Why Did 50 Cent File Bankruptcy When He Is Rich and Famous Still?


For the record many successful and rich people make the decision to file for bankruptcy protection under various chapters of the Bankruptcy Code. Curtis James Jackson, III, aka 50 Cent, is no different. Like many things in our society ignorance of the law rules the day. Hopefully this article and future articles about 50 Cent’s Chapter 11 bankruptcy case will help you understand bankruptcy law and why 50 Cent filed. That said, on July 13, 2015, 50 Cent filed a personal bankruptcy petition for protection under Chapter 11 of the Bankruptcy Code, Bankruptcy Case No. 15-21233, in the District of Connecticut, Hartford Division, to reorganize his debts.

Why Did 50 Cent File Bankruptcy?

The Merriam-Webster dictionary defines being insolvent as: (1) unable to pay debts as they fall due in the usual course of business; (2) having liabilities in excess of a reasonable market value of assets held. 50 Cent became unable to pay his debts as they came due in the usual course of business resulting from judgments entered against him and the cost of litigating with Sleek Audio and Lastonia Leviston lawsuits.

Sleek Audio, LLC Litigation

According to court documents back in 2011n 50 Cent entered into business with Sleek Audio, LLC to develop headphones and market the headphones under 50 Cent’s professional name. Sleek entered into a licensing brand agreement with G-Unit Brands, 50 Cent’s brand licensing company and allowed Sleek to use 50 Cent’s trademarks in the marketing of the headphones. For whatever reason Sleek did not follow through on making the headphone commercially viable by the February 15, 2011, deadline. As a result G-Unit Brands terminated the licensing agreement with Sleek and 50 Cent then created SMS Audio to develop his headphones on his own instead. Like most divorces Sleek did not go away quietly. Sometime in August 2011 Sleek filed an arbitration case against 50 Cent alleging he stole their designs for his new headphones and owed Sleek some money. Long story short Sleek won. Eventually a judgment was entered in Sleek’s favor totaling $17,247,426.11 plus post-judgment interest rate of 4.75%. 50 Cent’s list of 20 largest unsecured creditors provides the judgment has grown to $18,428,257.00 as of July 13, 2015.

Lastonia Leviston Sex Tape Litigation

Another reason for the personal Chapter 11 bankruptcy filing is a sex tape 50 Cent allegedly released of Lastonia Leviston without her consent. 50 Cent was in a rap war with William Leonard Roberts, aka Rick Ross. Ms. Leviston used to date Rick Ross and they have a child together. In 2008 Ms. Leviston was in a relationship with Maurice Murray. Leviston and Murray made a sex tape and Murray retained possession of the sex tape. At some point Murray gave the sex tape to 50 Cent and allegedly told 50 Cent he could do whatever he wanted with the sex tape. 50 Cent allegedly created a copy of the sex tape and then narrated the sex tape saying negative things about Ms. Leviston and mocking Rick Ross. 50 Cent alleged the edited version of the sex tape was leaked by someone other than himself and that he never released the edited sex tape on any of his websites. Ms. Leviston sued 50 Cent in state court and eventually she won a judgment for about $5 million (Leviston v Jackson, Index No. 102449-2010, pending before New York State Supreme Court, New York County).

July 13, 2015 Chapter 11 Bankruptcy Filing and Leviston Lawsuit

The jury in the Leviston lawsuit was then tasked with determining how much the punitive damages to punish 50 Cent for the alleged release of the edited sex tape should be. Before the punishment faze began 50 Cent filed for personal bankruptcy under Chapter 11 of the Bankruptcy Code. As soon as a bankruptcy petition is filed the automatic stay takes effect stopping any and all collection activity including lawsuits. So the day the punishment part of the state court lawsuit was supposed to start 50 Cent’s attorneys walked in with the notice of the bankruptcy filing and that ended the punishment faze for the time being. But, a creditor or party-in-interest, like Ms. Leviston, can request the bankruptcy court to allow a state court lawsuit to continue despite the filing of a bankruptcy case. This is what happened in 50 Cent’s bankruptcy case. Ms. Leviston’s Bankruptcy Attorneys filed what is called a motion for relief from the automatic stay on July 13, 2015, the exact same day 50 Cent filed for bankruptcy protection. Ms. Leviston asked the bankruptcy court to allow the state court punishment faze to continue despite the filing of the bankruptcy case. Ms. Leviston’s attorneys also requested and received an expedited hearing date to speed up the process.

Of course 50 Cent’s Bankruptcy Lawyers filed an opposition to the motion for relief from stay advocating why the stay should not be lifted. In my opinion the two most compelling reasons to not lift the automatic stay is that punitive or punishment damages are normally calculated based upon the wealth of the allegedly guilty party and that punitive damages claims are/can be subordinated or disallowed in bankruptcy pursuant to Section 510(c). When a person files for bankruptcy protection what the bankruptcy filer’s assets are worth is often a litigated issue because it matters a lot in the outcome of what creditors should receive through the Chapter 11 plan of reorganization. So how can a jury in the state court case determine the amount of punitive damages to award against 50 Cent if a determination of the value of his assets has not been made in the now pending bankruptcy case? Arguably punitive damages cannot be determined so why proceed? The other compelling argument in my opinion is how punitive damages are treated in bankruptcy. Generally punitive damages are disallowed or subordinated to other claims so that the other people who are owed money get paid more. The goal of bankruptcy is distribute the assets of the debtor to creditors fairly according to the Bankruptcy Code. The goal is not to punish the debtor like punitive damages seek to do. Therefore punitive damages are generally disallowed or paid after other types of claims are paid first. I will have more to day about this issue in future articles.

July 17, 2015, a hearing was held before the Honorable Ann M. Nevins regarding the motion for relief from stay and the motion was granted. As a result the punitive damages part of the Leviston lawsuit could continue. On July 20, 2015, the jury in the New York State Court lawsuit regarding the alleged release of the sex tape awarded an additional $2 million in punitive damages to Ms. Leviston for a total judgment against 50 Cent of $7 million. I am sure 50 Cent was not banking on the filing of his bankruptcy case to stop the punishment part of the lawsuit by Ms. Leviston. Nevertheless, there are still benefits to seeking bankruptcy protection and reorganizing his debts in Chapter 11.

So, 50 Cent found himself with a $17 million judgment against him owed to Sleek and then another judgment of $5 million owed to Ms. Leviston prior to filing for bankruptcy protection. Even if someone has significant assets and significant income can they write a $22 million check to satisfy their debts? That is why 50 Cent filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. What will result in 50 Cent’s Chapter 11 reorganization case is still to be determined. Additional articles will be posted to discuss 50 Cent’s current financial circumstances and current status of the case in the future.

The Ninth Circuit Court of Appeals Finally Provides Debtor’s the True Ability to Enforce Their Rights When the Automatic Stay is Violated


The Ninth Circuit Court of Appeals held on October 14, 2015, see In re Schwartz-Tallard Case No. 12-60052, that debtors can recover attorneys’ fees and costs reasonably incurred when seeking sanctions and damages for the willful violation of the automatic stay pursuant to Section 362(k) of the Bankruptcy Code. This is a huge decision and was badly needed. How can anyone enforce their rights if they cannot afford to hire representation and that representation cannot even recover their fees for correctly and successfully prosecuting the award of damages? They cannot and it created vast injustices for those damaged by the willful violation of the automatic stay. This holding by the Ninth Circuit Court of Appeals properly makes the party, creditors; bare the cost of their bad behavior, willfully violating the automatic stay. I previously wrote way back in December 2010 about how the backbone of the bankruptcy process is the automatic stay.

Previously debtors could only recover attorneys’ fees and costs up to when the violation of the stay was remedied. Not attorneys’ fees and cost associated with seeking sanctions and damages when remedying the automatic stay violation. This structure of recovery of fees was a huge problem for debtors and their bankruptcy attorneys. For some reason the system time and time again has policies that do not allow attorneys for debtors to be paid for their time when advocating on behalf of their clients. Enforcing the violation of the automatic stay used to be a prime example. A client would come to us with evidence a creditor is violating the automatic stay even though they were served with notice of the bankruptcy case. Some violations of the automatic stay are innocent and can be remedied by sending an email or letter to the creditor or their counsel. The damages are not significant.

In other circumstances creditors actually sue debtors post-discharge for a discharged debt and then refuse to dismiss the state court lawsuit. If you have ever been sued for any reason it does not feel good. Under the prior fee structure if their bankruptcy lawyer filed a motion for sanctions in bankruptcy court for the willful violation of the automatic stay the creditor could then just seek dismissal of the state court lawsuit as soon as possible after the filing of the motion for sanctions. Then all the time and effort to seek damages for the creditor’s willful violation of the automatic could not awarded to the debtor’s attorney. That would include the time to appear at the hearing for sanctions and any time after the violation was cured when continuing to prove damages that in some cases are very significant. What a horrible structure. It encouraged violations of the automatic stay and discouraged debtors from enforcing their rights for the violation of the automatic stay and seeking damages. In my opinion it went against everything filing for bankruptcy PROTECTION is supposed to be about.

Now creditors will properly weigh the consequences of their willful choice to violate the automatic stay properly given they will have to pay for the debtors attorney’s fees and costs from day one to the end of the process of proving damages. There will therefore be less violations of the automatic stay and debtors can obtain the relief they originally sought when filing a petition for bankruptcy. It will also eliminate the need to litigate exactly when the violation of the automatic stay ended and how much time and money was spent by the debtor’s attorney up to when the violation of the automatic stay ended. The focus can now be on the willful violation of the automatic stay that should never have happened and the resulting damages. Attorneys for debtors will also no longer fear, at least in this area of representing debtors, that they will get left holding the bag financially for properly advocating on behalf of their clients. Now if we could only get this kind of treatment in other areas of bankruptcy practice regarding the time we spend advocating for our clients there would be even more justice to be had by debtors. After all, filing for bankruptcy protection is following the law.

In the Schwartz-Tallard case the facts are actually far worse. The debtor’s house was improperly foreclosed on and the debtor had to fight to get the house back. The debtor then sought sanctions and damages. The creditor in this case appealed the rulings of the lower bankruptcy court and lost. In this case the debtor’s attorney could not recover all the time and money spent defending the appeals? The Ninth Circuit Court of Appeals remedied the prior strange result in the Steinberg case limiting recovery of attorneys’ fees and cost to when the automatic stay violation ceased and now include recovery of attorneys’ fees and cost seeking damages, including any appeals.

Another Day, Another Scam Trying to Screw Our Bankruptcy Clients Out of Money


It is unbelievable the amount of mail our bankruptcy clients receive after they file for bankruptcy protection because they filed for bankruptcy protection. The different types of mail they receive are even more concerning.


If you have no debts with Nationstar LLC and you receive a letter that says it is from Nationstar LLC there is probably a problem. We just had a client, and us, receive a letter from some crook representing the letter is from Nationstar LLC. It is not of course, but the letter looks very legitimate. The phone number on the letter is 1-877-343-5602. If you are reading this because you received this letter please go to www.ftc.gov and file a complaint on-line or mail in a complaint with a copy of the letter you received. Unfortunately I did not initially identify this as a scam letter. The letter looks like other letters we legitimately receive from Nationstar LLC. The letter will have the correct address for the client and correct address for the bankruptcy attorney that filed the case including the correct bankruptcy case number. There will also be an account number on the letter. So, I emailed my client and asked the client what is going on here? We were not aware that Nationstar LLC was a creditor in this client’s bankruptcy case. So the client called the phone number listed above. Apparently almost all of the options to choose from are to make payments. Okay, that seems odd. So then apparently our client got a human being on the phone and she smartly started to ask them questions about what is going on here. THEY ASKED HER FOR HER SOCIAL SECURITY NUMBER!! Every now and then a creditor calls my office and tries to get me to disclose the last four digits of our client’s social security number. Never will we provide this information over the phone to someone who called us. Our client again smartly told them more or less to jump in a lake. I do not know how the call ended, but clearly when you call 1-877-343-5602 it is just another scam to steal identifies and collect payments fraudulently. How sad. Hopefully bankruptcy attorneys far and wide will Google 1-877-343-5602 and find this article or some other warning so they too can counsel their clients to ignore the fake letter.

Required Course When Filing Bankruptcy

As you may already know there are two required courses that must be completed when filing for bankruptcy protection. The first course is completed before the case is filed and the second course is completed after the case is filed. The first one is not a problem. How can some company send our bankruptcy client information on how to complete the first required course before the case is filed? It is not possible. So we are safe there. The problem is after the case is filed. Once the case is filed our client’s mailing address is now part of the public sphere and available to advertisers. So what happens? Our clients receive letters in the mail that they must complete the second required course. The letter includes scary language that is misleading and tries to fool our clients into completing the second required course with them for almost 5 times the cost our clients should pay for the same course when using the course provider we recommend to them. So, thank you Sage Personal Finance for marketing to our clients without their permission and trying to charge them 5 times the cost of the second required course. It just proves to our clients how much we care about them and how we will not let them get ripped off. Keep up the good work!

Credit Card or Personal Loan Applications

Everyone likes to rant that bankruptcy causes lenders to lose money blah, blah, blah. Really? So why do all of our clients receive credit card applications and personal loan applications in the mail even before they receive an order of discharge discharging their eligible debts after filing for bankruptcy protection? Hmmmm? Arguably the only thing lenders lose is gravy or icing on the cake. Why you ask? Because when you can charge interest at a rate that used to be illegal under state usury laws the borrower ends up paying three to four times the amount ever borrowed if not more. So arguably lenders only lose gross profits they should not be legally able to charge consumers to begin with. Think about it. Anyway, one the types of mail our clients receive are applications for the extension of credit.

Can A Third Party Help Make A Chapter 13 Plan Payment?


There are a number of requirements that must be met for proposed chapter 13 plans to be confirmed or approved by the bankruptcy court. See Section 1325 of the Bankruptcy Code for all of the requirements. The focus of this article is Section 1325(a)(6) which provides the court shall confirm a plan if, “the debtor will be able to make all payments under the plan and to comply with the plan.” The proposed chapter 13 plan must be feasible or possible. More or less the bankruptcy filer must be able to make the payments proposed in the chapter 13 plan for the entire life of the plan. Usually the plan will last three to five years depending upon the circumstances. So can a third party help make a chapter 13 plan payment each month for the entirety of the plan? The answer is yes under most circumstances.

Yes, A Third Party Can Help Make A Chapter 13 Plan Payment

This issue does not really come up too often for most bankruptcy lawyers. Most courts generally allow third party help, but it is disfavored for a number of reasons. See In re: Schwalb, 347 B.R. 726, 759 (Bankr. D. Nev. 2006. In Schwalb the court held that a debtor may rely on contributions from family and is not prohibited, but disfavored. Of course if the bankruptcy filer can get it done themselves that is much more favorable than having to rely on a third party for money each month. There has to be a firm commitment from the third party to make the contribution each month into the chapter 13 plan. If a third party contribution seems like it is speculative or will only be occasional then the chapter 13 plan can be considered not possible or feasible. The amount of the monthly contribution must be certain too. How can a court confirm or trustee recommend confirmation if the amount of the monthly contribution by the third party is not listed or known? There are a number of factors to consider: (1) the contributor’s relationship to the debtor and motivation in making the contributions; (2) the contributor’s long and undisputed history of making the contributions otherwise providing support for the debtor; (3) the commitment of the contributor to make the contribution in a specific amount for the duration of the chapter 13 plan; and (4) the financial stability of the contributor to make the proposed contribution. The bankruptcy filer and their bankruptcy attorney have the burden of proof in providing evidence to support confirmation of the proposed chapter 13 plan.

Why Would Someone Need Help With Their Monthly Chapter 13 Plan Payment?

The basic problem is the debtor or person filing bankruptcy does not have enough income after paying normal living expenses to meet their obligation under the bankruptcy code to creditors when filing chapter 13 bankruptcy. The bankruptcy filer may only have $100.00 left over each month, but they have taxes that must be paid back in the chapter 13 plan or mortgage arrears that must be paid back in the chapter 13 plan. To pay the unpaid taxes or mortgage arrears the bankruptcy filer, for example, would have to pay $300.00 each month to fund the plan and make it feasible. Again, the bankruptcy filer cannot afford the plan payment, so they obtain third party assistance from a friend or family member. The friend or family member pays the additional $200 a month to make the plan possible or feasible and meet the requirements of Section 1325(a)(6).

Are There Limits To Third Party Help In Chapter 13?

How these issues are dealt with is different from circuit to circuit, district to district and division to division. But generally speaking most jurisdictions allow third party help under most circumstances. In a recent case with third party help proposed, In re Carolyn Deutsh, 2015 Bankr. Lexis, 1368, the Bankruptcy Court actually denied confirmation of the debtor’s chapter 13 plan for not being feasible. What went wrong here? In this case the third party contributor was the debtor’s boyfriend. So, they are not married and the boyfriend is a new boyfriend who says he “intends to contribute only for so long as he is financially able” according to the declaration filed in the case. Okay, can that be relied upon? The bankruptcy court said no. The third party needs to have some sort of tie to the debtor that is not so new it cannot be depended upon. Also the language of the declaration leaves a lot to be said. Why the declaration in Deutsh or less says “I think or guess I will help” instead of “I will contribute $700 a month toward the chapter 13 monthly plan payment for the entire duration of the chapter 13 plan.” There still could have been an issue with the third party contributor being a new boyfriend, but if the language of the declaration had been more concise about the boyfriend’s willingness to help things in the Deutsh may have been different.

The moral of the story is make sure the third party contributor to the monthly chapter 13 plan payment is committed to help, you have known them for some time and the amount they will contribute each months is listed specifically in the declaration prepared and filed with the court.

How Do I Value My Stuff or Property When Filing Bankruptcy?


Well, there really is no real good answer except do not intentionally undervalue the stuff you own. Value is in the eye of the beholder? Yes, sometimes that is true. Most of the time you just do the best you can and provide the fair market or replacement value of the asset. I do not know how much your used stapler that you bought in 1992 is worth. What about your house? The best we can do is look at comparable sales and how the market is at that moment in time. If the market is hot, like it is in San Mateo County, the listing price could be bid up by thousands of dollars. So was the house worth what it was listed for or what the house sold for?

Be Careful Filing A Chapter 7 Bankruptcy Case If The Client Owns A House

In the Bay Area and San Mateo County home prices are on the rise. So if you own a home and the value is close to what you owe be very careful filing a Chapter 7 bankruptcy. California has generous homestead exemptions to protect equity in primary residences, but what if there is a bidding war on the house and the price is bid up by twenty thousand dollars? Will you still be able to protect the equity and keep the house or will the house be sold out from under you in the chapter 7 bankruptcy case? The Chapter 7 Trustee assigned to the case will want to list the house for sale and let the market determine the value and see what happens. The Chapter 7 Trustee has a duty to administer the bankruptcy estate and liquidate unprotected assets for the benefit of creditors. Liquidating and disbursing funds to creditors is also how chapter 7 trustees make more money. Chapter 7 trustees get paid a percentage of the assets disbursed to creditors. So not only does the chapter 7 trustee have a duty to investigate your assets and liquidate them, but they have a financial interest in liquidating unexemptable assets also. If the chapter 7 trustee does seek to list the property for sale you can try and buyout the bankruptcy estate, oppose the listing of the property for sale or convert the case to Chapter 13 and pay the equivalent unprotected equity to creditors over 3 or 5 years to make sure you keep the home.

Do Not Intentionally Undervalue Your Assets

So after reading the preceding paragraph you may have the thought that you can just decrease the value of the asset to an amount that can be protected. Please delete that thought and never think it again. It is a dangerous game to play if you choose to manipulate the value of your assets. Just ask Jesus Bencomo. Mr. Bencomo filed for bankruptcy protection under Chapter 7 of the bankruptcy code for the first time in May of 1998. No real property was listed in his first bankruptcy case. On January 16, 2013, Mr. Bencomo’s bankruptcy lawyers filed his second Chapter 7 bankruptcy case listing in Schedule A that he owned real property located in Norwalk, California. Mr. Bencomo valued the real property at $175,000 with secured debt totaling $145,879. So there is approximately $29,121 in equity to protect. After the conclusion of the 341(a) Meeting of the Creditors the duly appointed Chapter 7 Trustee Wesley Howard Avery filed a motion with the court to employ a real estate broker to list and sell Mr. Bencomo’s house.

The trustee’s motion provides the value of the Norwalk property as around $305k to $333k. Two weeks later Mr. Bencomo’s bankruptcy attorneys amended the Schedule A to list the value of the Norwalk property as $245,000 with secured debt now totaling $214,929.27. Eventually the court approved the employment of the real estate broker.

The Chapter 7 trustee also filed an adversary proceeding, lawsuit in conjunction with the main bankruptcy case, objecting under Section 727(a)(2)(A) and (a)(4)(A). Section 727(a)(4)(A) provides that the debtor’s discharge may be denied where: (1) the debtor made a false oath in connection with the bankruptcy case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently. Retz v. Sampson (In re Retz), 606 F.3d 1189, 1197 (9th Cir. 2010) (citation and internal quotation marks omitted). The adversary proceeding complaint alleges that Mr. Bencomo is an experienced real estate broker and therefore knew at the time of filing that the value of the Norwalk property was in the $300k range. Basically the Chapter 7 trustee is arguing Mr. Bencomo knowingly and intentionally undervalued the Norwalk property. Mr. Bencomo’s conduct in his first bankruptcy case became an issue in the second. Apparently Mr. Bencomo transferred the house out of his name, than back into his name, but failed to record the deed until 2002 and he failed to list the property in his first bankruptcy petition. Evidence of Mr. Bencomo’s prior bad conduct in the first case can be used in the second as impeachment evidence. So, the court ruled in the chapter 7 trustee’s favor and held that Mr. Bencomo knowingly made a false oath regarding the value of his house and that this is material. Mr. Bencomo was denied a discharge.

California Bankruptcy Exemptions May Increase Soon


In California we have two set of exemptions to protect assets against collection efforts by creditors. There are limits to what can be protected and how much of the value of the asset can be protected. Under CCP Section 703 the defining feature of this set of exemptions is the Wild Card exemption that can be applied to anything under Section 703.14(b)(5) totaling $26,925.00. This Wildcard exemption can be used to protect equity in a home too. The other set of California exemptions under CCP Section 704 include homestead exemptions with higher limits. Recently the California State Senate passed SB 308 that proposes a number of great changes to California’s exemptions. One of the most important proposed changes is the exemption that protects equity in a primary residence. Right now the homestead exemptions in California to protect equity in a primary residence are: (1) single person $75,000; (2) married or have dependent children living in residence ($100,000); and (3) debtor is a senior 65 or older; disabled, or 55 years of age or older and has limited income. California Senate Bill 308, among other things, would change California’s exemptions to give everyone a $300,000 homestead exemption to protect equity in their primary residence. If California’s exemptions are changed as proposed in SB 308 California’s residence in financial distress will get little more help in recovering or staying afloat.

California Homestead Exemption Changes Under CCP Section 704 Exemptions

1. Homestead Exemption Limit Increased To $300,000

This is probably the most dramatic proposed change to the California exemption system. As the current limits are listed above an increase to $300,000 for everyone is a significant increase, especially for a single person. At the same time California’s exemptions have not kept pace with inflation and the cost of living in California. If you review the history of the increases in California’s exemptions you will clearly see the increases have not kept pace with California’s cost of living and inflation.

2. Removes The Six-Month Reinvestment Requirement

Right now CCP Section 704 homestead exemptions requires after sale of the home and the former owners receive the exemption amount of the proceeds they will lose the entire exemptions if they do not reinvest the proceeds in a new home. So if the bankruptcy trustee sells the home the debtors have six months from the sale date to reinvest the proceeds. Okay, but they just filed for bankruptcy and that means they most likely do not have the best credit. So how is someone supposed to qualify to purchase a new home? This is a badly needed change also. I far as I know exemptions are meant to protect assets to help someone in financial distress. Pulling the rug out from under someone in financial distress six months later does not seem to be consistent with the underlying goal of having exemptions to begin with.

Increase The Vehicle Exemption to $6,000 For Everyone

Right now under the CCP Section 703 vehicle exemption the limit of the exemption is $5,100 and under CCP Section 704 the vehicle exemption limit is only $2,900. These exemptions are badly in need of an increase. As a society we need everyone to be able to move about with reliable transportation period. It does not do anyone any good to someone with a car that cannot allow them safely to and from work or transport children. A $6,000 vehicle is usually just on the line of reliability anyway and getting up there if miles. This proposed increase will provide a modest increase in the type of vehicle that can be protected and is badly needed.

New Exemption for Small Business Owners

Right now a small business owner does not have a specific exemption to protect cash or deposit accounts, accounts receivable and business inventory up to $5,000 for debtors using the CCP Section 704 exemptions. For small business owners choosing the 704 exemptions this will be valuable addition to help them continue to operate their business and achieve success after bankruptcy. The limit of the proposed exemption is extremely reasonable at $5,000. This amount should not result in giving a windfall to a small business owner.

Amends California Code Section 2983.3 Regarding Vehicle Loans

Right now the law provides a person with a vehicle loan when filing bankruptcy has three options regarding the loan. They can surrender the vehicle to satisfy the loan, enter into a reaffirmation agreement and continue payments, or redeem the vehicle for its fair market value under Section 721 of the bankruptcy code and keep the vehicle. What is not supposed to be allowed anymore is someone just continues to make the payments and does not do either of the three options listed above. They are current with the payments, but technically under the law the lender can repossess the vehicle since the loan was not reaffirmed. This change would make the filing of bankruptcy not grounds for repossession if the person is current with their payments.

What Will These Proposed Changes Mean To Bankruptcy Attorneys and Their Clients?

The ramifications will most likely be far reaching and help thousands of California residents live happier and healthier lives by obtaining a fresh start. Regarding the increase in the homestead exemption, most bankruptcy attorneys will most likely see a decrease in the number of Chapter 13 cases they file given that same bankruptcy filer can protect more equity in their home and still file a Chapter 7 case. Currently one of the reasons to file a Chapter 13 case is to protect equity in a home while reorganizing debts and not have to liquidate the home in a Chapter 7 case. More people should qualify to file a Chapter 7 case if the homestead exemption is increased. At the same time the dynamic between someone’s assets and the available exemptions is complicated and there are compromises that have to be made given the limits to the amounts of the exemptions. Then you factor in the differences between the two sets of exemptions, CCP Section 703 and CCP Section 704, and bankruptcy lawyers will have a whole new evaluation to make when discussing which set of exemptions would be most advantageous.

In all these proposed increases will not provide windfalls, but make California’s exemptions consistent with the real world we live in. When pondering a perfect world I believe the exemption limits should be based upon a county by county measurement of income and cost of living. To truly treat everyone fairly based upon their circumstances we need to look at their circumstances more closely at the county level. In California the median income and cost of living vary widely throughout our huge state. Creating exemptions by county would be a huge undertaking and probably unmanageable by the bankruptcy courts. For now the increases of California bankruptcy exemptions proposed in California State Senate Bill 308 would be a huge and long needed improvement.

Potential Lawsuit Claims Need to be Listed When Filing Bankruptcy and Are Part of the Bankruptcy Estate


Preparing a bankruptcy petition and filing for bankruptcy is actually a much more complicated process than most believe. Of course there are certain cases that really do not require too much work, but even those cases could have hidden landmines. One of the landmines I speak of is a bankruptcy filer’s claims or potential claims against a third party for damages (Money!!!). Most clients do not think about a potential claim as part of their assets. It is just the right to sue so . . . . . . . . The claim or potential claim could derive from an employment issue at work, slip and fall at a store or business, fraud, breach of contract or other way any of us can be hurt financially and potentially have a claim against a third party. Yes, your right to sue someone is a claim that should be listed in the bankruptcy petition schedules and could have value to be protected depending upon the circumstances. What happens if a claim is not listed in the bankruptcy petition schedules? A recent Ninth Circuit Bankruptcy Appellate Panel case discusses the treatment of an unlisted claim when the bankruptcy filer, after discharge and the case was closed, attempts to enforce the claim by filing a lawsuit. Goldstein v. Alberta P. Stahl, Chapter 7 Trustee; Wells Fargo Bank, N.A.; Bank of America, N.A.; BAP No. CC-14-1346-TaDPa, March 3, 2015.

What are Claims?

A claim when filing for bankruptcy is defined as the right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

So a potential claim is the potential right to payment for damages that you have not yet filed a lawsuit for and obtained a judgment is an unliquidated and most likely disputed claim. A claim no less though. Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th Cir. 1986)

Property of the Bankruptcy Estate

Section 541 of the Bankruptcy Code provides what is property of the estate. Part of the definition includes: Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date, by bequest, devise, or inheritance; as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or as a beneficiary of a life insurance policy or of a death benefit plan.

As you can see this definition includes all property at the time the case is filed to be listed in the bankruptcy schedules. In the Goldstein case one of the issues was whether the right to sue their mortgage companies arose prior to the chapter 7 bankruptcy case being filed. Of course the Goldstein’s bankruptcy attorney argued the right to sue arose after the case was filed. The mortgage companies bankruptcy lawyers argued the claims arose before the chapter 7 case was filed.

Goldstein v. Alberta P. Stahl, Chapter 7 Trustee; Wells Fargo and Bank of America

Long story short the bankruptcy filer’s in this case, the Goldstein’s, applied for a loan modification prior to filing for relief under chapter 7 of the Bankruptcy Code. They fulfilled the terms of the temporary loan modification but their mortgage company never provided them a permanent loan modification. The Goldstein’s paid over $22,000 in mortgage payments in reliance upon their mortgage companies offer to modify their mortgage though. This is the claim the Goldstein’s allegedly had at the time their chapter 7 case was filed against their mortgage companies. For whatever reason the Goldstein’s did not list this claim in their bankruptcy schedules and their case was discharged and closed. The Goldstein’s then sued their mortgage companies for the mortgage payments and other causes of action. Their mortgage companies used the defense that the claim was not listed in their bankruptcy schedules so the claim was actually still property of the bankruptcy estate and could not be pursued by the Goldstein’s. The Goldstein’s then reopened their bankruptcy case to add the claim to their schedules. As part of reopening the bankruptcy case a chapter 7 trustee was appointed to the case again. The Goldstein’s mortgage companies then entered in to negotiations for the settlement of the claim with the chapter 7 trustee and sought to extend the deadline for the chapter 7 case to close again. Eventually the chapter 7 trustee filed a motion to compromise the claims or sell the claim free and clear. The Goldstein’s opposed arguing the claims did not become complete until their mortgage companies denied the permanent loan modification two weeks after the bankruptcy case was filed. Given that the claims should not be part of the bankruptcy estate. The bankruptcy court held the alleged breach by the mortgage companies was before the bankruptcy case was filed when they failed to grant a permanent loan modification. To determine when a cause of action accrues, and therefore whether it accrued pre-bankruptcy and is an estate asset, the Court looks to state law.” Boland v. Crum (In re Brown), 363 B.R. 591, 605 (Bankr. D. Mont. 2007) Under California law a cause of action accrues upon the occurrence of the last element essential to the cause of action.” Howard Jarvis Taxpayers Assn. v. City of La Habra, 25 Cal. 4th 809, 815 (2001) The Ninth Circuit Bankruptcy Appellate Panel upheld the bankruptcy court’s ruling that the claims are property of the estate. The panel noted that the third mortgage payment was made by the Goldstein’s prepetition and that is when they could have brought their lawsuit at that time.

Here is the Real Problem With Payday Loans and Why They Should Be Illegal


I keep reading articles about cities trying to regulate payday loan companies with land use restrictions and other measures. While that is great news I cannot help but think payday loan companies should just be illegal altogether. States like California should just revoke payday loan companies’ corporate status and cities should revoke their business licenses. Why is it so hard to regulate what clearly is a horrible business model for those who are the consumers facing financial difficulties?

What Happened to the Time Honored Ways to Get Short-Term Money?

There have been time honored ways to obtain short-term loans when things go sideways. The first is primarily friends and family members that do not charge immoral interest rates and work with their relative or friend to get paid back. The second way is pawn shops that also do not charge immoral interest rates and are highly regulated. A third option is getting an advance from your employer. These are the time honored ways to get short-term money to get by. Today, payday loans are charging people immoral interest rates and making matters worse for people who obtain the loans. I have witnessed an interest rate of 1,000% in writing from a payday loan company. How can this be legal?

The Real Problem: People/Customers Who Get Payday Loans Have No Voice

What do I mean when I say they “have no voice?” It means justice is not free and you have to have money to get justice in this world. Sorry if this is the first time you have been told this, but it is the cold hard truth. Bankruptcy attorneys and attorneys in general can less and less go out on a limb and take cases on for a contingency fee. Even in contingency fee agreements the expenses for the litigation of the case are paid for by the client normally. Do you know how much it costs to sue for your rights being trampled? In San Mateo County the filing fee for a limited civil lawsuit ($10,000 or less in damages alleged) is $240.00 plus serving the lawsuit on the party you are suing. There are ways to serve the summons and complaint for free. Did I hear someone say small claims court? A small claims court complaint costs $181.00 to file in San Mateo County. Yeah, well, that is an option, but I have not witnessed people actually following through with doing it themselves and then enforcing the judgment to get paid if successful. Remember you do not just get a check when you get a judgment. You have to then spend time and money to satisfy the judgment. If someone is getting a payday loan they do not have the money for any of this and probably do not have the time either. How does someone take a day off from work or more for small claims court to just reduce their income further causing more hardship?

What happens when the person does not pay on time? The payday loan company violates the law when attempting to collect the debt. They harass people at work, tell them they are going to be arrested and they will go to jail, call their family members and harass them. What do people do when their rights are violated and crimes are committed against them by these payday loan companies? Not a damn thing. They have no money so they have no voice. They are just trying to keep food on the table and a roof over their head. It just keeps going on and on like this until they get sick of it and come to someone like me. I file bankruptcy for them and now there is an enforceable order of discharge to hopefully make it all go away. No more 500% interest rate. No more phone calls. No more harassment of their relatives. No more phone calls to their work.

Payday Loan Companies are the Worst When Trying to Collect

But wait, it actually does not stop there sometimes. I can tell you as a bankruptcy lawyer that the most likely creditors that mercilessly harass our clients long after an order of discharge is entered are payday loan companies and their collection agencies. Just like clockwork while I am writing this article I received a phone call from a client that we filed chapter 7 bankruptcy for about two years ago. She received a harassing phone call from a collection agency. When I say harassing I mean the person was yelling at her and being very rude. She received multiple calls at work and on her cell phone. She was told that she has two felonies against her and she would be put into jail if she did not pay them $1,900.00 immediately. I have read there are people impersonating the Internal Revenue Service doing this same thing. In this case though the collection agency was collecting a debt for guess who? It was a payday loan company. So the payday loan company fully knowing the debt was discharged in the chapter 7 bankruptcy case sold/assigned collection of the discharged debt to this ruthless law breaking collection agency. It happen all the time and more often than not the original debt was from a payday loan company.

What Can A Creditor or Party In Interest Do In My Bankruptcy Case To Cause Problems?


First, what a creditor can do usually does depends upon the chapter of the bankruptcy code you choose to file under. This article will only address some of the things a creditors can do under chapter 7 and chapter 13 of the bankruptcy code. Generally speaking most unsecured creditors to not participate in the average bankruptcy case unless there are allegations of fraud or improper conduct by debtor regarding the extension of credit or the use of the credit account by the debtor. Secured creditors usually do participate in most bankruptcy cases given the person filing for bankruptcy protection has possession of the collateral securing repayment of the loan or debt. Another class of creditors, creditors with unsecured priority claims, may participate depending upon the chapter that is filed.

What if there is an allegation of fraud or some improper conduct?

Once a chapter 7 or chapter 13 case is filed a notice of the bankruptcy case, meeting of the creditors and deadlines is served by the bankruptcy court all on creditors listed in the bankruptcy petition. This notice has a number of dates and deadlines listed on it. One of the most important deadlines is the date to object to the debtor’s discharge or to challenge the dischargeability of specific debts. Under Section 727 of the bankruptcy code a party in interest may object to the debtor receiving a discharge in the bankruptcy case. Under Section 523 a creditor may try and prove that the debt owed to them specifically should not be discharged. This deadline is 60 days after the date of the first schedule meeting of the creditors. The meeting of the creditors is usually held approximately 30 days after the bankruptcy petition is filed. That means there is about 90 days for a creditor or party in interest to conduct an investigation regarding the bankruptcy filer’s income, expenses and assets if there is an allegation of fraud or improper conduct. In the 9th Circuit the 60 day deadline is a hard deadline. If a creditor or party in interest does not file their adversary complaint within that deadline it will most likely be dismissed as late filed. An extension of the deadline to file an adversary proceeding can be requested and granted by the court for cause, but do not expect the deadline to be extended if you have done nothing in the case and waited until the last minute to participate in the bankruptcy case. It is not fair to the debtor for the 60 day deadline to be extended because a creditor’s bankruptcy lawyer or party in interest was lazy, incompetent or negligent in investigating the financial condition of the debtor timely. The Supreme Court of the United States has made it clear that a debtor is entitled to the expeditious handling of all matters regarding discharge. See Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).

The first opportunity to ask questions by a creditor is at the 341 meeting of the creditors

The first opportunity to cause a problem is at the meeting of the creditors. It really is not causing a problem because that is what the meeting of the creditors is for, for creditors to come ask questions and determine if there are any issues to raise or allege the debtor is not entitled to a discharge of their debts, or the debt specifically owed to the creditor for some reason. The meeting of the creditors is a limited forum to ask questions though. In both chapter 7 or chapter 13 cases a creditor will only be given around 5 minutes or less to ask question of the debtor. There are many cases on the calendar and trustees have to keep the calendar moving to a certain extent. If the questions asked by a creditor or their attorney truly raise issues the trustee is interested in the questioning may take longer and the trustee may jump in to question the debtor more too. If a creditor wants to continue their investigation they will need to file an application for a Rule 2004 examination of the debtor.

Rule 2004 Examinations

A rule 2004 examination refers to the section of the bankruptcy code that allows for a party in interest and/or creditor to depose the debtor and request documents. A rule 2004 examination is a very powerful tool because it has a broad scope of what can be requested of the debtor. A rule 2004 has been described as a “fishing expedition” given the broad nature. The scope of the examination may encompass “the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or the debtors right to a discharge period.” See Rule 2004(b). The extent of the inquiry under Rule 2004 is intended to be very broad and permits the party invoking it great latitude of inquiry. See In re Valley Forge Plaza Assoc., 109 B.R. 669, 674 (Bankr. E.D. Pa. 1990). Furthermore, examinations under rule 2004 are allowed for the purpose of discovering assets and unearthing funds.” See 8 Collier on Bankruptcy, 2004.4, 2004-10 (15th ed. 1993).

The actual filing of an adversary complaint under Section 523 or Section 727 of the Bankruptcy Code

A creditor or party in interest may skip attending the 341 meeting of the creditors or conduct as rule 2004 examination of the debtor altogether. I a creditor or party in interest has all the cause or evidence they feel they need to initiate a lawsuit that may do just that. The standard to survive the complaint being dismissed is not a strict standard. To survive a motion to dismiss for failure to state a claim upon which relief can be granted, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Once the complaint is filed a creditor or party in interest will begin the discover process and try and obtain additional damaging documents or information through the discovery process in the adversary proceeding. Whether a creditor or party in interest is successful in taking away a debtor’s discharge entirely or having a specific debt deemed not discharged depends upon many factors and ultimately a favorable ruling by a bankruptcy judge. The goal when filing bankruptcy is to have an issue free case that results in the relief initially sought, an order of discharge signed by the bankruptcy court.

What Can I Do If A Frivolous Appeal Was Filed Against Me After I Won?


It is not uncommon for daily news channels to report on the Supreme Court of the United States holdings or decisions on cases they choose to hear and rule on. Of course SCOTUS holdings effect all of the United States of America. In the lower district courts throughout the United States and bankruptcy appellate panels there are many appeals each heard and decided each month. These decisions do not always get a lot of attention. Appeals of decisions, judgments or orders issued by lower courts are absolutely a necessary part of our legal system and in bankruptcy law under the Federal Rules of Procedure. It is how laws are interpreted under immense scrutiny and appeals provide all us a better understanding about when and what laws apply to. But are all appeals necessary or well intentioned? No, they certainly are not. Appealing a lower court’s final order or judgment should be considered very carefully. Some appeals are frivolous and are only designed to delay the inevitable or try and inflict one last punch to the gut to incur additional attorneys’ fees and costs. What can I do if a frivolous appeal is filed after I won?

First, discuss with your bankruptcy lawyers whether the appeal is frivolous or if there truly is a reason to file a motion to award damages. Federal Rule of Appellate Procedure 38 provides: If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee. 28 U.S. Code § 1912 is a little different, it provides for damages and costs on affirmance where a judgment is affirmed by the Supreme Court or a court of appeals, the court in its discretion may adjudge to the prevailing party just damages for his delay, and single or double costs. FRAP 38 can provide damages without the showing of delay, just frivolousness.

So what is a frivolous appeal that warrants damages and attorneys’ fees and costs? What is delay that warrants damages and attorneys’ fees and costs?

A court of appeals has the discretion to impose damages against litigants as a sanction for bringing a frivolous appeal. See Maisano v. United States, 908 F.2d 408, 411 (9th Cir. 1990). Okay, so what is a frivolous appeal? According to the Maison case, an appeal is frivolous if the results are obvious, or the arguments of error are wholly without merit. More or less you did not have a short of overturning the lower court’s decision and you should have known it from the start. To receive damages for the filing of a frivolous appeal a motion or notice from the court with a reasonable amount of time to respond must be provided. See Gabor v. Frazer, 78 F.3d 459, 459-60 (9th Cir.1996).

A court of appeals may on its own accord issue an order to show cause why the court should not award attorneys’ fees and double costs if the arguments in the appeal are without merit. Moreover, the court of appeals can impose the award of damages jointly and severally against the client and their attorney. See Int’l Union of Bricklayers Local 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1407 & n. 8 (9th Cir.1985). Joint and several liability means the party that is awarded damages may collect the full amount of the damages from either party no matter what their share of the liability for the damages is. Damages for frivolous appeals can be imposed joint and severally given that the client and attorney are in the best position to determine who caused the appeal to be filed and fairly apportion who is at fault.

In a published opinion from the Ninth Circuit Court of Appeals on July 13, 2010, In Re: THOMAS V. GIRARDI, Esq.; WALTER J. LACK, Esq.; PAUL A. TRAINA, Esq., et al., Nos. 08-80090. These Los Angeles attorneys were significantly sanctioned for a frivolous appeal. The sanctions were imposed as follows:

– Respondents Thomas V. Girardi and the Girardi Firm shall reimburse Defendants Dow Chemical Company, Dole Food Company, and Shell Chemical Company (collectively, “Defendants”) their attorneys’ fees and costs, but not to exceed the aggregate sum of $125,000.00.

– Respondents Walter J. Lack and the Lack Firm shall reimburse Defendants their attorneys’ fees and costs, but Lack’s individual liability shall not exceed the aggregate sum of $250,000.00.

– Respondent Paul A. Traina shall reimburse Defendants their attorneys’ fees and costs, but not to exceed the aggregate sum of $10,000.00

– Respondent [the young associate] shall reimburse Defendants their attorneys’ fees and costs, but not to exceed the aggregate sum of $5,000.00.

– Respondent the Lack Firm shall be jointly and severally liable for the sanctions imposed on Respondents Traina and the young associate so that its aggregate liability shall not exceed $265,000.00.

– Respondents aggregate liability to each Defendant shall not exceed $130,000.00, or said Defendants’ actual attorneys’ fees and costs, whichever is less.