Mortgage Interest and Fun With Numbers

By Ryan C. Wood

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

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

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

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

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

Amortization Schedule

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

Total Payments: $1,325,616.14

Total Interest: $525,616.14

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

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

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

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

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

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

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

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

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

Does Anyone Save Money When Refinancing A Mortgage Loan?

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

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

Amortization Schedule

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

Total Payments: $997,395.73

Total Interest: $314,319.16

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

No Stacking of California Bankruptcy Exemptions

By Ryan C. Wood

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

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

What Are Exemptions?

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

California Opted Out of The Federal Exemption Scheme 

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

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

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

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

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

Why Bankruptcy Exemptions Stacking Became an Issue

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

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

By Ryan C. Wood

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

Best Credit Cards to Rebuild Credit After Filing Bankruptcy

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

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

Total Visa Unsecured Card –                                       No additional information listed

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

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

  • First Progress

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

Discover It Secured                                                       No annual fee                                APR – 22.99%

  • 1% – 2% Cash back on certain purchases

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

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

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

  • First Digital

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

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

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

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

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

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

  • For Rebuilding Credit

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

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

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

  • By WebBank

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

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

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

How To Rebuild Credit After Bankruptcy

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

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

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

  • If You Have Credit Do Not Use It All

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

  • Opening A Bunch of New Accounts All At Once

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

  • As Mentioned Above Apply For a Secured Credit Card

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

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

By Ryan C. Wood

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

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

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

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

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

Presumptions Defined and Discussed

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Ryan C. Wood

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

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

In re Clifford Brace S252473 Opinion

The California Supreme Court held:

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

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

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

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

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

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

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

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

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

The Community Presumption Can Be Rebutted

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

Interpretation of Family Code Section 852 Simply Does Not Exist

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

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

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

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

CA Family Code Section 852

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

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

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

CA Family Code Section 760

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

CA Family Code Section 2581        

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

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

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

CA Evidence Code Section 662

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

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

By Ryan C. Wood

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

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

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


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


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

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

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

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

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


CA Family Code Section 760

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

CA Family Code Section 2581        

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

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

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

CA Evidence Code Section 662

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

CARES Act: Bankruptcy Cases and Coronavirus COVID-19

By Ryan C. Wood

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

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

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

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

If You Do Not Pay the Chapter 13 Plan Payment

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

If Your Chapter 13 Plan is not Yet Confirmed or Approved

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

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

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

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

Chapter 13 Hardship Discharge

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

Income Received From Coronavirus COVID-19

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

Small Business Reform Act of 2019 Debtor Changes and CARES Act

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

Section 1113 Bankruptcy

(b) Bankruptcy Relief

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

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

How is Material Defined or What Is Material?

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

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


By Ryan C. Wood

As I sit here pondering my future and the shutdown of San Mateo County, California because of 80 total known coronavirus infections I have some thoughts about how the inevitable bailout should look like. I am sure there are more criteria then what is listed below that are a good idea. The point is no more handouts to multi-billion corporations with the false expectation that the money somehow trickles down to lowest person on the ladder. Do not tease us with a mere $1,000 one-time payment and then give corporations $770 billion or more. Give us the people ALL of the money and let us spend it in support of the economy.

Keep the $1,000 payment proposed for people given that will only pay for my clients’ phone bill, cable bill and maybe there will be some left over for a car payment.  Instead give actual people, you know, the humans living in the United States the money being proposed to be given to corporations.  We all have freedom of choice in a free market right?  Us working people are supposed to choose how to spend our money creating winners and losers in the free market, right?  Trickle down is a joke. CEO takes millions along with upper management then whatever is left goes to page wages that are not even good? 

Do you want to drink water from melted snow thousands of feet high in the Sierra Nevada Mountains or drink water that is left over from trickling down thousands of miles picking up every single harmful thing possible?    

Clearly we need a #TrickleUPBailOut based upon the following criteria: 

  1. #TrickleUpBailout – MONEY TO THE PEOPLE

What I am saying is that hard working tax paying Americans should get the bailout money period.  Then those hard working tax paying Americans can choose what to do with that money.  Keep the proposed $1,000 given I know the amount proposed to be given to corporations spread out over those humans that need it will be far more money. How those in need who receive the billions spend the money in our free market will determine the winners and losers. Not the government choosing which corporations to prop up on the tax payer dime regarding the free market.   There will be winners and loser.  Let our free market and freedom of choice be how we move forward after the coronavirus catastrophe.  That is how it is supposed to work.  Not the other way around.  Please do not give billions of tax payer dollars to a handful of corporations under the guise of too big to fail yet again.  The government is not supposed to create winners and losers.  We have a free market right?  Tax paying hard working voters are supposed to make these decisions right?  Give the bailout money to real people that have hearts, breathe and live, vote, pay taxes and need help given the coronavirus catastrophe.  Do you not trust us to exercise our rights and freedom of choice?   


All people that meet the following criteria get the bailout funds regardless of legal status, race, religion, gender, sexual orientation, ever convicted of a crime or any other way to treat a human different from another human.  Let us start a new normal from the ashes of the coronavirus catastrophe that truly is equal to humans that qualify just because they are simply a human that live and works in the United States.  Disease and natural disasters that hurt humans do not care about any of these things.  Disease and natural disasters do not discriminate; only humans do.   

The application for #TrickleUPBailOut funds will not include a single question about legal status, race, religion, gender, sexual orientation, ever been convicted of a crime type questions period.

You live here in the United States.  You lived it you get it.         


Sorry, but it must be said.  Good for you, not hating, but trust fund babies should not get a dime of tax payer money as a result of the coronavirus catastrophe.  Your good already given someone else in your life was able and nice enough to take care of you and provide for your every financial need.  If you are a trust fund baby that has to work to get by in life then that is different of course.      


I am not going to say a number but we can all agree that someone who has a gross income of $300,000 a year or more does not need any bailout money, period.  I will let other people elected to make such decisions and set a number.  The point is if you make that much money you do not need a bailout.  Bailout money should be reserved for those in need of it most.  There are exceptions of course.  If you lose your job and all income then ……..


If you lose your job during the coronavirus catastrophe you automatically qualify, period.  No questions asked.  Lose job = #TrickleUPBailOut money. 

I am sure there are plenty of other criteria that make sense to make sure all bailout tax payer dollars actually go to benefit tax payers that actually need it; period.  These five things are probably just a good start.  The point is why trust some CEO getting paid $30 million a year to decide what to do with tax payer bailout money?  As a bankruptcy attorney I am already fielding calls and the coronavirus has already caused bankruptcy filings.   I am sure there will be more to come, but giving bailout money directly to humans in need may reduce the number of future bankruptcy cases.  Even if bailout funds do not prevent bankruptcy filings who cares?  Taxing paying hard working people are the ones that deserve every penny of any bailout money from the government.      

COVID – 19 Coronavirus Economic Consequences Are Worse Than Medical Consequences

By Ryan C. Wood

Hopefully factually information about the leading causes of death will provide some light and sanity regarding the response to the Coronavirus. In the United States the most dangerous things to you during the Coronavirus hype and hysteria to your health and life are your own eating, exercise habits and then just living life.  Forgive me if I argue the current reaction to COVID-19 is disingenuous. I am also not advocating doing nothing about the Coronavirus. The fact is if 500 people die worldwide each day from the Coronavirus that is still nothing compared to what are the leading causes of death. It is about priorities and the greater good.  If the world and world governments actually cared about your health declarations of emergency should have been issued long ago for the list of leading causes of death that already exist.  Instead billions of dollars are made and the world profits from things that are the leading causes of your death.   Heart disease, then cancer and then accidental death kill about 119,000 people in the United States each month (CDC).  These are the top three things you need to be concerned about yesterday, today and tomorrow. What is the point of quarantine, travel restrictions and hysteria when much more serious and widespread causes of death exist?

How many economic casualties resulting from the Coronavirus hype and hysteria will I as a bankruptcy attorney have to treat by filing bankruptcy for them?

Diarrhea, the 5th worldwide leading cause of death will kill more people worldwide then the Coronavirus ever will.  Google it and read for yourself.  The Center for Disease Control provides 2,195 children, just children, die each day worldwide due to diarrhea.  EACH DAY!!!     

Worldwide preterm birth complications are the 8th leading cause of death. 

I understand much is not known about the Coronavirus. What I have no doubt about is there will be far too many bankruptcy filings due to the Coronavirus hype and hysteria.  The truth is they were probably financially at the teetering point already and then this happened.  Hype and hysteria they had no control over will devastate their financial life.  The same thing is ironically true for those that the Coronavirus is medically harmful to.  The truth is they were probably medically at the teetering point already and then the Coronavirus happened and it killed them.  Their immune system was already compromised.  I hope that I do not have an uptick in business given the hype and hysteria about the Coronavirus.  Nothing at this point leads me to believe there will NOT be far more serious economic devastation than medical devastation resulting from COVID-19.    

Top Ten Causes of Death in the United States

  1. Heart disease: 647,457 a year or 53,955 a month
  2. Cancer: 599,108 or 49,926 a month
  3. Accidents (unintentional injuries): 169,936 or 14,161 a month
  4. Chronic lower respiratory diseases: 160,201 or 13,351 a month
  5. Stroke (cerebrovascular diseases): 146,383 or 12,198 a month
  6. Alzheimer’s disease: 121,404 or 10,117 a month
  7. Diabetes: 83,564 or 6,694 a month
  8. Influenza and pneumonia: 55,672 or 4,639 a month
  9. Nephritis, nephrotic syndrome, and nephrosis: 50,633
  10. Intentional self-harm (suicide): 47,173

Heart Disease – Leading Cause of Death in the United States

Guess what?  You are your own worst enemy.  Not the Coronavirus or anything you can catch from another human being.  The Center for Disease Control provides the leading causes of heart disease are: diabetes, overweight and obesity, unhealthy diet, physical inactivity and excessive alcohol.  There should be a declared national emergency about the pandemic of food abuse given the number of people dying.  The food killing 54,000 people in the United States a month that leads to heart disease should be quarantined until people eat healthier food.  Imagine that.  That would be tax dollars well spent to ensure more people in the United States live each year.  People should be quarantined and forced to exercise.  Obviously the government and people are very concerned about your medical wellbeing, right? 

What are the leading causes of diabetes?  Eating habits and lack of exercise; just sayin.


Cancer is the second leading cause of death in the United States.  The leading causes of cancer are smoking/tobacco, diet and physical activity, sun and other types of radiation and viruses and other infections.  49,926 people in the United States die each month and there is no state of emergency declared.  When will a state of emergency be declared? 

Accidental Death                            

This is the third leading cause of death in the United States.  Wrong place at the wrong time and POW you are dead.  Please think about how you are driving to hoard that toilet paper or other items at the store.  So hey, yeah, do not go to work because of the hype and hysteria but continue to drive like a maniac contributing to the 14,166 accidental deaths in the United States a month.  Or take every crazy precaution possible then get crushed to death by a falling rock in Yosemite National Park.  That is 427 people every day dying.     

Did you known the Center for Disease Control estimates there are 38,000 new HIV/AIDS infection each year in the United States?  That is 3,167 a month.  Why is there no state of emergency?  Why was there no state of emergency declared years ago about HIV/AIDS?

So part of the issue here is how the limited resources we have are used.  Why is the world so concerned about the Coronavirus when millions of people suffer from known leading causes of death each year without such fanfare?  This is nothing new but for some reason a new virus is stealing the headlines.  Is this the new normal?  Who cares about the actual and devastating leading causes of deaths and instead declare states of emergency, initiate quarantines for any new virus? 

Student Loan Claims Should Be Treated In A Separate Class In Chapter 13 Bankruptcy Plans

By Ryan C. Wood

The following discusses listing and treating student loan claims in chapter 13 bankruptcy cases as a separate class and separate claim all by itself in a chapter 13 plan.  By creating a separate class the treatment of the student loan claims will be different than NOT substantially similar general unsecured claims like credit cards or medical debts.  The advantage of this is designating more of the plan payment to a not dischargeable debt, student loans, than debt that is dischargeable credit cards, medical debt or personal loans for the benefit of the bankruptcy filer.  Arguably the plain, unambiguous language of the Bankruptcy Code allows this.  “If the language has a plain meaning or is unambiguous, the statutory interpretation inquiry ends there.”  CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 706 (9th Cir. 2017) (citation omitted).

First Let Us Talk Bankruptcy – Broadly Speaking That Is

The filing of bankruptcy is for debtors; the bankruptcy filers.  Not creditors or other parties-in-interest.  Bankruptcy proceedings are intended to give debtors a “fresh start.” Goudelock v. Sixty-01 Ass’n of Apartment Owners, 895 F.3d 633, 637 (9th Cir. 2018) (citing Grogan v. Garner, 498 U.S. 279, 286 (1991)); Dept. of Health Servs. v. Jensen (In re Jensen), 995 F.2d 925, 928 (9th Cir. 1993).  Bankruptcy proceedings are intended to grant debtors a “fresh start,” Grogan v. Garner, 498 U.S. 279, 286 (1991), and, as a result, the Bankruptcy Code “is to be construed liberally in favor of debtors,” In re Devers, 759 F.2d 751, 754 (9th Cir. 1985).

It is less and less likely the Bankruptcy Code will be construed liberally in favor of debtors.  This is a generalization and of course there are plenty of examples of liberal interpretation for the benefit of debtors.  Just like in the real world in which corporations that do not live, breath or die dominate the argument for the almighty buck.  A profit before people is the name of the game and it is pervasive.  How can bankruptcy be immune from this when the largest financial institutions are the main creditor players?  It cannot be.  Interpretations are more and more in favor of large multi-billion conglomerates.

Model Chapter 13 Plans 

Model chapter 13 plans were created and are universally used from jurisdiction to jurisdiction.  Some vary widely while others mirror the national model chapter 13 plan.  Unfortunately most model chapter 13 plans do not provide for a separate class listing for student loans.  Some plans do include a section that provides language such as: Class 6 includes designated nonpriority unsecured claims, such as co-signed unsecured debts, that will be treated differently than the other nonpriority unsecured claims provided for in Class 7. The claim holder of each Class 6 claim and the treatment of each claim shall be specified in section 7, the Nonstandard Provisions.  The low hanging fruit is a student loan that is co-signed.  This article does not address this circumstance given there should be no argument that co-signed student loans may be listed in a separate class with different treatment then general unsecured creditors.

As always the time and money to make the argument student loans may be listed in a separate class and treated different than general unsecured creditors could be substantial.  I cannot work for free and almost no client can afford to pay me to make this argument on their behalf.  If it goes bad then the only option is to appeal requiring even more time and money.  So what client of mine has the money to do that?  Try none.  There are always bigger fish to fry for bankruptcy filers and there are absolutely no moral victories.  There is either food on the table or there is not food on the table. 

Additional Provisions of a Model Plan

The additional provisions section of chapter 13 plans is where the terms of the chapter 13 plan can be varied based upon the bankruptcy filers circumstances.  This section was created to bankruptcy attorneys could not sneak in provisions or treatment of claims that are not supported by the Bankruptcy Code.  It is good and bad.  The result is if there are any nonstandard or provisions you need to add to actually present your client well the language is front and center for scrutiny.

If you include language in the “Additional Provisions” section of your model chapter 13 plan the chapter 13 trustee’s office will most likely object to the language and not recommend confirmation of the chapter 13 plan.  Sometimes judges will preapprove certain additional provision additions for issues that come up over and over again to streamline the process and allow chapter 13 trustee’s to recommend confirmation of a chapter 13 plan without a formal hearing.  Otherwise, the trustee’s office will force there to be a confirmation hearing and the bankruptcy judge assigned to the case will make a decision as to whether the language in the additional provision can be confirmed as part of the plan.  This will probably happen even though every creditor was served with the chapter 13 plan and no creditor objected to their treatment in the plan.  What you say!?  If a creditor does not accept their treatment they have to object right?  You would think creditors should have to object to chapter 13 plans and not accept their treatment in a chapter 13 plan.  No, no.  Why hire and pay an attorney to file an objection to confirmation when the trustee and court will do it for you?  At the same time chapter 13 trustees’ and the Court have a duty to uphold the law.  Also, some creditor attorneys do things to just earn a buck that are not necessary and only increase costs of administration of bankruptcy cases.  So I am torn on whether I want creditor participation in a chapter 13 case or not.   I do believe creditors should have to object to their treatment in chapter 13 plans though.       

The Bankruptcy Code

So this is all about interpreting the Bankruptcy Code as it exists.  Arguably the plain language of the Bankruptcy Code provides student loans should be listed as a separate class with their own treatment.  Let me explain.

Section 1322(b)(1) provides:

(b) Subject to subsections (a) and (c) of this section, the plan may— (1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

The plain language provides designation of a class or classes of unsecured claims.  So more than one class of unsecured claims can be part of a chapter 13 plan.  Then it says as provided in section 1122.

Section 1122 Classification of Claims or Interests provides:

(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.

(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.

Section 1122 as referenced in 1322(b)(1) only allows classes of claims of the same nature or character, substantially similar to the other claims or interests of such class.  This is language is plain, taking the ordinary meaning of the words and is unambiguous right?  Okay wonderful; moving on now to defining the key term in the language above.  What is the definition of substantially similar?  Might we have case law on the definition of “substantially similar?”  Yup. 

Various Courts have defined “substantial similarity” to mean the legal nature of the respective claims.  See In re McKenzie, 4 B.R. 88 (Bkrtcy.W.D.N.Y., 1980, Creahan, B. J.); In re Iacovoni, 2 B.R. 256 (Bkrtcy.D.Utah, 1980, Mabey, B. J.); In re Montano, 4 B.R. 535 (Bkrtcy.D.D.C. 1980, Whelan, B. J.); In re Barnes, 7 B.C.D. 961 (D.D.C. 1981). 

So for claims to be listed in the same class they must have the same legal nature of the respective claims.  Student loans are not substantially similar to credit card, personal loans or medical debts in anyway and therefore should not be listed in the same class.

Student loans are really non-consumer debt given student loans are incurred to further ones education and seek higher income.  Student loans are therefore incurred for income purposes or business purposes rather than consumer goods and services. 

Student loans are by law are NOT dischargeable.    

How can student loans possibly be in the same class as dischargeable general unsecured claims like credit card, personal loan or medical debts?  There is nothing substantially similar as to the legal nature of the claims.  So student loans must be listed in a separate class with their own treatment.

(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.

“…. in reliance of the 15th Ed. Collier’s comment on § 1122, the court held that all unsecured creditors with claims of the same nature or character have a similar right to the assets of the estate.  See  In re Iacovoni, 2 B.R. 256 (Bkrtcy.D.Utah 1980)  Conversely claims of a different nature or character have different rights to assets of the estate.

Plain Language of Bankruptcy Code Is Clear

You have read it for yourself.  How can a not dischargeable debt incurred for entirely different reasons be substantially similar to general unsecured claims like credit cards, medical debts or personal loans?  Clearly the Bankruptcy Code says different types of claims should be listed in separate classes with arguably different treatment.  Furthermore, if you propose a chapter 13 plan with a separate class for student loans and no creditor objects to the plan what is the problem?  If a creditor does not object to their treatment they are accepting the terms of the chapter 13 plan. 

Confirmation of A Chapter 13 Plan With Student Loans Listed As A Separate Class

As mentioned above the chapter 13 trustee’s office will most likely object to confirmation of the chapter 13 plan if the plan lists student loans as a separate class with a separate treatment in the additional provisions section.  See below and Bankruptcy Code Section 1325(b)(1)(B).  As long as the plan is paying all of the debtor’s projected disposable income to be received in the applicable commitment period to unsecured creditors the chapter 13 plan should be confirmed.  A chapter 13 plan with student loans listed in a separate class will still meet the requirement for confirmation as provided in Section 1325(b)(1)(B).       

Bankruptcy Code Section 1325(b)

 (1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan—

(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or

(B) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.

Of course there is more.

Unfair Discrimination

Bankruptcy Code Section 1322(b)(1) provides:

(b) Subject to subsections (a) and (c) of this section, the plan may— (1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated; however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;

Now that we have separate classes you may not discriminate unfairly against any class so designated.  If you are bankruptcy attorney practicing in the Ninth Circuit undoubtedly the case of In re Wolff, 22 B.R. 510 (9th Cir. BAP 1982) will be cited.  This is an absolutely horrible case that really should not be applied to listing student loans as a separate class with a separate treatment.  In Wolf the debtor proposed to treat creditors with exactly the same types of claims and rights differently in the chapter 13 plan.  In Wolf the plan proposed to pay just two general unsecured creditors while paying nothing to all other general unsecured creditors.  Yeah, that is unfairly discriminating against creditors based upon those facts.  In Wolf the debtor treated two creditors more or less as “Critical Vendors” but failed to provide evidence of why the debtor would fail without the different treatment of exactly same type of claim/creditor.  In Wolf the Court provided: “We believe that the better result is that there will be occasions where unsecured claims might be classified and treated differently, even though the legal character of the claims is identical and the treatment is discriminatory, but not unfairly so.”  In re Wolff, 22 B.R. 510, 512 (9th Cir. BAP 1982).  Wolf brought us the following: In re Kovich, 4 B.R. 403 (Bkrtcy.Mich. 1980), and refined in In re Dziedzic, 9 B.R. 424 (Bkrtcy.Tex. 1981), more reasonably sets forth the interpretation to be placed upon § 1322. The test is (1) whether the discrimination has a reasonable basis; (2) whether the debtor can carry out a plan without the discrimination; (3) whether the discrimination is proposed in good faith; and (4) whether the degree of discrimination is directly related to the basis or rationale for the discrimination.

So list student loans as a separate class with the exact monthly amount as general unsecured creditors receive and there will be no discrimination at all; just equal payments to separate classes paying unsecured creditors all of the debtor’s projected monthly disposable income.  Done, chapter 13 plan confirmed leaving the debtor’s right to a fresh start intact and the Bankruptcy Code being liberally interpreted for the benefit of the bankruptcy filer.