Monthly Archives: August 2012

City of Stockton Bankruptcy: Opposition to the Chapter 9 Bankruptcy Filing

By

The City of Stockton bankruptcy case has now officially become a complete mess.  Bankruptcy lawyers everywhere should keep an eye on this one.  On or around August 9, 2012, multiple creditors or interested parties filed opposition to the City of Stockton’s eligibility to be a debtor under the bankruptcy code.  It also appears that Stockton’s choice to try the Neutral Evaluation Process under California law, rather than declare a fiscal emergency, will add thousands and thousands of dollars to their goal of reorganizing their debts.  Going through the Neutral Evaluation Process also appears to have given those owed money a better argument for Stockton not being eligible to be a debtor under the Bankruptcy Code.  California passed AB506 and created California Government Code Section 53760 to help make filing bankruptcy a last resort for municipalities.

The party that really calls out Stockton is a company called National Public Finance Guarantee Corporation (“National”).  They filed their opposition to Stockton’s bankruptcy petition on August 8, 2012.  National insures the repayment of over at least $90 million in bonds Stockton has issued for various projects.  National would have to pay all principal and interest on these bonds in the event Stockton defaults completely or is not required to pay the bonds.  National’s main argument is that Stockton does not meet the requirements under bankruptcy code section 109(c) to file bankruptcy.  This section requires a municipality to have negotiated in good faith with creditors and failed to obtain agreement from creditors holding at least a majority in amount of the claims of each class that such entity intends to impair (change) under a plan in a bankruptcy case under Chapter 9.

A question you may be asking yourself is why did the California legislature pass a law under California state law requiring a municipality conduct the Neutral Evaluation Process (negotiating with creditors) or declare a fiscal emergency before filing for bankruptcy if this provision of the bankruptcy code already existed?  Who knows?  The California legislature added another layer of costs for a California municipality to file bankruptcy to the detriment of those who are owed money.

So what does Stockton do during the Neutral Evaluation Process?  It allegedly failed to negotiate with the California Public Employees’ Retirement System (CALPERS).  The entity that is the single largest unsecured creditor for the city and the biggest issue that needs to be addressed if Stockton is ever going to be financially healthy again.  The National opposition discloses that the plan Stockton proposed during the Neutral Evaluation Process unbelievable said the city would have deficits due to CALPERS of $5 million in 2013-2014 growing to over $17 million a year by 2020-2021, with a total deficit over the projection period of $100 million.  What!  Are you telling me that Stockton submitted a plan to reorganize its debts that ignored CALPERS ongoing deficits and asked other people they owed money to reduce interest rates or take less money?  Sure sounds like it.  Why is that?  Stockton lists CALPERS as its single largest creditor with an estimated claim of $147 million.  According National’s opposition: “The City(Stockton) does not even list CalPERS in its Outcome of AB 506 Mediation Sessions.  Moreover, the City explicitly states in the Ask ( the Neutral Evaluation Process reorganization plan) that it is going to attempt to ‘preserve funding for current retirees and current employees who will retire under the CalPERS system.”  Really?  So that is why Stockton ignored CALPERS.  So you are telling me the same people who benefit from the unsustainable benefits Stockton has been handing out did not want to cut their own benefits to save the City of Stockton from bankruptcy?

To make matters worse, Stockton issued $125 million in Pension Obligation Bonds to pay CALPERS money it did not have to fund the retirement of its employees.  That $125 million dollars given to CALPERS, and invested by CALPERS, is now only $82.5 million because the financial crisis decreased the value of CALPERS’ investments.  What a mess.  Stockton allegedly submitted a plan of reorganization during the Neutral Evaluation Process that did not even allow Stockton to become financially sound again because of continued deficits owed to CALPERS.  If you were owed money from Stockton would you have agreed to take less under these circumstances?  As a bankruptcy attorney it will be interesting to see how the bankruptcy court rules regarding National’s opposition.

If My Income Changes Can I Modify or Change My Chapter 13 Bankruptcy Plan?

By Kitty J. Lin, Attorney at Law

One of the biggest fears that people have when filing for a Chapter 13 bankruptcy case is that they will be permanently stuck in the plan for the duration of the Chapter 13 case.  Chapter 13 bankruptcy cases last between three to five years.  You are required to pay all of your disposable income into the Chapter 13 plan of reorganization.  The Chapter 13 trustee disburses the funds in the plan to your creditors as provided for in your Chapter 13 plan. The good news is that the plan or reorganization can be flexible for the most part.  The plan can be modified if your circumstances change.

Loss or Decrease in Income

The economy can be fickle at times.  A lot can happen between three to five years.  If you lose your job or have your hours decreased it can severely impact your finances.  If you are currently in a Chapter 13 bankruptcy case and have already committed all your disposable income to the Chapter 13 plan you can modify your plan to decrease your plan payments to reflect your current financial situation.  Your bankruptcy lawyer will need to file a motion to modify the approved plan for court approval.  One example: your hours were cut and your monthly income decreased by $200.  You can request modification of your plan to decrease your monthly Chapter 13 plan payments by $200.  If you were laid off or fired and now have no income to support your Chapter 13 plan, one option would be to convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case if you qualify to be a debtor under Chapter 7.  Your ability to modify the bankruptcy plan or to convert to a Chapter 7 would depend on your circumstances.  You will need to consult your bankruptcy lawyer regarding your specific circumstances.  If you are stripping your second mortgage in a Chapter 13 and you convert to a Chapter 7, your second mortgage may no longer be stripped and the lien may still be recorded against your property as the lien strip was dependent on the successful completion of your Chapter 13 plan.

Can I Pay Off My Plan Early?

This is a question that is asked a lot.  The answer is: it depends.  If you have the funds to pay off 100% of your creditors after the filing of your bankruptcy case then you can pay off your plan at any time.  You would need to file a motion with the court to obtain approval to do so.  If you do not have the funds to pay off 100% of your creditors then the answer is more complicated.  You are expected to remain in a Chapter 13 plan for at least three to five years depending on your circumstances at the time you filed your case.  The ability to pay off your plan early depends on the jurisdiction where you have filed your bankruptcy case and the how the trustee’s office chooses to administer the cases.

If you need to modify your Chapter 13 bankruptcy plan it is advisable to seek the advice of an experienced bankruptcy attorney to help you through the process.

Why You Should Choose a Local Bankruptcy Lawyer to Represent You

By

We have client after client come in and tell us horror stories about using lawyers from hundreds of miles away for loan modifications and bankruptcy services.  We have found that the fees charged are usually more than what is reasonable and the services provided our less than satisfactory.  That is why they are now in my office to get rid of their debts.  It is much less likely that you will be part of a scam when you are looking across a desk at the person you are doing business with.

It is also illegal for anyone in California to take upfront fees for to provide loan modification services.  Do not fall for the “pre-litigation fees” or “forensic accounting” scams.  These people are just skirting the ban on upfront fees for loan modifications.  We have had countless clients give thousands of dollars to loan modification companies in Southern California.  Please only go to HUD approved companies that do not require upfront fees or provide help for free.

The first and most important reason is the practice of law is still a very localized even though bankruptcy law is federal law.  For chapter 7 bankruptcy cases there is a panel of trustees that are assigned cases each month.  One trustee may require that you provide post-petition pay statements or bank account statements prior to the meeting of the creditors.  Another trustee may require mortgage loan statements if you own a home or car loan statements if you have a car loan.  For the case to go smoothly it is good to hire any bankruptcy attorney that is familiar with these things.  Judges in different jurisdictions also have opinions on various issues that local bankruptcy lawyers could be aware of too.  It is not possible to ever know for certain how a judge will rule, but knowing if a judge is debtor friendly or creditor friendly is helpful.

If you are filing a chapter 13 bankruptcy case it is very important to know what the standing chapter 13 trustee requires and how they want the bankruptcy petition filled out.  While the bankruptcy petition is a form document trustees have much different opinions on how debts, assets and expenses are listed by bankruptcy lawyers.  What is fine to list as an expense for one trustee may not be allowed by another trustee.  Another localized issue is the chapter 13 plan.  Most jurisdictions have a model plan that is used.  Some jurisdictions allow for any plan to be used to reorganize debts.  Knowing how the trustee wants certain debts listed and what the trustee will allow as special language in a plan is very important.

How Can I Pay My Student Loans?

By

Are you having trouble paying your student loans each month?  Are you about to graduate and will then have to start making student loan payments shortly?  If so, the IBR can help.  The what?  The IBR is the Income-Based Repayment Plan for student loans.  Many of our potential clients have student loans that they would like to discharge when filing bankruptcy.  Most bankruptcy lawyers know that the discharge of student loans is generally not possible.  Due to the 2005 bankruptcy code changes both private and government student loans are not generally dischargeable.  An adversary proceeding could be filed to argue that the student loan borrower does not have the ability to pay the loans back and will not have the ability for a long time.  Litigation is tricky though and it is an uphill battle to discharge a student loan in full or partially when filing bankruptcy.

So what other options are there?  The IBR allows for the repayment of student loans based upon the number of people you have in your household and the amount of your yearly gross income.  You will need to prove that you have a partial financial hardship to qualify though.  According to the Consumer Financial Protection Bureau you have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible loans under a 10-year standard repayment plan is higher than the monthly amount you would be required to repay under IBR.

Most student loans are eligible for repayment pursuant to the IBR, but private student loans, PLUS loans made to parents, FFEL consolidated loans that include PLUS loans made to parents are not eligible.  There are some bad possible consequences to participating in the IBR, like ending up paying more interest and you have to provide documentation every year of your income and family size.

A couple of the most advantageous parts of the IBR are the cancellation provisions.  Once you have participated in the income based repayment plan for twenty-five years and satisfy all the requirements you can have the remaining balance of your student loans cancelled in full.  Also, if you have worked in public service your payments pursuant to the income based repayment plan will count towards the Public Service Loan Forgiveness Program.  For more information about student loan repayment when filing bankruptcy, please consult bankruptcy lawyers in your jurisdiction.

Jose Canseco Seeks Bankruptcy Protection in Nevada Under Chapter 7

By

On July 31, 2012, former baseball star and controversial author filed for bankruptcy protection under Chapter 7 of the bankrupt code in Nevada, case number 12-18916.  Like many Americans faced with financial difficulty it is tough to choose bankruptcy as the answer.  It is particularly troubling when someone who has earned millions of dollars has to make that choice too.  I still have baseball cards from when Mr. Canseco was part of the bash brothers and the Oakland A’s.

According to court documents most of Mr. Canseco’s financial woes are primarily tax and judgment related.  Schedules E and F list a tax debts owed to the Internal Revenue Service, the State of California, the State of Florida and the State of New York.  It appears most of the tax debt owed is dischargeable in the bankruptcy.

Jose lists his current monthly income as $7,500 a month and expenses totaling $4,450 including $3,100 per month in food.  I think that is the highest amount I have ever seen as a bankruptcy lawyer listed in a bankruptcy petition for food.  I used to work for a Chapter 13 trustee and have reviewed many petitions prepared by other bankruptcy attorneys and have filed bankruptcy for many people.  It is possible, but usually high food expenses are related to eating disorders or diabetes.

Tri-Tech Restoration Co., Inc. of Burbank, California holds a judgment totaling approximately $77,859.  Another judgment owed to Christopher Amirault appears to be the result of an eviction back in 2008.  Canseco allegedly dumped a lot of sand in the backyard left the house a mess according to court records.  Another judgment owed to Christian Presley totaling $785,344 allegedly resulted from a fight in Florida years ago that involved Ozzie Canseco too.

Hopefully Mr. Canseco can weather the financial storm with unpaid taxes and move on with life without burdensome debt like everyone else that seeks bankruptcy protection.  His baseball career seems to be wrapped up for the most part, but that does not mean he cannot leverage his notoriety in some other way in the future and make some good money again.  That goes for anyone that files bankruptcy.  Just because you hit a rough patch does not mean the whole rest of your life is ruined.  Bankruptcy will help you get a fresh start and help you to rebuild your finances.  It takes time, hard decisions and work to rebuild your credit score.  At the end of the day we are just talking about money.  There are more important things in life.

What is Chapter 15 of the Bankruptcy Code?

By

Have you ever heard Chapter 15 of the bankruptcy code?  Most likely you have not and most bankruptcy attorneys do not file these types of cases.  Most people did not know about Chapter 9 of the bankruptcy code until the recent high profile bankruptcy cases of various municipalities throughout the United States.  Chapter 15 was created in 2005 when the bankruptcy code was amended.  So why did another chapter need to be created.  You can already liquidate of assets and there are two chapters to reorganize debts.  Family farmers and fisherman have their own special chapters along with municipalities.

So what is Chapter 15 for?  Rules already exist for insolvency proceedings for companies that do business in multiple countries.  The United Nations Commission on International Trade Law governs insolvency internationally.  Prior to the creation of Chapter 15 there was section 304 of the bankruptcy code and involves debtors, assets claimants and parties with interests that include countries other than the United States.  The idea is to help cooperation between courts of the United States and courts of foreign countries.  If you are doing business overseas you already know that there is uncertainty when dealing with other countries and their laws.  If things go bad there is now more certainty, or at least that is the idea, when dealing with a cross-border insolvency situation.  Like the others chapters of the bankruptcy code the point is to treat all parties involved fairly and maximize assets for the benefit of those who are owed money.  Another goal is to help these troubled businesses to hopefully save jobs and protect the investments that have already been made.  Normally a chapter 15 case is part of some other proceeding in another foreign jurisdiction.  That does not mean a chapter 7 or reorganization under chapter 11 will not take place too.  There could be a number of parties that have assets in the United States or debts owed to parties that require administration under the bankruptcy code’s other chapters.

When a chapter 15 is initiated by a foreign representative is allows the foreign entity to obtain an automatic stay and continue to operate.  Another goal is to provide the foreign debtors and creditors protection from discrimination.  This is a very complicated area of the bankruptcy law and this article just scratches the surface of what is possible and how.  Consult an experienced bankruptcy lawyer in your jurisdiction if you believe you have foreign debts issues that need to be resolved.  As business outside of the United States continue to operate within the Unites States this chapter of the bankruptcy code will become used more often.  Hopefully more cooperation will result with foreign courts for the benefit of employees and those who are owed money.