Can you? Yes.

Should you? Absolutely not!!!

The other day I was sitting in an chapter 7 meeting of creditors. The trustee called the case before mine. A man and his wife got up and walked over to the examination table where the trustee and his assistant were.

The chapter 7 trustee was stone faced.

The usual questions asked by a chapter 7 trustee at a meeting of creditors ensued.

Have you ever gone by any other name?

No.

Did you list all of your assets and debts in the petition?

Yes.

Did you read and understand the petition before you signed it?

Yes.

“Mr. Smith” (we’ll call him Mr. Smith), the trustee followed, “you claimed a homestead exemption in a rental property and I do not believe you are entitled to claim a homestead exemption in that property.”

“In addition,” the trustee continued, “I think that rental property is worth more than the $125,000 you think it is worth.”

“You need a lawyer, Sir.”

There it was. The trustee had just put it out there. But really it was too late. The debtor had claimed a homestead exemption in rental property.

You can’t claim a homestead exemption in any property other than your homestead.

Doh!

The trustee advised the debtor to hire a lawyer, told him he would be sending him a letter, and continued the meeting to a later date.

The debtors slowly made their way out of the hearing room.

A chapter 7 bankruptcy trustee’s job is to recover as much money as possible from the bankruptcy estate for the benefit of creditors. To this end, the chapter 7 bankruptcy trustee is authorized to take possession of, and sell, non-exempt assets of the debtor and distribute the money to the debtor’s creditors.

The gentlemen in my story was about to lose his rental property over a simple mistake. He wasn’t entitled to the exemption he had claimed.

Why didn’t this guy hire a lawyer?

Let me tell you why. He didn’t want to spend $1,500.

He lost $65,000 in equity over $1,500. He risked a lot for a little. And he lost!

Don’t file chapter 7 bankruptcy without an attorney. I know, you’ve heard how easy it is. Your friend did it and she got a discharge. I know, but don’t do it. Bad, bad things you never though possible can happen. It isn’t worth it.

If you are considering filing bankruptcy, contact us today for a free case evaluation.

So, what is the California bankruptcy wildcard exemption?

The California bankruptcy wildcard exemption is an alternative to the homestead exemption and can be applied to any assets owned by the debtor.

California has two sets of exemptions, the “704″ and the “703″ exemptions. The numbers reference the sections of the California Code of Civil Procedure where the exemptions can be found.

The debtor must elect to use either the 704 or 703 exemptions. She can pick and choose both.

One of the main features of the 704 exemptions is the homestead exemption which allows debtors to exempt $75,000, $100,000, or $150,000 in equity in their homestead depending on their circumstances. If the debtor has equity in her homestead then naturally she will want to exempt her homestead equity using the 704 exemptions.

The 703 exemptions are more generous toward personal property assets and is most often used where the debtor does not own a homestead or there is no equity in the homestead to exempt.

If the debtor selects the 703 exemptions she has full access to the California bankruptcy wildcard exemption which can be applied to any of her assets.

So, for example, let’s say the debtor has a vehicle that is worth $15,000 that she owns free and clear. Using the 703 exemptions she can apply the full amount of the specific vehicle exemption ($4,800), and use the California bankruptcy wildcard exemption to exempt the remaining $10,200. Her vehicle is now fully exempt and will not be sold by the bankruptcy trustee in chapter 7 bankruptcy as a “nonexempt” asset.

The California bankruptcy wildcard exemption is powerful because it can be applied to anything. Yes, anything! Like, say, that stack of $25,000 in cash sitting on the debtor’s dining room table. That’s right.

Using the California bankruptcy wildcard exemption most debtors who file chapter 7 bankruptcy in Los Angeles are able to keep all of their property.

Contact us today if you have questions about California bankruptcy exemptions.

So what does a seller have to disclose to a buyer when selling real property?

And duties, if any, does the seller’s broker owe the buyer in representing the seller in a real estate transfers in Los Angeles California?

Lets talk about sellers first, the person who owns the property that is for sale. The seller has an absolute duty to disclose known conditions on the property that would reasonably affect the buyer’s decision to purchase the property.

The primary source of law for seller’s disclosures is California Civil Code Section 1102. The disclosure requirements apply when property of 1 to 4 units is sold, exchanged or otherwise transferred. These disclosure requirements do not apply in foreclosure sales.

The real estate transfer disclosures are accomplished using the Real Estate Transfer Disclosure Statement, a form drafted by the California Department of Realtors describing the condition of the real property.

If the seller fails to disclose a material condition affecting the desirability of California real property the buyer can rescind the sale and sue the seller for damages for among other things, fraudulent concealment, intentional misrepresentation and breach of contract depending on the facts.

Under California Civil Code Section 2079, the seller’s real estate broker also has a duty to the buyer to visually inspect the property and disclose all conditions materially affecting the value or desirability of the California real property. The broker’s duty to disclose is limited to visual defects.

If the broker discovers defects in the property after visually inspecting it those defects must be disclosed by the broker on the Real Estate Transfer Disclosure Statement to permit the buyer to conduct its own investigation of the defects.

The seller’s broker does not, however, have a duty to investigate the condition of the property beyond visually inspecting it.

While there is no limit on the amount of debt you can have in Chapter 7 bankruptcy, there are debt limits in Chapter 13 bankruptcy.

11 U.S.C. 109(e) provides that “[o]nly an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $360,475.00 and noncontingent, liquidated, secured debts of less than $1,081,400.00, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $360,475.00 and noncontingent, liquidated, secured debts of less than $1,081,400.00 may be a debtor under chapter 13 of this title.”

Where I practice bankruptcy in Los Angeles these debt limits are a real consideration. Say, for example, the debtor has $125,000.00 in unsecured credit card debt, and she has a wholly unsecured 2nd Deed of Trust on her principal residence in the amount of $250,000.00 that she intends to avoid under 11 U.S.C. 506(d).

She doesn’t qualify for Chapter 13 bankruptcy!

The mortgage lien she intends to avoid is treated as “unsecured” debt for purposes of 109(e), so in the above example debtor has $375,000.00 in unsecured debt and is over the limit.

If the debtor is over the 109(e) debt limits the bankruptcy trustee will move to dismiss the case.

In an effort to overcome the 109(e) debt limits, some debtors first file a Chapter 7 and after receiving a Chapter 7 discharge turn around and file a Chapter 13 bankruptcy. This is sometimes referred to colloquially as a “Chapter 20″. While the permissibility of lien stripping in “Chapter 20″ cases is a developing area of bankruptcy law, some courts have expressed concern that doing so raises issues of the debtor’s good faith which is a fundamental concept in bankruptcy law and a prerequisite to granting the debtor bankruptcy relief.

The Law Office of David P. Farrell represents consumers in Chapter 7 and Chapter 13 bankruptcy throughout Southern California.

Is the omitted claim discharged even though the creditor never received notice of the debtor’s bankruptcy filing and the claim was not listed in the debtor’s petition?

11 U.S.C. 523(a) sets forth exceptions to discharge. Section (3) essentially provides that a chapter 7 discharge doesn’t discharge a debtor from any debt if the creditor to whom the debt is owed wasn’t given notice of the case in time to timely file a proof of claim or request a determination of dischargeability if the debt is of the kind specified in 523(a)(2), (4) or (6).

In re Beezley, 994 F.2d 1433 (9th Cir.1993) involved a “no asset” chapter 7 bankruptcy case wherein the debtor failed to list a creditor in his schedules and the case was discharged and closed. Years later, Beezley moved to reopen the case to list the creditor and discharge the omitted debt.

The court denied Beezley’s motion and Beezley appealed. The Court of Appeal affirmed the bankruptcy court’s denial of Beezley’s motion on the grounds that the debt had been discharged and reopening the case was unnecessary.

In a “no asset” chapter 7 bankruptcy (-i.e. a case where there are no nonexempt assets for the trustee to sell) the clerk notifies the creditors in the case not to file claims because there are no assets in the case. This no dividend notice creates an exception to the normal requirement that creditors file claims in the case within 90 days of the date of the first meeting of creditors in the case. If it later turns out there are assets to be administered, the clerks sends out a second notice instructing the creditors to file claims and setting a claims bar date.

The Beezley court held that because the case was a no asset case and no claims bar date had ever been set, the omitted creditor was not prejudiced, 523(a)(3) did not apply, and the claim had been discharged. Thus, there was no need to reopen the case for the purpose of allowing the debtor to amend his schedules to include the omitted claim.

Certainly, the result would have been different had there been assets and a claims bar date set. Under such circumstances the omitted creditor would be prejudiced and the debt would be excepted from discharge unless the creditor had notice or actual knowledge of the case in time to permit it to timely file a proof of claim or request for a determination of nondischargeability.

The Law Office of David P. Farrell provides advice and representation in consumer Chapter 7 and Chapter 13 bankruptcy cases throughout Southern California.

I recently had a case where the debtor’s only debts were mortgage arrears and student loans. Based on her disposable monthly income her plan would have paid off the mortgage arrears and about 20% of her student loans over 60 months. (Student loans, even though they are nondischargeable, are not given priority in chapter 13 bankruptcy and are treated as general unsecured claims.)

But wait, because she was paying less than 100% to her unsecured creditors she would be required to turnover her tax refunds to the bankruptcy trustee of the first 3-years of the plan. This, she was adamant, she did not want to do.

While on the one hand turning over your tax returns for a few years in exchange for paying your unsecured creditors substantially less than you owe does seem like a fair trade off, on the other hand it did seem a little unfair in this case that debtor’s student lender should be paid substantially more money over the next 5-years under debtor’s chapter 13 plan than it would have had she not filed bankruptcy. I mean student loans are nondischargeable under 11 U.S.C. 523(a)(2)(8).

The solution? Pay the student loans outside the plan making it a 100% and thereby avoiding the tax refund turnover requirement. Wa-lah! Debtor gets to keep her tax refunds!

There are all sorts of neat trick like this that can be employed to maximize debtor’s position in chapter 13 bankruptcy. Contact us today for a free consultation.

Ahhh, its good being in business again.

Then, out of nowhere, you get notice that your customer has filed bankruptcy. You don’t think much of it because, thankfully for you, you got paid.

Not so fast!

You may be required to return the money to the bankruptcy trustee, debtor in possession, or creditors committee as a “preference”.

A preference is just that, it is a payment in preference of one creditor over another. If you and I both provide services to a business, and the business pays my invoices but not yours and then files bankruptcy, you can see the unfairness: I got paid and you didn’t.

One of the functions of bankruptcy is fairness to creditors in the administration and distribution of the estate. To this end, 11 U.S.C. 547 authorizes the trustee to avoid any transfer of an interest of the debtor in property–
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—(A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if— (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.

So, how do you know whether the bankruptcy trustee will want the money you were paid to be returned as a preference? Typically, the creditor will be sent a letter demanding return of the money, or a settlement offer for a lesser amount. If the demand is ignored the trustee may file suit against the creditor to recover the money.

I bet you never thought cashing that payment check could subject you to a lawsuit, did you?

There are a number of defenses to preference actions. Learn more about preference defenses in bankruptcy and other interesting aspects of the bankruptcy process in my other posts.