Monthly Archives: May 2013

Assets and Bankruptcy

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There is a lot of confusion about assets and bankruptcy. Believe it or not most people that choose to file for bankruptcy protection keep all of their stuff. They even keep their house and cars. California has generous exemptions that protect the stuff you own and allow you to keep it. If filing bankruptcy left you barefoot and without a car how can you start over?

Houses and Bankruptcy

If you own a home and are current on the payments you can file a Chapter 7 bankruptcy case and get rid of all your unsecured debts like credit cards, personal loans or medical debts. This is assuming you qualify to file a Chapter 7 case based upon your income, expenses and assets. What if your house has some equity? This means the house is worth more than what you owe. California allows you to protect up to $75,000 in equity if singe and $100,000 if married. If you are disabled or older than 65 years old you can keep $175,000 of the equity. You also need to include the cost of sale of the house and if there are any capital gains taxes you will have to pay when selling the house. So if the amount of your first mortgage, plus the applicable exemption, plus the cost of sale and plus any capital gains tax is the same or more than your house is worth there is no value to the bankruptcy estate or your creditors. You keep the house. Make sure you speak with an experienced bankruptcy attorney in your area. Especially since home values are increasing in most California communities. If you are behind on your mortgage payments then you need to take a look at filing a Chapter 13 bankruptcy case to save your home.

Cars and Bankruptcy

If your car or cars are paid in full whether we can protect the vehicles depends upon their value. California just increased the vehicle exemption amount to $5,100 to be applied to one car. California also has the wildcard exemption which totals $26,425. So in theory you could have two or more vehicles worth a total of $31,525 and still keep them. Keep in mind if you are still making payments you need to deduct the amount you still owe on the loan from the value to figure out how much your vehicle is worth. If you do have payments still you just need to keep them current. If you are behind on your car payments or want to lower your monthly car payment you should look into filing a Chapter 13 bankruptcy case. Speak with a bankruptcy lawyer in your area about how Chapter 13 can lower your vehicle loan amount and percentage rate.

Your Other Stuff

For the most part all of your used household goods are not worth much. Once you purchase most things the value decreases rapidly. The exception is jewelry and other collectibles. You may need to have your jewelry appraised to make sure it can be protected. The jewelry exemption under the California 703 exemptions is $1,525 and under the 704 exemptions $7,625.

Involuntary Bankruptcy

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Yes, your creditors can file bankruptcy for you without your permission. Section 303 of the Bankruptcy Code governs involuntary bankruptcy. These cases are very rare and even rarer if filed against an individual. If may be difficult to find a bankruptcy lawyer that has experience filing one of these cases. Mostly businesses are forced into bankruptcy by their creditors. In involuntary case may only be filed under Chapter 7 or Chapter 11 of the Bankruptcy Code.

One unsecured creditor can file the petition for bankruptcy against the company or individual and then at least two more unsecured creditors must join the petition for a total of $14,425 in unsecured non-contingent claims and not subject to a bona fide dispute as to liability or amount.

After the initial petition is filed and the required creditors joins the petition the next issue is whether the case will be allowed to continue or be dismissed. If the debtor does not respond to the petition being filed then the bankruptcy case will continue and the debtor will have no choice but to participate. If the debtor does oppose the filing then a hearing will be held to determine if the bankruptcy case should continue.

If you are considering filing an involuntary case against a nonpaying company or individual be careful. You may have to file a bond to indemnify the debtor for attorney fees and costs or more that the court could allow. If the petition is dismissed for reasons other than on consent of all petitioners and the debtor, the court may grant a judgment against the filing creditors for reasonable attorney’s fees, costs, any damages proximately caused by the petition filing and even punitive damages.

If you are owed money and the individual or company that owes the money is not paying its debts regularly you may consider filing an involuntary bankruptcy case. You will need to know that there are also other creditors in the same position as you to join the petition though. Choose wisely the bankruptcy attorney you retain to lead you down this path. It is a difficult and rare area of practice for bankruptcy filers. Please note that you may not force an individual into a Chapter 13 bankruptcy case. Before filing a petition for bankruptcy against an individual you should research the assets of the individual. If they have few assets you may have put yourself in a worse position to be paid on your claim. At the same time there are some advantages. Think about the 90-day preference period. This is the 90-days prior to the bankruptcy petition being filed. If the alleged debtor made a large payment to some other creditor during the 90-days prior, then the payment could be avoided for the benefit of all creditors. Of course everything depends upon the circumstances and this article only addresses some general issues to consider.

What is a Fraudulent Transfer in Bankruptcy?

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The good news is that fraudulent transfers in bankruptcy are relatively uncommon. Section 548 of the Bankruptcy Code defines these types of transfers. Hopefully prior to filing the case your bankruptcy lawyer asked the right questions and learned about possible transfers of the client’s assets and to whom. But there is light at the end of the tunnel. Please read all the way to the end of this article to find how to fix bankruptcy fraudulent transfers.

Transfers for Less Than Fair Market Value

Probably the most common fraudulent transfer is selling an asset or giving away an asset for less than fair market value. If your car is worth $10,000 and it is paid in full you have the right to transfer title or sell to anyone you want. The issue is for how much? If you know that the California bankruptcy exemptions cannot protect all of your assets you may be tempted to sell or transfer title to a friend or family member for less than fair market value. It is not okay to give away assets to the detriment of your creditors. It is just not fair and that is what bankruptcy is all about. It is about treating all parties fairly given not so good financial circumstances. You must get fair market value for your stuff if you sell it prior to filing bankruptcy.

Transfer to Insiders 2 Years Prior to Filing Bankruptcy

The Chapter 7 or Chapter 13 trustee assigned to your case may avoid (undo) any transfer of an interest of the bankruptcy filer in property, or any obligation incurred by the debtor, which was made or incurred on or within 2 years before the date of the filing of the bankruptcy petition.

So What Can be Don About Fraudulent Transfers?

In the Ninth Circuit at least get the thing or money back that you transferred prior to filing for bankruptcy protection. See In re Adeeb, 787 F.2d 1339 (9th Cir.1986). Faced with financial difficulties Mr. Adeeb transferred some of his real property to friends and family members on the advice of an attorney that did not practice bankruptcy law. Once Mr. Adeeb spoke with a bankruptcy lawyer he tried to undo the transfers, but while transferring title back to his name three of his creditors filed an involuntary bankruptcy petition against him. He acquiesced and filed a voluntary petition for bankruptcy not long after. The bankruptcy court ruled Mr. Adeeb should not receive a discharge due to his transfer of assets within one year of filing for bankruptcy. On appeal to the Ninth Circuit Court of Appeals held that if a debtor reveals the transfers to their creditors, recovers substantially all of the transferred property before he/she files a bankruptcy petition they should still be eligible to receive a discharge.

Creditor in Bankruptcy

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If you are owed money and the person or business that owes you the money filed for bankruptcy you are a creditor in bankruptcy. You need to pay attention to the mail you receive and mark the various deadline on your calendar. You should seek counsel of bankruptcy lawyers in your area as well for more detailed information about the bankruptcy process. A common problem is how much should be spent trying to collect a debt now that the person or business has filed for bankruptcy protection? The answer is it depends. For the most part few creditors in bankruptcy participate in the process. It just costs too much to pay an attorney to monitor or participate in the bankruptcy case and get nothing from the bankruptcy estate in return.

The automatic stay becomes effective as soon as the person or business files their bankruptcy petition. You may not take any further collection action without permission from the bankruptcy court. So what now?
The first issues is what chapter of the Bankruptcy Code did the person or business filed under? If a chapter 7 case was filed then the likelihood of payment from the bankruptcy estate is unlikely. If the person or business filed a reorganization bankruptcy under Chapter 13 or Chapter 11 payment from the bankruptcy estate of some amount is likely.
The second issue is whether this is a business debt or a personal debt that is owed. If the debt is for the sale of goods to a business you may have additional rights such as reclamation. Reclamation rights belong to creditors to take back goods already sold to the business that has filed bankruptcy and not paid for the goods. There are specific time periods regarding reclamation.

If there are assets to distribute to creditors you will be asked to file a proof of claim. The proof claim provides the amount owed and why, with documentation attached to the proof of claim to prove the amount owed and why. In a chapter 11 or chapter 13 you may have to object to confirmation of the plan of reorganization. If you are not being treated properly based upon your type of claim or debt you need to objection to confirmation. Your objection will either be overruled or sustained.

If the case is a no asset no bar date Chapter 7 there is really nothing for you to do unless you believe you were the victim of fraud or some other argument to not have the debt discharged. You will need to hire bankruptcy attorneys to file an adversary proceeding on your behalf and argue the debt owed to you should not be discharged.