Monthly Archives: March 2011

Bankruptcy Petition Preparers: What Do They Do, and How Much Can They Charge?

By Kitty J. Lin, Attorney at Law

If you have to file for bankruptcy, you probably do not have much money to spend after paying for rent/mortgage, food, utilities, and other necessities.  You may not even have enough money to pay for those necessities.  That is why when people need to file bankruptcy, they try to find the cheapest method.  A lot of people turn to bankruptcy petition preparers to prepare their bankruptcy petition, because they believe that is the lowest cost.  However, bankruptcy petition preparers may end up costing you way more than bankruptcy attorneys may charge if they incorrectly prepare your petition and your assets are not adequately protected.  The Bankruptcy Code tries to protect your rights when it comes to bankruptcy petition preparers.

First, according to 11 U.S.C. §110, bankruptcy petition preparers can not offer you legal advice.  That means they cannot tell you whether you should file for bankruptcy at all, what chapter of bankruptcy to file under, when to file, whether your debts will be discharged, whether you can keep your assets, and other bankruptcy procedures and rights.  All they can do is prepare your petition.

Second, if they do prepare your petition, they have to provide you with notice that they are bankruptcy petition preparer and that they are not allowed to give legal advice, and they need you to sign the document and file it with the court.  They need to provide you with full disclosure.  They also need to provide their information in your bankruptcy filing, such as their name, ID number, address, and other identifying information.  They need to tell the court that they have taken your money to prepare your bankruptcy petition.

Finally, in the Northern District of California, bankruptcy petition preparers cannot charge you more than $150.00 total to prepare your petition.  This includes preparing, photocopying, and forwarding your bankruptcy papers to the bankruptcy court. Bankruptcy petition preparers are not bankruptcy attorneys and cannot provide any legal advice.

So, in summary, if you’ve paid more than $150 to a bankruptcy petition preparer, you have paid too much.  That’s because they cannot do anything for you other than actually preparing your schedules and forms.  If anything goes wrong, you are the one that is left holding the bag.  It is highly advisable that if you need to file for bankruptcy, please consult with an experienced attorney.  Although they cost more than a bankruptcy preparer, they can save you thousands of dollars if something goes wrong, protect your assets, relieve the stress of the process, and save you time.  Peace of mind is sometimes worth more than saving a couple dollars, and as the old saying goes, “You get what you pay for.”

You need to consult our bankruptcy lawyer regarding your financial situation if you are thinking about filing bankruptcy.  Please call us at 877-9NEW-LIFE (877-963-9543) today to schedule a free consultation.  You may also go to our website at www.WestCoastBK.com for more information about the bankruptcy process.

Bankruptcy Statistics for the United States Bankruptcy Court Northern District of California for 2007 and 2008

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After the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act and the rush to file bankruptcy before the law change, many attorneys believed bankruptcy filings would decrease.  Well, the mortgage crisis and bad economy changed all of that.  The following is a comparison of bankruptcy filings under Chapter 7, Chapter 13 and Chapter 11 for the United States Bankruptcy Court Northern District of California.

In 2007 there were a total of 127,359 bankruptcy cases filed in the Northern District of California.  Each month and each quarter of the year filings increased month after month.  2007 really was the start of increases in bankruptcy filings.  The 2nd quarter of 2007 realized a 16% increase in bankruptcy filings, the 3rd quarter of 2007 increased 7% more and the 4th quarter of 2007 increased another 14% for a total of 21,758 filings for the last three months of 2007.  2008 realized an even larger increase in cases filed.  The 1st Quarter increased 18% from the last quarter of 2007, the 2nd quarter of 2008 increased 26%, the 3rd quarter of 2008 increased 14% and the 4th quarter increased by 3% for a total of 38,011 filings for the last three months of 2008.

Increase in Filings For the United States Bankruptcy Court Northern District of California from 2007 – 2008

Quarter. . . . . . .Year . . Cases Filed . . Quarter . . . . . . .Year . . . Cases Filed . . . . 2007 – 2008 Increase

1st Quarter        2007    15,041            1st Quarter        2008      25,727              71% more than 2007

2nd Quarter       2007    17,505            2nd Quarter       2008      32,387              85% more than 2007

3rd Quarter       2007    18,778            3rd Quarter        2008      37,083              97% more than 2007

4th Quarter       2007    21,758            4th Quarter        2008      38,011              75% more than 2007

Increase in Bankruptcy Filings For the Whole 9th Circuit from 2007 – 2008

Quarter . . . . . . Year . . .Cases Filed . . . . Quarter . . . . . .Year . . Cases Filed . . . 2007 – 2008 Increase

1st Quarter       2007     26,960              1st Quarter       2008    42,165                56% more than 2007

2nd Quarter      2007     31,124              2nd Quarter      2008    52,874                69% more than 2007

3rd Quarter       2007     32,808              3rd Quarter      2008     60,026               82% more than 2007

4th Quarter       2007     36,467              4th Quarter      2008     61,395               68% more than 2007

As shown above, bankruptcy filings increased by approximately 70% from 2007 to 2008.  The number of foreclosures and adjusting interest only or negative amortization mortgages contributed significantly to the increase in bankruptcy cases.  Also layoffs and the general sluggishness of the economy contributed as well.  As 2009 approached the number of filings continued to increase at an even larger percentage.  Bookmark Bay Area Bankruptcy Buzz for more information about the increase in bankruptcy filings during 2009.  We will also be providing comparisons of the increase and number of filings in various states throughout the United States.

Contact us today for information from our bankruptcy lawyer or bankruptcy attorney to find out if bankruptcy is right for you and your family.  You may reach us toll free at 1-877-963-9543 or submit your information with our on-line submission form.

How Does Receiving a Tax Refund Affect My Bankruptcy?

By Kitty J. Lin, Attorney at Law

With tax season here, many consumers have received or will receive a tax refund.  What happens to your tax refund if you have already filed bankruptcy, or will be filing for bankruptcy in the future?  It would depend on what stage you are at in your bankruptcy case.  Here are some scenarios:

You have received a tax refund and you have not filed for bankruptcy yet

It is very important that you communicate to your bankruptcy lawyers if you have not filed your tax returns yet and if you expect a refund. If you have already received a refund before you file your bankruptcy case, it would be considered an asset in your bankruptcy estate.  However, since you have not filed your bankruptcy case yet, if you require the funds from your tax returns for necessary expenses, such as food, shelter, utilities, property taxes, attorney fees, etc. you are free to spend it on such items.  If, after using your funds from your tax return for all the necessary items, you still have money left over, it will need to be included in your bankruptcy petition.  These funds will need to be exempted.  See Asset Protection in Bankruptcy for more information about California exemptions.

Your bankruptcy case is filed, but you expect or have already received a refund

If you have not received a refund before filing your bankruptcy case, whether you are able to keep your tax refund will depend on how much the exemptions you have available.  First, one of the most important aspects is to be sure that your expected refund (even if you have not received it yet) is listed on your petition.  If you have exemptions available, then it will be protected and you would be able to keep all of the exempted refund.  If you do not have any exemptions available, then the trustee may be able to take a pro-rated portion of your tax refund for the benefit of your creditors in the bankruptcy estate.

You expect to receive a refund, but it was not listed in your bankruptcy petition

If you know you will receive a refund but you intentionally decide to not disclose it in your bankruptcy petition, the bankruptcy trustee may require you to turn over the funds to the bankruptcy estate for the benefit of your creditors.

If you have any questions about the affects of a tax refund in a bankruptcy case, it may be advisable to speak with an experienced bankruptcy lawyer to go over your situation to be sure that all of your funds are protected.  You may contact us toll free at 877-9NEW-LIFE (877-963-9543) to schedule a FREE in person or phone consultation today.

How Long Does a Credit Card Company Have to Enforce an Unpaid Account and Statute of Limitations

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So you are having trouble making your credit card payments and probably wondering what will happen next?  The next few paragraphs will discuss the treatment and removal of unpaid credit card accounts based upon the Fair Credit Reporting Act and the statute of limitations under California law only.  Each state has its own statute of limitations for causes of action like enforcing an unpaid credit card debt.

What is a Statute of Limitations?

The first issue is what is the statute of limitations?  The statute of limitations is the length of time that one has to file a lawsuit to enforce a claim such as an unpaid debt, a personal injury cause of action or a products liability claim.  When you sign up for a credit card, you are entering into a written contract agreeing to pay back the money you charge to the credit card under varying terms.  When payment is not made, the contract is breached.  In California the statute of limitations for breach of contract is four years.

When does the Statute of Limitations start?

Generally the statute of limitations begins to run when the cause of action accrues or begins.  This is a complicated area of the law and this article will only touch on general information and not a case by case analysis your case may require.  When the statute of limitation usually begins is when you breach the contract by not paying, or the cause of action accrues arising from the date of last payment or when demand for full payment is received.  In California, pursuant to California Civil Code Section 337, the statute of limitations for breach of contract resulting from nonpayment is 4 years.  In California, the statute of limitations can be extended only by a new agreement in writing to agree again to repay the credit card debt.  If a credit card company does not file a lawsuit within 4 years from the date of last payment or when demand for full payment was received, and no new agreement in writing has been executed, the debt is then time-barred and is not legally enforceable.  The only way the credit card company can then get a payment from you is if you voluntarily choose to make a payment.  Some credit card agreements have an acceleration clause that must be invoked and once a payment is missed, then the statute of limitations begins to accrue.

What Happens if a Credit Card Company Does Not File Suit Within the Statute of Limitations and the Debt is Time-Barred?

There is also a statute of limitations regarding credit reports.  The statute of limitations for reporting accounts and credit reports is controlled by the Fair Credit Reporting Act (FCRA).  If a credit card company in California does not sue within 4 years and the debt becomes time-barred, it is still a negative account on a credit report though.  Pursuant to the FCRA negative accounts can remain on a credit report for 7 years and positive accounts can remain for 10 years.  There are some exceptions that are not listed here, so consult a professional in your state for the exceptions.  If a credit card company does not sue to enforce the payment of the debt, the next step is to dispute the negative account with all three credit bureaus.  The credit bureaus, Experian, Equifax and Trans Union are prohibited from continue to list old negative accounts on credit reports and must remove inaccurate item in 30 days.  To dispute a credit account on a credit report you will need a recent copy of your credit report.  There are a number of websites that will provide a free credit report.  Then to dispute an item on a credit report, you may write a letter, file a dispute on-line at the credit bureaus website and even by telephone.  Go to the Federal Trade Commission website at: www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.

If a credit card company unfortunately seeks to enforce a debt by filing a lawsuit, it is time to consult one of our best bankruptcy lawyers or experienced bankruptcy lawyers for advice.  You may contact us toll free at 1-877-963-9543.

What is Mortgage Forgiveness Debt Relief?

By Kitty J. Lin, Attorney at Law

Normally, the cancellation of debt is a taxable event.  This means that if a creditor forgives a debt, or accepts less than what is owed to them, they issue a 1099 and the Internal Revenue Service and Franchise Tax Board in California will consider the forgiven debt as income.  Forgiven debt is considered income because you owed a certain amount, and now you don’t have to pay it back, so you received a benefit from it.

In the current real estate crisis, more and more consumers have their homes foreclosed on them, or they have to do a short-sale due to their financial situation.  It would add insult to injury if they have to pay taxes on a second mortgage or a home equity line for a home they no longer own.  Because of this, the federal and state governments have enacted laws that protect the homeowner from this situation. As a bankruptcy lawyer in the Bay Area there is only so much filing bankruptcy can help.

For federal taxes, there is the Mortgage Forgiveness Debt Relief Act of 2007.  This law excludes debts forgiven from 2007 to 2012 on a consumer’s primary residence if their principal balance was $2 million or less.  If you are married and filing separately, the exclusion is only up to $1 million.  One limitation of this act is that it only applies to the amount used to buy, build, or substantially improve a primary residence.  If debt was forgiven and it was used to pay off your debts, or buy another car, those amounts are not subject to the exclusion.  If you had refinanced your home, only the amount of the old principal balance is subject to the exclusion, not the new refinanced amount.  Debt forgiven on rental properties, second homes, and other types of property are still subject to taxes if the debt is forgiven, unless other tax relief is available.

California has also followed suit to provide some debt relief for residents of California.  California enacted SB 401, Mortgage Forgiveness Debt Relief, to aid homeowners that had their houses foreclosed, went through a short-sale, or had their loan modified from 2007 to 2012.  It excludes canceled mortgage debt up to $500,000 of the consumer’s principal balance on their primary mortgage.  Married couples or domestic partners filing taxes separately can only exclude up to $250,000.  Similar to the federal Mortgage Forgiveness Debt Relief Act, this only applies to primary residences.  Second homes, rental property, and business property do not receive the same tax exclusions.

If it is a second home, rental property, or business property that was foreclosed or sold short, it is highly advisable that seek the advice of a professional.  To schedule a free consultation with our experienced bankruptcy lawyer, call toll free at 1-877-9NEW-LIFE or 877-963-9543.  You can also visit us online at www.WestCoastBK.com for more information.

Purchase Money Security Interests and California Non-Judicial Foreclosure

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One of the little known concepts regarding the mortgage crisis in California is PMSI or purchase money security interest.  It is a little known concept because loan officers and mortgage brokers failed to tell people about what a purchase money security interest is when convincing homeowners to refinance or take out equity lines of credit and second mortgages.  While bankruptcy is governed by Federal Law, the foreclosure laws are governed by state law.  Each state has their own laws regarding the legal consequences of losing a home by foreclosure.

What is a Purchase Money Security Interest?

In California a lender receives a purchase money security interest in a home to secure the payment of the mortgage given to purchase a home.  The key point is the mortgage was obtained to purchase the home, not refinance or obtain money from an equity line of credit or second mortgage.  When you obtain a home loan, you do not own the home until you pay off the mortgage.  The lender still has an interest in the property until you pay off the mortgage in full and the house is then owned free and clear.

As mentioned above, each state has different laws regarding foreclosure.  In California, homeowners receive protection when a purchase money security interest is still in place and a homeowner defaults on the mortgage.  A mortgage company cannot seek payment of any difference between the value of the home and the mortgage.  But this is only the case in California if the purchase money security interest still exists.  If a California homeowner refinances their mortgage, they are destroying the purchase money security interest and therefore losing protection given by California State Law.  The most unfortunate part of refinancing a home is that the loan officer or mortgage broker probably never even mentioned this consequence of refinancing.

The good news for homeowners in California is mortgage companies almost always seek foreclosure by non-judicial foreclosure and then cannot seek a deficiency judgment.  A non-judicial foreclosure is cheaper and quicker for a mortgage company to take a home back.  A typical California Non-Judicial foreclosure can be accomplished in as little as four months.

Consult our experienced bankruptcy lawyers or bankruptcy attorneys for more information about California foreclosures, non-judicial foreclosures and judicial foreclosures in California.