Monthly Archives: March 2013

Do I Need a Bankruptcy Lawyer?

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The short answer is it depends and the long answer is it is always a good idea. Yes, we are bankruptcy lawyers, but that does not mean that this article just advocates the use of an attorney for that reason alone. Please keep reading to learn why.

First and foremost you are just not familiar with the process and do not do it every day. We do. There are changes to the law and procedure all the time. How things are done or what the trustee assigned to your case requires is different from jurisdiction to jurisdiction and trustee to trustee.

When a Chapter 7 bankruptcy petition is correctly drafted and all requirements are met for you to obtain a discharge of your debts it may look like your attorney did not do too much. In my firms case that is far from the truth. We do our due diligence and the majority of the work before your case is ever filed to make sure once the case is filed there are no issues, which may make it look easy.

It is possible to navigate the filing of a basic no asset Chapter 7 bankruptcy case on your own. If you make no money and own nothing it should be difficult to financially harm yourself. Keep in mind that you do not have the absolute right to dismiss a Chapter 7 case once it is filed. If a problem arises and you think you can solve it by asking the court to dismiss your case think again. You will be searching fast and furiously for a bankruptcy attorney to help when the trustee assigned to your case requests that you turnover money in your bank account or your car. The Chapter 7 trustee or their attorney is not on your side and will not tell you what is in your best interest or assist. You will be on your own. That recently cost a person who filed a Chapter 7 on their own about $17,000 that should have been protected in their bankruptcy case. But they did not know that and you cannot go back sometimes once the case is filed and change things.

If you do not qualify to file a Chapter 7 bankruptcy case you will almost always need to hire an attorney to help you with your Chapter 13 reorganization or Chapter 11 reorganization. Most Chapter 13 trustee’s will require you to obtain counsel because it is not their job or their staffs job to make sure your plan of reorganization satisfies the requirements to be approved or confirmed. The odds of you navigating the Chapter 13 process without a lawyer are slim to none in the Northern District of California anyway. It is possible that in other jurisdictions the Chapter 13 trustee’s take the time to help pro se filers with their cases. That is not their job though.

All in all it is always a good idea to hire counsel that has experience in the area of law you need assistance with. There are many firms like ours that offer reasonable fees and provide you with personal service.

Are You Upside Down on Your Rental Property?

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If you have a rental property in California or another state and you are upside down on the mortgage or the rental income is not enough to pay the mortgage bankruptcy can help. When filing a consumer Chapter 13 bankruptcy case the primary mortgage on the filer’s principal residence cannot be modified. This is not true of the bankruptcy filer’s rental property.

When you file bankruptcy to reorganize your debts you can cram-down a loan to the fair market value of the collateral. So if you purchased a rental property or vacation home in 2007 for $150,000 in Texas and the value is now only $70,000, you do not have to pay the $150,000 of the original loan, but the $70,000 the house is now worth. How does this work? Pursuant to section 506(a) of the bankruptcy code the loan is only secured up to the value of the collateral. If the house is only worth $70,000, then that is the amount the loan is secured by and that is what you have to pay back in the Chapter 13 plan over five years. $70,000 divided by 60 months equals a payment of at least $1,166.67, plus the Chapter 13 trustee fee and attorney fees.

You get the picture though. What a significant savings and you can own the property outright in five years. The problem that comes up most of the time is that the Chapter 13 monthly payment is too high for most people to make. In California, and the Bay Area specifically, there are almost no properties worth less than $200,000. A rental property or vacation home in the Bay Area would have been purchased for $650,000 and is only worth $500,000 today. Well $500,000 divided by 60 months is $8,333.33 per month. But it is possible. Most people do not choose to file a Chapter 13 bankruptcy case to just cram-down the mortgage on their investment property or vacation home though. There are usually other financial difficulties going on that make reorganizing their debts like this not possible.

Whether a motion to value is filed with the bankruptcy court or an adversary proceeding is filed to determine the value of the house, the bankruptcy court will have to sign an order or enter a judgment stating the value of the property. It is also possible to enter into a stipulation with the bankruptcy attorney representing the mortgage company regarding the value of the house. This would be unlikely though. It is more likely that the mortgage company will fight and try and prove the house is worth significantly more than what you believe the house is worth. An evidentiary hearing or trial may have to be held to determine the value of the house.

The largest benefit bankruptcy lawyers can provide residents’ of California is possibly cramming down on a rental property they have in another state where the home values are lower. Many states across the United States have homes that are not worth more than $200,000. These clients are few and far between, but helping someone keep their rental property for future generations is always a worthy cause.

The City of Stockton’s Position Regarding Qualifying to File Chapter 9 Bankruptcy

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The single most important issue in the City of Stockton’s Chapter 9 bankruptcy case at the moment is whether Stockton is eligible to be a debtor under Chapter 9 of the Bankruptcy Code. Assured Guaranty Corp.’ bankruptcy lawyers have mounted a pretty good case as to why Stockton is not eligible. Stockton’s bankruptcy attorneys continue to fire back though.

The City of Stockton Fires Back

On February 15, 2013, Stockton filed its Reply to Objections to its Statement of Qualifications Under Section 109(c) of the United States Bankruptcy Code. The three issues are: (1) whether Stockton was insolvent at the time the petition was filed; (2) did Stockton act in good faith during the AB 506 process and generally by failing to seek pension concessions and/or additional concessions from the members of its nine unions and retirees; (3) did the City’s 790-page Ask produced for and during the AB 506 process satisfy the good faith negotiation requirement of Bankruptcy Code § 109(c)(5)(B)?

Was Stockton Insolvent?

The argument is that Stockton could have or should have done a number of things and then it would not have been insolvent. While that might be true, hindsight is always 20-20. Stockton argues that as a matter of law a third-party, such as Assured Guaranty, Corp., is not legally relevant. Of course Stockton could have fired 90% of their employees and stopped providing essential services and then be able to pay bills as they came due.
Did Stockton Act in Good Faith During the Neutral Evaluation Process?
Stockton believes it did act in good faith. They point out that they reduced the city workforce to levels that made delivering basic levels of service near impossible. They also have reached concession agreements with all nine labor unions and reduced pay and employment benefits. Stockton believes that making or requesting additional reductions would make seasoned veterans, particularly police officers, seek employment in other cities. They go no to point out Stockton is not the safest city. While this seems to be a valid concern, what counties or cities are really hiring new employees right now? Not many. At the same time, how can decisions to try and preserve the workforce be determined to be not in good faith?

The City of Stockton Made Significant Cuts

Stockton reduced its general fund by 36% of three years prior to filing for bankruptcy protection. It reduced non-public safety staffing by 43%, reduced sworn police officers by 25% even while violent crime was increasing and reduced fire staff by 30%. Stockton argues it aggressively negotiated and reduced the above-market compensation it chose to give employees in earlier years and now offers compensation at below market rates. What markets are they comparing themselves to is the question though? They also provide they closed senior centers and reduced recreation classes, after school programs and library programs, reducing library hours by 48%, did not replace city vehicles and used them beyond their useful lives and deferred maintenance of roads and city buildings.

Stockton Hired A Professional to Provide a Second Opinion

In February 2012 Management Partners came to the conclusion that Stockton was insolvent and the city could no longer provide services at the appropriate level. Management Partners also came to the conclusion that additional reductions in expenses would have to take place. Assured argues that Stockton could have increased revenues by raising taxes. Stockton addresses this by countering the cities accounting irregularities and perceived or actually mismanagement would make tax increases unsuccessful.

Stockton adamantly believes that Chapter 9 was the only viable option for the city to stop the bleeding and continuous cuts in city programs and staffing. The trial on these issues begins March 26, 2013, and is supposed to last four days.