Sonoma County Bankruptcy Lawyer Blog

We are in the midst of a global crackup, Thomas L. Friedman writes in the NY Times this weekend. And at the heart of it lay the very financial problems most of us struggle with every day -- credit card bills, foreclosures, and bubbles of all kinds.

Who's cracking up? The EU, as southern countries go belly up; the Middle East, as youth rebellions unseat dictators in countries that have only known dictators; China's economic theory of undervalued currency and low domestic consumption ...

As for America, we've thrived in recent decades with a credit-consumption-led economy, whereby we maintained a middle class by using more steroids (easy credit, subprime mortgages and construction work) and less muscle-building (education, skill-building and innovation).

Friedman calls for a 21st century hybrid politics that "mixes spending cuts, tax increases, tax reform and investments in infrastructure, education, research and production." Since that's not the agenda of either party, Friedman calls for a new party to "collaborate in the center."

So what would it look like to live in a post-debt America? Let me know your thoughts. I'll try to address that in a future post.

Have you thought about walking away from your home? For many Santa Rosa, Petaluma and Rohnert Park homeowners, that has to be a kitchen-table discussion these days. The Santa Rosa Press Democrat reports that some 31,000 Sonoma County homes -- 29% of all homes -- are underwater.

That leaves people trapped in "negative equity" -- unable to sell and with little chance of ever breaking even on their loans.

Compared to the country, Sonoma County is running slightly worse. The U.S. has 29 percent of homes underwater.

All of this seems to indicate that there will be no shortage of distressed homeowners, who will have to face the prospect of walking away or trying to protect the home in a Chapter 13. I would challenge homeowners to take a careful look at whether preserving a home really makes sense, or if you crunch the numbers, renting is a better option.

Of course, every case is different, the other debt loads have to be considered and so on, but the depth of the equity crash in this county is sobering.

Bankruptcy Tips with Richard C. Koman, bankruptcy attorney in Santa Rosa CA.
Bankruptcy can only be used once every eight years so if you're going to file, you need to make sure this is the right time to file.
Two kinds of bankruptcy: Chapter 7 and 13. Chapter 7 is a full discharge of debt. Chapter 13 is really a payment plan where you use disposable income to pay off creditors.
The reason Chapter 13 is popular is that if your house is under water, the second loan can be stripped away and that can mean you can afford to keep your house.

The steps of bankruptcy: Specifically, you need to take a prefiling consumer education class, after filing there is a meeting of creditors where the trustee asks you questions about your assets and debts, and there's one more class after that, the debtor financial education class. After that you'll get your discharge in 3-4 months.

And of course everybody can always go to richardkoman.com to find out more about these steps.

How does this effect my credit? People coming in to talk about bankruptcy always ask that and the answer is, isnt your credit pretty much destroyed? If you look at bankruptcy as a curtain coming down, on one side you have all the late payments, nonpayments, writeoffs and the risk that the person is going to file. After the curtain comes down, all that debt has been wiped out so you can afford a little new credit and you can't file for eight more years. You can easily start to rebuild your credit. A few years down the road you start looking like a pretty good customer instead of a pretty bad one.

SANTA ROSA, CA -- I was speaking with Brian Barboza today about folks who come into talk about bankruptcy but then don't follow up. Six month, nine months later, you get a call -- they want to file bankruptcy and right away! That's a sure sign they got sued or had their wages garnished, or some other crisis.

Their bankruptcy filings didn't have to be an emergency and they could have avoided unnecessary collection calls, credit card payments and the stress of a last-minute filing.

Similarly, San Francisco bankruptcy attorney Jeena Cho, in a nice Q&A with the San Francisco Chronicle, points out that people typicallly wait much too long to file. She says:

The situation I hate seeing the most is when I meet with a client who completely depleted their retirement savings, are close to retirement age and they still have to file for bankruptcy because it wasn't enough to repay all the debt. This is harmful for three reasons: 1. your retirement savings should be used for retirement - not paying off your credit card, 2. there is often tax consequences for early withdrawal. Recent tax debts are generally not dischargeable (forgiven), so you've effectively traded in dischargeable debt for non-dischargeable ones. 3. retirement savings are protected in bankruptcy.

This goes to people's sense of the "immorality" of skipping out on debts through bankruptcy, but that's a topic for another post.

"I'm numb," is how Bankruptcy Judge Alan Jaroslovsky describes the number of debtor petitions in his Santa Rosa courtroom. According to the Santa Rosa Press Democrat, there were more than 5,000 filings last year, triple that of just three years ago.

"The driving factor is real estate," said Jaroslovsky. "Real estate values are going down and they're not coming back."

In Chapter 13, debtors create a five-year payment plan in which unprotected income goes to pay off creditors at a reduced rate, perhaps 50 cents on a dollar. In such a plan, you may be able to keep your home by paying off the arrears during the life of the plan. Chapter 13 filings have gone up almost fivefold since 2007.

If you're thinking about bankruptcy to hold onto your home, think long and hard. If your home is seriously underwater, do you really want to be making payments with no prospect of equity? Will you be able to make the plan you set up?

On the other hand, if stripping your second would make your life easily affordable and you're willing to make some payments to creditors, Chapter 13 could make sense.

Chapter 7 or 13? Shoot me an email or call me to discuss the options.

Sonoma County and North Bay folks -- indeed, everyone - considering bankruptcy might take a moment to consider what happened to one debtor who lied on his petition.

Sydney Peters was an art dealer who lied on his Chapter 7 bankruptcy petition. As personal property, he listed "art" and said he had about sixteen pieces worth more than $2,500. He didn't describe the art or provide any details about it. His statement (it's a sworn statement under penalty of perjury) was a lie. The trustee's investigation ultimately found the art consisted of paintings, serigraphs, and other reproductions.

In denying the discharge, the Texas Bankruptcy Court found that Peters was an art dealer who had knowledge of the market value of his art, and that even if he didn't intentionally misstate the value of the art ...

Continue reading "Lies, lies, lies - debtor loses discharge for misrepresenting art value" »

For starters, here's how not to declare bankruptcy:

OK, it doesn't matter if you say it or declare it, you actually have to file a petition and schedules.And as Judge Paul Glenn of the Florida court explains here, those documents - and the testimony given as the Meeting of Creditors - is given under oath. Failing to disclose assets is grounds for losing the discharge and even facing criminal prosecution.

The Las Vegas Sun reports on the case of a Tiburon man who filed bankruptcy and tried to hide assets from the IRS and other creditors.

Really bad idea.

James Dennis Territo, 59, of Tiburon, Calif., was indicted Sept. 28 in Las Vegas on charges of bankruptcy fraud and concealment of assets, both felony offenses. If convicted, he faces up to five years in prison and a $250,000 fine on each count.

Continue reading "Marin County bankruptcy: Why you should not think about hiding assets" »

Klavir & Associates has a sample Chapter 7 bankruptcy petition. It's worth a look to understand the basic model of a non-asset consumer bankruptcy.

Basically, you (1) show that you qualify for a Chapter 7 by passing a means test; (2) fill out schedules showing your real and personal property and your secured and unsecured debt; (3) a key schedule is the exemptions schedule, which shows that your personal property is exempt. If it is, you keep everything, lose all your debts and you're good to go.

It's not that simple for everyone, but that is the structure you're dealing with.

Continue reading "California debtors may be able to use other evidence of pay, if they don't have paystubs" »

Everyone knows bankruptcy is going up, but the numbers released by the U.S. Courts on Friday are pretty shocking.

The big picture: Consumer filings up 21 percent from a year ago, and Chapter 7 filings up 25 percent. Chapter 13 filings are up 10 percent.

Drilling down into California, we find the state definitely in the top 10 but not the worst-off. Nevada was No. 1 in Chapter 7 filings with 8.71 filings per 1,000 residents and a whopping 11.23 per 1000 people in all types of filings.

California came in 6th (5.05 per thousand) in Chapter 7s, 13th (1.44 per thousand) in Chap. 13s, and 7th overall.

In California's Northern District court, which includes the Bay Area, filings were up 39 percent, not quite as high as in the Central District, which includes LA, where filings were up an amazing 48 percent.

In this interesting post, M. Jonathan Hayes addresses the problem of valuing businesses that really have no value.

I am listing the assets on schedule B at a value of zero but the exmeptions on schedule C as the full amount of the wildcard, roughly $23,000. So schedule C says, "Asset - interest in partnership - value zero. Amount claimed exempt - $23,000." I expect to get some guff from the trustee who will say there must be some value if we are exempting it and if no value, the exemption should be zero. I will point to Schwab and I am sure I am right.

Continue reading "Valuing a business without value" »

How high? Check this out.

Michael R. Mastro, the Seattle real-estate tycoon, filed for Chapter 7 of the U.S. Bankruptcy Code last summer reporting liabilities of $570 million. He then proceeded to take vacations in Italy, Paris, New York and Palm Springs, Calif., as well as ski trips to Switzerland and Jackson Hole, Wyo.

He has enjoyed $2,900 dinners at the plush Seattle restaurant Canlis and continues to roll around in his Rolls-Royce and Bentley, which cost him $8,000 a month. He also still lives in his $15 million waterfront home in Medina.

Yikes.

Usually when I meet with people in my Sonoma County offices in Santa Rosa, one of the first questions they have is, how bad will filing for Chapter 7 bankruptcy be for my credit? Will I be able to rent again? Will I be able to buy a car?

Of course a bankruptcy stays on your credit report for 10 years, so it ain't great. But if you're sitting in a bankruptcy attorney's office -- the odds of you having stellar credit are pretty bad. In point of fact, you probably have a wave of late payments, nonpayments, credit cards sent to collections, perhaps a foreclosure ... you get the idea.

Putting yourself in a creditor's seat, would you rather work with someone who clearly can't pay their bills, or someone who declared bankruptcy and 6 months later is paying all their bills on time?

This article on the National Bankruptcy Forum points out that a key factor is your debt-to-income ratio.

If you have tens of thousands of debt, that ratio is going to look pretty bad. If you have declared bankruptcy, you have virtually no debt, so your debt-to-income looks great. Once you get a little new credit in place and make regular payments, you're on the way to a clean bill of health.

Santa Rosa, CA -- Back in 2005, Congress passed -- at the behest of credit card companies -- a dramatic overhaul of the bankruptcy laws, under the supposed need to stop debtor "fraud." In fact, the law was intended to protect the monied interests by making it harder to file bankruptcy.

The San Francisco Chronicle took a look at the effect of the law 5 years later. It's clear that the law had an immediate freezing effect on bankruptcy filings, but today in light of the Great Recession, filings have steadily and markedly marched upward.

This either proves, as Scott Talbott, with the Financial Services Roundtable, claims: "The fact that the numbers are up means people still have access to the bankruptcy courts."

Or that there are many people who can't afford bankruptcy who desperately need it.

The Government Accountability Office, the nonpartisan watchdog agency of Congress, told lawmakers in June 2008 that the 2005 law boosted Chapter 7 expenses from about $914 to $1,477, including legal, filing and counseling fees.

What's not clear from this data is how many of these increased filings are Chapter 13s instead of Chapter 7 bankruptcies, which provide a full discharge.