Depending Upon Your Circumstances Your Tax Refund Can Be Protected When Filing for Bankruptcy

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It is that time of year again. It is time to get your income documents together and figure out how much you owe to the government or how much of a refund you will receive. If you receive a tax refund each year from the Internal Revenue Service or the Franchise Tax Board it can be protected when filing for bankruptcy whether your file a Chapter 7 or Chapter 13 bankruptcy case.

When filing for bankruptcy protection the bankruptcy estate includes all legal or equitable interests in property. See Section 541(a)(1) of the Bankruptcy Code. Just because you have not received the tax refund yet does not mean it is not an asset of yours that should be listed in your bankruptcy petition in the schedule of assets, Schedule B. Whether you can protect the refund depends upon your other assets and the exemptions available to protect your assets. Exemptions protect your assets by exemption or removing your assets from the bankruptcy estate so that you can keep your assets to live life and continue to go to work and live. For example, California has a generous wild card exemption worth $26,925.00. This exemption can be applied to any combination of assets like bank account balances, tax refunds, high value household goods, vehicles or any other asset. Most state’s exemptions provide a limited amount for vehicles. If you have more than one paid in full vehicle in California you will most likely have to use some of the wild card exemption to protect both vehicles and remove them from the bankruptcy estate. So let us look at some numbers. If you have $12,000 in your bank accounts, a second vehicle that is paid in full and worth $7,500, a television worth $2,000 (just bought it on Black Friday), and an anticipated tax refund from the IRS and FTB of $5,300 you will max out the wild card exemption mentioned above. All of the assets just listed above will be exempted/protected/removed from the bankruptcy estate and you should keep all of it while still filing for bankruptcy protection. Different states have different limits to protect assets. So your state may not have as generous of exemptions. The bottom line is for your tax refund to be protected/exempted it should be listed in Schedule B and exempted by an applicable bankruptcy exemption so that you can keep the tax refund when you receive it.

Make sure you protect and keep your tax refund when filing bankruptcy.

Make sure you protect and keep your tax refund when filing bankruptcy.


In re Brittany Le’von Miller; Tax Refunds and Abandonment of Estate Property

Tax refund issues were just highlighted in a recent unpublished United States Bankruptcy Appellate Panel of the Ninth Circuit case, Case No. AZ-13-1307-JuKiD, In re Brittany Le’von Miller. For starters the debtor in this case filed her bankruptcy petition in August 2012, on October 25, 2012 the Chapter 7 trustee filed the notice of no distribution, debtor received her discharge and the case was closed and on May 9, 2013, over six months after filing the notice of no distribution, the Chapter 7 Trustee received the debtor’s tax refund totaling $3,259.00 directly from the Internal Revenue Service.

In this case the debtor in her originally filed schedules listed her expected tax refund in Schedule B with a value of “unknown.” The Chapter 7 trustee subsequently filed their notice of no distribution and the Chapter 7 case was discharged and closed. The notice of no distribution provides some case details and it says there are no assets to distribute for the benefit of creditors in the case. After the deadline for creditors to object to the discharge of the debtor’s debts has run out the bankruptcy court will sign the order of discharge and the Chapter 7 case is closed. When the case is closed Section 554(c) says all property is abandoned to the debtor. This is what happened in this case, but then the Chapter 7 trustee received the debtor’s 2012 totaling $3,259.00 refund directly from the Internal Revenue Service. Before going further, there is a question that is unanswered and unexplained. Why did the Internal Revenue Service send the debtor’s 2012 tax refund to the Chapter 7 trustee at all?

After the Chapter 7 Trustee received the 2012 tax refund the trustee immediately tried to reopen the Chapter 7 case and revoke/withdraw the notice of no distribution of assets. The debtors bankruptcy attorney argued the tax refund was abandoned upon the closing of the bankruptcy case. The trustee argued that Section 544(d) applied or inadvertent mistake as to filing the notice of no distribution. Apparently the bankruptcy court granted the Chapter 7 trustee’s motion and the debtor appealed. For an asset to be abandoned under Section 554(c) four requirements must be met: (1) the tax refund must have been properly scheduled; and (2) not administered by the trustee; (3) debtor’s case must close; and (4) abandonment is to the debtor. See DeVore v. Marshack (In re DeVore), 223 B.R. 193, 197 (9th Cir. BAP 1998). The court also recognized in Devore that the court has discretion to modify or revoke and technical abandonment under Section 554(c).

In the this particular case the Ninth Circuit Bankruptcy Appellate Panel held that the bankruptcy court needed to make findings of fact and law that could be reviewed and not just make a ruling with no explanation as to how it was arrived at. That did not happen, so this issue was remanded back to the original bankruptcy court for further findings. Time will tell what the outcome will ultimately be.

What Could The Debtor Have Done Differently?

The debtor arguably could have listed an estimated value of the tax refund. Would this have prevented the resulting problems from arising? Who knows, but at least the Chapter 7 trustee would have had a number to work with and evaluate the if creditors could be benefited. The debtor’s filed Schedule C clearly provided only 60% of her expected 2012 tax refund could be protected.

What Could The Chapter 7 Trustee Have Done Differently?

The Chapter 7 Trustee could have continued the 341 meeting of the creditors for the debtor to amend the Schedule B and actually list a value of the expected 2012 tax refund. It is unclear whether the Chapter 7 trustee questioned the debtor at the 341 meeting of the creditors as to potential value of the expected 2012 tax refund. Also, the Chapter 7 trustee could have not filed the notice of no distribution and held the case open until the amount of the 2012 tax refund was known and certain.

Possible Benefit to Creditors of the Bankruptcy Estate?

For some additional perspective, the amount of the 2012 tax refund that is not protected and available to administer by the Chapter 7 trustee is a total of $1,303.60 (40% of the 2012 refund totaling $3,259.00), of which the Chapter 7 trustee is entitled to $325.90 (25% of the $1,303.60, of the unprotected assets to be distributed for the benefit of the debtor’s creditors). So without deducting additional administrative costs, like postage for example, the debtor’s creditors in this Chapter 7 case could potentially share a pro-rata distribution of around $977.70. That is if the bankruptcy court allows the case to be reopened and the revoking of the Chapter 7 trustee’s notice of no distribution. Time will tell.

Is it Okay to File Multiple Bankruptcy Petitions Over and Over Again and What are the Possible Repercussions?

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I found the all-time record holder for the most bankruptcy petitions filed I have ever witnessed. I have redacted the person’s name even though it is technically a public record. This individual has filed 14 Chapter 13 bankruptcy petitions and 1 Chapter 7 petition since 2009. Yes, 15 total separate bankruptcy petitions for relief and they all have been dismissed for one reason or another except the most recent filing. Please see the cases and dates filed at the end of this article. I cannot think of a reason why someone would file this many petitions for relief and actually obtain some sort of value for it. So is it okay to file 15 petitions for relief in five years under the Bankruptcy Code? I cannot specifically answer that question for this person given I do not know the bankruptcy filers circumstances or facts surrounding the many filings. What I do know is this person may have spent a lot of money on filing fees (possibly exceeding $4,000.00, unless a fee waiver or installment payment was made for the filing fee) and used a lot of the Chapter 13 trustee and courts time to administer these cases before dismissal. This article will discuss the effect on the automatic stay regarding multiple bankruptcy filings and the possible repercussions against someone that files this many petitions for relief in such a short period of time.

Multiple Filings and the Automatic Stay

One of the most powerful bars to filing multiple bankruptcy petitions is the limitations of the automatic stay past the first case that is filed. In the first bankruptcy case filed the debtor will get an unlimited automatic stay stopping any and all collection activity as to all creditors. If the same debtor files another case within a year of the first case and the first case was dismissed due to not filing the required paperwork, not paying the fees on time, not showing up for the mandatory meeting of creditors and other reasons, then the automatic stay only lasts for 30 days. If the same debtor files a third case within a year of the first two cases then there is no automatic stay at all. In the second filed case the automatic stay can be extended past the 30 days if an order extending the stay is entered prior to the 30 day stay expiring. In the third case the automatic stay can be imposed by filing a motion with the bankruptcy court.

Possible Repercussions for Filing Multiple Bankruptcy Petitions – Vexatious Litigants

Section 109(g) of the Bankruptcy Code provides: (g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if— (1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or (2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.

I mostly practice bankruptcy law in the Northern District of California. We actually have a published opinion on this subject. In re Walker, No. C-98-20966-JW. In the Walker case the debtors filed ten petitions total. Their ninth bankruptcy case was dismissed with prejudice and the Bankruptcy Judge, the Honorable James R. Grube, barred the Walkers from filing another petition for 180 days and seeking a discharge of their existing debts for two years. Judge Grube also did not continue a hearing to dismiss with the case with prejudice so the Walkers could retain counsel. The Walkers appealed and lost.

In the Walkers’ case they testified that they filed three of the cases to stop the garnishment of Mrs. Walker’s wages. The rest of the cases appear to have been filed to stop the collection of utilities by the City of Santa Clara and not make pre/post-petition mortgage payments on their home. Focusing on the ninth bankruptcy petition filed, this case was dismissed for the Walkers’ failure to complete the petition schedules and they also did not appear at the 341 Meeting of the Creditors.

So what is a willful failure to abide by the bankruptcy courts order under Section 109(g)? Unfortunately the Bankruptcy Code does not define the word or term willful. Courts have interpreted “willful” to mean deliberate or intentional. In re Herrera, 194 B.R. 178, 188 (N.D. Ill 1996). To determine is willful conduct took place a court can consider repeated failure to appear or lack of diligence as willful conduct. A court can infer from multiple dismissals and re-filing of bankruptcy petitions without a change in circumstances willful failure to comply with order of the bankruptcy court. In re Nelkovski, 46 B.R. 542, 545 (N.D.Ill. 1985).

In the Walker case the debtors filed nine petitions for relief and never completed the petitions or fully prosecuted the cases. Interestingly enough, there is no absolute bar against filing nine successive bankruptcy petitions or serial filings. Tsafaroff v. Taylor, 884 F.2d 478 (9th Cir. 1989). On appeal the Court agreed with Judge Grube and affirmed the dismissal for the Walkers’ repeated willful failures to follow the Court’s orders under Section 109(g)(1).

Dismissal of the Walkers’ Case With Prejudice

Section 349 of the Bankruptcy Code provides (a) unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title. So there you go. A court can for cause bar a debtor from filing an additional bankruptcy for a period of time or seeking a discharge of their debts listed in the dismissed case. In re Leavitt, 209 B.R. 935 (9th Cir. 1997). In order to have cause, the debtors conduct must have been “egregious;” a finding of bad faith constitutes egregious behavior. Leavitt 209 B.R. at 939. A Bankruptcy Court may dismiss a case with prejudice in order “to punish abusive or bad faith filing.” In re Leavitt, 209 B.R. at 939.

In evaluating a debtor’s history of filings and dismissals, it is useful to consider five factors: “(1) the time between the prior case and the present one; (2) whether the second case was filed to obtain the favorable treatment afforded by the automatic stay; (3) the effort made to comply with the prior case plan; (4) the fact that Congress intended the debtor to achieve its goals in a single case; (5) any other facts the court finds relevant.” In re Hureta, 137 B.R. 356, 367 (B.R. CD Cal.1992).

In the Walker appeal the court noted that the Walkers filed case after case over a six year period with nine of the petition within a four year period and the petition subject to appeal was filed only 24 days after the previous bankruptcy petition was dismissed. On appeal the court noted that the Walkers petitions were dismissed as follows: 3 for failure to appear at the meeting of creditors or appearing at a hearing regarding the chapter 13 plan; 3 were dismissed for failure to appear the 341 meeting of creditors; 1 for failure to make the Chapter 13 Plan payments; and for failure to comply with court orders to file appropriate papers and confirm chapter 13 plans. The
Walkers were determined to have filed the ninth bankruptcy petition in bad faith and were abusing the bankruptcy process.

Vexatious Litigant Determination

A little known area of the law is the All Writs Act, 28 U.S.C. Section 1651(a). Section 1651(a) provides: The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

I suppose this is the like the necessary and proper clause of Article I, Section 8 of the United States Constitution or Section 105(a) of the Bankruptcy Code. They potentially can allow the entity they refer to make any law, order or holding that is deemed proper. 28 U.S.C. Section 1651(a) is no different. It has been determined that Section 1651(a) allows the district court to enjoin litigants that abuse the court system. Tripati v. Beaman, 878 F.2d 351 (10th Cir. 1989); In re Oliver, 682 F.2d 443, 445 (3rd Cir. 1982). However, the conditions cannot be so burdensome as to deny a litigant meaningful access to the courts. Tripati, 878 F.2d at 352.

So the Walkers filing nine bankruptcy petitions in four years was an abuse and the number of dismissals for failure to prosecute the cases provides evidence and supports the conclusion that the Walkers’ were abusing the bankruptcy court system. There are six factors the court identified to help determine if a debtor is a vexatious litigant:
(1) the litigant’s history of litigation and in particular whether it entailed vexatious, harassing or duplicative lawsuits;
(2) the litigant’s motive in pursuing the litigation;
(3) whether the litigant is represented by counsel;
(4) whether the litigant has caused needless expense to other parties . . . or has posed an unnecessary burden on the courts and their personnel; and
(5) whether other sanctions would be adequate to protect the courts and other parties.

The ultimate consideration is “whether the litigant who has a history of vexatious litigation is likely to continue to abuse the judicial process . . . “ See Safir v. United States Lines, Inc., et. al., 792 F.2d 19, 23 (2nd Cir. 1986). The court of appeal wasted no time in determining the Walkers were in fact vexatious litigants and their access to filing more petitions should be restricted by applying the factors listed above. The Walkers’ petitions were duplicative, failed to prosecute all nine cases, they were not represented by counsel, caused needless expense to creditors and burdened the courts. Finally the court determined if the Walkers’ access was not restricted they would continue to file bankruptcy petitions. So the court of appeals ordered the Walkers be limited as follows: (1) the Walkers have to notify the clerk of the Bankruptcy Court if they desire to file a petition and they are vexatious litigants; (2) before the Walkers can file a petition the clerk shall lodge it with the General Duty Bankruptcy Judge and be granted leave to file; (3) once the petition is accepted for filing, the Walkers must obtain leave of the Bankruptcy Court to voluntarily dismiss the petition and (4) the order will remain in effect for 10 years without further order of the court.

So, 15 petitions filed since 2009 and the debtor listed below is still going strong. An interesting part of the history below is the time between the filing of the petitions. The debtors 13th case was dismissed in 2012, then the debtor comes back and files two cases in 2014, the 14th and 15th cases. So without spending too much time the debtor listed below has intermittently fallen within Section 109(g) and arguably depending upon the facts is not a vexatious litigant given the length of time between some of the filings. The debtor also properly received the benefit of the automatic stay in a number of the cases given the timing of filing. The bottom line is this debtor has not been barred from continuing to file bankruptcy petitions and there is probably a good reason why.
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“Notice of Debtor’s Prior Filings for debtor XXXX XX Case Number 09-61041, Chapter 13 filed in California Northern Bankruptcy Court on 12/17/2009 , Dismissed for Failure to File Information on 01/06/2010; Case Number 11-58863, Chapter 13 filed in California Northern Bankruptcy Court on 09/23/2011 , Dismissed for Failure to File Information on 10/14/2011; Case Number 11-60087, Chapter 13 filed in California Northern Bankruptcy Court on 10/31/2011 , Dismissed for Other Reason on 11/16/2011; Case Number 14-54381, Chapter 13 filed in California Northern Bankruptcy Court on 10/28/2014; Case Number 09-59783, Chapter 13 filed in California Northern Bankruptcy Court on 11/09/2009 , Dismissed for Failure to File Information on 12/01/2009; Case Number 10-54170, Chapter 7 filed in California Northern Bankruptcy Court on 04/23/2010 , Dismissed for Failure to File Information on 06/08/2010; Case Number 10-59424, Chapter 13 filed in California Northern Bankruptcy Court on 09/10/2010 , Dismissed for Failure to File Information on 09/29/2010; Case Number 11-56990, Chapter 13 filed in California Northern Bankruptcy Court on 07/27/2011 , Dismissed for Failure to File Information on 08/12/2011; Case Number 10-57982, Chapter 13 filed in California Northern Bankruptcy Court on 08/02/2010 , Dismissed for Failure to File Information on 08/18/2010; Case Number 11-54700, Chapter 13 filed in California Northern Bankruptcy Court on 05/17/2011 , Dismissed for Failure to File Information on 06/02/2011; Case Number 12-50023, Chapter 13 filed in California Northern Bankruptcy Court on 01/03/2012 , Dismissed for Other Reason on 01/19/2012; Case Number 10-52271, Chapter 13 filed in California Northern Bankruptcy Court on 03/09/2010 , Dismissed for Failure to File Information on 03/24/2010; Case Number 11-55983, Chapter 13 filed in California Northern Bankruptcy Court on 06/27/2011 , Dismissed for Failure to File Information on 07/13/2011; Case Number 10-56584, Chapter 13 filed in California Northern Bankruptcy Court on 06/25/2010 , Dismissed for Failure to File Information on 07/14/2010.(Admin) (Entered: 11/26/2014)”

Should the Federal Government Sell Assets to Pay Off the National Debt?

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As of the writing of this article our national debt is approximately $17.94 trillion dollars. This number does not include debt owed by states, counties or municipalities that have issued bonds year after year to pay for local and state programs. Scared yet? The national debt owed by the federal government only is approximately $56,600 per person living in the United States assuming there are about 317 million people living in the United States. Did you know you owed that much debt? Of course not all of the 317 million people living in the United States pays taxes though, so each taxpayer owes about $65,500 when taking into account the more than 43 million Americans that do not pay any taxes; and the number is rising. The point here is to compare the United States federal government to a business or individual that carries a large amount of debt as compared to its yearly income, expenses and assets to try and answer the question, “Should the government sell assets to pay off the national debt?”

Should the Federal Government Sell Assets to Pay Off the National Debt?

Should the Federal Government Sell Assets to Pay Off the National Debt?

Is the United States in danger of defaulting on its debt?

The answer is a most decidedly no. There is always other people’s money (taxpayers) to pay taxes to increase tax revenue. Anyone who believes the United States is in danger of default is mistaken. But how much debt does our government have as compared to income? For starters we need to look at the gross domestic product (GDP) and not the gross national product. It is my opinion that the gross domestic product is more comparable to our daily life and how we earn money and spend it. Think of the GDP for the United States as your yearly income for your household. The United States Department of Commerce estimates the GDP for 2014 is about $17.40 trillion. So we as a nation have $17.94 trillion in debt and bring in $17.40 trillion in income each year. Do you believe an individual living in the United States can make monthly payments on $17,000 in debts while earning only $17,000 a year? I can tell you absolutely no. So our national debt is now as of 2014 a little over 100% of the GDP. For a comparison, according to TradingEconomics.com, in 2008 our national debt was 64% of the GDP. In comparison then, in 2008 our example person earning $17,000 a year only had about $10,800 in total debts. It still seems high, but more manageable? The main difference between our government and the person earning $17,000 a year is the government can just borrow money indefinitely as Congress raises the debt limits. An individual at some point will not be extended any more credit and if their income does not increase it is only a matter of time before they are choosing whether to eat or pay monthly debt payments. Also as our national economy grows our government should be able to continue to make the payments for the national debt. The problem is the amount of interest we pay as taxpayers is eating into the taxes that should be spent to maintain and improve our national infrastructure and services to taxpayers. The deferred maintenance that is obvious across our country is a staggering amount of money. We as a nation are seemingly just treading water. How long until we drown?

Can the federal government sell assets?

Absolutely yes. The best example that may hit home for you is when the government closed many military bases across the United States in the 1990’s. More or less any land or asset that is determined to be not needed by the government or better suited for private use can be offered for sale to private entities. You may also have read about government auctions of government assets and are considered surplus in your local paper or on the internet. There are of course laws against selling land or asets to certain organizations that may threaten national security. The unfortunate events of 9/11 have made the laws even more restrictive. It is possible to sell U.S. owned assets and there seems to be little time spent determining what public assets are suitable for private use to raise money to ease the burden on taxpayers by paying down the national debt.

How do individual and businesses evaluate and treat their assets?

As a bankruptcy attorney, I have probably been personally involved in over 2,000 bankruptcy cases as either the attorney of record, helped administer the bankruptcy case or supervised the attorney of record that filed the case. I can tell you individuals and businesses are on top of how they use their assets. Most people and businesses that file for bankruptcy protection have already liquidated their assets that have any value. That includes jewelry, household goods, supplies, inventory and even their clothing. Some are successful in paying off enough of their debts to reduce the monthly payments so that bankruptcy is no longer needed, but many unfortunately are just giving up assets that can be protected. Many of our clients before seeking the advice of a bankruptcy lawyer have taken early withdrawals from their retirement accounts to try and pay their monthly expenses without paying the penalties for the early withdrawal. At the end of the year they have a tax bill that they cannot afford to pay the government and less or no money for retirement left. Is our government doing everything possible to maximize the use of public assets to reduce the national debt and reduce the monthly payment and consequently the interest payments taxpayers have to shoulder year after year?

What is the value of our federal government’s assets?

The easy answer is a lot more than you think. According to Business.time.com and author Christopher Matthews, our federal government has over eight times our national debt in assets.
• More than 900,000 separate real assets covering more than 3 billion sq. ft.
• Mineral rights, on and offshore, covering 2.515 billion acres of land, more than the total surface land in Canada
• 45,190 underutilized buildings, the operating costs of which are $1.66 billion annually
• Oil and gas resources on and offshore worth $128 trillion, roughly eight times the national debt of the country

So let us again compare our example person making $17,000 a year with $17,000 in debts. Our example person now has about $136,000 in assets at their disposal. What a difference that makes in evaluating the financial health of our example person. By any account they are doing well financially even though their debt to income ratio is not very good. How long do you think it would take our example person to sell $17,000 worth of assets to pay off their debts and be left with $119,000 in assets and a yearly income of $17,000? I cannot think of an individual or business that would not wipe out their debts in a brushstroke if they had eight times the amount of their debts in assets.

So should the federal government sell off assets to pay off the national debt? Yes, that would be nice, but who has $17 trillion to buy the assets?

https://www.cbo.gov/publication/49450 (Budget Deficit)
http://business.time.com/2013/02/05/the-federal-governments-128-trillion-stockpile-the-answer-to-our-debt-problems/ (Federal Government Assets)
http://taxfoundation.org/article/number-americans-paying-zero-federal-income-tax-grows-434-million (Number of Americans Paying Zero Income Tax)
https://www.cia.gov/library/publications/the-world-factbook/fields/2186.html (Public debt (% of GDP)
http://www.tradingeconomics.com/united-states/government-debt-to-gdp (GDP compared to National Debt)

How Can Filing Bankruptcy Help Me Pay Less on My Vehicle Loan?

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If you did not get a very good deal when purchasing a new or used car and the loan is destroying your finances each month there is light at the end of the tunnel. In Chapter 7 you can redeem the vehicle for its fair market value pursuant to Section 722 of the Bankruptcy Code (I cannot recommend this though, see why below). In Chapter 13 you can “cram down” the loan to the fair market value and reduce the percentage rate if you purchased the vehicle at least 910 days prior to filing for Chapter 13 bankruptcy.

Yes, filing Chapter 13  or Chapter 7 can reduce what you owe on your vehicle loan.

Yes, filing Chapter 13 or Chapter 7 can reduce what you owe on your vehicle loan.

Law Change in 2005 for Chapter 13 Cases and “Cram Down” of Vehicle Loans

Prior to 2005 the requirement that the purchase date of the vehicle be 910 days prior to filing of the Chapter 13 bankruptcy case did not exist. Today they say a car loan is either a 910 loan or not. We will assume you did purchase your vehicle 910 days ago and you are thinking about filing for bankruptcy.

How A Chapter 13 Bankruptcy “Cram Down” Works

As time goes by usually most vehicles are worth less than what is owed on the loan. The worse the loan or higher the percentage rate the more likely the difference between what is owed and what the vehicle is worth is larger. Under these circumstances you can save more money by filing a Chapter 13 bankruptcy and reorganize the vehicle loan. I will use a Mercury Grand Marquis as an example given that Forbes.com (http://www.forbes.com/2010/10/27/cars-resale-value-lifestyle-vehicles-depreciation-residual-used_slide_6.html) claims this car is one of worst investments you can make. After 60 months the Mercury Grand Marquis loses 87% of its value.

You purchased a 2012 Mercury Grand Marquis for $30,285.00 with a loan with a percentage rate of 12.5% and a $1,500 cash down payment and a 60 month term. The monthly payment is $647.60. After 910 days (2.52 years) the 2012 Mercury Grand Marquis is only worth $8,782.65 according to Forbes.com and you still owe $19,411.80. When filing for Chapter 13 bankruptcy you will only have to pay the fair market value of $8,782.65 at approximately 4.5%. You will save approximately $9,587.40 by filing a Chapter 13 bankruptcy case. As most experienced bankruptcy attorneys know car loan companies and banks usually object the value of the vehicle you propose in the Chapter 13 Plan. This is normal. It is in their interest to always argue the value is higher and your interest to argue the vehicle value is lower. The value is also the retail value more or less also. If you use the private party value or some other value you will off the mark.

How to Value a Car When Attempting to “Cram Down” the Value

First the date of the valuation should be the date the petition is filed pursuant to Bankruptcy Code Section 506(a)(2). Section 506(a)(2) further provides the value of personal property shall be determined based on the “replacement value of such property as of the date of the filing of the petition.” In addition, if the property was obtained for personal use the Bankruptcy Code further defines “replacement value” as the “price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.” A good case about valuing a vehicle is In re Morales, 387 B.R. 36, 45 (Bankr. C.D. Cal. 2008). Most courts will start with the Kelley Blue Book or N.A.D.A. Guide retail value for a like vehicle taking into consideration evidence present regarding he condition of the vehicle. KBB and N.A.D.A are suggested values only. So the KBB or N.A.D.A. value must be adjusted for the condition of the vehicle and must reflect that the KBB or N.A.D.A. value is the asking price, not the final price. Few to no cars are ever sold at the asking price by dealers in a retail setting.

So after all that if the value of the vehicle is low enough and the amount due on the vehicle loan is high enough to save you money on the vehicle loan filing a Chapter 13 case to reduce how much you pay for the car should be successful and in your best financial interest. Your bankruptcy attorney will have fees and costs for filing the Chapter 13 case though. So that needs to be taken into account also. There will most likely be other benefits to you filing for a Chapter 13 Bankruptcy also like discharging your credit card debt or unpaid taxes.

Chapter 7 is Different: The Car is Redeemed Under Section 722

In a Chapter 7 bankruptcy case you can also reduce the amount you pay for a vehicle loan pursuant to Section 722 of the Bankruptcy Code by redeeming the vehicle for its market value. The valuation of the vehicle is similar to that in Chapter 13 case, but the law and process is very different. A motion must be filed to redeem the vehicle. The catch with redeeming a vehicle in Chapter 7 for less than was is owed (market value) is you have to pay off the old loan with a lump sum payment. So for the example above the person redeeming their vehicle in a Chapter 7 case would have to come up with $8,782.65 to redeem the 2012 Mercury Grand Marquis. Most of our Chapter 7 bankruptcy clients do not have the cash lying around to redeem their vehicles like this. So there is a solution. There are companies out there that provide new financing or a new loan to pay off the old loan and allow you to redeem the vehicle. As I said at the beginning of this article I cannot recommend obtaining new financing to redeem under 722 of the Bankruptcy Code because the new financing is usually with a high interest rate and there are a number of fees involved. There will also be attorneys’ fees and costs for fling the motion to redeem that must be taken into account when determining if redeeming the vehicle is in your best financial interest. What you choose to do is up to you though. Just be careful and do not lock yourself into another bad loan thinking you are saving money.

We Are Your Reputable and Local San Jose Bankruptcy Attorneys

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If you are having trouble paying your debts, whether it is a home mortgage, vehicle loan or too much credit card debt filing for bankruptcy protection can help. At West Coast Bankruptcy Attorneys we are your reputable and local San Jose Bankruptcy Attorneys. Our attorneys, Kitty J. Lin and I, Ryan C. Wood, have combined filed over 1,000 bankruptcy cases. We also have nothing but five star reviews on various on-line websites. Please visit our Testimonials page for reviews from actual clients that have filed for bankruptcy protection and received a discharge of their debts. I have also administrated anywhere from 800 – 1,000 Chapter 13 bankruptcy cases while I was employed as the staff attorney with the Chapter 13 Trustee for the San Francisco and Santa Rosa Divisions of the Northern District of California.

We are you reputable and local San Jose bankruptcy attorneys.

We are you reputable and local San Jose bankruptcy attorneys.

There are a number of factors to consider when retaining reputable and local San Jose bankruptcy attorneys. Just because a firm seems large and has filed a lot of case does not mean clients are treated properly and given the service they deserve. Some law firms are described as bankruptcy mills. They take on as many clients as possible with the least amount of staff and you will never speak to an attorney about anything after your initial consultation. That is the opposite of how we conduct our business. The most important thing is communication and being comfortable with who you retain. We know this is not the best time in your life and we make sure you have the information you need to not worry needlessly. Attorneys that do not communicate with their clients are just making things worse and adding to the anxiety their clients are already feeling. If a bankruptcy law firm does not get back to you within a reasonable amount of time it could mean a number of things. The law firm my just not care or the San Jose bankruptcy law firm may have unethically taken on more cases then they can handle (ethical violation) so no client is getting the service they deserve. As reputable and local San Jose bankruptcy attorneys we return all emails and phone messages within twenty-four hours if not the same day. You will never have a problem communicating with attorneys Ryan C. Wood and Kitty J. Lin. They answer their phones personally. It is every important to us to answer your questions quickly and accurately. We want to get rid of the stereotype that attorneys do not communicate with their clients’ one client at a time.

Again, experience does matter and we have filed a lot of cases. We also practice bankruptcy law in all four divisions of the bankruptcy court in the Bay Area. The divisions are the San Jose Division, San Francisco Division, Oakland Division and Santa Rosa Division. This is also important because we know the differences in how Chapter 13 cases are administered in each division, and there are significant differences. Different Chapter 13 trustees and different judges equal different administration.

A testament to our experience and track record is as of the writing of this blog article we have never converted a case from Chapter 7 to Chapter 13. What does this mean to you? It means we are your reputable and local San Jose bankruptcy attorneys. If the United States Trustee’s office files a motion to dismiss a Chapter 7 case for abuse, a possible solution is to convert the case to a case under Chapter 13 of the bankruptcy code. We have never had to do that because we have always been right. Eventually we will probably file a Chapter 7 and convert it to a Chapter 13 instead, but it has not happened yet.

All of our consultations for potential clients seeking to file for bankruptcy protection are free. The free consultation will usually take anywhere from a half hour to an hour. We will provide with our Client Information Form prior to the free consultation. The form has questions about your income, expenses, assets and debts. In 2005 Congress amended the Bankruptcy Code to create what is called the Means Test. The Means Test does not really exist in the real world. It uses a six-month average of your income and then multiplies that average times twelve to determine your yearly gross income. It then deducts standardized expenses based upon the county you live in and the number of people in your household. The Means Test also uses some national standards for certain expenses. So you may pay rent totaling $2,800 a month in the real world while the Means Test only deducts $2,100 for rent each month because that is what the median rent is in the county you live in based upon the number of people in your household. Confused yet? Do not worry, making sure the calculations are correct is what you are paying us for. Please give us a call at 1-877-9NEW-LIFE to schedule a free consultation with our reputable and local San Jose bankruptcy attorneys and begin your new life without your debts.

The Medical Bankruptcy Fairness Act of 2014’s Proposed Amendments to the Bankruptcy Code

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Are all people that choose to file bankruptcy equal in terms of why they are choosing to file for bankruptcy protection? No, they are not. Certain types of bankruptcy filers as of today do not have to “pass the Means Test” to qualify to file a Chapter 7 bankruptcy case. Certain debtors are already allowed to claim a higher exemption to protect equity in their homes. Senate Bill 2471 was introduced this year to amend the Bankruptcy Code to give different treatment to people that have significant medical debts and that is purportedly why they are filing for bankruptcy protection. If passed the law would be called the Medical Bankruptcy Fairness Act of 2014. It will make a number of changes to the Bankruptcy Code to make “medically distressed debtors” have more rights to qualify to file a Chapter 7 case, exempt equity in their property and discharge private student loans without proving the loans are an undue hardship than someone who incurred all of their debts from the use credit cards. SB 2471 is attempting to create a separate class of debtors. So why not create a class of medically distressed debtors?

How Does SB 2471 Propose to Amend the Bankruptcy Code?

SB 2471, the Medical Bankruptcy Fairness Act of 2014, proposes to amend the Bankruptcy Code in a few places. The first is the definition section of the Bankruptcy Code, Section 101. If this law were passed it would add the following terms and definitions:

Medical Debt: debt incurred voluntarily or involuntarily—
(A) as a result of the diagnosis, cure, mitigation, or treatment of injury, deformity, or disease of an individual; or
(B) for services performed by a medical professional in the prevention of disease or ill-ness of an individual.

Medically Distressed Debtor:
(A) a debtor who, during the 3 years before the date of the filing of the petition—
(i) incurred or paid aggregate medical debts for the debtor, a dependent of the debtor, or a nondependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor that were not paid by any third-party payor and were greater than the lesser of—
(I) 10 percent of the debtor’s adjusted gross income (as such term is defined in section 62 of the Internal Revenue Code of 1986); or (II) $10,000;

‘‘(ii) did not receive domestic support obligations, or had a spouse or dependent who did not receive domestic support obligations, of at least $10,000 due to a medical issue of the person obligated to pay that would cause the obligor to meet the requirements under clause (i) or (iii), if the obligor was a debtor in a case under this title; or
(iii) experienced a change in employment status that resulted in a reduction in wages, salaries, commissions, or work hours or resulted in unemployment due to— (I) an injury, deformity, or disease of the debtor; or (II) care for an injured, deformed, or ill dependent or non-dependent parent, grandparent, sibling, child, grandchild, or spouse of the debtor; or
(B) a debtor who is the spouse of a debt-or described in subparagraph (A).

So as you can read the definition of what a “Medically Distressed Debtor” is has quite a few twists and turns. The definition seems to be broad and cover a number of circumstances. The one that caught my attention is if a person who is supposed to receive child support but did not due to an illness or loss of employment by the person who is supposed to make the child support payment each month. Someone thought this one through.

SB 2471 also would amend Section 522 of the Bankruptcy Code regarding exemptions. The whole point in defining someone as a “Medically Distressed Debtor” is so they can have a higher exemption. This amendment to the Bankruptcy Code would allow a medically distressed debtor to exempt $250,000 worth of property described as (1) real property or personal property that the debtor or a dependent of the debtor uses as a residence; (2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence; or (3) a burial plot for the debtor or a dependent of the debtor. Right now in California the most that can be exempted in equity in a house is $175,000 if you meet the requirements.

SB 2471 would also amend Bankruptcy Code Section 707(b) so that a medically distressed debtor does not have to meet the requirements to qualify to file a Chapter 7 bankruptcy case created in the 2005 bankruptcy amendments. A medically distressed debtor would not have to fill out the “Means Test.” This is already true for consumers with primarily nonconsumer debts, disabled veterans and members of the national guard/reservists. Adding medically distressed debtors to this list will not cause much upheaval for experienced bankruptcy lawyers. SB 2471 also seeks to amend the Bankruptcy Code Section 1325(b)(1) to provide a medically distressed debtor does not have to pay unsecured creditors all of their monthly disposable income during the applicable commitment period. This change would allow courts to confirm chapter 13 plans of reorganization over the objections of unsecured creditors.

SB 2471 also amends Bankruptcy Code Section 109(h)(4) to do away with the requirement that a bankruptcy filer complete a credit counseling course within the 180 day period prior to the case being filed. This not a huge perk when filing for bankruptcy protection. This amendment would give a little special treatment and save the medically distressed debtor some time and money. The credit counseling provider we use charges $5.00 for the course and it usually takes a client two to three hours to complete the course on-line.

Possibly the single largest change resulting from SB 2471 if it were passed into law would be to allow medically distressed debtors to discharge their private student loans. Section 523(a)(8) of the Bankruptcy Code would be amended to allow medically distressed debtors discharge their private student loans without having to prove the private student loans are an undue hardship.

The amendment to Sections 522, 707(b), 1325(b)(1), 109(h)(4) and 523(a)(8) would give a medically distressed debtor a significant advantage in qualifying to discharge their debts in a Chapter 7 case, discharging unsecured debts in a Chapter 13 reorganization cases, protecting more equity in their property and discharge private student loans as compared to other bankruptcy filers.

Should Medically Distressed Debtors Should Have Special Treatment

First, the goal to allow bankruptcy filers to exempt or protect more of their assets I absolutely agree with. The goal of allowing bankruptcy filers to discharge private student loans I absolutely agree with. The problem I have with these proposed amendments to the Bankruptcy Code is defining a certain class of debtors to only receive these advantages and not others. I would like to see these amendments apply to all bankruptcy filers, but SB 2471 is a step in the right direction. I am also concerned that if medically distressed debtors can discharge their private student loans then Congress will not amend the Bankruptcy Code to give everyone the right the discharge their private student loans. I would hate to see discharging private student loans limited to medically distressed debtors.

What Can I Do If A Collection Agency Harasses Me or Tries to Collect a Debt After Filing For Bankruptcy?

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One of the not so great parts of filing bankruptcy for Bay Area residents is dealing with unlawful acts of collection agencies and creditors. Yes, everyone understands that a creditor has every right to seek payment for the debts owed to them. The problem is when a creditor tells one of our client’s mother that they are going to through her daughter into jail and arrest her if the mother does not send them money that same day. There are so many problems with this attempt to collect a debt I do not know where to start. If this type of conduct by a creditor happens after a bankruptcy case is filed is most likely a violation of the automatic stay. So, can a bankruptcy filer receive punitive damages, attorneys’ fees and damages for their emotional distress if a creditor is found guilty of willfully violating the automatic stay? According to In re: Snowden No. 13-35291 (9th Cir. 2014) recently published on September 12, 2014.

In re Snowden

In this case the bankruptcy petitioner obtained a $575 payday loan. Things unfortunately did not improve financially for Snowden and she filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. The pay day loan company, Check Into Cash, was very aggressive from the moment they found out Snowden would not be able to pay back the payday loan as agreed. Check Into Cash called Snowden at work even after she told them not to. After Snowden filed for bankruptcy Check Into Cash chose to cash the check Snowden gave them to secure payment of the payday loan. This resulted in Snoweden’s bank account becoming overdrawn and throwing her into further financial turmoil. Snowden eventually filed a motion for sanctions against Check Into Cash for their cashing of the check post-petition and their continued harassing phone calls post-petition in violation of the automatic stay.

Emotional Distress Damages

Section 362 of the Bankruptcy Code provides for the automatic stay as soon as a bankruptcy case is filed. Section 362(k) deals with damages for the willful violation of the automatic stay. Section 362(k)(1) provides in part: . . . an individual injure by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages. This section permits an award for emotional distress damages if the bankruptcy petitioner (1) suffered significant harm, (2) clearly establishes the significant harm, and (3) demonstrates a causal connection between that significant hard and the violation of the automatic stay. See Dawson, 390 F.3d at 1149. In the Snowden case the creditor took issues with the second prong of the analysis. The creditor argued through their experienced bankruptcy lawyers that Snowden did not prove significant emotional harm, but just fleeting or trivial anxiety or distress. The court disagreed though given that the post-petition cashing of the check and continued phone calls. Even worse was the fact that Check Into Cash did not rectify the situation timely. The Ninth Circuit Court of Appeals found the district court did not error in confirming the emotional distress damages award. The bottom line is this analysis is a case by case analysis. Whether any court will award damages for emotional distress depends upon the severity of the violation, the distress caused and what the creditor did or did not do about it once the creditor was put on notice that a violation had occurred.

Punitive Damages

Punitive damages are damages to punish a party for their conduct and deter any further violations in the future. Section 362(k) provides for punitive damages in “appropriate circumstances.” Good bankruptcy lawyers will be able to prove some showing of reckless or callous disregard for the law or rights of others. See In re Bloom, 875 F.2d 224, 228 (9th Cir. 1989) In the Snowden case Check Into Cash argues on appeal that the bankruptcy court applied the wrong standard, willful violation rather than the reckless disregard standard. The 9th Circuit Court of Appeals disagreed. The court found that Check Into Cash failed to provide a policy for employee training about how to address debt collection following a bankruptcy filing. This demonstrated reckless and callous disregard for the law making punitive damages appropriate under the facts of the Snowden case.

Attorneys’ Fees

It is well settled that a debtor can receive attorneys’ fees and costs related to enforcing the automatic stay and remedying the stay violation, but not attorneys’ fees earned when filing an adversary proceeding to be awarded punitive damages and damages for emotional distress. As soon as the violation of the stay is remedied a bankruptcy filer cannot collect from the creditor attorneys’ fees and costs going forward. The 9th Circuit Court of Appeals held that the ‘American Rule’ applies and each party to an adversary proceeding bears their own costs for litigation. There are exceptions. If a court rules a violation of the automatic stay took place and the creditor appeals the ruling, then the debtor has no choice but to incur additional attorneys’ fees and costs to defend the bankruptcy court’s decision and their right to collect damages for the willful violation of the automatic stay. Under these circumstances the bankruptcy filer would be able to recover attorneys’ fees. See In re Schwartz-Tallard, No. 12-60052, 2014 WL 4251571 (9th Cir. Aug. 29, 2014).

Can a Non-Filing Spouse of a Spouse that Filed Bankruptcy Buy a Community Property Asset From the Bankruptcy Estate?

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The short answer is yes, a non-filing spouse of a spouse that filed bankruptcy can buy a community property asset from the bankruptcy estate. See 11 U.S.C. §363(i) and In re Lewis; BAP No. CC-13-1367. For some this question alone might be confusing. When a couple is married either spouse may file for bankruptcy protection without the other spouse. All of the separate property of the filing spouse and community property of the filing spouse must be listed in the petition. In California, community property consists of: all property, real or personal, wherever situated, acquired by a married person during marriage while domiciled in California is community property. Cal. Fam. Code §760. In the Lewis case the community property at issue is an employment law lawsuit filed, but not resolved, prior to the bankruptcy case being filed. The cause of action is therefore an asset of the filing spouse’s bankruptcy case. See Vick v. DaCorsi, 110 Cal. App. 4th 206, 212 n.35 (2003).

A twist in the Lewis case was that the bankruptcy trustee sold the bankruptcy estate’s interest in the lawsuit to a company named Kallman & Company, LLP for $40,000 pursuant to 11 U.S.C. §363(b). Section 363(b) allows the trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate . . . . . . The Chapter 7 trustee’s bankruptcy lawyer filed, served and correctly provided notice of the motion for approval to sell the cause of action to Kallman & Company, LLP. A hearing was held and the bankruptcy court approved the sale to Kallman & Company, LLP. According to the terms of the sale Kallman did not have to pay the $40,000 until 30 days after the closing date of the sale, and the closing date occurred only when the order approving the sale became final and not appealable. Given the delay in closing the sale the non-filing spouse had time to act and her bankruptcy attorney and her did indeed act.

The non-filing spouse informed the Chapter 7 Trustee and counsel that she intended to exercise her rights pursuant to 11 U.S.C. §363(i). 11 U.S.C. §363(i) provides: before the consummation of a sale of . . . . . . property of the estate that was community property of the debtor and the debtor’s spouse immediately before the commencement of the case, the debtor’s spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated. So the Chapter 7 trustee then filed a motion under 11 U.S.C. §363(i) under the grounds that the lawsuit claim is community property and the sale to Kallman & Company, LLC was not consummated yet. Kallman & Company, LLC of course opposed the sale to the non-filing spouse. The bankruptcy court granted the motion to sell the lawsuit claim to the non-filing spouse and held that the lawsuit claim was community property and the sale to Kallman & Company, LLC was not consummated. After various legal wrangling the order approving the sale to the non-filing spouse was appealed to the 9th Circuit Bankruptcy Appellate Panel. The 9th Circuit BAP found the act of the non-filing spouse asserting her claim to the lawsuit asset and obtaining an order from the court granting the sale was an intervening event that prevented the consummation of the sale to Kallman & Company, LLC. The 9th Circuit Bankruptcy Appellate Panel went further to say that Kallman & Company, LLC have no one but themselves to blame. Kallman could have consummated the sale immediately by tendering the purchase amount to the Chapter 7 Trustee and Kallman could have asked to have the stay pursuant to Federal Rule of Bankruptcy Procedure 6004(h) to be waived. FRBP 6004(h) provides that an order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. The 9th Cir. BAP further said that Kallman instead provided the non-filing spouse with sufficient time to assert her §363(i) right and to prove that she had the ability to make good on her offer to purchase the lawsuit claim from the bankruptcy estate. What is there to take away from this case? If you are a purchaser of assets under 363 of the Bankruptcy Code and you really want the assets you are purchasing consummate the sale as soon as possible if there is a non-filing spouse.

How To Avoid or Prevent the Necessity of Filing for Bankruptcy?

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One of the most common remarks we here from clients is, “I never thought I would file for bankruptcy protection.” Our response is usually, “No one ever does.” They probably never thought the bad thing that happened to them or, their family, that led to having to file for bankruptcy protection would happen either. Bad things happen every day that are not in our control. So unfortunately for some there is no avoiding the necessity of filing for bankruptcy. For example: being laid off from a job, medical debts, debts resulting from car accidents or a natural disaster. While these circumstances are not traditionally in our control there are plenty of other pieces of the financial puzzle that are within our control.

Credit Cards/Payday Loans/Cash Advances/Vehicle or Title Loans

These four types of debts are primarily the types of debts that can have incredibly high interest rates. If you have never heard of usury laws you are not alone. Each state has or had usury laws to limit the amount of interest a lender could charge a borrower. The laws are designed to protect all of us from unfair or unconscionable interest rates. These laws have been weakened over and over again in the name of greed and corporate profits. For more detailed information please read “How Can Credit Card Companies Charge Such High Interest Rates?” http://www.westcoastbk.com/blog/2012/07/how-can-credit-card-companies-charge-such-high-interest-rates/ So the law now allows for the ridiculous and unconscionable interest rate as high as 29% on some credit cards. If you do not pay off the credit card each month that has a high interest rate the underlying debt will balloon quickly. Spread that problem around four or five different credit cards are you are heading in the direction of a bankruptcy lawyers office unfortunately. So do your best to limit the use of creditor cards and especially the use of your highest interest rate credit cards. Payday loans and cash advances are even worse. The highest interest rate I have ever seen on an actual loan documents was over 1,000%. Somehow this is legal. Standard vehicle loans can have generous interest rates. Title loans are when your vehicle is paid in full, but you take loan and use the vehicle as collateral. The loan company will take your pick slip/title until the loan is paid in full. Title loans are traditionally horrible for the borrower. Again, very high interest rates and title loan companies rarely keep very accurate records regarding payments and accrued interest.

Home Mortgages

Do not buy too much house. Other than banks handing out questionable loans and fraudulent appraisals artificially increasing the value of homes, the next largest factor as to why so many people lost their homes in my opinion was because they bought too much house. That means they purchased a house that was too large and too expensive given their income and expenses. The cause of this was mostly interest only mortgages and adjustable rate mortgages. So do not buy too much house. If you income is reduced 20% will you still be able to afford your mortgage payment each month? How long can you pay your mortgage if you are laid off? We all hope that these unfortunate events do not happen to us, but they happen to everyone without discrimination.

Taxes

The thing with taxes is you have to pay them, period. So just let the government have the money upfront so you do not have an issue when it comes time to file your taxes each year. In California the Franchise Tax Board is does aggressively collect unpaid taxes. The FTB will garnish your wages and attached a tax lien to your home if you own real property. If you have changed your deductions on your paycheck to artificially increase your net income each month you are creating a tax debt each paycheck. Will you have the money to pay the taxes at the end of the year? No, you will not because you changed your deductions to increase your net income because you are currently having trouble paying your bills. Do not change your deductions to artificially increase your net income. It is a recipe for disaster. If you take an early distribution from a retirement account pay the penalty/taxes at the time you have the money taken out. Do not defer the penalty/taxes to when you have to file your return. Again, this is a recipe for disaster. Every bankruptcy attorney will tell you that ERISA and other qualified retirement accounts (Tax Deferred) are 100% protectable when filing bankruptcy under almost all circumstances. So another reason to not raid a retirement accounts because you can keep the retirement money and still discharge your debts.

If you are having difficulty paying your bills each month bankruptcy might be the best option to get back on track financially.