Sonoma County Bankruptcy Lawyer Blog

Divina Westerfield has a comprehensive list of 36 frequently asked questions about Chapter 7 that provides an excellent starting point to thinking through Chapter 7. For instance:

14. Can I keep my home and personal property?

As for real property in many states, dependent upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you determine this value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity.

As for personal property, in California, you are permitted exemptions for a variety of personal property. This includes, automobiles, household furnishings and personal effects, jewelry, tools of the trade, retirement plans, unmatured life insurance, personal injury awards, earnings, animals and some other miscellaneous property. The value of each exemption and which exemptions can be used are determined by the statutory exemption scheme is selected. Again, state laws vary. Talk to an attorney in your state.

19. Will bankruptcy stop a foreclosure?

Yes. However, a home is an asset usually secured by a mortgage or deed of trust. The lender is entitled to apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. You usually have to make a deal with the lender in order to keep a home that is in foreclosure.

Here's one way to win a stay of execution. The San Jose Merc reports on a tenant who refused to leave when the sheriff showed up in Santa Cruz county.

The attempted eviction of a renter Tuesday led to an hours-long police standoff and closed roads before sheriff's deputies decided to leave the man inside the Vienna Drive home and seek an arrest warrant.

Sheriffs are expecting to see more tenant resistance to vacating from foreclosure sales, although not to the point of standoffs.

Most of the time they are amicable, but I think they need the proof of us actually showing up at the door to see it's really happening." Colleen O'Reilly, the civil process supervisor at the Sheriff's Office, said. "Reality becomes alive to them and they do go, but it seems, I think, lately that more people are hanging in there to the very end."

A San Francisco landlord tried to permanently evict longtime tenants after getting them removed temporarily in order to make serious repairs to their unit. The penalty? $1.2 million, a judgment that the California Court of Appeals just affirmed, SF Weekly reports.

The landlord used a city ordinance to give notice to the tenants that they had to vacate for three months to do repairs. When they didn't leave on time - they said they had no place to go unless he paid the relocation fees - he sued in unlawful detainer and won. Based on that case and a stipulation, they left and after three months expected to return. The landlord refused, saying they had "surrendered" possession.

They sued and won $1.2 million, the judge finding the remaining tenancy was 20 years and the rent amount was $381,825, the amount trebled under the city ordinance. The judge added another $300,000 in attorneys fees.

The case is Chacon v. Litke, 2010 Cal. App. Unpub. LEXIS 363

SF Weekly has a funny piece on some of the more extreme landlord-tenant disputes out there. This week, a landlord was so pissed off, he "wielded a large kitchen knife at the tenant and threatened to kill the tenant."

Illegal eviction? Yes, as well as constructive eviction, violation of the warranty of quiet enjoyment, illegal entry, assault and battery, and probably retaliation. Don't know what the tenant did, but in any case, this was not a good choice.

S.F. Tenants Union head Ted Gullickson also reports, among other stories:

A few weeks ago, a landlord set up a Webcam in a tenant's apartment. And when the tenant turned it off, the landlord came in the apartment and threatened the tenant physically.

It's clear that it's a good idea to create a business entity for most small businesses. But which is better: LLC or an S corporation?

1. Why not a sole proprietorship? It's dirt cheap to run your business as a sole proprietorship. There's no filing fees, no minimum taxes, no paperwork, other than the city business taxes and the like that every business must pay. And you get the deductions for business use of home, business expenses, etc. But despite these savings, running a sole prop comes with one huge risk: You are personally guaranteeing every obligation your business enters into. If your business signs a lease for a store front and you wind up breaching the lease, the landlord is entitled to the remaining rent on the lease at the time of breach. If that's $100,000 and you have that much in equity in your home, guess where that's going to come from?

2. Limited liability entities

Yup, you just lost all the equity in your house, if not the house itself, or you've been forced into bankruptcy. Viewed from that perspective the $800 minimum tax bill for an LLC or S corporation is pretty freaking cheap. When your LLC or S corp enters into that store front lease, the landlord is left trying to get the money out of the business entity -- not you personally. If your breached the lease because your business is bust and the company has no assets, the landlord will get a judgment against the company but won't be able to collect from you. OK, that sounds better!

3. The LLC

The LLC is quite flexible and friendly entity. In California there can be single-member LLCs as well as several member LLCs. There are member-managed LLCs (most common in smaller companies) and manager-managed. The key benefits of an LLC: fewer rules in terms of formalities like boards, meetings; and greater flexibility. In an LLC the members can allocate profits however they like, however seems fair. For instance, if one person is going to put in all the work and someone else the money, they might want to structure the profits in a particular way. You can do that with an LLC.

4. The S Corp and the employment tax

If you're self-employed, you have a special relationship with the alluring Form SE. Yup, the self-employment tax: 15.3 percent of net income goes straight to Uncle Sam and despite the thousands you have in deductions for home mortgage interest, SEP-IRA contributions, HSA contributions, you can't get away from that tax. An LLC doesn't solve that problem. But an S corporation does. As a corporate employee, you pay yourself a salary and you pay self employment taxes on just that amount. You can take more money as a distribution, and you don't have to pay taxes on the distribution amount. Thus you can save thousands a year in taxes by paying yourself a reasonable salary - but it must be reasonable - and taking the remainder as a distribution. If taxes are a concern, the S corp may be an attractive way to go. But there are many more restrictions on S corps, so seek a business lawyer's counsel to make sure the trade off is worth it.

1. Understand Bankruptcy

   Before deciding whether bankruptcy makes sense, you must understand this simple truth. Bankruptcy is about protecting your property when your debts are overwhelming. If you have no assets to speak of, bankruptcy won't do much for you except stop the bleeding. Still, stopping the bleeding is in most cases a worthwhile goal of bankruptcy.

2. Which Chapter is Right for You?

   Chapter 7 "discharges" your debts. In other words, you walk away. Chapter 13 creates a "plan" by which you pay your creditors, at a greatly reduced rate, over three to five years. Clearly, Chapter 7 is the way to go. But there's a catch.

3. The Means Test

   In 2005, Congress passed a "reform" of bankruptcy law that imposed a "means test" on debtors. If you are seeking relief from personal debt, you have to show that you don't have roughly more than median income, after allowances for certain living expenses. For the self-employed, or those with rental income, though there's a nice out. If 51 percent of your income is "Business" income, you can take a pass on the means test.

4. Credit counseling

   There are two credit counseling classes you must take - one prior to filing and one after the petition is granted.

5. The petition

   If you qualify for Chapter 7, your attorney will work with you to capture every little bit of financial information. It's all needed to get your Chapter 7 - wages, living expenses, retirement accounts, credit cards, cash on hand, bank account information, and much more. You get different exemptions, such as the homestead exemption, which may allow you to keep your home. Any assets you have that won't fit under the exemptions though will be sold off by the trustee for the benefits of your creditors.

6. Meeting of Creditors

   After filing, there's a meeting of creditors, where the trustee goes through your petition, asks questions and either approves your bankruptcy or files a motion opposing it If any creditors have a problem with your bankruptcy, they can also appear and ask questions.

7. Discharge

   If all goes well, soon enough your debts will be discharged and you'll have a new start on life. While a BK remains on your records for 10 years, it does stop the steady flow of late payments and defaults on your credit reports so it's probably an improvement for your credit record.

8. A word about ethics

   People often feel guilty about skipping out on their debts. So remember, bankruptcy is an age old remedy enshrined in the Constitution. Check out http://www.popcrunch.com/bankrupt-65-famous-people-who-lost-it-all/ for a list of famous bankrupts. Bankruptcy is the right to start over, a right that enabled certain entrepreneurs to come up with that brilliant idea.

Landlord-tenant law is actually a fairly technical area of law. In non-rent-controlled areas like Sonoma County, the law clearly and decidedly favors landlords. The law wants landlords to be able to regain possession of their property if a tenant isn't paying the rent or is otherwise abusing the agreement by which they are in possession. But the trade-off is that landlords are held to very specific requirements to obtain that eviction.

Specifically, eviction notices must follow specific rules, complaints must state facts in strict accordance with leases, court documents must be served properly, and so on. Here are a few notes on notices:

• 3-day, 30-day, 60-day notices. To evict a tenant for cause, a landlord must provide a three-day notice. The best cause is failure to pay rent ("Pay Rent or Quit" notice) but in general tenants can be evicted for violating most terms of the lease. In Sonoma County, if you're on a month-to-month lease (either by explicit arrangement, or because a term lease has expired) the landlord can evict you for no reason with 30 days notice (if you've lived there less than a year) or 60 days notice (more than a year).
• Option to cure First and foremost, the notice must give the tenant the option to cure the defect, if it is curable. Obviously, if a tenant is being evicted for failure to pay rent, payment of the back-due rent will "cure" the breach. If the problem isn't curable (tenant committed a crime on the premises), the landlord can simply order the tenant to vacate.
• Technical requirementsAccording to Code of Civil Procedure 1162, the notice has to give the name, address and phone number of the person to pay rent to, the days and hours rent can be paid if it's to be paid in person or the address if it's to be paid by mail.
• The rent demand. This is important. A "Pay Rent or Quit" notice can only demand the past rent due. It can't include late fees, interest, utilities, etc. It can only demand rent due. For this reason, the landlord must attach a copy of the lease to their complaint (which I'll discuss later) and the amount in the lease, complaint and notice need to be in agreement. If the landlord demands more than the proper rent, tenants will be able to demurrer to the complaint, dragging out the eviction process. For a tenant this can mean a chance to move out before an unlawful detainer action goes forward. For a landlord, it means that it will take another few weeks to get to a judgment against the tenant.

Learn more about a new kind of law firm at Le+Pelletier

SANTA ROSA, Calif - Every product and to some degree every service runs through a lifecycle - Introduction, Growth, Maturity, Decline. Depending on where you are in your company's lifecycle, you'll need different services from your attorney.

• Introductory (start-up) phase. Lawyers can help define and set up compensation schemes for founders and early employees; identify, define and protect intellectual property rights; manage and define joint ventures. (The rumored iSlate from Apple
• Growth phase. Lawyers can negotiate favorable leases, supplier contracts and sales contracts, and maintain control over distributors and franchisees.
• Maturity phase. Attorneys' work in this phase tends more to employment issues (since there may be a lot of employees), product liability (since there are lots of products out in the market), licensing and, as always, defending intellectual property.
• Decline phase. Here, lawyers will help with exit strategies - selling off the business, avoiding long-term commitments and encouraging development of new products and variations that will let the cycle start all over again.

As you can see, it makes sense to fully integrate your attorney into your business management so he or she can see where your business is in the life cycle and help you act accordingly.

For more on this widely accepted model, see this article from NetMBA. Or just try Google.

Learn more about a different kind of law firm at Le+Pelletier

SANTA ROSA, CA - At the highest level, there are three basic Marketing Strategies. Most companies will only be able to pull off one of these. Certainly most small business should only attempt to pick of them. It takes a lot of expertise to be able to operate two of these at the same time. No one can do all three. If you don't understand what strategy your business is following, you have a problem. Do customers come to you because you:

Offer efficiency? (Variety at low prices)

Offer high quality? (Charge a premium for premium products or services)

Offer customer intimacy? (Customized to individual consumers)

These things tend to make more sense in thinking about the famous brands and what they would have been like as start-ups.

Walmart - Highly Efficient. Walmart offers lots of choices at the low end. It is famous for its operational efficiency, squeezing every penny out of its vendors and frankly its employees. So what you will, the marketing strategy is clearly on efficiency. It offers variety at low prices. It's a volume business. It knows how to buy, distribute and sell at huge volumes. It doesn't offer high quality products and it certainly doesn't offer intimacy. Starbucks seems like another company that makes profits though huge volumes and operational efficiency. It's not the best coffee in town (although it's better than some) and it's not an intimate experience.

Apple - High Quality. In the technology world, I think of Apple as a high-quality provider. Their products are simply better than almost any other computer seller. They're beautifully designed, well built, they offer pretty great customer service. You pay a premium to buy a Mac or an iPhone, no doubt about it. They're too big to truly offer intimacy but through the Apple Stores and AppleCare, most customers feel like they can get personal attention, so they straddle quality and intimacy, in my opinion.

At the other end of the spectrum, Dell is definitely an efficiency-oriented company but they also originated the 'Build Your Own Computer' model, which is basically customization. At the end of the day, that feature doesn't really go to intimacy though but to efficiency. An intimate computer company?

Your Lawyer/Tailor/Doctor/Organic Farm/Etc. - Intimacy. No brand-name company can truly offer customer intimacy. For that you have to be a local provider, who can meet and understand your client's needs and problems. If you want a tailored suit, you have to go in person to your local tailor, who has to take the time to measure you, then cut and hem your suit exactly to your proportions. In the law, you could go to one of the bankruptcy mills, where you get a lower price but zero personal attention (efficiency-centered company), or you could see a local bankruptcy attorney and get personal attention. Depending on your needs you might pay a premium to go to a expensive lawfirm (quality) but if your needs aren't that complicated it might be better to a less-expensive but perfectly competent attorney (intimacy).

For small businesses, we don't have the scale to operate a high-volume, low-margin business. We're either going to charge a premium for a superior, niche service, or going to provide excellent customer service and a customized experience. I recently had a conversation with someone who was interested in copying a business "that used to be in Healdsburg" -- selling relatively low-cost imported fair trade items from the developing world. The operative words were "used to be." Why is that?

Because they were selling low-cost items, they simply had to do serious volume for the business to make sense. Selling low-margin items at low volumes just won't cover the rent. Without volume, this business has to either be selling quality items at a substantial premium (think Gado-Gado in Santa Rosa's Railroad Square) and the inexpensive things are loss-leaders to get you in the store -- or they're providing great customer intimacy (as part of an interior design business, they sell items as accents - essentially give-aways. That sort of thing.

So, Sonoma County small businesses ... are you a quality seller or an intimate seller?

Learn more about a different kind of law firm at Le+Pelletier

I'm listening to a California Education of the Bar program on how lawyers can "think like an MBA." Is this a good idea? The typical split is that businesspeople see opportunities to be exploited and lawyers see risks to be avoided. This can mean that too often lawyers put the kabosh on business ideas because they are so highly attuned to the legal risks. On the other hand, business people need their counselors to keep their enthusiasm in check - at least until all the risks are understood.

My interest is in helping small businesses succeed. That means providing legal counsel that supports the creation of opportunity and growth, not just drafting an LLC or a contract. One of the lawyers on the panel told of a company that discovered one of their warehouse workers was an illegal immigrant. The company was in the middle of a tight-deadline warehouse move. The law firm insisted on a full audit before the move. When the audit revealed that 85% of warehouse employees were undocumented workers, the lawyers insisted they all be fired, despite the fact they were in the middle of a critical move.

The better approach: Fire the one known undocumented, complete the move, THEN do a full audit of the employees. Deal with legal risks but not at the cost of critical business functions. More to the point: Where were the lawyers when the managers were hiring illegals willy-nilly? Where were the practices and procedures that could have averted this situation in the first place?

A small business is not going to be able to handle all of the legal protections they would in an ideal world. The emphasis will be on innovation and product development, not paying lawyers to copyright and patent everything in sight. It's natural that problems only get dealt with when they become problems. But it's a good idea to meet with your lawyer and review all of the issues (many of which the small businessperson may not be aware of) that will have to be addressed over time.

These include exit strategy, planning for growth, marketing issues (false advertising, etc.), employment issues and intellectual property protection.