California’s CCP 704.225 Exempt and Extend Necessary for Maintenance and Support

By Ryan C. Wood

Howdy humans.  In 2020 the State of California legislature and Governor Gavin Newsome changed the California exemptions under to California Civil Procedure Section 704.  There is also the CCP 703 exemptions.  Exemptions protect your assets from those you owe money to in the event the creditor seeks collection for the money you owe them.  The CCP 704 exemptions are usually chose when the debtor has equity in their primary residence. The CCP 704 exemptions have large exemptions, homestead exemptions, to protect a lot of equity in a primary residence. The CCP 703 set of exemptions has a limited or lower dollar amount homestead exemption. No human can be left shirtless and penniless even if they owe money to some third-party.  There are exemptions for different categories of assets such as: household goods, jewelry, vehicles, clothes, equity in primary residence and bank account money.  There are more, but these are the main exemptions.  The CCP 704 exemptions were changed to add a new exemption to protect bank account money for those choosing the CCP 704 exemptions.    

California Civil Procedure Section 704.225

California added a great exemption to the California Civil Procedure Section 704 set of exemptions for bankruptcy lawyers to help clients discharge their debts while having enough money to continue to eat and live.

704.225 provides: “Money in a judgment debtor’s deposit account that is not otherwise exempt under this chapter is exempt to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.”

Great, so what dollar amount is “extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.” Is it $5,000 or $50,000?

When new exemptions are added there is no case law or interpretation of the new exemption initially.  Can a debtor exempt $50,000 in their bank account?  Can a debtor exempt only $5,000 in their bank account when seeking protection under the Bankruptcy Code?  

Other exemptions share the same language as Section 704.225.  “Extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor,” language is also used in exemptions CCP 704.100, 704.150 and 704.140.

Exemption CCP 704.100 protects certain life insurance policy claims.  Exemption 704.150 protects certain wrongful death claims.  Exemption 704.140 protects certain personal injury claims.

Interpretation of Extent Necessary for Support of Judgment Debtor or Bankruptcy Filer

While there currently is limited interpretation of the new 704.225 exemption there is analysis of other exemptions using this same language.

We shall start with In re MacIntyre, 74 F.3d 186, 188 (9th Cir. 1996)  and also In re Spenler, 212 B.R. 625, 628 (9th Cir. BAP 1997); In re Toplitzky, 227 B.R. 300, 302 (9th Cir. BAP 1998).

Section 704.225 exemption is part of California state law, accordingly the state law burden of proof applies.  See Schwartzman v. Wilshinsky, 50 Cal. App. 4th 619, 626, 57 Cal. Rptr. 2d. 790, 795 (1996); In re Davis, 323 B.R. 732, 741 (9th Cir. BAP 2005) (Klein, B.J., concurring) (burden of proof is substantive, so state law should provide the rule of decision regarding the burden on each state exemption).

California exemption statutes shall be liberally construed, for their manifest purpose is to protect income and property needed for the subsistence of the judgment debtor (bankruptcy filer).  See In re Payne, 323 B.R. 723, 727 (9th Cir. BAP 2005) (citation omitted); see also Schwartzman, 50 Cal. App. 4th at 630 (California exemption statutes should be construed to benefit the judgment debtor).

When it comes down to it whether  the amount exempted pursuant to CCP 704.225 is determined on a case by case basis with consideration of factors including income, employment situation and prospects, retirement status, age, life expectancy, health, certainty of future financial status, budget, ability to regenerate retirement assets, tax obligations, and dependents’ needs.

If the debtor of judgment debtor is an elderly retiree, the bankruptcy court should consider the debtor’s future financial needs and seems to imply that future financial needs will be at least as great or greater than present.

Back to Specific Dollar Amounts

Circumstances vary widely between one human and another.  Expenses from rent, basic living needs, necessities versus luxury, car payments, student loans, taxes owed and many other factors will all be relevant.  The bankruptcy filer has the burden of proving the amount exempted is necessary for the maintenance and support of the debtor in the future rather than the past.  The analysis should place greater importance on future needs of the debtor.  Again, bankruptcy has no intent of leaving humans penniless upon receiving a discharge of debts.  Humans must be able to continue a seemingly normal existence and this is where problems always will arise.  Bankruptcy Court’s have broad discretion to determine what is necessary or not.  What is necessary for one human will be different than another human with different obligations in life.  One debtor may have a dependent that is disabled, a young child, or some other human that requires special needs.  This human will have higher expenses as a result and therefore be able to exempt more bank account money than the human with no dependents.

For elderly retirees most have limited income and any money they can squirrel away in a bank account.  An elderly retiree with fixed income should be able to exempt more bank account money than a 30 year-old still working everyday with no future limits on ability to earn more money.  Bankruptcy attorneys will need to ask detailed questions about past and future needs of the debtor specific and possibly special to their life.  These types of difference or factors need to be supported by declaration and other documentary evidence.  Income versus necessary monthly expenses should be balanced and evidence the likelihood of future savings will be limited therefore every penny of existing money in a bank needs to be exempted/protected.

If an elderly retiree only has $15,000 in the bank that will probably be all they really have as to liquid assets.  $15,000 for most humans only represents a few months of expenses or a couple of emergencies that cannot be anticipated, and the money just needs to be available to deal with the emergency.  If an objection to the claimed exemption is filed, the basis for the dollar amount exempted must be supported by declaration and documentary evidence to prove the amount is necessary for the maintenance and support of the debtor and their dependents.   

Howdy Humans: Why Are Credit Card Interest Rates So High?

By Ryan C. Wood

They say your credit card interest rates are based upon credit risk.  It is far more complicated than that and a little history regarding interest rates is helpful.  Your individual credit risk does come into play.  It is just not as large a part of the equation as they would have us all believe.  Credit card interest rates are high because there is no law capping credit card interest rates under Federal Law.  Prior to 1978 state usury laws limited or capped credit card interest rates for you protection.    

In 1978 the Supreme Court of the United States allowed one bank in one state to export their interest rates based upon their state law to their customers in other states with different usury laws limiting interest rates.  Naturally state “X,” to be named later, just did away with all caps on interest rates under their state law, the banks said great, we will come setup shop in your state with no cap on interest rates so we scan export high interest rates to all our customers throughout the United States of America.  This is why credit card interest rates are so high and everything else you hear is just fake news to take your eye off the ball.

Here in California generally the cap on interest is 10%.  This is a generalization and there are of course exceptions after exceptions.  The 10% cap only really applies to human to human extension of credit/loans. Does not matter given Citibank, N.A. is doing business out of South Dakota and South Dakota has no caps on interest rates.  Citibank, N.A. may export the interest rates of South Dakota to their customer here in California trumping the California state law usury 10% cap.

If You Have A Net Over Worth $1.0 Million How Can You Have A 79% Interest Rate?

They say interest rates are based upon your credit risk.  That is why your credit card interest rate is so high.  That is not really true and probably the smallest part of the truth.  If so, then why does someone with an 825-credit score have not one credit card with an interest rate under 15%?  If so, then someone that has never missed a payment on anything their entire life should have a credit card interest rates that are extremely low, say 5%.  No, this is not how it works because YOUR credit risk is only a small part of the truth.  The truth those who pay each month and on time will always have to pay higher rates to make up for those that default.  So the truth is extension of credit/loans are given to those with a higher credit risk driving up the interest rates for everyone. Why not have a lower rate of default by lowering interest rates?  No, no, we make more money getting everyone to pay once illegal loan shark interest rates.    

The truth is 79% interest on a revolving credit account for an 80-year human that has a net worth over $1.0 million is somehow legal and has nothing to do with credit risk.  This is actual fact that happened to one human.  Only in certain aspect of our economy do we allow buyer beware to fully take over. 

Attempts To Reform Interest Rates At The Federal Level Are Always Rejected

It seems so simple given we had protection for consumers against loan sharking and predatory lending to consumers based on each state’s laws.  Just legislate caps on interest rates at the federal level and we will no longer have this patchwork of state usury laws confusing everyone and it seems limitless loopholes.  As I have yelled from the highest mountain top for years, we protect people from price gouging during natural disasters yet allow humans to get destroyed by once illegal interest rates during their personal financial disaster. Why is a bankruptcy attorney arguing for limits on interest rates decreasing the number of bankruptcy cases filed? How about we be intellectually honest and treat all types of disasters equally.  Oh no, there is that word again, equal.  We cannot equally apply philosophies to different circumstances creating equal opportunity. Somehow capping interest rates is arguably a bad idea because we have a free market economy? That has to be the biggest joke out there and the biggist lie. The government/law allows, even requires, manipulation of the free market creating financial losers and winners all the time. This market manipulation is how we have a safe food supply, safe buildings, safe cars, seatbelt laws, product liability, and finally speed limits.  The market is manipulated and made not free all the time for all kinds of horrible reasons.  THE REAL MANIPULATION OF THE MARKT NOW IS NOT LIMITING INTEREST RATES GIVEN WE KNOW NOT LIMITING INTEREST RATES IS BAD FOR HUMANS.  THIS IS WHY LAWS WERE PASSED IN EACH STATE TO LIMIT INTEREST RATES. 

PLEASE EXPLAIN TO ME HOW DOING AWAY WITH SEATBELT LAWS HELPS CONSUMERS?  PLEASE EXPLAIN TO ME HOW DOING AWAY WITH LIMITS ON INTEREST RATES HELPS CONSUMERS?

You all support rent control right.  The manipulation of the market for a very select few humans creating massive inequality.  If you qualify for rent control can you even have credit cards?  If you are a rent control human can you human also have your interest rates be capped too?  You are limiting how much rent control human pays for rent but still allow rent control human to have a $1,200.00 phone with a monthly bill of $200.00? How can a trillion-dollar world conglomerate charge rent control human 36% interest on what they are purchasing at Target?  The human only has money to drive to Target and buy stuff because their are on rent control and pay less rent. Does that make any sense to you?  So this human’s landlord is forced to not make as much money so the rent control human can have four credit cards, each with a 30% plus interest rate, and buy a bunch of junk that sooner than later will all be worth $0.00.  I am all about affordable housing but rent control does nothing to fix the problem of affordable housing.  Rent control merely treats the cancer for a select special few and does nothing to cure the cancer. Everyone seems to like band aids to cover cuts rather than preventing further cuts. No, no, we will just keep placing band aids.

See these issues are cherry-picked.  So just one parameter (RENT) is manipulated while not changing anything else in someone’s financial life.  It will never work.  No doctor is going to reattach your pinky finger when you have a punctured lung.  You cannot cherry-pick the remedy to the problem and ignore the other problems that are also contributing to the patient’s death.  So why do we do this when it comes to economic problems? Why can we not consistently apply philosophies equally to all issues?     

The Most Recent Matry I Am Aware Of – U.S. Sen. Sherrod Brown (D-OH)

U.S. Sen. Sherrod Brown (D-OH), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs apparently would like to cap interest rates for poor people at 36% interest.  Sorry, but that will not help much, is still loan sharking, and used to be illegal for a reason.  Apparently, the following bill/law will be introduced to the U.S. Senate entitled: “Protecting Americans from Debt Traps by Extending the Military’s 36% Interest Rate Cap to Everyone.”  Thirty-six percent is almost five times the eight percent reasonable rate of return for us normal oxygen breathing humans are supposed to be happy to receive on our investments.  Wish I could guarantee 36% return on my money guaranteed.  

Toomey Statement 7-29-21.pdf (senate.gov)

I may comment on each paragraph of this “Opening Statement” by Ranking Member Senator Pat Toomey (R-Pa) via YouTube.  Please YouTube Ryan C. Wood and Bankruptcy to find the YouTube video.  It may not be up yet, but it will be shorty.

Hello Senator Sherrod Brown.  How about creating another federal or state entity to help protect consumers?  We have/had the Federal Trade Commission along with the Consumer Financial Protection Bureau (FTC).  It would be nice to see the FTC did not allow two corporations to merge together further and further limiting choice by human consumers thereby forcing us to pay more?  It would be nice to get back to trust busting for the benefit of the consumer.  Then the Consumer Financial Protection Bureau (CFPB) was created after the mortgage meltdown to help consumers more.  So now we have two federal entities, FTC and CFPB doing the same consumer protection, so consumers should be twice as protected right? Both entities are doing great things to help consumers everyday. The job is overwhelming though and there are just too many scamsters out there to prosecute. For ten plus years I see the same problems with interest rates and consumer loans and credit cards repeatedly. 

Here in California Governor Newsome signed into law the California Consumer Financial Protection Law (CCFPL) which created the new California government entity the Department of Financial Protection and Innovation (DFPI) in September 2020.  The language says the DFPI is supposed to resemble the Consumer Financial Protection Bureau.  But the CCFPL and DFPI only create another set of eyes on persons offering or providing consumer financial products or services in California.  Like magic federal and state-chartered banks ARE NOT SUBJECT TO REGULATION BY THIS NEW CALIFORNIA CONSUMER FINANCIAL PROTECTION LAW.  Ah, so you are creating more oversight of “persons” making loans to other “persons” in the State of California?  I will guess that the big federal and state chartered banks are the ones making 99.99% of loans and they are the ones that need 99.99% more regulation and oversight.  THIS IS THE NEW NORMAL THOUGH.  THE LAW ALLOWS CORPORATIONS AND THE GOVERNMENT ACTORS TO DO TO OTHER HUMANS WHAT THEY [CORPORATION OR GOVERNMENT EMPLOYEE] COULD DO TO ANOTHER HUMAN INDIVIDUAL ON AN INDIVIDUAL LEVEL.     

The reality is there is very little competition at the corporate large-scale consumer credit industry.  There are only a few players, and THEY ARE TOO BIG TO FAIL, and you are TOO SMALL TO MATTER.  The thermometer says 80 degrees, so I report the 80 degrees.  I did not make the 80 degrees.  The fake news is your individual life, your rights, your happiness, is more important than the over all system.  The overall system sadly is more important than you. 

Caps On Interest Rates Were Legislated For a Reason: Your Financial Protection

It all comes down to bargaining power and the free market.  Or what “they” call the free market.  Poor consumers have no bargaining power so those with the means of production, the money, can take advantage of the consumer.  This is precisely what took place until laws were passed to limit interest rates, prevent abusive loansharking, and bring order to the chaos.  The reason why usury laws were passed to limit interest rates still exists, yet we have chosen, well the Supreme Court of the United States in Marquette National Bank v. First Nat’l. Bank of Omaha Corporation, 439 U.S. 299 (1978) decided to take the limits off interest rates.  So, if there is no more cap on interest rates how is the problem this creates being solved now?  It is not.  You all are getting fleeced by banks and interest rates that are supposed to be illegal.  Since life is so short you should probably just dump as much money in the stock market and take advantage of the increase in share value of these same corporations. Why make things better when you can profit off the bad?   

The 1978 Marquette National Bank Supreme Court Decision Changed It All

I believe this case, its holding, changed more about our lives than previously considered.  Prior to 1978 there were caps on interest rates.  Each states usury laws regarding interest rates controlled.  In 1978 state parks were free.  There were no bank fees for services such as balance check fee, money order fee, ATM fee or statement fee.  Government buildings were not Taj Mahal’s built with marble with an entire room dedicated to “espresso.” Most people did not have multiple revolving consumer unsecured debts (a bunch of credit cards with balances carried over each month accruing interest.)

The removal of caps on interest rates changed it all.  This started the downward spiral of your ability to work a normal job and afford a normal house, two or more cars, a boat, a houseboat, a cabin, and retirement.  All of this when working a normal job clocking in day in and day out.  You know this person can no longer afford to buy a house let alone the other items to enjoy life. 

We are going to open the credit markets to the higher risk borrowers that are less likely to pay back the debt, so we have to charge everyone higher interest rates to lend you the money.  This is a blatant lie and an example of how truth is disseminated modernly.  We small consumers prior to 1978 were protected by state usury laws limiting credit card interest rates.  That is the entire point of the usury laws existing to begin with.  That said this limited the availability of credit and extension of credit. Limiting the availability of credit to the masses is also bad. Having the law determine the maximum interest rate is always better than “Joe Loan Shark” choosing an interest rate for a human…….. 

  • This opened the door to blatant discrimination that previously could not exist given there was capped interest rates for all; capping credit card interest rates at 10% ensures the delta/difference for manipulation is far less; we all get the same equal treatment with the same limited interest rates
  • When interest rates can be as high as 79% a company can give one person an interest rate of 5% and another 79% under the lie of credit risk; what a massive delta for discrimination creating winners and losers in our FREE market…….

So it is not your credit score or likelihood to pay back the debt controlling interest rates but the law itself, greed and extension of credit to everyone.     

There is nothing new about human interaction between humans or how humans interact with Earth.  Those in power who are not ignorant just ignore what history has taught us for their own personal financial gain.  Our system determined it was in the best interest of all to limit interest rates to limit abuse of the poor.  Once that determination is made over years of experience, trials and tribulations, I would call this an absolute.  There are certain absolutes in the law and why certain laws exist. You can call it natural law.  Limitations on interest were legislated to thwart loan sharking for the benefit of all yet somehow, we reverted back to loan sharking by even more powerful entities: corporations that live on forever. Infinite existence with infinite financial dealings with humans with limited lives. The law got rid of individuals or organized crime from loan sharking and gave the reigns to legal corporations.

It is called capitalism and life is just so short that humans choose themselves over other humans.  We are lucky to get 50 good years.  The first 18 years, or more, are spent trying to figure out whom you are and if what your parents brainwashed you with is the right or wrong stuff.  The next years are traditionally dedicated to making other humans and money to support them gaining experience.  The next period can range anywhere from 20 – 50 years or more depending upon the individuals’ finances.   Sadly, some humans have to work their entire lives until they die.  No human should be forced to die working.  So not necessary in 2022.     

THERE IS A FORREST BEHIND THE TREES; A BIGGER PICTURE

This saying is about only being able to see the first row of trees yet there is a vast forest behind that cannot be seen.  I encourage everyone to research the forest and ignore the first row of trees.  You must ignore the first thing you hear or read.  There is a reason this is the first thing you are being told.  The first row of trees is what leads to commercials advertising how cigarettes are healthy for you.  If you did not know this is true it is true.  There is always a bigger picture and what you are being shown is rarely the truth.

WHY ARE CORORATIONS PART OF THIS DISCUSSION?

Corporations are part of this discussion because the corporate entity insulates the officer and director humans from personal liability when charging humans loan sharking interest rates.  It is the “corporation” doing this not me personally.  The “corporation” is a fault.  Well, the corporation breaks all the rules of punishment and deterrence our system is based upon.  We cannot put a “corporation” in jail or put the “corporation” to death for premeditated willful murder of another human.  A “corporation” can commit willful first-degree murder and be fined money for it.  A human being will be put in prison and potentially put to death.  So, the “corporation” charges you the anti-human financial health interest rates and there is not one single human liable for such an atrocity. 

Here is an excerpt from a Federal Reserve article written by Lisa Chen and Gregory Elliehausen published on August 21, 2020.

Trends in Costs of Consumer Finance Companies
Gross revenue of consumer finance companies in 2015 was $29.09 per $100 of receivables (table 1), an amount higher than gross revenue per $100 of receivables in 1964 and 1987 ($21.40 and $24.89, respectively). Total cost in 2015 ($25.19 per $100 of receivables) was also higher in than in the earlier years. Gross revenue less total expenses (net income) is the cost of equity funds. This amount is compensation for owners’ investment on the firm. The cost of equity funds in 2015, $4.80 per $100 of receivables, was more than twice the cost of equity funds in 1964 or 1978.

So I will say that legislating out caps on interest rates significantly expanded the United States economy, hell the world economy, on the backs of working Americans and going into debt.  The argument goes now that banks can offer higher interest rates, they can offer credit to higher risk borrowers allowing everyone to have stuff, cars, whatever without having the money to purchase the thing.  Previously only high-cost items such as homes and cars had loans.  Everything else you had to pay for it all at once or you could not purchase the thing.  K-Mart has lay-away for certain items.  So, has opening up credit markets to everyone been a good thing?  For the rich and powerful of course.  For the poor and fragile no.

1968 is apparently the first-year revolving consumer credit was totaled.  In 1968 Americans had $1,316,000,000 ($1.3 billion) in revolving consumer credit debt versus $105,455,000,000 ($105 billion) in nonrevolving consumer debt like home or vehicle loans.

In 1968 revolving consumer credit debt was less than 1.5% of total consumer credit debt.

In 1978 revolving consumer credit debt increased to $36.92 billion versus nonrevolving consumer credit debt of $225,840,720,000 ($226 billion).  1978 revolving consumer credit grew to over 6% of total consumer credit debt.   

In 2021 revolving consumer credit debt increased to $974 billion versus nonrevolving consumer credit debt of $3.2 trillion.  As of 2021 revolving consumer credit grew to over 23% of total consumer credit debt. 

That is exponential growth.  $974 billion at an average interest rate of what?  Ony 6 percent or over 35%?  You do the math, and the result is trillions in interest for the poor to pay to obtain credit.  Prior to 1978 this was not legally possible for your protection. 

Look At The Stock Market Before 1978 and After 1978

Please go to: https://www.macrotrends.net/2324/sp-500-historical-chart-data and look at the chart after 1978.  But for a couple of blimps nothing but up for the largest companies in the world.  Is this direct evidence or merely a correlation?

How about something like:

THE PERSONAL FINANCIAL DISASTER AND EMERGENCY PRICING ABUSE PREVENTION ACT

So a law exists entitled: The Financial Disaster and Emergency Pricing Abuse Prevention Act barring price gouging during natural disasters and PANDEMICS.  Have you heard of enforcement of this Federal Law during the COVID NOVEL CORONA VIRUS PANDEMIC?  Yeah, some humans believed they could corner the market on hand sanitizer by doing what would normally be a perfectly legal way to screw people and charge too much.  So how about “The PERSONAL Financial Disaster and Emergency Pricing Abuse and Prevention Act?  Seems intellectually honest and consistent right? 

What is the point protecting humans from one disaster only to leave them entirely exposed to other types of disasters?  Is this intellectually honest to you?  If someone is starving due to loss of employment, does it really matter how or why they are no longer employed and cannot feed themselves anymore?  The important part is they are starving, and it is wrong to take advantage of this persons because they are under this stress.  Yet the system has you walking the fence on this one whether you admit it or not.  Anyone can buy a 75” television whether they need it or not or can afford or not at this point on credit.  There is no credit check when using the credit card.  When the card is issued a marginal evaluation of ability to pay back the credit card is made.  Understand that doing a thorough evaluation of ability to pay first was taken off the table with the SCOTUS 1978 holding.  Do not worry about ability to pay.  Just charge a very high interest rate to even it all out.  Why treat people fairly and equally when we can just charge 36% interest and we, the big bank corporations, will make money hand over fist no matter what.  It is a mathematical certainty.  We will CAPITALIZE upon the masses and the masses do not care so what is the problem? 

What is bad for one human is bad for all humans.  Be stubborn about this.  If you believe this and execute on it all humans should be happy and healthy.  You do want this right? 

You must work on raising the tide, so all ships go up.      

Can you honestly believe someone is in their right mind getting a payday loan at 70% or more in interest so they can eat or pay their rent?  Or the fees for this short period loan are 150% of the total amount borrowed? 

Are you being kept just treading water, your head is just above the water lever, never actually swimming anywhere but you can always see the land?    

Seems like prior to 1978 humans had a house, a boat, a motorhome, retirement, and healthcare all while working normal jobs.  How a wonderful a world this was.  Can you imagine?  State and Federal parks did not have admittance fees and the maintenance of the land was all part of your taxes already.  This is also back when government buildings would never contain marble.  There was a feeling of we are all in the same boat.  That changed.  I argue our entire economy changed with increased access to credit for all.    

Back to The Personal Financial Disaster and Emergency Pricing Abuse Prevention Act.  The human seeking a payday loan is under constant mental stress for probably an extremely extended period of time.  Unlike someone that is involved in an earthquake or tornado.  The earthquake or tornado happens, you deal with it, and hopefully things get better within a year or so.  Your personal financial disaster does not register the same as an equally devastating natural disaster.  Your personal financial disaster may extend for 10 years or more before there is some sort of finality for the stress and anxiety to go away permanently.  Your personal financial disaster should be treated the same way as a personal disaster due to a natural disaster.  The stress someone is under is daily when they are coming up short each day on their bills.  It is detrimentally affecting their entire life which will also affect yours because you are living in the same world as them.  Those things other people are doing you complain about are symptoms of their financial disaster and these symptoms are negatively affecting your life.  How about we do things that cure the debt cancer and not just treat the cancer only to have the patient die?  Why? 

Has Quasi-Deregulation of Caps on Interest Rates Worked?

Has this been a good thing?  I say no.  As a bankruptcy attorney that has dealt with thousands of humans in financial turmoil, I have to say no.  It has just led to financial abuse of those who can least afford it.  We humans have been here before.  This is nothing new.     

There is a reason why we created usury laws and caps on interest rates.  We humans lived for many years with no protection from those more powerful holding all the means of production and generational wealth. 

Individual humans born with nothing have always and will always needed protection from those that were born with everything.  This is an absolute truth regardless of period of history, location on Earth, skin color, or gender.  When will humans learn?  We must “OUTTHINK INSTINCT” (@ All Rights Reserved 2022) and this is what laws are. 

 Consumer Credit Levels: 

See Federal Reserve:              www.federalreserve.gov/releases/g19/hist/cc_hist_sa_levels.html

Unconscionability/Unconscionable:     

              CIVIL CODE – CIV – TITLE 4. UNLAWFUL CONTRACTS [1667 – 1670.11]   

1670.5. 

(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.

Ninth Circuit Bankruptcy Appellate Panel Opinions – March 2022

By Ryan C. WoodG

1. Gutierrez v. Oregon State Department of Corrections  – 523(a)(17), 11 USC 28. 1915(b)(2)

2. Ebuehi v. United States Trustee, Los Angeles – 727(a)(3), (a)(4), (a)(6)

_____________________________________________________________________________________________________

1.   GUTIERREZ; BAP No. ID-21-1156-SGB; March 2, 2022

Bankruptcy court does not have “related to” subject matter jurisdiction over claims/allegations that arise after a Chapter 7 bankruptcy case is fully administered.  The claim/allegation cannot therefore affect or change a debtor’s rights, liabilities, options, or freedom of action which impacts the administration of the original bankruptcy case; it is done; See Section 523(a)(17) of the bankruptcy code and 28 U.S.C. Section 1915(b)(2)  

Mr. Gutierrez appealed a couple of issues from his Chapter 7 bankruptcy case.  Yes, humans may file for bankruptcy relief when incarcerated.  Most bankruptcy attorneys will never file a case for an incarcerated human.  It is far more likely that a human files their own Chapter 7 bankruptcy case rather than hire a bankruptcy lawyer to assist them.

Mr. Gutierrez received his discharge of debt, the case was closed, then Mr. Gutierrez reopened the Chapter 7 case to file two adversary lawsuits alleging various allegations.  One of which was against the Oregon State Department of Corrections.  Mr. Gutierrez owed a debt based upon federal court fees incurred under 28 U.S.C. Section 1915(b). 

While Mr. Gutierrez admitted that the nature of the fees are governed by Section 523(a)(17); barring dischargeability of such fees, he argued that  

Bankruptcy Code Section 523(a)(17) provides:

(a)A discharge under section 727, 1141, 1192 [1] 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(17) for a fee imposed on a prisoner by any court for the filing of a case, motion, complaint, or appeal, or for other costs and expenses assessed with respect to such filing, regardless of an assertion of poverty by the debtor under subsection (b) or (f)(2) of section 1915 of title 28 (or a similar non-Federal law), or the debtor’s status as a prisoner, as defined in section 1915(h) of title 28 (or a similar non-Federal law)

The not dischargeable federal fees are collected from the inmate’s prisoner trust account by the applicable correctional institution. See 28 U.S.C. § 1915(b)(2). Thus, Mr. Gutierrez’s issue is with the Oregon Department of Corrections.

FIRST, Mr. Gutierrez argues the federal court fees, while covered by Section 523(a)(17), they should be dischargeable given none of his appeals were frivolous.  SECOND, Mr. Gutierrez challenged how the federal court fees were collecting the allegedly not dischargeable federal court fees.  28 U.S.C. Section 1915(b)(2) limits the amount that can be collected to 20% of the prior months credited income to their prisoner account without consideration of the number of cases the prisoner owes federal court fees. Mr. Gutierrez’s issue is notification of how the not dischargeable court fees were to be collected: 20% of his income PER lawsuit filed and not 20% of total without consideration of number of cases.

The lower bankruptcy court dismissed the Section 523(a)(17) allegation and held it did not have jurisdiction over the allegation of wrongful collection method of the federal court fees and 28 U.S.C. Section 1915(b). 

Standards of This Appeal

De novo review = appellate court reviews case as if the case is being heard for the first time; subject matter jurisdiction requires de novo review upon appeal 

Abuse of discretion = concerning retention of jurisdiction after case dismissal

Abuse of discretion occurs when the lower bankruptcy court applies an incorrect legal rule or when its factual findings are illogical, implausible, or without support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

Mr. Gutierrez focuses his argument on “related to” the bankruptcy case for the lower bankruptcy court to have jurisdiction. A bankruptcy court may have “related to” jurisdiction if the result could change a debtor’s rights, liabilities, options, or freedom of action which impacts the administration of the original bankruptcy case.   

HOLDING: The collection of the not dischargeable federal court fees is not part of the bankruptcy court’s jurisdiction.  At the time Mr. Gutierrez filed the adversary proceeding lawsuit his Chapter 7 bankruptcy case was fully administered.  Only then did the Oregon Department of Corrections begin collecting the fees.  Jurisdiction for “related to” is the date the adversary lawsuit is filed; not before.

In re Casamont Invs., Ltd., 196 B.R. at 521 (citing In re Fietz, 852 F.2d at 457 at n.2); measure of time is as when adversary proceeding filed/commenced

Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1193 (9th Cir. 2005)

Fietz v. Great W. Sav. (In re Fietz), 852 F.2d 455, 457 (9th Cir. 1988) (cleaned up) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984))

_____________________________________________________________________________________________________

2.  Ebuehi, BAP No. CC-21-1199-FLT, March 8, 2022

The Ninth Cir. BAP held the bankruptcy court did not error in denying the Ebuehi’s their discharge pursuant to Sections 727(a)(3), 727(a)(4), and 727(a)(6). 

The Ebuehi’s originally filed a Chapter 11 reorganization case and confirmed, obtained approval, of the Chapter 11 Plan of Reorganization.  After approval creditors accused the Ebuehi’s of not making payments to them properly and misappropriating $5,000.00 a month in rental income.  The Court issued an order to show cause why the case should not be converted to Chapter 7 liquidation.  No real fight was mounted, and the case was converted to Chapter 7.

The Chapter 7 Trustee assigned to the case naturally sought to liquidate the Ebuehi’s assets including a piece of real property the Ebuehi’s resided at.  The Ebuehi’s eventually vacated the property.  The Chapter 7 Trustee then decided to file an adversary proceeding to take aware the Ebuehi’s discharge for alleged wronging doing pursuant to Section 727(a)(3), (a)(4) and (a)(6). 

Section 727(a)- the court shall grant a discharge unless

(3) the debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information

(4) the debtor knowingly and fraudulently, in or in connection with the case (A) made a false oath or account

(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities

So the Court held denial of discharge was warranted under § 727(a)(6) given the Ebuehi’s had failed to comply with the Court order regarding conversion to Chapter 7 and turnover of the real property to the Chapter 7 Trustee.

In order to establish that the debtors “refused” to comply with an order, the party seeking to deny discharge “must show that Debtors (1) were aware of the order and (2) willfully or intentionally refused to obey the order (i.e., something more than a mere failure to obey the order through inadvertence, mistake or inability to comply).” Vaughan v. Weinstein (In re Vaughan), BAP No. NV-15-1254-JuKiD, 2016 WL 878308, at *7 (9th Cir. BAP Feb. 29, 2016).

Under § 727(a)(4) the debtors allegedly made a false oath regarding the number of missed mortgage payments.  The Ebuehi’s has 11 missed mortgage payments versus listing only 4.  Okay, so did they intentionally does this for some reason and does it really matter?  Apparently yes, yes it did.

The fundamental purpose of § 727(a)(4)(A) is to insure that the chapter 7 trustee and creditors have accurate information without having to conduct costly investigations.” Fogal Legware of Switz., Inc. v. Wills (In re Wills), 243 B.R. 58, 63 (9th Cir. BAP 1999).

Under § 727(a)(3) because the Ebuehi’s allegedly failed to maintain records regarding the rental payments or turn over their record-keeping notebook, making it impossible to ascertain their financial condition.

Debtors are required to “present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.” Id. (quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)).

The Ninth Cir. BAP found no error in the bankruptcy courts denial of the Ebuehi’s discharge.

Mortgage Interest and Fun With Numbers

By Ryan C. Wood

Do you know how much your home will cost you?  That is the total cost of the loan?  Did you look at the total amount of interest you will end up paying if you make each and every mortgage payment for 30 years?  What if you refinance in year three?  How will that change what you are paying?  One of the nastiest parts of purchasing a home is that your mortgage payments are heavily weighted to pay interest first rather than principal.  When a house value is continuing to increase this is not a huge issue.  If the value of the home is slowly increasing or the market is stagnated your investment by buying the home is actually decreasing each month.  The mortgage meltdown crisis should tell you enough about how things work. 

Too big to fail versus too small to matter is how it went down.  Just ask any bankruptcy attorney that lived the mortgage meltdown. 

The thing is though most people will never be able to pay cash for a house.  Spreading out payments over 30 years makes the loan affordable and allows more people to purchase homes that could not otherwise.  Purchasing a home and the resulting fixed monthly mortgage payment is usually a huge financial win for housing costs.  Rent increases with inflation and other market conditions significantly over time.  This is why rental properties are such a great investment under most circumstances.  Once you purchase a home though hopefully your wages increase but your housing costs stay the same.

What If Mortgage Payments Were Half Interest and Half Principal From the Beginning?

Here comes the fun with numbers part to illustrate the huge difference.  Let us take a $1,000,000 homes since that only gets you one bedroom with a bathroom on the Peninsula in the Bay Area where I am located.  With a 20% down payment to avoid private mortgage insurance the mortgage loan will be $800,000.00.  To pay off the $800,000.00 loan at a fixed interest rate of 3.7% and amortized over 30 years the total amount paid will be $1,427,615.00.  Of that total interest paid is $525,615.00.

Amortization Schedule

$800,000.00 at 3.7% interest with 360 monthly payments

Total Payments: $1,325,616.14

Total Interest: $525,616.14

The first mortgage payment is about 67% applied towards interest and 23% applied to principal.  Over the life of the 30 year mortgage these percentages slowly change.  At the 6 year mark 60% is applied to interest and 40% is applied to principal or $1,471.24 towards principal and $2,211.02 towards interest ($3,682.26 total monthly payment).  The middle mark of the loan term or the 181th payment is 43% principal and 57% interest.  The last payment of 360th payment is a mere $11.32 towards interest and $3,670.95 to principal and the loan is paid in full.  The 360th payment is 0.30% interest and 99.70 % principal.

At 2.75% interest: Total Interest Paid: $375,734.60

At 3% interest: Total Interest Paid:  $414,219.62      +38,485.02 

At 4% interest: Total Interest Paid: $574,956.05       +$160,736.43

At 4.5% interest: Total Interest Paid: $659,253.69    +$245,034.07

Let us assume we are in year 7 and you have now paid $316,674.36 in total principal and interest.  Of this you have paid approximately $174,173.00 in interest through 86 or seven years of mortgage payments.  We will come back to this below when examining the result of a refinancing the mortgage to a new fixed 30 year loan to get a better percentage rate of pull out equity that has accrued in the seven years since purchase.

So how do mortgage lenders ever lose money?  Everything they do is resulting in interest income from funds on deposit and getting money from the Federal Reserve at a lower rate.   

Why Are Mortgage Payments Primarily Applied to Interest and Not Principal In the Beginning?

This type or amortization provides for equal payments throughout the entire 360 month or 30 year term of the mortgage.  As a bankruptcy attorney I can tell you that this probably a necessary evil and helps people keep things straight.  There is a huge percentage of homeowner are just getting by each month and pay different amounts each month for their mortgage.  Why you ask?  The vast majority of people buy too much house and cannot pay a down payment totaling 20% or more to avoid private mortgage insurance.  They make it worse by choosing to not pay property taxes and insurance directly but via the monthly mortgage loan payment. You will then be dependent upon the servicer or mortgage company to recalculate the property tax and insurance as the property taxes increase.  Therefore the mortgage payment must increase too.  The problem is many servicers and mortgage companies fail to timely and regularly recalculate the taxes and insurance so this results in large changes in the monthly payment to catch up on already paid property taxes.  This system is ripe for fraud and miscalculation. 

Does Anyone Save Money When Refinancing A Mortgage Loan?

Did you calculate the amount of interest paid versus principal prior to refinancing your mortgage loan?  Or is the enticing thought of paying less each month or obtaining the cash from pulling out equity from your home too much to pass up?      

So taking our example above you paid $174,173.00 in interest during the first 7 years of your mortgage loan and decide to refinance at a lower percentage rate.  We shall use 2.70% instead of 3.7%.  After 7 years of payments the principal owed at that time and the amount refinanced is $683,076.57.  Your new refinanced loan with a new term 30 year term at 2.70% will cost you a total of

Amortization Schedule

$683,076.57 at 2.7% interest with 360 monthly payments

Total Payments: $997,395.73

Total Interest: $314,319.16

Just comparing the loans on their face you will save $211,296.98 total.  But did you take into account all the interest already paid?  Yes, you reduced the principal and you are refinancing the lower principal amount too.  How much did you really save though?  When taking into account the interest already paid totaling $174,173.00 already you will save about $37,123.98 over the total life of the 30 year loan.

No Stacking of California Bankruptcy Exemptions

By Ryan C. Wood

There is no stacking of the California homestead exemption pursuant to California Civil Procedure.  The Ninth Circuit Court of Appeals held that Section 522(m) of the Bankruptcy Code is not applicable in California given California has opted out of the Federal Exemption scheme and adopted exemptions under California State law.  See CCP 703.140 and CCP 704.  Therefore a married couple cannot stack the homestead exemption, which means both spouses claiming the homestead exemption to double the amount of equity they can protect in their primary residence.  This issue became more relevant due to California recently increasing the maximum homestead exemption pursuant to CCP 704.30 to between $300,000 and $600,000 depending upon the median home value for the prior year in the California County.  In the Bay Area that means all residents of all Bay Area counties have a right to a $600,000 homestead exemption given the median home price in all Bay Area counties far exceeds $600,000. 

But a married couple in California cannot stack the $600,000 homestead exemption to exempt $1.2 million in equity in their primary residence when filing for bankruptcy; just $600,000.  This is not true in every state.  In Florida the homestead exemption can be stacked for the benefit of the bankruptcy filer.

What Are Exemptions?

Exemptions are what protect assets from being sold or liquidated when a bankruptcy case is filed.  The exemption exempts the asset from the bankruptcy estate that is created upon filing for bankruptcy protection.  There is the Federal Exemptions and each state may choose to create their own exemptions and opt out of the Federal Exemption scheme.  California created two sets of exemptions.  One set is pursuant to CCP 703.140 and is known for its generous wild-card exemption that can be applied to any type of asset.  California created a second set of exemptions pursuant to CCP 704 and is known for its large homestead exemption to protect equity in the bankruptcy filer’s primary residence.  The two sets of exemptions under California law are very different and protect different amounts of types of assets.

California Opted Out of The Federal Exemption Scheme 

Again California opted out of the Federal Exemption scheme and that has legal significance.  Bankruptcy Code Section 522(m) provides as follows:  “Subject to the limitation in section 522(b), this section shall apply separately with respect to each debtor in a joint case.”  States like Florida pursuant to Section 522(m) “stacking” of claims of exemption.  See (In re Rasmussen, 349 B.R. 747, 753-754 (Bankr. M.D. Fla. 2006)).  Stacking is expressly prohibited under applicable California law though.

California Civil Procedure Section 703.110(a) prohibits the claiming of separate exemptions by married couples.  This has been true since 1987.  See (In re Talmadge, 832 F.2d 1120, 1123-25 (9th Cir. 1987)).  The Talmadge case is from the Santa Rosa Division of the United States Bankruptcy Court for the Northern District of California.  The Bankruptcy Court first held that California exemption statutes were unconstitutional as applied to debtors that are married.  The lower Bankruptcy Court held that California Code exemptions/sections could not survive a constitutional attach given certain subsections of California Code: (1) contain vague and ambiguous language in violation of the fourteenth amendment’s due process clause, (2) arbitrarily discriminate against married couples in violation of the fourteenth amendment’s equal protection clause, and (3) conflict with federal law and, therefore, violate the Supremacy Clause of Article VI of the Constitution.

The District Court did not agree, reversed the Bankruptcy Court and instead held that equal protection of the law is not denied by the California exemption statutes limiting married debtors to a single set of exemptions and the Ninth Circuit Court of Appeal agreed.

In Talmadge each debtor claimed a full set of exemptions, thereby ‘doubling up’ their exemptions under applicable California statute.  The Talmadge’s and their bankruptcy attorney argued that California CCP 703.140 conflicted with Bankruptcy Code Section 522(m).  The Ninth Circuit, in affirming the District Court’s decision disallowing the debtors’ stacked exemptions, concluded that the provisions of 11 U.S.C. § 522(m) did not apply to California debtors because California had opted out of the federal exemption scheme and that provisions of the California Code of Civil Procedure prohibited married couples from obtaining more than a single exemption with regard to a specific property where the amount of the exemption had a maximum dollar amount limit. In re Talmadge, 832 F.2d 1120, 1123-25 (9th Cir. 1987).

Accord, In re Rabin, 336 B.R. 459, 460 (Bankr. ND CA 2005) (“Under California law, spouses who own and reside in a homestead are entitled in bankruptcy to a single homestead exemption. Cal. Code Civ. Proc. §§ 703.110, 704.710(b), (c), 704.730(a) (2). This is so regardless of whether both spouses file bankruptcy, and regardless of whether the spouses file joint or separate bankruptcy petitions. Cal. Code Civ. Proc. § 704.730(b); Talmadge v. Duck (In re Talmadge), 832 F.2d 1120, 1123-25 (9th Cir. 1987) [**3] (married debtors filing joint bankruptcy petition); In re Nygard, 55 B.R. 623, 626 (Bankr. E.D. Cal. 1985) (dictum re married debtors filing individually.

Why Bankruptcy Exemptions Stacking Became an Issue

Unfortunately in 1984 bankruptcy attorneys lost a tool to help bankruptcy filers keep their assets when seeking to discharge their debts. Prior to 1984 California bankruptcy filers could choose between using the Federal Exemptions under Section 522(d) or choose California State exemptions.  In 1984 the California State legislature took advantage of opt out provision of Bankruptcy Code Section 522(b)(1) when enacting California Civil Procedure Code 703.130 and 703.140.  Once California exemptions became the only legal chose for California bankruptcy filer’s Bankruptcy Code Section 522(m) no longer was applicable.  Since 1984 stacking of exemptions for California bankruptcy filers is prohibited. 

What Are The Best Credit Cards To Rebuild Credit After Filing Bankruptcy?

By Ryan C. Wood

The best credit cards to rebuild credit after filing bankruptcy are secured creditors with no annual fee.  Do they exist?  Yes, secured credit cards with no annual fees do in fact exist.  Like all parts of capitalism there are business, banks and lenders that are targeting this segment of society and offer services.  Many of my chapter 7 clients report receiving vehicle loan offers in the mail even before they receive a discharge in their chapter 7 bankruptcy case.  Lenders are targeting them given the lenders know they have not debts post-discharge.   

Best Credit Cards to Rebuild Credit After Filing Bankruptcy

The following is a list compiled from many different websites and the information may no longer be accurate due to interest rate changes and other factors.  Some of the interest rates are very high.  If you pay off the balance each month it does not matter at all though.  You may want to start with the highest interest rate no annual fee cards since they are more likely to give you a card.  If no success, then try the low interest rate low annual fee cards.  If not then try the high interest rate with high annual fee cards. 

Surge MasterCard:                                      Annual Fee $75 – $100            APR- 26% – 30%

Total Visa Unsecured Card –                                       No additional information listed

Petal “1” Visa Credit Card: No annual fee                  APR – 20% – 30%

Platinum Elite Credit MasterCard Secured Card: Annual Fee $29          APR – 19.99%

  • First Progress

Capital One Secured Credit Card:                              No annual fee                                 APR – 26.99%

Discover It Secured                                                       No annual fee                                APR – 22.99%

  • 1% – 2% Cash back on certain purchases

Milestone Gold Mastercard:                                       Annual Fee $35 – $100                   APR – 24.90%

Avant Credit Card:                                                        Annual Fee $39                               APR – 25.99%

Next Gen Platinum Master Credit Card                  Annual Fee $48 – $75                    APR – 35.99 %

  • First Digital

Official Nascar Credit Card                                          Annual Fee: $0 – $100   APR – 17.99% – 23.99%

  • Credit One Bank; 1% cash back on certain purchases

Platinum Prestige Mastercard Secured Card        Annual Fee: $49                                APR – 9.99%

Merrick Bank Secured Visa Card                                 Annual Fee: $36                             APR – 17.45%

Platinum Elite Mastercard Secured Credit Card   Annual Fee: $29                            APR – 19.99%

Credit One Bank Plantinum Visa                                  Annual Fee: $0 – $99    APR – 17.99% – 23.99%

  • For Rebuilding Credit

Reflex Mastercard                                                           Annual Fee: $75-$99    APR- 25.90% – 29.99%

First Access Visa Credit Card                                        Annual Fee: Unknown            APR – Unknown

Fingerhut Advantage Credit Account                      Annual Fee: $0.00                       APR – 29.99%

  • By WebBank

Indigo Platinum Mastercard                                        Annual Fee: $0.00 – $99             APR – 24.99%

The Open Sky Secured Visa Credit Card                 Annual Fee: $35                          APR – 17.39%

Platinum Select Mastercard Secured Card            Annual Fee: $39.00                    APR – 13.99%

How To Rebuild Credit After Bankruptcy

Never ever pay anyone or any company to help you rebuild your credit. Not even a bankruptcy attorney like me.  There is no magic wand that can be waived to fix a credit score.  If you have inaccurate information on your credit report is should be removed so it does not drag down your credit score.  You can do this yourself and for little effort.  Do not call the phone number on that sign you see posted on a telephone pole promising to fix your credit in 30 – 60 days.  It is a scam.  At the same time you are always permitted to pay someone to wash your car even when the car is not dirty. 

  • Pay Your Bills Each Month On Time Each and Every Month

Yeah, easier said than done right?  It is still the single most important step you can take to rebuild credit once things did not go quite right.  Pay your cell phone bill on time.  Pay your rent on time.  Pay your utility bills on time.  If you do obtain a credit card or somehow are allowed to keep a credit card be sure to pay the monthly balance off in total each month.  Do allow a balance to remain that accrues interest.  It all matters at this point and every little bit will help rebuild your credit.

  • If You Have Credit Do Not Use It All

This is referring to the total amount you could borrow or use on your various credit accounts.  For example if you have two creditors both with credit limits of $10,000 you have a total of $20,000 in available credit.  If you use up all of your available credit you will probably need the services of a bankruptcy lawyer sooner than later. The amount of credit you use versus the amount you have is a metric used for your credit score.  The lower the percentage the better for your credit score.,  For example if you have $20,000 in available credit and you are have a balanced owed totaling $18,000 you are using 90% of your available credit.  Not good.  If you are only using $2,000 of the available $20,000 you are only using 10%.  That is what you want.  So a trick you can play to help this percentage is to apply for more credit cards thereby increasing your available credit  while the amount you are using stays the same.  This will lower the percentage of your available credit you are using.  In the example above the person with $18,000 in debt could apply and obtain two more credit cards each with $10,000 credit limits.  The would not have $40,000 in available credit while only using $18,000 lowering the percentage to 45% of credit used.  This is much better than 90% they had previously.  See  number three below though too.   

  • Opening A Bunch of New Accounts All At Once

Inquiries for obtaining credit can damage a credit score.  Each time you open a new account an inquiry is made to the credit bureaus and these temporarily will lower your credit score.  So if you open five new credit accounts within a six month period you will have many inquiries and your credit score will suffer.  This is a game of chess.  It is not just jumping over your opponent like in checkers.  So open accounts over a period of a long time to increase your available credit rather than all at once.  Just because you have $200,000 in available credit does not mean you have to use it.  That is the difficult part when things do not go as planned and credit are used for basic living expenses such as food and utilities.  But this is about rebuilding credit and having a great credit score so increasing your available credit slowly over time is a good thing. 

  • As Mentioned Above Apply For a Secured Credit Card

Secured credit cards are a great way to rebuild credit.  You will have to provide an initial deposit so secure the repayment of the credit card but that is fine.  As you use the secured credit card and there are no issues they will increase your credit limit and eventually the deposit can be refunded to you.  It is important to note this is not a pre-paid card but a secured credit card. 

Actual Harm From California Transmutation Agreement and California Uniform Voidable Transactions Act

By Ryan C. Wood

There will be more and more cases involving arguably voidable transactions due to the recent In re Clifford Brace California Supreme Court decision.  In re Clifford Brace was about whether the California Family Code community property presumption should be followed rather than the record title presumption when a married couple acquires real property during marriage and takes title as joint tenants.  The California Supreme Court, right or wrong, provides there needs to be some sort of additional writing or evidence of the married couple’s intent; a transmutation agreement, providing the married couple’s intent.

A recent Ninth Circuit Bankruptcy Appellate Panel case, In re: RUDOLPH MEDINA a.k.a.  Rudy Medina, BAP No. SC-19-1299-FSG; Bk. No. 12-13764-LT7 and Adv. No. 18-90039-LT the issue was just a transmutation and whether it could be voided.  This appeal is form the United States Bankruptcy Court for the Southern District of California.  The chapter 7 debtor had a $1.4 million judgment against another party and that was part of his chapter 7 bankruptcy estate.  The judgment debtor, after a judgment examination, transmuted half of his community property to his spouse then argued her separate property interest could not be touched or was protected from chapter 7 trustee enforcing the judgment against them.  During another judgment debtor examination the judgment debtor informed the chapter 7 trustee he has transferred half the community property to his wife.  The judgment debtor’s assets totaled approximately $3.8 million with liabilities the married couple in aggregate totaling $4.1 million.  In theory there was no harm or actual injury due to the transmutation agreement given the judgment being enforce was around $1.4 million or less than the judgment debtor’s assets even after the transfer.  The record on appeal is not clear on how the $4.1 million in liabilities affects the judgment debtor’s assets. Maybe the bankruptcy attorney or the chapter 7 trustee’s attorney can make the party that made the transfer pay for the cost of voiding the transfer even though there was no actual harm or injury.

This a huge deal given that a creditor may enforce its claim to payment against the debtor’s separate property and all community property but may not enforce its claim to payment against the non-filing or non-debtor spouses separate property.  This is why in the Medina case the judgment debtor transmuted half the community property to his spouse in an attempt to protect half the value of their assets.  Timing in the Medina case is the issue and this will be potentially true of married couples that execute a transmutation agreement due to the In re Clifford Brace holding.

Even with the holding in In re Clifford Brace taking title to property as joint tenants does create separate property interests; just not when filing for bankruptcy protection due to the inconsistent interpretation of law.  See how joint tenancy is treated under California law upon: Death vs. Bankruptcy vs. Taxes vs. Divorce. 

The issue is when must the transmutation agreement or additional writing providing their intent and in theory transferring assets to a spouse and the filing of a bankruptcy case be executed?  I had this question a long time ago and when filing for bankruptcy the look back period for the California Uniform Voidable Transactions Act is four years.  In 1985 the State of California requires the transmutation of property, from community property to separate property, be in writing clearly providing the parties intent; but when?  If the transaction took place in 2001 does the transmutation writing have to be in 2001 or close in time?  If the issue is as in In re Clifford Brace that a married couple purchased property and took title as joint tenants during marriage why would they have to enter into a transmutation agreement until now given the Supreme Court of California just now ruled on this issue?  Up until now it was unclear how to precisely interpret the community property presumption versus title presumption.  If a couple enters into a transmutation today but one spouse files for bankruptcy in two years did they fraudulently transfer or create a voidable transaction under California law?      

Presumptions Defined and Discussed

Presumptions are how humans discriminate against other humans on a daily basis and it is all wrong.  Some horrible people use race as a conclusive presumption while others use race as a rebuttable presumption.  Both way it is horrible and not how we should strive to analyze an issue. 

The truth is we all have certain beliefs that are rebuttable presumptions.  Our society has programmed everyone to believe certain products say something about their owners and creates a rebuttable presumption.  Just because someone is driving a $100,000 car does not mean they are rich.  It does create a rebuttable presumption.  If someone is walking towards me and they are covered in dirt and smell it creates a rebuttable presumption that they are homeless.  For far too many people things they see or experience create conclusive presumptions without further information.  Not good.

I should get back to the legal stuff and presumptions.  So the law creates presumptions to help solve problems.  Let us create then assume something that may or may not be true rather than start with the truth to find the truth? 

According to the Merriam-Weber Dictionary the definition of presumption is: a legal inference as to the existence or truth of a fact not certainly known that is drawn from the known or proved existence of some other fact.

So the fact that a married couple purchased a home or land during marriage, a true fact, creates an unknown truth or unproven presumption that the home or land is community property while ignoring the signed, notarized and recorded joint tenant tile.  Oh by the way, in my legal world we have something called authentication of evidence.  Evidence has to be properly authenticated to be entered and considered by the Court.  I can obtain a certified copy of the recorded title

Federal Rules of Evidence 902:  (4) Certified Copies of Public Records.  A copy of an official record — or a copy of a document that was recorded or filed in a public office as authorized by law — if the copy is certified as correct by: (A) the custodian or another person authorized to make the certification; or (B) a certificate that complies with Rule 902(1), (2), or (3), a federal statute, or a rule prescribed by the Supreme Court.  So I guess the self-authenticating title is just evidence of how the property was taken during marriage and that truth must be ignored until further evidence of the married couples’ intent is presented; another writing that probably is not even self-authenticating.  Not good.

So again back to timing of the transmutation agreement and the judgment debtor in the Median 9th Cir. BAP case.

Back to the Medina Case and the Judgment Debtor Transmutation During Enforcement of the Judgment by the Chapter 7 Trustee

Okay, so to recap, Medina filed a chapter 11 that was converted to chapter 7 and part of property of the bankruptcy estate that was being enforced by the chapter 7 trustee was a judgment.  The defendant or judgment debtor while the chapter 7 trustee was enforcing the judgment, trying collect on the judgment, the judgment debtor transmuted or transferred half his community property to his wife creating two separate property interests in theory protecting his wife’s now separate property interest from enforcement/collection of the judgment by the chapter 7 trustee.  But arguably there was no harm in the transfer to the bankruptcy estate so what is the problem? Whew!! 

Think it will work when timing is everything in this world?  The Bankruptcy Court held the chapter 7 trustee had to prove actual injury or harm for the transfer to be voidable under the California Uniform Voidable Transactions Act; See California Civil Code Section 3439 – 3439.14.  The Bankruptcy Court acknowledged that the Transmutation Agreement put certain assets out of reach of the bankruptcy estate but found that there was “cushion” to satisfy the State Court Judgment. 

That may or may not have been true given the chapter 7 trustee chose to spend the time and money to appeal the Bankruptcy Court’s holding. It is never that simple and just because there might be assets to satisfy the judgment the transfer of half of the judgment debtor’s interest could significantly increase the costs of satisfying the judgment. If this was an issue the published opinion by the 9th Cir. BAP does not address it. One of the most frustrating parts of being a bankruptcy attorney for me over the years is other parties unnecessarily increasing costs in cases so they can profit at the expense of debtors. This is why we have court appointed and paid defense attorneys in criminal matters. So rights are protected and the ability to pay is not an issue. This is not true in bankruptcy or most civil matters. If you do not have the funds to defend yourself you will lose regardless of the merits of the claim against you. Not good.

The Ninth Circuit Bankruptcy Appellate Panel held that was an erroneous interpretation of the law and reversed the granting of summary judgment for the judgment debtor and remanded the matter back to the Bankruptcy Court for the litigation to continue.

The California Uniform Voidable Transfer Act provides a party must prove there was: (1) “transfer” of an (2) “asset” and was (3) “made . . . with actual intent to hinder, delay, or defraud any creditor of the debtor.  There is no statutory language that supports a requirement that the plaintiff prove damages or actual injury or that the debtor’s remaining assets after the transfer were insufficient to satisfy the debt without undue burden. 

So the timing of the transmutation in this case was not as important as first though.  Whether the transfer is voidable pursuant to the California UVTA is a much more fact based analysis that does not include proving actual harm or damages to void the transfer. 

California Supreme Court Holds Community Property Presumption Wins Versus Recorded Title Presumption

By Ryan C. Wood

I have been writing about the community property presumption versus the recorded title presumption for years now as applicable to filing bankruptcy.  We finally have the law interpreted by the California Supreme Court to put an end to certain arguments.  That is unless the legislature decides to weigh in and change the law that was interpreted.  I would like to thank all of the bankruptcy attorneys that fought for individual rights and the rights of how people chose to take title when purchasing real property during marriage.  Unfortunately I could see the future and knew the community property presumption would win the argument.

The California Supreme Court issued its opinion today in In re Brace. The entire opinion for In re Clifford Brace, Case No. S252473 can be found at:

In re Clifford Brace S252473 Opinion

The California Supreme Court held:

  1. Evidence Code section 662 does not apply when it conflicts with the Family Code section 760 community property presumption.
  2. When a married couple uses community funds to acquire property with joint tenancy title on or after January 1, 1975, the property is presumptively community property under Family Code section 760 in a dispute between the couple and a bankruptcy trustee.
  3. Under Family Code Section 852, joint tenancy titling of property acquired by spouses using community funds on or after January 1, 1985 is not sufficient by itself to transmute community property into separate property.

So that is the trifecta of slamming the door on filing a bankruptcy petition and only listing half the value of the bankruptcy filers real property purchased during marriage and title taken as joint tenants.  I can hear the collective bankruptcy attorney groan for those that care.

UNLESS the community property presumption can be rebutted………… Good luck with that given the notarized, signed and recorded title alone is not enough.  What more is needed? 

I do not like this opinion as it relates to my bankruptcy clients and their ability to discharge their debts under the Federal Bankruptcy Code.  I do believe this decision ultimately helps to do as the California Supreme Court provides on Page 25: “Seeking to curb the risk of fraud, undue influence, and litigation arising from informal agreements between spouses that purported to change the character of property, the Legislature enacted our present-day transmutation statutes.” 

I do believe the intent of this holding is for good; that spouses to be treated equally when it comes to property rights under California Law; which has not always been the case regarding women’s rights to own property and exercise their rights regarding their property.  I am all for equally bad or equally good treatment for all.  What people do not get is that your bad treatment is actually the same for everyone, so it is for all purposes equal.

The opinion by the California Supreme Court assumes you do not know what you are doing when purchasing a house during marriage and taking the title as joint tenants.  There limitless examples of circumstances in life that you must be bound by your choice.  You mark yes on a test and the correct answer is no and that is that.  You got the question wrong.  It is so fair, simple and consistent.  Every time an analysis of the circumstance is interpreted it is a binary result, a “1” or a “0.”  Why is taking title as joint tenants not the same analysis?  Why is it made more complicated?  Why are the purchasers of the property during marriage in California not bound by their chosen taking of title good or bad for them?    

Interpretation of Law Assumes You Do Not Know What You Are Doing  

I will try and keep this a vanilla as possible, but you need to be protected from yourself whether you agree or not.  This is what law does.  It does keep us safe and does a pretty good job doing it.  From having a safe food supply to forcing you to wear a seatbelt the law is keeping you safe and saving you from yourself.

So too is the interpretation of law and the community property presumption versus the recorded title presumption.  If you are married and purchasing the real property with community funds then why would the purchase of the house create two separate property interests?  Community funds were used for the down payment and for the mortgage payments, property taxes, maintenance and insurance so the character of the property naturally has to be community property upon divorce or death.  What about when filing for bankruptcy?

The Community Presumption Can Be Rebutted

This is nothing new.  Personally I think a notarized, signed and recorded deed saying the property is held as joint tenants should all that is necessary to rebut the presumption that the property is community property.  Of course this would be good for the two humans that are married and took title as joint tenants when filing for bankruptcy so naturally that cannot be correct.  What more is needed to rebut the presumption? 

Interpretation of Family Code Section 852 Simply Does Not Exist

Call me crazy but I take a holistic view the interpreting the law and the world.  The way California Family Code Section 852 is interpreted drives me crazy.  I have this issue with all kinds of laws and rules for this type of interpretation.  This is not an issue of which came first, the chicken or the egg?  The issue is condition precedent.  A contract law reference to an event or state of affairs that is required before something else will occur. In contract law, a condition precedent is an event which must occur, unless its non-occurrence is excused, before performance under a contract becomes due, i.e., before any contractual duty exists.

For example here in the Northern District of California the United States Bankruptcy Court has General Order No. 32.  This rule is about how pay statements for the 60 days prior to the bankruptcy case being filed must be turned over to the trustee assigned to the case and not filed with the Court.  General Order No. 32 also provides procedure to be followed if the pay statements cannot be provided and to explain why and estimate the gross income and net income in lieu of providing the actual pay statements.  The condition precedent to General Rule No. 32 being applicable is the existence of W-2 income resulting in the issuance of pay statements.  If a person is not employed or self-employed THERE ARE NO PAY STATEMENTS TO PROVIDE AND NO PAY STATEMENTE EVER EXISTED TO PROVIDE.  No part of General Order No. 32 addresses the nonexistence of pay statements yet over and over again I have various parties telling me we have to provide a declaration providing there are no pay statements to provide pursuant to General Order No. 32.  No, no and no.

The same is true regarding the interpretation of California Family Code Section 852.  There is a condition precedent to transmuting an asset from community property to separate property or separate property to community property.  That condition precedent is the actual temporal existence of the character of the property first then that asset is by writing is characterized as the spouses property in a different way; community or separate.  How can that happen when the real property in question was purchased during marriage and the title was taken as joint tenants?  When was the house ever titled or characterized as community property for it to be then transmuted between spouses as separate property?  IT WAS PURCAHSED AS SEPARATE PROPERTY AS EVIDENCED BY THE NOTARIZED, SIGNED AND RECORDED TITLE.  You say what if down payment for the house was community property to begin?  I say what if the down payment was the separate property of one spouse?  Great, I say trace back where the money came from to purchase the house, but please start with recognizing the notarized, signed and recorded title as the starting point given that really exists in reality.  Do not start with a legal fiction, a presumption created to change reality.  This is also not a divorce.  It is a bankruptcy filing in which only the filing spouses community assets are liable to community debts.    

The California Supreme Court says we do not care what the title says either way given the house was purchased by a married couple during marriage so you all better have some sort of writing to let everyone know how you want this property treated upon divorce, death and the filing of bankruptcy.  Okay, how romantic.  Maybe this is why over 50% of marriages fail.  All marital transactions must be memorialized in writing throughout the marriage to provide evidence of the spouses intent play by play to overcome various presumptions that many married couples have no idea exist until there is a problem.  

CA Family Code Section 852

(a) A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.

(b) A transmutation of real property is not effective as to third parties without notice thereof unless recorded.

(c) This section does not apply to a gift between the spouses of clothing, wearing apparel, jewelry, or other tangible articles of a personal nature that is used solely or principally by the spouse to whom the gift is made and that is not substantial in value taking into account the circumstances of the marriage.

CA Family Code Section 760

Community Property: Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

CA Family Code Section 2581        

For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following:

(a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property.

(b) Proof that the parties have made a written agreement that the property is separate property.

CA Evidence Code Section 662

The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.

California Supreme Court Oral Argument For In re Clifford Brace And The Community Property Presumption Versus Recorded Title Presumption Took Place Today


By Ryan C. Wood

I will be updating this article over the next few days.  So I listened to the oral argument held before the California Supreme Court today regarding California’s community property presumption versus the title presumption in the In Re Clifford Brace case, Case No. S252473.  All of the attorneys did a wonderful job making their arguments and the various judges asked many interesting questions.

I might be playing Monday morning quarterback here and I did not read all of the briefs, but I have read all of the various bankruptcy cases and the In re Marriage of Valli, Super. Ct. No. BD414038, and it seems so clear to me.  So we have California Family Code Section 760 versus California Evidence Code Section 662 with California Family Code Section 2581 tapping in providing unequivocally that California Family Code Section 2581 applies for purpose of division of property on dissolution of marriage or legal separation of the parties. 

The Brace case exists because of bankruptcy and the California Supreme Court is tasked with weighing in on this issue because of bankruptcy.  I simply believe that the law supports that a married couple that acquires real property during marriage in California and takes title as joint tenants have a separate property interest that is 50/50 pursuant to Section 662 and the signed, notarized and recorded joint tenant title is a clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property satisfying California Code Section 2581, even though Section 2581 is only meant to applicable to dissolutions of marriage.  Done.  Life can go on unchanged except bankruptcy attorneys can file a bankruptcy petition that only includes the value of the filing spouses separate property interest or their 50% interest in the real property and not 100%.  Perfect.   

TRANSMUTATION LAWS REALLY SHOULD NOT APPLY AT DEATH OF A JOINT TENANT AND THEY DO NOT.  TRANSMUTATION LAWS SHOULD ALSO NOT APPLY IN A BANKRUPCTY PROCEEDING.  TRANSMUTATION LAWS WERE IN FACT APPLIED IN THE VALLI CASE BECAUSE GUESS WHAT, IT WAS A DISSOLUTION OF MARRIAGE PROCEEDING.

WHEN SOMEONE DIES THEY ARE NOT IN A DIVISION OF PROPERTY ON DISSOLUTION OF MARRIAGE OR LEGAL SEPARATION SO THE SURVING SPOUSE GETS THE ENTIRE PROPERTY BECAUSE LEGAL TITLE WAS HELD AS JOINT TENANTS as recorded when they bought the property and one spouse dies. WHAT THEY CHOSE TO DO.  THIS HAPPENS EVERYDAY.  What is the problem then?  There is none.  No fight here.  Oh by the way, what happens to the debts, credit card debts, in the name and social security number of the spouse that just died?  Nothing happens!!!  There was no probate.  There was no opportunity for a claim to be filed.  Nothing!!  Even though the debt could have been and mostly like was incurred during marriage and presumptively a community debt THERE IS NO LONGER ANY COMMUNITY because the spouse that had the debt in their name and social security number died.  A credit card company may not even know the person that owes them $50,000 and died was even married.  Hypothetically, but this is what happens, the dead spouse’s interest in the $50 million house the spouses held as joint tenants was passed to the surviving spouse and life went on.  That is it.  Done.  Bye, bye creditors of the dead spouse.  This is not what happens in a dissolution or divorce of course because guess what?  Section 2581 and other presumptions are applicable.        

WHEN SOMEONE FILES FOR BANKRUPTCY THEY ARE NOT IN A DIVISION OF PROPERTY ON DISSOLUTION OF MARRIAGE OR LEGAL SEPARATION OF THE PARTIES OR HYPOTHETICAL DEATH, SO IF ONLY ONE SPOUSE FILES FOR BANKRUPTCY PROTECTION ONLY THE FILING SPOUSE’S SEPARATE PROPERTY AND ALL COMMUNITY PROPERTY ARE LISTED AS ASSETS SUBJECT TO ADMINISTRATION OR BECOME PART OF THE BANKRUPTCY ESTATE. 

Oh, here is the problem.  We cannot have poor people seeking the relief the Bankruptcy Code provides discharging debt and moving on with life hopefully happier and healthier.  We have to list the 100% value of their joint tenant titled property even if only one spouse files bankruptcy  and should by law only have to list the 50% separate property interest.  If a father and daughter hold title as joint tenants to real property on the party that files for bankruptcy has to list their 50% interest in the real property. 

So now we are back to the California Family Code presumptions screwing things up.

This is big bucks for mindless, heartless and never dying corporations.  It is also big bucks potentially for chapter 7 and chapter 13 trustee’s; potentially.  If only 50% of the equity in a piece of real property need be listed in a bankruptcy case then it is more likely bankruptcy attorneys will be able to exempt/or protect that equity thereby allowing the bankruptcy filer to file chapter 7 and discharge all of their debts or pay less back in a chapter 13 reorganization case.  Right now in chapter 7 cases we cannot list only 50% of the equity or the filing spouse’s separate property interest in the real property for fear of the property will be sold or liquidate by the chapter 7 trustee.  My clients cannot pay me to fight this battle given they are bankrupt and the interpretation of the law has not been favorable.         

I will make this simple for everyone to understand.  A lot of time, effort and money has been spent to convince many judges, federal and state, that the sky is purple when they can simply look at the sky and know it is blue.  Just take the plain and not ambiguous signed, notarized and filed title as your guide.  So simple with no need to spend millions of dollars to get a result that is inconsistent with common practice and knowledge and only to be applied when seeking bankruptcy protection.  That is why this issue has dragged on so long.  It has dragged on so long because holding a married couple has a separate property interest in real property acquired during marriage with title recorded as joint tenants is right but financially bad for multi-billion dollar corporations.  So here we are.  That fact that this issue has not been resolved for so long is a red flag.  It takes longer and much more money to turn the sky purple to simply look up at the clear blue sky.  So we have been faced with the never ending challenge of turning the sky purple and it has never been closer it seems.    

The sky is the legal document recorded with the county recorder’s office providing the married couples intent, clear and convincing evidence of their intent, regarding how they want a piece of acquired during marriage treated.  The recorded title is a signed, notarized and then filed legal document that is admissible as evidence to rebut any presumption; such as the community property presumption. 

THIS IS THE DIFFERENCE BETWEEN THE VALLI CASE AND WHAT IN RE CLIFFORD BRACE STANDS FOR.  IN VALLI THE STUPID INSURANCE POLICY FOR HIS SPOUSE DID NOT INCLUDE A DOCUMENT SIGNED, NOTORAZIED AND FILED WITH THE GOVERNMENT TO REBUT THE REPRESUMPTION OF THE INSURANCE POLICY BEING COMMUNITY PROPERTY IN A DIVORCE PROCEEDING.  A PIECE OF REAL PROPERTY ON THE OTHER HAND DOES, AND HAS A RECORDED TITLE PURSUANT TO THE EVIDENCE CODE 662, A STATUTE; AND CONSISTENT WITH MEETING THE REQUIREMENTS OF 2581 IF WE MUST. 

CA Family Code Section 760

Community Property: Except as otherwise provided by statute, all property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

CA Family Code Section 2581        

For the purpose of division of property on dissolution of marriage or legal separation of the parties, property acquired by the parties during marriage in joint form, including property held in tenancy in common, joint tenancy, or tenancy by the entirety, or as community property, is presumed to be community property. This presumption is a presumption affecting the burden of proof and may be rebutted by either of the following:

(a) A clear statement in the deed or other documentary evidence of title by which the property is acquired that the property is separate property and not community property.

(b) Proof that the parties have made a written agreement that the property is separate property.

CA Evidence Code Section 662

The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.

CARES Act: Bankruptcy Cases and Coronavirus COVID-19

By Ryan C. Wood

The CARES Act does provide some relief or changes for bankruptcy filers and potential bankruptcy filers due to the Coronavirus COVID-19. I will modify this article when official changes to the Bankruptcy Code are published by the authorities that regulate these changes. That said I know the information below will be helpful to provide you with some insight and peace of mind.  Section 1329 of the Bankruptcy Code already provides the terms of your confirmed and approved chapter 13 plan can be changed based upon a change in circumstances.  Depending upon your circumstances that exist already, your confirmed chapter 13 plan, how your potential modification will actually help will vary widely.  Just know there are procedures that exist to help you if you are unfortunately financially negatively affected by the Coronavirus COVID-19.  Now keep reading for information that should apply to you.

You may also watch my YouTube Video about Bankruptcy and Changes From CARES Act Due To The Coronavirus COVID-19

First If You Can Continue Your Chapter 13 Plan Payments Do So

If you are in an active chapter 13 bankruptcy case you are supposed to continue to make your chapter 13 plan payments even with the shelter in place orders and the coronavirus and COVID-19.   If your chapter 13 plan is not confirmed or approved yet you still need to continue to pay the monthly chapter 13 plan payment even though it is not yet confirmed or approved.  If you cannot continue to pay the monthly chapter 13 plan payment read about the options that are available to help.  If and when your chapter 13 plan is amended or modified will be when you can pay the new chapter 13 plan payments each month based upon those changes.  This may not be possible given your current financial situation and of course you must pay for food and other necessary expenses to just live. 

If You Do Not Pay the Chapter 13 Plan Payment

If you just cannot pay the monthly chapter 13 plan payment you are in default as to the confirmed chapter 13 and the case is subject to dismissal. Normally the chapter 13 trustee will file a motion to dismiss the case for nonpayment. Once the motion to dismiss the case is filed you will have time and options to save the case such as modifying the terms of the confirmed plan. Hopefully chapter 13 trustee’s will be more lenient with missed plan payments given the current circumstances and significant financial turmoil outside of everyone’s control. We shall see. 

If Your Chapter 13 Plan is not Yet Confirmed or Approved

You will need to amend your chapter 13 plan based upon your change in financial circumstances due to the Coronavirus COVID-19.  The CARES Act does not provide for an extension of the term of how many years a plan can exist for cases that do not yet have a confirmed approved chapter 13 plan. The plan filed in the chapter 13 case may no longer be feasible given the your change in financial circumstances. You will need to amend the plan or explore other options.     

Chapter 13 Plan Modification Pursuant to Section 1329 of the Bankruptcy Code

If your chapter 13 plan is confirmed or approved Section 1329 of the Bankruptcy Code allows for the modification or change of the terms of your confirmed chapter 13 plan.  The CARES Act provides changes to modification under Section 1329 of the Bankruptcy Code.  It is early so what is provided here may change or be different depending upon the procedures put in place in your jurisdiction.  Normally a chapter 13 plan can only be a maxiumum 60 months or five years.  The CARES provides a confirmed chapter 13 plan may not provide for payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.  I read this as confirmed chapter 13 plans can now be extended past the 60 month or 5 year limitation that previously existed.  The means that your plan payments can be spread out over an additional 2 years therefore resulting in a reduction of the monthly plan payment that existed before.  This will be applicable to cases filed before, on, or after the date of enactment of the CARES Act.  This is good news and we shall see have this goes in the real world. See the end of this article for the actual language of the CARES Act.

A motion must be filed and a hearing held before the Court and in most jurisdictions a new plan will be proposed based upon your changed circumstances.  An amended Schedule I and J regarding your income and expenses will most likely have to be filed too.  Plan modification is normally an additional cost to pay your bankruptcy attorney for the additional time and money they must expend on your behalf.  You will need to review the rules in your local jurisdiction regarding this and costs will vary.  What relief or changes are available to you will depend upon why you filed the chapter 13 case to begin with.  Was the case filed to pay back missed mortgage payments?  Did you have to file a chapter 13 based upon your income and expenses and not the value of your assets?  Did you file a chapter 13 case to protect assets that could not be exempted or protected in a chapter 7 liquidation case?  Your obligations to creditors based upon the Bankruptcy Code will continue to be the same while your ability to meet those obligations has changed due to the Coronavirus COVID-19.  You must contact your bankruptcy attorney for more information about how your specific change in circumstances will modify your confirmed chapter 13 plan or chapter 13 bankruptcy case.   

Chapter 13 Hardship Discharge

The Bankruptcy Code also provides for an early entry of an order of discharge in your existing chapter 13 case. Depending upon your circumstances you may be eligible to seek this relief. Section of 1328(b) the Bankruptcy Code provides you may request a hardship discharge if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Again a motion must be filed with the Court and a hearing held. Other information by declaration will need to be provided evidencing the hardship, how it was outside your control and that modification of the existing chapter 13 plan is not possible. For many chapter 13 cases this will not be possible given the reason the chapter 13 case was filed to begin with such as paying back missed mortgage payments or not dischargeable taxes. Just know this is another potential procedure that currently exists to help you given these challenging times. I will be filing motions for request for entry of a hardship discharge for a few clients as it stands given they have been irreparably financially harmed directly due to the Coronavirus COVID-19 response.

Income Received From Coronavirus COVID-19

The CARES Act also excludes any income derived from Coronavirus COVID relief from your monthly income or income calculation.  Relief will vary widely depending upon your income and circumstances but the idea is these one-time increases or payments should not be included in your income calculation to negatively affect or artificially increase your income given the relief will most likely not continue for the entire life of your bankruptcy case. 

Small Business Reform Act of 2019 Debtor Changes and CARES Act

The debt limitation to be a debtor under the Small Business Reform Act of 2019 have been increased from the original limit of $ The small business chapter 11 debtor new laws just took effect and the CARES Act provides a significant change.  These are new laws for specifically a person engaged in commercial or business activities that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of petition or the date of the order for relief (date case is filed) in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor (bankruptcy filer).

Section 1113 Bankruptcy

(b) Bankruptcy Relief

(b)(1)(C) Confirmation of Plan

A plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if – (A) the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic; and (B) the modification is approved after notice and a hearing (2) a plan modified under paragraph (1) may not provide for payments over a period that expires more than 7 years after the first payment under the original confirmed plan was due.

How is Material Defined or What Is Material?

Section 101 of the Bankruptcy Code does not defined the term material. We will have to look to cases for some guidance. “A fact is material if it bears a relationship to the debtor’s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor’s property.” Retz, 606 F.3d at 1198 (quoting Khalil, 379 B.R. at 173). Roberts v. Erhard (In re Roberts),331 B.R. 876, 882 (9th Cir. BAP 2005) (citing In re Wills, 243 B.R. at 62) Somewhat helpful.

More helpful. “A fact is ‘material’ only if it might affect the outcome of the case, and a dispute is ‘genuine’ only if a reasonable trier of fact could resolve the issue in the non-movant’s favor.” Fresno Motors, LLC, 771 F.3d at 1125 (citing Cty. of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001) and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986))