento, please call my office at (916) 333-2222.

June 30, 2014/by Attorney Rick Morin