Say you have 20,000 shares of Acme Stock which was awarded on January 1, 2010.   It vests on January 1, 2014.   If you filed BK on January 1, 2012, about 50% of the debtor’s interests in the stocks vested prior to filing and a remaining 50% interest will vest after the BK filing.  What that means is whatever vested prior to filing is potentially property of the BK estate, while whatever is postpetition is property of the Debtor.   Yes, even though the stocks aren’t fully vested until 2014, the bankruptcy estate may get half of the value of those stocks.

What if the stocks aren’t dependent on one’s services?   What is there is a strike price?  What if the stocks are assignable?  Well those are all things a debtor better figure out PRIOR to filing the BK.

Be sure to consult a thoughtful bankruptcy attorney when filing a bankruptcy case where you hold assets.  Make sure to do your due diligence and run through all the contingent and noncontingent assets that may be relevant to your case.

A common scenario is where you take title to a residence your relative owns.  Imagine your parents want to leave their home to you as a probate avoidance device.  Well, perhaps they should have executed a trust or will, but they didn’t.   They transferred title to you.   You never paid the mortgage, you never lived there at the home, you never had anything to do with it.  You believe you just hold bare legal title.

Now imagine you file chapter 7 bankruptcy.    All your assets get put into the bankruptcy estate.  Does your parent’s home go into the estate?   That’s a tough question to answer.   Perhaps if you can prove your parents transferred title as a probate avoidance device (resulting trust anyone?), you can convince the trustee you have no equitable interest in the property.   However, are you certain you will be able to convince the trustee?   If you aren’t sure, it is probably unwise to file chapter 7 bankruptcy where you can’t risk the uncertainty of having your parent’s lose their home.

The bankruptcy trustee has the status of a hypothetical bona fide purchaser for value under 11 U.S.C. § 544(a) (3) – this says that a bankruptcy trustee takes free of any interest in real property that could be avoided by a hypothetical bona fide purchaser.  In California, a prudent purchaser analysis is required whereby it is critical to determine who is in possession of the property, among other things.  So where the persons living in the property are not the same as the title holder, this could be construed in some cases as constructive knowledge on the part of a hypothetical purchaser, and in turn, the bankruptcy trustee.   However, if you are contemplating bankruptcy and live in a home in which you claim you only hold bare legal title, this could represent an insurmountable issue for one to overcome.

Bare Legal Title arguments are complicated and fact intensive.  Each case turns on the facts and laws of each state.   Be careful when filing bankruptcy if you hold legal title to real property or any property that you do not actually believe is yours.  If you hold bare legal title, work with a knowledgeable attorney to ensure you have a chance of keeping such property out of the estate.  Otherwise, prepare for trouble if you don’t do so.

What happens though if you do not pass the means test?   Is all hope lost?  Well, the answer is not always.   You can file at another time, typically in the future, if your household income will decrease or face significant reduction for whatever appropriate reason.  But if you must file the bankruptcy case now, and you don’t otherwise qualify under the Means Test, then a presumption of abuse under Form 22 must be checked.   In other words, someone who files chapter 7 bankruptcy and shows too much discretionary income is subject to the presumption of abuse.  Thus, the United States Trustee must determine whether they will dismiss or convert the chapter 7 case to chapter 13 or another chapter of bankruptcy.

Now, it is possible to overcome the presumption – Section 707(b)(2)(B)(i) of the Bankruptcy Code says it is.   Persons filing bankruptcy would have to demonstrate special circumstances that rebut the presumption of abuse, such as a serious medical condition, loss of income, retirement, etc.   There must be an explanation to the US Trustee’s satisfaction that the debtors’ income and/or expenses have changed and there is no reasonable alternative to it.  In essence, debtors must show that any such disposable income that is reflected on the Means Test pursuant to Form 22 is no longer the case, that it is no longer an accurate or realistic reflection of household income for the debtors.

In such limited circumstances, it is possible to establish that debtors are entitled to file chapter 7 bankruptcy even though they do not initially appear to qualify.   The California Chapter 7 Bankruptcy Means Test can be complex and requires the analysis of a knowledgeable bankruptcy attorney.   With the help of the right attorney, it is possible to overcome the presumption of abuse, and it is more than possible to successfully file for California chapter 7 Bankruptcy.

Believe it or not there are 2 tests that are used to determine whether an undue hardship circumstance has been established.  The first is called the “Brunner Test” and the second is the “Totality of Circumstances Test.”  Since this is a Southern California blog, we will only discuss the application of the Brunner Test today.

The Brunner test says that the debtor must have tried to repay the student loans in good faith.  Furthermore, the debtor also has to be so impoverished that the debtor cannot even maintain a minimal standard of living, and this situation should be unlikely to change.  Additionally, in California, we look at In re Nys 446 F.3d 938 (9th Cir 2006) for further application of the Brunner test.  For example, a debtor’s age, mental state, physical health, quality of education, and current and future assets will all be factored into the analysis.  This list is not exhaustive and each particular lists of circumstances may dictate a different outcome for that particular case.

In short, the inability to make student loan payments must be real.  Courts will now allow debtors to discharge student loans simply where it is inconvenient for the debtor to do so.   For example, imagine the scenario where the single debtor without any dependents has the ability to make either car payments on the BMW or make student loan payments, but not both.  The Debtor will probably have to surrender that vehicle in bankruptcy in order to satisfy the student loan payments.   A debtor seeking to discharge student loans on the basis that it would be unfair for him or her to lose his/her singular vehicle would find that to be an unappealing argument in front of virtually any court.  There are options such as public transit or getting a much more affordable vehicle, in lieu of hefty car payments.  Even if the car payments were considered reasonable, it would still be unlikely to justify the discharge of student loans, without more.

Based on the laws and cases currently in place, student loans are only to be discharged in the most extreme cases in the context of bankruptcy.  That means the overwhelming majority of debtors filing bankruptcy do not qualify for a discharge of student loans pursuant to 523(a)(8) of the US Bankruptcy Code, at least for now.

Soda Tax?

Recently, the cash-strapped city of San Bernadino decided to file for municipal bankrutpcy  following the footsteps of Stockton and Mammoth Lakes.  Also, the California city of Vallejo emerged from bankruptcy after filing chapter 9 for its own reasons stemming of course from financial troubles.

On the heels of these events, local southern California cities are looking for new ways to raise revenues and stay ahead of the bankruptcy curve.  Just recently, the city of El Monte, in Southern California proposed a sugar tax on sodas at 1 cent per ounce.  Only time will tell whether such a tax is a sound decision to assist in the generatation of revenues for the city.  Of course, the Soda companies and the lobbyists don’t like the proposed measure, which will be left to local voters to decide in November of this year.

While the measure has been met with both support and consternation depending on who you ask, the city of El Monte is taking steps to keep itself financially solvent and ahead of the curve, and for that, the city demonstrates that it is thinking ahead in this economic climate.

Keep an eye out these coming months to see if the wave of municipal chapter 9 filings are on there way, or if they are already here.

California Chapter 13 Bankruptcies are more involved than chapter 7 cases oftentimes because most clients are subject to Form22C which is the Chapter 13 equivalent of the means test.  Furthermore, in chapter 13 cases, the trustee scrutinizes Form 22C much more so than the chapter 7 trustee in a chapter 7 case.   That’s because a chapter 13 trustee gets paid administative fees based on how much you are paying into the plan, and oftentimes, Form22C comes into play for above median debtors (for example, a household of 1 person who earns more than around $48,000 gross annually will be subject to filling out all sections of Form22C to determine a baseline of disposable income to repay unsecured creditors).

When Form B22C comes into play, calculations of disposable income must be done by an attorney who has the experience, precision, and capabilities to calculate the numbers properly while applying and understanding applicable case law within the district in which your bankruptcy is filed.  However, that is just the beginning of the chapter 13 process.   Getting the plan confirmed requires other steps including having the chapter 13 trustee review and confirm the plan, and overcoming any objections by creditors.   Also, liens on property may need to be stripped in many cases today in which underwater homes are at issue; taxes issues may need to be resolved all before or during the confirmation process to a chapter 13 case.

So ultimately what do you look for in a chapter 13 attorney?  Here is a simple checklist:

1.  Ask how many chapter 13 cases the attorney has filed.

2.  Ask of those cases filed, how many chapter 13 cases were actually confirmed – meaning a plan was confirmed by the chapter 13 trustee.   Understand, this is not the same as asking how many cases received a chapter 13 discharge.   Getting a plan confirmed generally means the attorney did his/her job at least intiially, and got the plan, that the client had asked for, approved by the bankruptcy court.  However, it is then up to the client/debtor to see the plan through by making plan payments.  Failure to do so will result in the chapter 13 case being dismissed by the court for failure to make plan payments and therefore a chapter 13 discharge is never entered due to the client/debtor’s inability to see the plan through.  (Sadly, some attorneys have been known to mislead potential clients about how many cases they confirm vs. the ones they file – thus use your judgment and common sense in picking the attorney.  Trust your gut on this and consult at least 2 different attorneys, assuming you have the time/luxury to do so).

3. Ask the attorney if he has ever had a plan confirmed over the chapter 13 trustee’s objection.  Usually that means the attorney knows how to push issues and understands the laws of chapter 13.   A chapter 13 trustee will object where he/she feels the debtor is not paying out enough in the chapter 13 plan’s proposed monthly plan payments.   When the trustee objects, a bankruptcy judge will hear the case, assuming the debtor’s attorney fights the issue.  Where the attorney overcomes an objection by the trustee, that means legal issues are addressed in court whereby the court makes a ruling that the debtor’s attorney took a proper position in crafting the chapter 13 plan, and that the chapter 13 trustee is not entitled to push for a greater distribution of disposable income.

4.  Ask how much the attorney charges up front - usually when an attorney offers to take your chapter 7 case for little or no money down, that is a good sign you have a chapter 13 case that is not legally complex and devoid of any overwhelming obstacles to confirmation of the chapter 13 plan.   However, even if your case is straight-forward, don’t expect a good bankruptcy attorney to take your case for free if your foreclosure is scheduled for the next day.   That simply will almost never happen.

5.  Ask how much the attorney charges for the total chapter 13 case.   Oftentimes, unless you really know the attorney is good, those who charge significantly less than the no-look fee of $4000.00  may not be fully competent chapter 13 attorneys.   Most good and capable chapter 13 attorneys will not take a chapter 13 case for less or much less than the no-look fee since there is a lot of work to do in chapter 13 cases.    To be clear, I am talking about the TOTAL attorney’s fees, not the upfront fees before filing.   The total fees must be clearly and fully disclosed in the bankruptcy papers so that it is very clear to all parties.  If you are being billed hourly, rather than based on the no-look fee, that should also be clearly disclosed in your bankruptcy paperwork.  If you don’t see it, ask your attorney to show it to you before filing.

7.  Ask the attorney if you ever have to pay them attorney’s fees directly after the filing of the case.   Do not EVER go to an attorney who says you must pay them attorney’s fees directly AFTER the chapter 13 bankruptcy has been filed.  An attorney’s chapter 13 post-petition fees are paid through the plan, meaning the chapter 13 trustee will pay the attorney any balance of chapter 13 fee’s owed.  If you have filed a chapter 13 case and are asked to pay attorney’s fees directly in addition to making plan payments, contact the United States Trustee’s Office and let them know immediately.

It is important to understand that chapter 13 bankruptcy is a structured means to create a repayment plan for all your creditors.  Oftentimes, you can cure arrearages on your home, including property tax.  Also, chapter 13 cases allow for a lien strip of underwater mortgages for junior liens in certain situations.   It is critical to explore these options as you consider all of your financial options.

Chapter 13 Bankruptcy is not a cure all, nor does it allow someone to walk away from debts.   Repayment of debts is required in chapter 13 cases.   The key is to select a capable California bankruptcy attorney to handle your chapter 13 case so your payment plan is properly calculated and crafted.  An honest and capable attorney should tell you both the good and bad regarding the chapter 13 process.   Living through a chapter 13 case is not a pleasant experience and anyone telling you otherwise is being disingenuous.  However, in certain situations, chapter 13 bankruptcy can do wonders for individuals saddled with mortgage payments and other debts that are otherwise unmanageable.

There is nothing wrong with offering rock bottom pricing. In most cases, this attorney’s services might be great. However, the attorney – via his website – was quick to infer that bankruptcy attorneys who charge more than rock bottom pricing for chapter 7 cases are just ripping people off.  That could not be further from the truth.

I believe this attorney’s intentions are good. I believe the attorney really thinks almost all chapter 7 cases are easy to prepare and are devoid of any complexity. If this attorney does think that, I believe it is due to a lack of experience practicing bankruptcy law and not being more well read on the intricacies of bankruptcy law.

I would be very concerned for a potential client who went to such an attorney for a chapter 7 case with tax issues, non-exempt assets, retirement accounts, or even a case where the debtor’s income is subject to the means test. The result might not be pretty. For example, if an attorney offers to get rid of huge tax assessments for rock bottom pricing via ch7 bankruptcy, I would just tell you to be very cautious and use your logic in choosing the right bankruptcy attorney to handle your case because it takes time, skill, and effort.

In practice, I have personally helped debtors who were in trouble because they either filed pro per (without an attorney) or they retained the lowest priced attorney they could find for their chapter 7 case.  Oftentimes, these attorneys screw up things that are very basic in nature.  However, when you screw up such fundamental things within the bankruptcy process, oftentimes there is no recourse but dismissal.  In other cases, it can lead to a loss of assets that could have been protected had the case been filed properly.

Remember not all cases are the same. Some chapter 7 cases are indeed considered simple cases by most capable practitioners. Other chapter 7 cases can be very complex. There are chapter 7 cases where no capable attorney would take the case without informing the client that the case is complex and problematic from the start just to clue in the potential client on what to expect. For those attorneys who usually offer rock bottom pricing, they are often only jumping in on the practice of bankruptcy law due to our sluggish economy, and it is far from clear what level of preparation they undertook before holding themselves out as bankruptcy practitioners.

There are many good and bad attorneys out there. Remember you more or less get one shot at your bankruptcy filing.  Make sure to do it right the first time around.  Ask about the attorney’s success rate and types of cases filed rather than just purely how many cases filed.   An attorney may have filed thousands of cases yet has a poor track record, or never handled your type of case before and lacks the resources to do so.   Unfortunately, some attorneys actually lie about their credentials and how long they have practiced law.  What is important is that you make sure you ask questions about YOUR case and get an answer to those questions before filing.  If you only get evasive answers or generalities about your case, your questions are not being answered so find a bankruptcy attorney out there who will actually answer them and choose that attorney to help you with your case.    In the end, use common sense in choosing the right attorney to handle your chapter 7 case and don’t simply go with the lowest fee approach unless you know the attorney is competent to take on your case because I have honestly seen it backfire firsthand.

The clients were satisfied and saved thousands in out of pocket expenses had a corporate chapter 7 also been filed.  Because a corporate bankruptcy does not result in a discharge of debts, there is generally little incentive to file a chapter 7 corporate case when the real issues relate to personal guarantees against the members of the LLC in an individual capacity.  The limited liability offered  to members does not shield the individual liability when personal guarantees are extended to the creditor.

Thus, when thinking about bankruptcy, remember that your bankruptcy attorney should not only be competent - your attorney should also be honest.   If your attorney is well established, well known, and a supposed expert in the field, your attorney should be able to break down fundamental legal concepts and explain it to you so that you understand.   If your bankruptcy attorney says something is either too complex to explain, or you do not understand the explanation, either your attorney does not know the law, or even if the attorney does know the law, if it can’t be explained to you, how do you think the attorney will explain the situation to the trustee or judges in bankruptcy court?

At JCH Law Firm, we are a bankruptcy firm that specializes in the practice of bankruptcy law for all persons involved in the bankruptcy process.   We cater to the San Gabriel Valley Community.

We file Alhambra bankruptcies, Monterey Park bankruptcies, El Monte Bankuptcies, Rosemead Bankruptcies, Altadena Bankruptcies, Arcadia Bankruptcies, City of Industry Bankruptcies, Covina Bankruptcies, Diamond Bar Bankruptcies, Duarte Bankrutpcies, Pasadena Bankruptcies, Glendora Bankruptcies, Hacienda Heights Bankruptcies, Monrovia bankruptcies, Montebello bankruptcies, Pomona Bankruptcies, Rowland Heights bankruptcies, San Gabriel Bankruptcies, Temple City Bankruptcies, Walnut Bankruptcies, Whittier Bankruptcies, and more.

Contact us for a free consultation at 626-999-5959.  Our office is located at 1031 S. Garfield Ave., Alhambra, CA 91801.

Imagine if you filed a chapter 7 bankruptcy, which typically lasts between 4-6 months.   During the course the chapter 7 trustee wanted to pull your contingent interest as a beneficiary into the bankruptcy estate.  Well, the settlor would more than likely just change the terms of the trust and write you out immediately as a beneficiary.  The chapter 7 trustee would be out of luck.   The settlor did not engage in fraud in writing you out of the trust; there is nothing improper in doing so.   However if the settlor was deceased or became deceased during the course of your bankruptcy, the beneficiary interest is no longer contingent and might become part of the bankruptcy estate where applicable.