Getting What You Need From Bankruptcy

The United States Supreme Court once said that the principal purpose of the Bankruptcy Code is to grant a ‘fresh start’ to the ‘honest but unfortunate debtor’. This reminds me of a Rolling Stones song that tells us that “You can't always get what you want. But if you try sometime, you find you get what you need.” This sentiment is often true in bankruptcy and sometimes debtors have unreasonable expectations of what bankruptcy can do for them.

In any type of bankruptcy, I tell potential clients that the 4 most important elements of any possible bankruptcy case are: (1) income; (2) expenses; (3) assets; and (4) debts. This information tells me what type of bankruptcy the debtor may wish to file, what property they might lose in a bankruptcy proceeding and what debts the court will discharge. While the vast majority of my clients keep nearly all of their assets, there are limits to what bankruptcy can do and sometimes debtors must make necessary sacrifices.

I have seen debtors fall behind on their house payments while paying hundreds of dollars per month keep luxury items such as a motor home, a boat or a vacation home. Bankruptcy is a court of equity and clean hands, so debtors cannot expect to walk away from tens of thousands of dollars in credit card debt while shelling out excessive payments to keep luxury items like a yacht or a second home. If a debtor is unwilling to make the necessary lifestyle changes and budgetary adjustments, then qualifying for bankruptcy will be an uphill battle.

If an “honest but unfortunate debtor” files for bankruptcy, chances are they won’t get everything they want. The desert toys and the fancy SUV with the $950 payment may need to go away. But if the debtor follows the rules, they make get what they need: debt relief and a fresh start.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

I Can't Open a Bank Account After Bankruptcy...Now What?

From time to time, I encounter bankruptcy clients who have trouble opening bank accounts because they bounced checks due to insufficient funds. Banks and merchants often report bad check writers to database services. These services care consumer credit reporting agencies just like TransUnion, Equifax and Experian. The three largest reporting agencies for bad check writers are the Shared Check Authorization Network (SCAN), Telecheck and Chexsystems. Consumers with negative check information on their credit report will often find it difficult to write a check or even open a bank account.

I first encountered this problem in 2007 when a former client advised me that she was unable to open a bank account because of negative information reported by Chexsystems. I faxed a copy of the bankruptcy discharge order to Chexsystems and received a letter within a week confirming removal of the negative information from my client's credit report. She was then able to open a new bank account.

Companies like Chexsystems are subject to the Fair Credit Reporting Act. If a bad check debt is discharged in bankruptcy, the creditor has 30 days to report the debt as "zero balance, discharged in bankruptcy". My colleague Mike Doan has written an excellent article on the steps necessary to dispute negative information on Chexsystems and other bad check databases.

In my experience, however, an ounce of prevention is worth a pound of cure. For every new consumer bankruptcy case I file, I now include the major check verification services on the mailing list to receive notice of the bankruptcy. Many of my clients are unaware of any negative banking information on their credit reports. My clients often report to me that this approach has resulted in the automatic removal of negative information from their credit reports that they did not even know existed.

If you are in Southern California and are also encountering problems opening a bank account after bankruptcy, please contact us for a complimentary consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Preparing For Your Meeting of Creditors

After a consumer debtor files for Chapter 7 bankruptcy, the court's computer will assign a hearing date for a Meeting of Creditors as required under Section 341 of the Bankruptcy Court. The trustee assigned to the debtor's case is responsible for reviewing the debtor's bankruptcy papers and selling off the debtor's non-exempt assets to pay creditors. Although most of these hearing are fairly routine, some of my clients become very anxious over what might happen to them at the hearing.

The Office of the United States Trustee has produced this helpful video that shows how a Meeting of Creditors usually works:

I advise my clients to review their bankruptcy petition again prior to the Meeting of Creditors. I also give my clients the following grounds rules, courtesy of my colleague Frederick Clement:

Be sure you understand the question before answering it. If there is anything about the question you don't understand, ask for clarification, instead of answering. But always be sure you understand the question you are being asked.

Never guess at an answer. You swear an oath to tell the truth and guessing isn't telling the truth. By guessing, you are not helping anybody understand what really happened. There are things witnesses know and things they think they know. "Know" generally means you learn it with one of your five senses. Otherwise you probably don't "know" it in the legal sense. So be sure not to guess.

Never volunteer information. The shortest truthful and complete answer is always the best. Where possible, truthful and complete, "yes" and "no" answers are best. If the clarification is required with a "yes" or "no" answer, make it very short. Volunteering information never helps you, it only hurts you.

Here are some of the common questions a trustee might ask at a Meeting of Creditors:

1. State your Name and Address for the Record
2. Did read your bankruptcy papers before you signed them?
3. Did you read and sign the meeting questionnaire?
4. Did you understand the questionnaire?
5. Did you list all your assets?
6. Did you list all you debts?
7. Did you list all your income?
8. Is there any reason to make any changes to your schedules?
9. Have you transferred any property or money to any family members in the last year?
10. Are there any creditors present?
    

The trustee might ask other specific questions that may be unique to your case. If your meeting is concluded, you will have no other obligations beyond completing the course in debtor education and any other instructions the trustee may give at the meeting.

And there is one final thing to remember: try to relax. The trustee is not a judge and knows that you are nervous just like the other debtors who also have to be there for a meeting of creditors. Your attorney will have the file and be able to assist you if any problems arise.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

California’s 90-Day Foreclosure Moratorium Really Isn’t

In February 2009, Governor Arnold Schwarzenegger approved the California Foreclosure Prevention Act. The news media has portrayed the legislation, which takes effect on June 15 2009, as a 90-day moratorium on foreclosures. The reality is much more complicated and could lull home owners into a false sense of security if they in negotiations with a lender for a loan modification.

What the new law really does is expand the time between when a lender can record a Notice of Default to begin the foreclosure process and when the lender may record a Notice of Sale from 90 days to 180 days. The law only protects owner-occupied homes from foreclosure where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008. For loans outside of the specified time period, the time before the lender may give a Notice of Sale remains at 90 days.

The law also allows lenders to avoid the 90-day “moratorium” if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation (“FDIC”). There is no requirement that the lenders negotiate in good faith.

Nearly all residential foreclosures utilize what is commonly referred to as nonjudicial foreclosures, which means that the foreclosure sale can occur without court supervision. If a lender does not comply with California’s foreclosure laws, it will still be up to the homeowner to go to court to prevent or set aside an improper foreclosure. If homeowners wait too long before seeing a qualified attorney, they may be so far behind in their payments that even a Chapter 13 repayment plan in bankruptcy might not be able to save them from foreclosure.

For now, I am advising my clients to act as if they do not have the benefit of an additional 90 days to stop a home foreclosure because there simply is no way to tell when a lender might assert that it has a loan modification program that complies with California law. Once the foreclosure sale takes place, it is very difficult and expensive to go to court to undo the transaction.

If you are in Southern California, please feel free to contact us for a free consultation on your bankruptcy options to possibly help save your home from foreclosure.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

A Creditor Objected to My Discharge…Now What?

When a debtor files for Chapter 7 bankruptcy, the court mails the creditors a document entitled "Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines". One of the deadlines set by the court is when the creditors must take legal action to prevent the debtor from receiving a discharge of some or all of the debts. This objection is accomplished by filing a lawsuit within the bankruptcy case called an adversary proceeding.

Most adversary proceedings that I see are filed by credit card companies alleging that a debtor made purchases or took cash advances without the intention of repaying them. The best way to avoid an adversary proceeding is for the debtor to stop using their credit cards for a minimum of 90 days prior to filing for bankruptcy. Luxury purchases and cash advances in close proximity to the filing date of the bankruptcy might be presumed to be fraudulent, giving the creditor an advantage in the adversary proceeding.

Most credit card companies that regularly threaten to file adversary proceedings are usually looking for "low hanging fruit" (i.e. a quick settlement with the debtor). Perhaps they feel that a debtor will not be able afford more legal fees to defend the new lawsuit or will simply be scared into submission.

In my experience, creditors will often back away very quickly if confronted with a strong defense. In one recent case I handled, Wells Fargo dropped a claim that my client had fraudulently borrowed $10,000 on a credit card less than a month after I had filed an answer to the adversary complaint on behalf of my client. Perhaps it was the fact that the bankruptcy court could have ordered Wells Fargo to pay my client's legal fees if it was found that the lawsuit had been brought without sufficient justification for the fraud allegations.

Don't let a creditor scare you into giving up your rightful discharge. If you are in Southern California and need assistance in defending an adversary proceeding, please feel free to contact us.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.