Judge Klein disagreed with the creditors and declined to dismiss, finding that the city was indeed insolvent and needed bankruptcy protection in order to perform the basic functions of a municipal government.  The judge also said in the ruling that it was the creditors who had acted in bad faith, presumably referring to the fact that creditors reportedly refused to negotiate in mediation — as required by bankruptcy law — unless the city cut payments to CalPERS.  They also refused to pay for some of the costs of the mediation.

Stockton is required by California law to fund its pensions, so the potential conflict between this state law and US bankruptcy law is the key issue that observers (most notably the $3.7 trillion municipal bond market) will be keeping a close eye on as the case unfolds.  Since many other cash-strapped cities have similar issues with pension funds, this could set an extraordinary precedent for other cities who may want to follow suit and proceed with chapter 9 protection to restructure their debts.  However, the city must still come up with a debt restructuring plan that must be approved by the judge; the creditors can also object to the plan, which they fully intend to do.  While Judge Klein ruled that Stockton’s decision to continue payments to CalPERS while neglecting others was not improper, he did acknowledge that the question of how CalPERS will be treated in the city’s proposed repayment plan is a “serious issue” that will be dealt with in the plan negotiation phase.

By Jeremy Pyle, Esq.

Francis has had his share of legal troubles over the years including:

1. In 2003, officials attempted to halt Girls Gone Wild filming. Francis sued claiming violation of his 1st Amendment rights. During the same period Francis was arrested on racketeering charges. Although some of the charges stemming from this case were dismissed, Francis eventually pled guilty to record-keeping violations and was fined $1.6M.

2. A suit in 2007 where Ashley Alexandra Dupre alleged that Mr. Francis’s company used her images without her permission. Ms. Dupre dropped the suit when Francis showed footage where she agreed to be filmed.

3. Also in 2007, Francis was indicted by a federal grand jury on two counts of tax evasion. Francis initially pled not guilty, but in September 2009 pled guilty to lesser misdemeanor counts. Mr. Francis ended up paying $250,000 restitution to the IRS as a result of the case.

4. In 2008, Girls Gone Wild was sued by four women who alleged the company filmed them while they were underage. The jury found in Francis’s favor.

5. In February 2012, a Nevada Judge awarded Steve Wynn $7.5M for the defamatory statements mentioned earlier. In September of that same year, a jury awarded Wynn $20M in a related slander case. However, two months later another Nevada Judge reduced Wynn’s award.

In short, this is just the latest of Francis and Girls Gone Wild’s legal troubles. However, he remains defiant. A Girls Gone Wild spokesman claims that the company remains strong financially and that “the only reason Girls Gone Wild has elected to file for this reorganization is to re-structure its frivolous and burdensome legal affairs.” The spokesman further stated that “this Chapter 11 filing will not affect any of Girls Gone Wild’s domestic or international operations. Just like American Airlines and General Motors, it will be business as usual for Girls Gone Wild.” We shall see if the spokesman is correct or if this portends something a bit more serious for Girls Gone Wild. Check our LawBlog for further updates on the case.

Here at MPS, 0ur attorneys represent clients in the Denver, CO, Portland, OR, and Colorado Springs, CO areas where we specialize in obtaining a fresh financial start for you or your company. Contact us today to schedule a free consultation.

“Andrea’s experience as a litigator and trial counsel will broaden the resources available to our clients not only in Denver, but also Colorado Springs and Portland, Oregon. She’ll be an asset to the firm’s existing clientele and allow MPS to counsel clients on a wide range of issues,” said Roy McFarland, managing partner of the firm’s Denver office. “Plus, she passed the New York State Bar Exam which gives our firm an entree to the East Coast.”

Andrea was born and raised in Colorado. She attended the University of Denver for her undergraduate degree, majoring in International Business. While at DU, Andrea spent a summer abroad working as a Sous Chef in a small town called Villard de Lans located outside of Grenoble, France.

After graduating from DU, Andrea attended law school in Albany, New York, where she clerked for the New York State Assembly Minority Counsel during both the 2010 and 2011 legislative sessions. She also participated in a study abroad program traveling to Geneva, Paris, London and Brussels, focusing on International Human Rights and International Economic Law. Realizing how much she missed Colorado, Andrea returned after passing the Bar Exam in New York. Upon passing the Colorado Bar, she joined MPS in November 2012. In her spare time, Andrea enjoys reading a good book, cooking, and traveling. She also loves to play outside with her two dogs, Louie and Brody.

Please join MPS in welcoming Andrea!

While Democrats look at immigration reform as primarily an economic and human rights issue, Republicans, according to Sen. McCain, were ultimately brought to the table as a result of the crushing electoral defeat they suffered in November. As is well known by now, Republicans have a huge demographic problem. Years of demonizing immigrants came back to haunt them in 2012 as it did in 2008 when Latinos overwhelmingly turned out in favor of President Obama. The President is now fulfilling his campaign promise and repaying their trust with his full-throated push for reform. Whatever reasons each side cites as its impetus, the simple fact is both sides are now pushing for immigration reform. It reamins to be seen what reform will eventually look like, but last week’s developments can only be seen as a step in the right direction for reform advocates.

Last Monday, a bipartisan group of eight Senators comprised of Sen. Marco Rubio, R-FL; Sen. John McCain, R-AZ; Sen. Lindsey Graham, R-S.C.,; Sen. Jeff Flake, R-AZ; Sen. Chuck Schumer, D-N.Y.; Sen. Robert Menendez, D-N.J.; Sen. Michael Bennet, D-CO and; Sen. Richard Durbin, D-IL laid out a plan that couples immigration reform with enhanced security efforts aimed at preventing illegal immigration and ensuring that those foreigners here temporarily return home when their visas expire.  Their plan includes:

1. Path to citizenship coupled with border security.
2. Reform of the legal immigration system.
3. Reform of the employment verification system.
4. Improved process for admitting future workers.

On Tuesday, in front of a friendly crowd in Las Vegas, the President laid out his plan for immigration reform to chants of, “Si se puede!” In his plan, President Obama called for common sense and comprehensive immigration reform emphasizing:

1. Continued focus on enforcement.
2. Dealing with the 11 million undocumented in the country.
3. Bring the legal immigration system into the 21^st Century.

The President also cited his renewed support for the Dream Act as part of his call for action on reform.

The recent developments have, undoubtedly, given tremendous hope to the estimated 11 million undocumented people currently living and working in the United States and those who are potentially planning to come to study, live, and work in the United States. Not only is President Obama fulfilling his election promise to tackle the issue, but there seems to be significant and meaningful bipartisan support—at least in the Senate. It remains to be seen how the more conservative and intransigent House Republicans will respond to the proposals. Initial resistance is likely, but as they did on the Fiscal Cliff deal and the Debt Ceiling, it’s likely enough House Republicans will join with House Democrats to pass reform. We’re not predicting an easy journey, but we do think reform will eventually pass. As President Obama said, “Now’s the time.”

Although the news in Washington is coming thick and fast, especially the battles over the President’s Cabinet nominations, we will be sure to follow immigration reform developments closely and update our blog regularly as the situation develops. Right now the proposals are in the early stages and lack defined proposals. As legislation develops, we will convey what that information means to you.

At MPS, we know navigating the immigration process is difficult. And right now, it is especially confusing given all of the uncertainty. Contact us and we can help you along your journey.

1. Restart paying your contractually due mortgage payment, and
2. Propose to cure your mortgage arrears (back payments) in your chapter 13 plan.

In a Colorado bankruptcy the debtor is responsible for paying the mortgage directly, unlike some states that have the debtor pay the bankruptcy trustee both the mortgage payment and the chapter 13 plan payment.

So, in a Colorado chapter 13 bankruptcy, the debtor must start paying the mortgage payment on the next due date after the case is filed. Most mortgage payments are due the 1^st day of the month; so, if your attorney files your chapter 13 bankruptcy on March 5^th, the debtor must pay the next mortgage on or before April 1. If the debtor fails to make that mortgage payment, the debtor will again be in default of the mortgage and risks foreclosure.

In chapter 13 bankruptcy, if the debtor desires to keep their home and is behind on payments, the debtor must pay the regular mortgage payment the next due date after the chapter 13 bankruptcy case is filed.

By Matt Berkus

Conceptually, modern bankruptcy law is how we hold financial institutions to that moral code. However, laws and regulations are poor substitutes for genuine moral obligation and courage; hence, why we have lost the idea that bankruptcy is really about forgiveness. Today, bankruptcy is often viewed as a mechanism for debtors to break promises and break agreements; hence the perceived stigma about bankruptcy, the guilt felt by those who need bankruptcy and the continued suffering of those with debt because they can’t bring themselves to file bankruptcy.

I refer to this dilemma as the moral dis-equivalence between debtor and lender. Society and our leaders have stripped away nearly all moral requirements on lenders; but society seems to shame those that need bankruptcy, that need forgiveness of debt. Shame and guilt are emotional reactions to a perceived violation of some duty. But violating a duty requires a voluntary act to be morally blameworthy. I have yet to meet or represent a client that intentionally got in to debt with the express purpose of not paying it back. Doing so would be clearly wrong and there are civil and criminal laws to deal with that situation. Bankruptcy is about forgiving the “unfortunate debtor.” Bankruptcy is almost always caused by external forces or events that are beyond the debtor’s control (job loss, bad economy, wrong business at the wrong time, bad luck, severe accident or illness). If you make a promise to see your grandmother at 6:00pm, but get in a car accident along the way and do not arrive to see your grandmother, have you broken a promise? Are you morally responsible and blameworthy for not keeping that promise? Your grandmother, and anyone, would forgive you.

So, why don’t we hold lenders responsible for forgiving debt? Can you really imagine our country without bankruptcy; without a credible mechanism for debt forgiveness? Who would start small businesses that employ most Americans? Without bankruptcy, the risk would be too great? What would happen to those burdened with extreme medical debt? Bankruptcy is how we keep individuals and families contributing members of society; it allows individual to take risks and open businesses because bankruptcy provides an exit if things don’t go as planned. Bankruptcy is the floor that keeps people out of the basement of lifelong poverty and allows them to pick themselves up. Did you know that most successful business people have filed bankruptcy at some point? No one sets out to fail; bankruptcy is an expression of forgiveness; bankruptcy is moral.

By Matt Berkus

Whether you keep or lose the points is up to the lender. Bankruptcy doesn’t force the issue, but every lender I have encountered has a policy/clause in its credit agreement that if the debtor defaults or files bankruptcy, the lender can revoke the miles or points.

Even if the card has a zero balance when you file bankruptcy, you will still lose the miles. As such, there is no benefit to trying to pay-off that card prior to filing bankruptcy. To answer your next question, you cannot pick and choose which creditors to include in your bankruptcy. You are not allowed to file bankruptcy against all your other creditors and exclude your miles card.

Moreover, it is highly unlikely that a bankruptcy judge would approve a reaffirmation agreement if the sole reason for doing so is to keep the miles. But again, the issue is up to the lender, and I haven’t encountered a lender willing to entertain a reaffirmation agreement to retain miles.

You should not allow this question to determine whether or not to file bankruptcy, but you should be aware that if you accumulated miles or points on a credit card, you will lose them if you file bankruptcy.

By Matt Berkus

The bankruptcy trustee is the debtor’s enemy in the bankruptcy case. The U.S. court system, in all aspects, is adversarial in nature. Bankruptcy is no exception. In any case, including a bankruptcy case, two sides oppose each other. The debtor is seeking a discharge of debts; your creditors are seeking to get any money they can. The trustee is appointed, for administrative efficiency, to represent the collective interests of the debtor’s creditors. Reason being, it would be too administratively cumbersome to have to address the claim of each creditor individually. The bankruptcy trustee is trying to get money from you to pay something to your creditors. The trustee is not your friend and the trustee is not an objective third party.

The good news is this; the trustee is your adversary, which means the trustee is not the decision maker in your case. I see so many forum posts and questions about the trustee did this, the trustee did that? My first response is why didn’t you oppose that action? The answer I get back; I didn’t know I could.

If you don’t like something the bankruptcy trustee did, or if you oppose the trustee on some issues, you don’t have to lie down and take it. Bankruptcy is still a court proceeding and a judge presides over the case. In 99% of case, the debtor will never see the judge. However, if you need to resolve a dispute, the judge is the arbiter and the decision maker.

Granted, you need to have some basis to support your position against the trustee. If you disagree with a trustee’s actions, go to the judge and have the judge tell you whether the action is right or wrong.

To intelligently answer the question, “will I lose X”, we need to know how much the thing is worth. Asset value is the key to bankruptcy pre-planning. Pre-planning encompasses two considerations, (1) practical and (2) legal. The practical consideration is two fold; first, is the item worth enough to expend the brain power on a legal analysis and developing an elaborate asset protection plan; and second, does the debtor even care about the item and whether the item is lost in the bankruptcy. For example, if the debtor’s third vehicle is a 1979 Chevy Blazer that is mostly rusted and sitting on blocks, the vehicle is not worth any ones time and effort in the bankruptcy system to take even if there is no way to protect the vehicle in bankruptcy, or the debtor may not care and beg the trustee to take the Blazer off his hands. So, there is no need for the debtor to spend any time or money to figure out what do so with the item.

Asset value is vital for legal analysis. The next step in bankruptcy pre-planning addresses bankruptcy exemptions and perform a net-equity value analysis. Exemptions are laws that allow the debtor to keep equity in certain assets notwithstanding the fact that the items could be sold to raise some money to pay creditors. For example, the Colorado vehicle exemption is $5,000; if the debtor owns  a vehicle worth $10,000, owes $6,800 on the vehicle, the net equity is $3,200. Since $3,200 is less than the Colorado vehicle exemption, the debtor can keep the car.  If the debtor’s vehicle is worth $13,000, then the net equity is $6,200. Since $6,200 exceeds the Colorado vehicle exemption, the bankruptcy court would require the debtor to pay $1,200 ( $6,200 minus $5,000) into the bankruptcy to distribute to creditors. The lesson is do not overestimate the value of assets.

To value assets, the court looks at fair market value (“FMV”). FMV asks what would a person actually pay for the item in a normal market place for the type of item. For example, furniture is realistically worth what you could get at a garage sale or on Craigslist. A Current Market Analysis will usually suffice for real estate. Vehicles can be more tricky; you start with Kelly Blue Book, but if you need a lower valuation for pre-bankruptcy planning, there are other valuation models the trustees accept.

The starting point for effective pre-bankruptcy planning is accurate asset valuation.

Let’s back up and provide some background to understand why this decision is harsh and unwarranted. The U.S. Justice system is adversarial in nature; in any court proceeding there are two sides, prosecution/defendant, plaintiff/defendant, debtor/trustee, etc. The judge is supposed to be an impartial arbiter of the dispute.  In the civil context, a plaintiff sues defendant. If the defendant does not show up or otherwise contest the allegations of the plaintiff, then the plaintiff can request a default judgment. So long as the plaintiff has some shred of evidence to support their case, the court will grant a default judgment. Although the plaintiff has the burden of proof, the defendant has the burden to respond. If the defendant does not respond, the court will presume the allegations of the plaintiff are true and enter judgment accordingly. In hundreds of courts across the nation, thousands of default judgments are entered every day. Creditor X sues Debtor Y, debtor fails to respond; creditor gets a default judgment with no questions asked. Collection law firms are set up in every major city for the sole purpose of getting default judgments. And these default judgments are granted with the flimsiest of supporting evidence.

To discharge student loans in bankruptcy, a debtor must file an Adversary Proceeding in bankruptcy court. An Adversary Proceeding is the bankruptcy codes fancy phrase for lawsuit; a debtor must sue his student loan lenders to get the debt discharged. Mr. Skipworth sued Citibank Student Loan Corp., properly notified it; Citibank never responded, so Skipworth requested a default judgment.

However, the judge took it upon himself to fully inquire into the case, totally ignoring the adversarial nature of our justice system; and conducted a one-side trial.

Most consumers are familiar with the standard FICO credit score, but many are not aware that FICO (and other agencies) offer numerous types of scores for various circumstances such as mortgage lending, car buying, etc. According to Ms. Yuille’s article, a bankruptcy predictor has been around since the early 1990’s; and the scoring models have become quite sophisticated with the ability to send alerts to subscribers if the consumer’s behavior changes suddenly indicating an increased loss risk.

Regardless of how long you have been a customer, from the banks perspective, you are a number or SCORE. Why do you think it is so difficult to negotiate with the banks; they have billions (probably trillions) of data points gathered over 30+ years that predict how consumers will react in a given situation. The bank then creates systems and scripts for front-line customer service to use. Those scripts mostly contain the word “no” for anything you ask. Also, this data is why the threat of bankruptcy has little leverage.

The irony is that often your credit card companies know you will file bankruptcy before you do. When you see your available balance on a credit card reduced to the current balance owed, a significant increase in your interest rate, or a significant increase in your minimum payment; that is the bank telling you that you have become a risky borrower. That is the bank “taking action to protect profits and reduce loss exposure.” Unfortunately, the banks accept that you will file bankruptcy; banks are not generally interested in helping you avoid it because the accumulated data seem to show, on average, that any steps the bank could take to help will not help you avoid bankruptcy. That is some weird irony; although you may feel like the bank is “pushing you” to bankruptcy (I hear that comment a lot at consultations), the reality is the bank is telling you that you are already bankrupt, the bank has accepted it, so why don’t you?

By: Matt Berkus

Bankruptcy sets you up for success. It is the first step on the path to financial recovery; thus, bankruptcy is the critical step and must succeed. As the first step, it also has the largest Return on Investment. Assuming $2,700 in attorney fees, your return on investment in different scenarios is this:

Discharging $30,000 of debt: ROI = 1,011%

Discharging $70,000 of debt: ROI = 2,493%

Discharging $120,000 of debt: ROI = 4,344%

Short of being an Angel Investor or Venture Capitalist, there exist no investments you can make and expect such a return on investment. Assuming bankruptcy is an option for you in the first place, it is always the best option.

By contrast, let’s look at a comparable debt settlement program. To settle all debts and prevent hold outs (creditors who won’t settle for a really low amount), you should budget about 40% of the balance owed (most T.V. ads promise only 50%). Also, let’s assume an upfront fee of $1,200 and a 15% contingency on the amount saved (the industry average for private debt settlement companies). We won’t even factor in the potential income tax consequences of settling.

Settling $30,000 of debt: ROI = 89%

Settling $70,000 of debt: ROI = 97%

Settling $120,000 of debt: ROI = 100%

Thus, when viewed objectively, in a business-like manner using the same tools as corporations, bankruptcy makes the most financial sense and paying an attorney to do so (assuming you hire the right attorney) yields a huge Return on Investment. Don’t lose sleep over the decision to file bankruptcy, it is nearly always the must prudent option to solve debt.

By: Matt Berkus

However, there is another rule that must be satisfied for the court to approve a chapter 13 plan, liquidation value. Liquidation value is the amount of money a client’s creditors would receive if the client filed chapter 7 bankruptcy. Thus, if a client’s liquidation value is $30,000, then the total of chapter 13 plan payments must be at least $30,000 over the life of the plan. When does liquidation value come into play?

The asset rich, cash-flow poor, families are the ones that run into liquidation value problems. Some families have assets with too much equity; we call this scenario having non-exempt assets. For example, a Colorado family with 200,000 equity in its home but owes $300,000 in credit card debt would have a liquidation value of $140,000 (the homestead exemption in Colorado is $60,000). Meaning, that over the chapter 13 plans’s 60 months, the couple would need to pay $140,000; ouch!. Most of the time, if the family is contemplating bankruptcy, that payment is not be feasible.

If the family cannot afford to pay the liquidation value with monthly income, the available debt solutions are limited. The couple may either file chapter 7 bankruptcy and lose the home (actually liquidate it), or try to settle with creditors. However, settling requires immediate cash on hand to the tune of 30-50% of the balance owed. So, in this scenario, the couple would probably need to sell the house to raise money to settle. I typically recommend an attorney managed debt settlement program in these circumstances since we can usually maximize the amount of money the client can retain as the result of selling assets and manage collection activity.

If a business files chapter 7 bankruptcy, it is liquidated and closed. For very small businesses that process can be handled by the business owner with the advice of an attorney. However, often times it is preferable and advisable to put the business into chapter 7 bankruptcy and make closing the business the headache of the chapter 7 bankruptcy trustee.

• Oft times, the business owner doesn’t want the hassle and headache of closing the business; doesn’t want to deal with the incessant phone calls from creditors, vendors, and taxing authorities; the debtor simply wants peace and  someone else to deal with it. A bankruptcy makes closing the business the problem of the chapter 7 trustee.
• The business has some assets; so the bankruptcy liquidation will pay certain important debts e.g. payroll tax for which the owner would be personally liable; and therefore, bankruptcy creates a streamlined forum to resolve certain debts.
• The business operation may have created high litigation risk; as such, a bankruptcy forces claimants out of the woodwork to deal with their claims or lose their rights. In essence, the bankruptcy packages all the claims and deals with it.
• Frequently a business will try chapter 11, but for various reasons the chapter 11 fails, so case is converted to chapter 7 bankruptcy.

I must note that a business bankruptcy is almost always followed by the owner’s personal bankruptcy. Lenders and vendors nearly always require small business owners to personally guarantee debt. The benefit of the business bankruptcy plus personal bankruptcy is the certainty it brings to the status of the debts and claims. The business is closed properly and the business owner receives a bankruptcy discharge leaving creditors now where to go. The owner wont need to put up with phone calls from various junk debt buyers that can occur many years after the business closes.

By: Matt Berkus

A chapter 11 bankruptcy is a debt reorganization. A business in chapter 11 bankruptcy continues to operate and the chapter 11 allows the business to make more affordable payments to creditors. Although small businesses and individuals can file chapter 11 that type of bankruptcy is more suited to established, larger corporations (e.g. airlines). However, a business chapter 7 bankruptcy simply shuts down and liquidates the business. If a business files chapter 7 bankruptcy, the business is done. Unlike individuals who receive a bankruptcy discharge and fresh start, business do not. A business that files chapter 7 bankruptcy is closed.

So, a business can file a business bankruptcy, but there are other strategies for dealing with business debt. At this point, it is helpful to distinguish the business entity from the business operation. The business entity is the legal form of the business, e.g. Corporation. Limited Liability Company, Limited Partnership, etc.. The business operation is what the business does; e.g. manufacture and sell machine parts to diesel engine builders, sell real estate, manage properties, etc. The business entity incurred the debt (and often the owner(s) will have guaranteed the debt).

The business owner is usually interested in keeping the business operation. In bankruptcy, the only option for that goal is chapter 11. However, we can often perform a private reorganization of the business entity which keeps the business out of chapter 7 bankruptcy, may eliminate most business debt, and allows the business operation to continue. Keep in mind, a private reorganization cannot save a business that cannot pay its basic bills; the business operation must be viable. A business with good cash flow but too much debt can usually benefit from a private reorganization of chapter 11 bankruptcy if the goal is to keep the business operation intact.

By Matt Berkus

If the rental property has equity; that is, the property’s value is more than what is owed against the property, then the rental property would likely be seized and sold in chapter 7 bankruptcy.  In chapter 13 bankruptcy it is possible to keep rental property in bankruptcy so long as the monthly payment in the chapter 13 payment plan can reconcile the value of that equity. For example, if the rental property has $20,000 equity, the chapter 13 plan must minimally pay $20,000 to the debtor’s unsecured creditors over the life of the plan (that is what we call reconciling the value of non-exempt equity). If there is no equity in the rental property, then this issue is moot.

The main challenge with rental properties in bankruptcy is related to the income and expense the property creates. The court looks at the cash flow position of the rental property; is it positive cash flow (profitable), break-even, or negative cash flow. In chapter 7 bankruptcy the rental income is income for the Means Test, so that income counts toward qualifying (and disqualifying) the debtor for chapter 7 bankruptcy. In most cases, the rental property has a corresponding mortgage expense so the income is offset and usually moot. However, if the property is significantly cash flow positive, in theory, a chapter 7 trustee may still seize the property and attempt to sell it as a going concern. For example, if the property is consistently $1,000 per month cash flow positive, someone may be willing to buy that income stream at a future dollar discounted value. However, if there were any risk of that last eventuality, the debtor would be filing chapter 13 or chapter 11 bankruptcy.

The cash flow position is particularly important in chapter 13 bankruptcy. If the rental property is significantly cash flow negative, the chapter 13 trustee will always object to the debtor supporting that property. For example, if the property rents for $1,200, but the combined mortgage, HOA, and other expenses are $1,600, the trustee will argue that the debtor should pay that $400 to unsecured creditors. The reason being that the debtor’s unsecured creditors are being unfairly prejudiced if the debtor is allowed to maintain the rental property which is not necessary for the debt reorganization. That doesn’t mean the court forces the sale, but the court may not allow you the budget to make-up the monthly short fall.

In short, yes, it is possible to keep rental properties in bankruptcy, but whether it is practical to do so is a discussion for you and your attorney.

By: Matt Berkus

There are 2 reasons why the IRS gets to keep the tax refund?

(a) Internal Revenue Code 6321 provides the IRS with an automatic, statutory lien when a taxpayer owes a tax debt, the IRS has demanded payment, and the taxpayer has not paid. This tax lien is known as the silent or shadow tax lien. The IRS, in essence, has a security interest in the tax refund by virtue of its shadow lien.

(b) Bankruptcy Code section 362(b)(26) expressly allows the IRS to keep the tax refund if the debtor’s bankruptcy case was filed after the end of the applicable tax period for which the refund (for individual income tax, the tax period ends December 31) and the refund is being used to pay prior year(s) taxes. This concept is known as the right of set off. The IRS’s claim to the refund matures on December 31, but the claim doesn’t get paid until the debtor files her tax return. This bankruptcy code section is saying that the Automatic Stay (which prevents most collection activities against the debtor) does not apply to the IRS’s ability to take a refund to pay taxes owed for prior years. The bankruptcy Automatic Stay does not quash the IRS’s right of set off.

For example, Don Debtor owes $35,000 in back income tax for 2006, 2007, and 2008. Don files chapter 13 bankruptcy in February, 2011. Because of changes in his circumstances, Don will receive a $5,000 tax refund for 2010. The chapter 13 bankruptcy was filed after the end of the 2010 tax year. The combination of IRC 6321 and Bankruptcy Code 362(b)(26) allows the IRS to keep that $5.000 refund and apply it toward Don’s back-taxes. That is the case even though the tax debt for 2006 and 2007 would be dischargeable in Don’s bankruptcy.

So, IRC 6321 creates the IRS’s right to set off, and Bankruptcy Code section 362(b)(26) allows the IRS to maintain that right notwithstanding that the taxpayer filed bankruptcy. But, you, as the taxpayer, are no worse off; if Don had not filed bankruptcy, the IRS would have kept the refund anyway.

By: Matt Berkus

For real estate, the starting point is a Current/Comparable Market Analysis (“CMA”). These analyses can be done by real estate agents and in most cases is all you need; a CMA gives you a good estimate for what price the home would likely sell. But even a CMA can be massaged to meet a debtor’s needs. If the CMA does not get a number needed or is close, then an appraisal may be needed.

As for how this works, assuming we are talking about a primary residence for which the homestead exemption applies, the exemption attaches to the house (or property). Presently in Colorado the homestead exemption is $60,000 (and for elderly or disabled, $90,000). Joint ownership is usually a non issue, the “home” receives the homestead exemption; the home could have 5 owners, but the homestead exemption is still $60,000. So if the home is worth $250,000, and the mortgages total $200,000, the equity would be exempt because it is less than $60,000. However, if the home is worth $300,000 and the mortgages are only $210,000, the home would have $30,000 of non-exempt equity.

Home valuation is especially important for chapter 13 bankruptcy lien strips. Again, you start with a CMA; if the home is horribly upside down, a CMA will usually suffice since no one is going to challenge the value. If the property’s value is borderline, most judges will want to see a full-blown appraisal. But, real estate agents have testified as experts against the bank’s appraiser and won, so which value you need really depends on the specifics of the case.

Author: Matt Berkus

Aside from criminal prosecution for bankruptcy fraud (again, super rare), the worst case scenario in bankruptcy is denial of discharge.

Denial of discharge is different than having your case dismissed. The result of a denial of discharge is that whatever you were trying to hide is going to be taken and sold, and none of the debts that were listed in your bankruptcy will be discharged. You will be stuck with all that debt, forever. A dismissal at least gives you the option to reevaluate your options and re-file your case if necessary.

For example, if you fail to mention that you own free and clear a vacation home in Canada, the bankruptcy trustee will seize and sell that home, and you will have your discharge denied. In bankruptcy, you must disclose all assets, no matter where located.

See the case of poor Sidney Peters in Ft. Worth, Texas.

In re: SIDNEY PETERS, IN PROCEEDINGS UNDER Chapter 7, Debtor.

Personally, I think denial of discharge was a bit harsh for that debtor’s transgression, but it illustrates the point that you should not try to “hide” things in bankruptcy. Instead, hire a qualified bankruptcy attorney who is willing to help you with pre-bankruptcy asset planning and is willing to set proper expectations (i.e., tell you what you need to hear, not what you want to hear).

Author: Matt Berkus

Credit rebuilding after bankruptcy occurs fairly quickly and you will have access to credit (if you want it) immediately after filing bankruptcy. You will be shocked by how quickly you receive credit card offers and offers to finance a car immediately after your chapter 7 discharges. During that rebuilding phase, if you use credit, you will pay a higher interest rate, but once you reach the 18-24 month mark, you should be able to receive market, prime credit interest rates for most loan/credit types.

Every state, in some manner or another, allows you to protect your assets from being taken in bankruptcy. Bankruptcy is not about leaving you destitute for the benefit of your creditors. If you were left destitute, you would become a burden on society and taxpayers. Instead, bankruptcy is about rebuilding your financial life so you thrive and can become successful. In over 90% of chapter 7 bankruptcies, the debtor loses nothing (source).

Stop agonizing over your decision to file bankruptcy; if your total unsecured debt is 40% or more of your gross annual income, it is time to consider bankruptcy. Your debt is the obstacle to you paying your necessary living expenses, living a happier life, and planning for your financial future.

Author: Matt Berkus

This eventuality should not come as a surprise to bankruptcy debtors. Colorado has no bankruptcy exemption to allow debtors to keep the tax refund. However, what often frustrates debtors is that if the trustees go after a tax refund, they will also go after other trivial assets that trustees normally ignore such as 25% of cash in bank accounts and earned, but unpaid, wages due on the date the debtor filed bankruptcy. However, that is reality.

For example, if a debtor is expecting a $2,000 tax refund, has $1,000 in his bank account that is attributable to wage income, the trustee will take the a pro-rata tax refund amount and $250 from the bank account. Reason being, Colorado only allows a debtor to keep 75% of wages earned and has no protection for the tax refund (except for certain tax credits, e.g. child tax credits). From the trustee’s perspective, grabbing the 25% in the bank account is only a few extra key-stokes on the computer; however, most bankruptcy trustees would not take the bank account money if it was the only asset since opening an asset chapter 7 is usually  not worth it for sums less than $1,000.

The goal of chapter 7 bankruptcy is a fresh start; a fresh start is achieved by receiving a bankruptcy discharge. Your bankruptcy discharge will occur on time regardless if the trustee seizes your tax refund. I know, it hurts, you were probably looking forward to the refund; but it is a small price to pay. If you are dumping $60,000 in debt and it is only costing you a $2,000 tax refund; that is still a great deal; you still get a fresh start.

By: Matt Berkus

Source: http://www.smartonmoney.com/30-things-broke-people-say-that-keep-the-broke/

1.  If I earn interest, I have to pay more taxes.
2. There’s no shame in being poor, just in dressing poorly.
3. At my age, it’s too late anyway.
4. Why save money? You can’t take it with you when you die!
5. We’re only young once!
6. But it’s only zero percent interest!
7. I’ll pay it off next month!
8. Old cars just aren’t safe.
9. Whatever you want, dear.
10. I’ll start my budget next month.
11. It’s for the kids.
12. I work hard so I deserve to have it!
13. I’ll just keep paying the minimum payment.
14. My rich grandparents are going to die soon.
15. I want my kids to have it better than I did.
16. It’s cheaper to eat out than eat at home.
17. Always keep a house payment for tax purposes.
18. I’ll save next year when I’m making more money.
19. We’ll pay it off when the tax return comes in.
20. You have to leverage debt to become rich!
21. I need to invest in a car.
22. Why save ? The Lord is coming back soon!
23. If I make more money, I will lose my food stamps!
24. If everybody got out of debt, the economy would collapse!
25. You’ll always have a car note.
26. Just put it on the card and we will worry about it when it comes in..
27. Being debt free isn’t for everyone.
28. It’s only money! We’ll make more.
29. I must be able to afford this (car, house, etc.) since I was approved for the loan.
30. I’ll just use a cash advance from my Mastercard to pay down my VISA.

How do I determine if rental property qualifies as non-consumer debt?  We have read that it is the “intent” of the mortgage that matters. We rented out our former home, but refinanced before doing so.  We used a Veterans Administration loan to refinance since it was the only way to refinance and then rent out without living in the property for a specified term.  We have the rental application signed before the refinance, and then a rental agreement signed 3 days after refinance. Will this fact allow our mortgage to be classified “non-consumer” debt?

Answer:

When Congress enacted BAPCPA in 2005 (the new bankruptcy code) it created a means test to qualify individuals for chapter 7 bankruptcy. The means test puts a limit on how much income a debtor may earn and still file chapter 7 bankruptcy. However, if the majority of your debt is non-consumer debt, then the individual gets to bypass the means test and therefore can still file chapter 7 bankruptcy and receive a discharge even if she earns more money than would otherwise be allowed to file chapter 7 bankruptcy.

Your situation is arguable, but you may be on the losing side of the argument. It is generally well settled that non-consumer debt is debt incurred for a profit motive (Matter of Booth, 858 F. 2d 1051 – Court of Appeals, 5th Circuit 1988). Moreover, when it comes to mortgage debt, the courts rely on the original intent of the mortgage loan (In re Bertolami, 235 BR 493 – Bankr. Court, SD Florida 1999). As such, the courts go back and look at the original intent of the mortgage.

You may be caught in a catch 22 depending on how you stated the intent of the mortgage to the VA. If you said the refinance was for purposes of refinancing your primary residence mortgage, you have a problem. If you argue that the debt is non-consumer, then that argument could amount to an admission that you misrepresented yourself on the mortgage application, in which case, you may create more problems. So, before jumping in and trying to argue that this mortgage is non-consumer, you should have your attorney analyze any negative implications of doing so.

The answer is ultimately going to come down to the intent stated in the mortgage application or other loan documents. If you said the refinance was for your primary residence, then you will have a hard time declaring the debt non-consumer debt. If the loan application or other loan documents are silent on the issue of loan intent, then you have an arguable chance of declaring the mortgage loan non-consumer debt based on the facts your describe, i.e. immediate intent to rent, already signed rental agreement, etc.

Author: Matt Berkus

Bankruptcy can eliminate some taxes; for taxes that cannot be eliminated in bankruptcy, it can usually impose on the IRS more favorable payments terms than the IRS may give the debtor. Moreover, since bankruptcy will help the debtor with other debt issues, if bankruptcy cannot be eliminated all debtor’s tax bill, the bankruptcy frees up the debtor’s resource to resolve the tax debt.

Unfortunately, you won’t get this advice from most tax resolution firms. Those firms are focused on one thing: charging you for a solution it offers, but not necessarily recommending a solution that maximizes your chances of success in resolving your tax issues and other financial problems.

Bankruptcy is usually an integral part to a comprehensive strategy to resolving tax debt.

Author: Matt Berkus

Test 1: The Over/Under.

The Over/Under simply asks whether in the previous 6 months before filing chapter 7 bankruptcy is your combined household income (excluding any income from the Social Security Administration) above Colorado’s annual median income for your household size. If you are under, you presumably qualify for chapter 7 bankruptcy, bypass test 2 and 3 and head straight to chapter 7 discharge. If your income is over median, you go to Test 2.

Test 2: Disposable Monthly Income Test.

If you are over median on Test 1, then the Means Test has you calculate what, if any, disposable income you might have after deducting IRS allowed monthly expenses, secured debt payments, and certain other expenses from your income. If you have disposable income (money left over after all deductions), then you do not qualify for chapter 7 bankruptcy and must file either a chapter 13 or 11 bankruptcy; reason being, Test 2 is showing you have some money to pay back something to your creditors.

Passing Test 2 is an art form. Unfortunately, few attorneys take the time to massage a case to see if a person can pass the Disposable Income Test. The disposable income test has its limits, if you have disposable income, no amount of lawyering is going to change that fact.

Test 3: Not Enough Disposable Income to Matter.

If you have disposable monthly income according to Test 2, then you move to Test 3. Test 3 rarely applies; but basically, if your monthly disposable income multiplied by 60 is less than $6,575, then you are presumably a chapter 7 bankruptcy. If your disposable monthly income multiplied by 60 is between $6,575 and $10,950 and that amount will not pay at least 25% of your non-priority unsecured debt, then you presumably qualify for chapter 7 bankruptcy. In essence, within those narrow guidelines, the bankruptcy code is saying that there is not enough left over at the end of the month to matter.

Exceptions to the Means Test

There are certain exceptions to even bothering with the means test; the exceptions are limited, but very useful if an exception applies. If you qualify for one of these exceptions, you don’t even complete the means test and you can even have disposable income or very high income and still qualify for chapter 7 bankruptcy.

By Matt Berkus

Enjoy

By Matt Berkus

Exemption list provided courtesy of Bankruptcy Beagle

I filed chapter 13 bankruptcy, then something went wrong and my lawyer says to convert to chapter 7. My 341 meeting of creditors did not go well and the trustee might dismiss my case because I could not answer questions; I couldn’t answer the questions because my lawyer did not go over anything with me prior to 341 meeting.

Answer

Sorry to hear your bankruptcy is not going according to plan. An explosion of inexperienced and bargain basement priced attorneys have entered the field the last few years; we are seeing more prospective clients that need their bankruptcy fixed.

To answer your question, yes, it is legally possible to switch attorneys mid stream; it’s not cheap, but it can be done. Nothing prevents you from firing your attorney and trying to hire another, you are not forever tied to the attorney you hired. However, most attorneys will resist the prospect of jumping into an active bankruptcy. When an attorney appears in the already filed case, that attorney becomes responsible for that case and the work of the other attorney. Granted, the bankruptcy court will usually allow the new attorney to “fix” the case, but from the attorneys perspective, it is high risk (and therefore, the cost to do it is much higher).

It seems odd that a person would convert to chapter 7 when the chapter 13 341 meeting doesn’t go well. Conversion to chapter 7 from chapter 13 usually occurs much later when the client’s circumstances change or when the client comes to the realization that whatever she was trying to accomplish in a chapter 13 (save house, etc) is not worth doing.

Author: Matt Berkus

We filed chapter 7 bankruptcy last year, received our discharge; our second mortgage shows as charged off and we have not heard from them. We want to sell our home. If we make a profit, no matter how small, will we have to pay it to the charged off creditors?

Answer:

You will need to pay (or negotiate some sort of payment with) any creditors that have a lien on your home in order to pass clear title to the buyer. When an inferior mortgage is charged off, that means the lender is writing off the debt on its books. But, that is not the same thing as satisfying or charging off the lien. The lien stays intact, even through the bankruptcy.

For example, if you sell your house for $250,000 and the 1^st mortgage is $225,000 and the second mortgage is $75,000; you are looking at a short sale scenario. So, even though the 2^nd mortgage  lender may have charged off the loan and you subsequently discharged your personal liability on the loan in your chapter 7 bankruptcy, the lien (security interest in the property) remains and must be dealt with as part of the sale transaction. In this example, there will be no profit to the seller.

However, if you can sell your house to satisfy all liens and there is still money left over, you get to keep that money. That money does not filter back to your bankruptcy to pay creditors that had their debt discharged.

Author: Matt Berkus

1. State your name for the record.
2. Please provide your picture ID and social security card for review.
3. Did you sign the petition, schedules, statements and related documents?
4. Is this signature your own (assuming the documents has an original signature)?
5. Are you personally familiar with the information contained in the petition…et al?
6. To the best of your knowledge, is the information contained in the petition…et al, true and correct?
7. Are there any errors or omission to bring to my attention?
8. Are all your assets identified on the schedules?
9. Have you listed all of your creditors?
10. Have you previously filed bankruptcy (If yes, when)?
11. What is the address of your current employers?
12. Is the copy of the tax return you provide a true copy of the most tax return you filed?
13. Do you have a domestic support obligation? (if yes, to whom; and what is his/her address)?
14. Have you read the bankruptcy Information Sheet provide to you?

In addition to the above questions, the trustee may inquire into the specifics of your circumstances depending on what issues arise in your case. However, if your bankruptcy petition is expertly prepared, complete, and contains no red-flags, the trustees inquiry will typically stop with the above questions.

However, you should not fret too much about the trustee meeting; in most cases, the meeting is very routine and very quick; on average, the time you are actually answer the bankruptcy trustee’s questions is less than 5 minutes.

By: Matt Berkus

Source: Chapter 7 Trustee Supplemental Handbook.

However, a married couple cannot double the Colorado homestead exemption. A homestead exemption attaches to the property, not the individual debtor; as such, the exemption is not personal to the debtor. Presently, in Colorado, the homestead exemption is $60,000 and that is the maximum amount that can be claimed in a Colorado bankruptcy in either an individual case or joint case. If the debtor is 60 years of age or older or disabled, the Colorado allows a $90,000 maximum homestead exemption.

Mr. Berkus brings a decade of experience in bankruptcy,  tax debt resolution and civil litigation. His expertise and counsel are a perfect fit at MPS and illustrate our commitment to providing exceptional customer service and legal representation.

Please join us in welcoming our new Of Counsel, Matt Berkus Esq!

We will be sharing updates and putting out polls throughout the games on our Facebook and Twitter pages.  Like and follow us for an interactive Olympic experience!  USA!

At MPS, we strive to be Community Partners and would like to thank Make-A-Wish Foundation® of Colorado and the Colorado Rapids for the opportunity and, of course, their tremendous work.  We look forward to working with both organizations again in the future.

• Provision requiring all immigrants to obtain or carry immigration registration papers
• Provision making it a state criminal offense for an undocumented immigrant to seek, work, or hold a job
• Provision allowing police to arrest suspected undocumented immigrants without a warrant

The Court, however, did uphold the state provision requiring police to check the immigration status of someone they suspect is in the United States without documentation.

While many will, understandably, attempt to spin this ruling as either a victory or a loss in the context of Presidential politics, the importance of the ruling is that it actually affects the lives of real people not only in Arizona, but in other states that passed similar laws including Alabama, Georgia, Indiana, South Carolina, and Utah.

One thing is certain, immigration law will continue to remain an issue until and, likely, after some form of comprehensive immigration reform is passed at the federal level.  Any sort of comprehensive reform is probably a long way off.  However,  the SB 1070 ruling and President Obama’s recent announcement allowing hundreds of thousands of undocumented immigrants who came to the United States as children to remain in the country without fear of deportation and giving them the right to work ensure that immigration law will be an important issue for years to come.

In short, immigration law is a fluid and changing area within the law and MPS is here to guide you.  If you, a family member, a colleague, or a friend are seeking immigration assistance, please contact us.  We are experienced and ready to help.

The Chen affair represents both the complexity and growing cooperation in US-China relations.  It also shows how international politics directly affects potential asylum cases for immigration lawyers.

Please stay tuned for future blog posts as this story develops.

If you, a family member, a colleague, or a friend are seeking immigration assistance, please contact us.  We are experienced and ready to help.

Now that you’ve decided to file, we’d like to give you some advice on moving through the bankruptcy process and how you can make both your life and your attorney’s life much easier.

If nothing else, just remember this one cardinal rule:  Tell Your Attorney Everything.

This may seem fairly obvious, but when it comes to financial matters (particularly in the context of bankruptcy), it’s common for people to feel self-conscious or embarrassed.  As a result, people will often leave out potentially critical information, or the information they do provide isn’t entirely accurate.  This is not to say that people are being deliberately dishonest; in fact, many times these mistakes are subconscious in nature.

Nevertheless, it’s important that you place your trust in your attorney and provide full disclosure.  Remember that confidentiality is a cornerstone of the attorney-client relationship, so there is simply no good reason to withhold information.  In fact, doing so only makes your attorney’s job harder, and it can seriously endanger your case.  Since the bankruptcy forms are filled out under oath, an audit that reveals incomplete or false information can result not only in you losing your right to a bankruptcy discharge, but also criminal prosecution.  At the very least, it’ll cost you more money if your bankruptcy petition needs to be amended after the fact.

Even when a client is comfortable with full disclosure, the problem is that clients often don’t realize that they’re withholding information at all because they have either forgotten about something entirely (a secured debt, for example), or don’t realize its relevance.   There are a few areas in particular where clients commonly miss important information:

Property

There are a whole host of property interests that people either forget about or may not even know about, but they can become very important to your bankruptcy case.  Some examples include:

- Dormant checking/savings accounts or joint bank accounts

- Pending tax credits or tax refunds

- Rights to alimony or support arrearages

- Rights to marital property settlements

- Rights to inheritance or life insurance proceeds

- Security deposits (landlords, utilities, etc.)

- Potential legal claims

- Cooperative shares

- Life insurance policies with “cash value”

Liabilities

On the other side of the coin, many people don’t realize the full extent of their debt, and may not consider certain liabilities to be a dischargeable debt at all.  Some examples include:

- Potential legal claims against you

- Debts for which you are a cosigner

- Deficiencies on repossessed collateral

- Divorce-related debts

- Alimony and child support

- Utility bills

- Revoked drivers’s license (due to a judgment or unpaid fines)

- Public benefit overpayments

Expenses

Whether for the purpose of creating a Ch. 13 plan or filling out Schedules I and J in a Ch. 7 petition, people’s reporting of their expenses can be problematic.  The reality is, many people don’t keep very good records of how much they spend, and when asked, often underestimate the amount they spend.  Conversely, many debtors are so overwhelmed by debt that they often skimp on basic necessities and other reasonable expenses.  Depending on a filer’s income level, either of these scenarios can become quite important in the debtor’s bankruptcy case.

So keep this in mind when providing information requested by your attorney.  Don’t assume some piece of information is not important — just remember to tell your attorney everything and let him or her sort it out for you.  After all, that’s why you smartly decided to hire an attorney in the first place.  Armed with the information you provide, a good bankruptcy attorney will be able to analyze your case and help you maximize the benefits available to you in bankruptcy.

If you think bankruptcy might be a good option for you, contact us for a free consultation and we’ll be glad to sit down and discuss your situation with you.

Most individuals filing for bankruptcy must choose between Chapter 7 and Chapter 13 bankruptcy, which will depend on a number of factors specific to the individual’s financial situation.  That said, Chapter 7 is by far the most popular choice.   In order to file Chapter 7 bankruptcy, you must fully disclose all of your property, secured and unsecured debts, and financial activities during the past several years.  Approximately three months after filing Chapter 7 bankruptcy, you will receive a “discharge” of most types of debts and emerge from bankruptcy with all or most of the property you owned before filing.

Chapter 7 bankruptcy is usually a three-month process that requires the filing of your “petition,” which is a long legal document that your lawyer typically fills out. You will also be required to attend a hearing with the bankruptcy trustee, who has been appointed to handle your case for the bankruptcy court.

Last year, more than 13,000 Chapter 7 bankruptcies were filed in Oregon and more than 24,000 were filed in Colorado.

Here’s an overview of the Chapter 7 bankruptcy process:

PRE-FILING CREDIT COUNSELING REQUIREMENT

Before you can file your petition, you must have completed a two-hour credit counseling session from a nonprofit agency, which typically costs between $30-$50, depending on your income.  For a list of approved agencies in Colorado, click here; for Oregon, click here.  After you complete your counseling session, the agency will provide you with a certificate of completion that must be filed with your petition.  Although there are a few exceptions to this rule, you generally must obtain your certificate before officially filing Chapter 7 bankruptcy. Counseling is available online, by telephone, and even through the mail.

THE AUTOMATIC STAY

After you’ve received your credit counseling certificate, the next step is to obtain your bankruptcy filing number.  This can be done by either filing an emergency petition (usually called a “skeleton petition”), or by filing all of the required paperwork at the same time.  Either way, once the court issues your filing number, you have a powerful shield called the “automatic stay,” which protects you against any efforts by your creditors or collection agencies to collect on their debts.  Any proceedings against you to garnish your wages, repossess your car, or foreclose on your home will also cease.

Note, however, that there are a few exceptions to the automatic stay.  Actions to collect debts you owe for child support, spousal maintenance (i.e., alimony), most student loans, and certain actions by the IRS will be unaffected by the shield created by the automatic stay.  Still, as a general rule, filing for bankruptcy will give you almost total relief from your creditors while your Chapter 7 bankruptcy case is processed by the bankruptcy court.

CREDITOR ACTION TO LIFT THE AUTOMATIC STAY

In some situations, your creditors may file a motion with the bankruptcy court to “lift,” or remove, the automatic stay. For example, if the automatic stay prevented a foreclosure action, the mortgage owner can request permission from the judge to proceed with the sale. Other common reasons lenders give for lifting the stay are car repossessions and evictions of month-to-month tenants.

YOUR CHAPTER 7 BANKRUPTCY PAPERWORK

Unless you plan to file an emergency bankruptcy petition, you’ll need to file the following with the court:

- Your petition;
- A mailing list of your creditors;
- A form showing your complete Social Security Number or Individual Taxpayer Identification Number;
- Your credit counseling certificate;
- A description of all your property, including where it is located and its approximate value;
- Detailed information about all of your debts and creditors;
- A description of certain economic and financial transactions that occurred within the past several years, such as property you sold or gave away within the previous two years;
- A description of how you plan to handle certain debts (e.g., reaffirmation) like car loans and other loans that are secured by your property as collateral;
- Your monthly income and expenses;
- A statement of whether you want to keep any leases and contracts you have in effect or cancel them; and
- A summary of your assets and liabilities.

In addition, you’ll need to file a form along with your pay stubs, showing your average monthly gross income for the six months prior to the month in which you plan to file.

THE 341 CREDITORS’ MEETING

Roughly 30 days after you file Chapter 7 bankruptcy in Colorado, you will be required to attend a hearing known either as the “creditors meeting” or the “341 hearing.”  To find out where these hearings take place, Colorado filers click here and Oregon filers click here.

At the 341 Creditors Meeting, a bankruptcy trustee, who has been appointed to handle your case by the court, conducts the hearing.  Another U.S. government official, known as the U.S. Trustee, may also attend your meeting and may ask you questions to determine your eligibility for Chapter 7 bankruptcy because of things like your income level.

The main purpose of the 341 Hearing is to have you affirm under oath that your petition and paperwork is complete, accurate, and honest to the best of your ability.  The bankruptcy trustee may also choose to ask you about the property you listed in your paperwork to make sure you listed a proper value or whether you have equity that could be used to make a lump sum payment to your other creditors.  The bankruptcy trustee may also ask you about any:

- Anticipated tax refunds;
- Recent large payments you made to creditors or relatives;
- Methods you used to estimate the value of your property;
- Whether you should be required to file bankruptcy under Chapter 13 instead of Chapter 7;
- Your failure to file any of the required documents, which is common;
- Any inconsistencies in the information you provided that might indicate you are being dishonest; and
- (If you didn’t hire a lawyer), how you got the information necessary to make certain decisions about your case, such as which property is exempt.

If you’ve done a good job on your paperwork and clearly qualify for Chapter 7 bankruptcy, your “moment of truth” will probably be brief.  Creditors and banks rarely show up to 341 Creditors Meetings, and the Chapter 7 bankruptcy trustee is typically the only person asking questions.  The trustee may simply ask whether all the information in your paperwork is correct and end the 341 Hearing if you say “yes.”

WHICH DEBTS ARE DISCHARGED IN CHAPTER 7 BANKRUPTCY?

After you file Chapter 7 bankruptcy, almost all of your debts will be discharged.  This includes most credit cards, medical bills, and most court judgments and loans.

But it’s important to realize that some types of debts will not be discharged in bankruptcy. The most common of these are:

- Debts taken to pay non-dischargeable taxes;
- Court-imposed fines and restitution;
- Back child support and spousal maintenance (i.e., alimony);
- Debts owed to an ex-spouse as a result of a divorce or separation;
- Loans owed to a retirement plan such as a 401(k) (because you are the creditor as well as the debtor, in this situation bankruptcy will not discharge the debt);
- Student loans, unless you can show that repaying the loans would be an “undue hardship,” which is extremely difficult to do;
- Federal and state taxes that were first due less than three years before your bankruptcy filing date; and
- Debts for personal injuries or death resulting from driving under the influence.

Some other types of debts may survive your bankruptcy, but only if the creditor seeks and obtains an order form the bankruptcy court excluding the debt from your Chapter 7 bankruptcy case.  Such debts include those obtained through fraud and recent credit card charges for “luxury items.”

CHAPTER 7 BANKRUPTCY FEES AND COSTS

The U.S. Bankruptcy Court charges $306 to file your Chapter 7 bankruptcy petition.  If you can’t afford the fee, you may be eligible for a fee waiver or payment plan.  To obtain a fee waiver, you must file an Application for Waiver (or payment in installments) when you file your bankruptcy paperwork.  The court’s clerk will set a hearing date for you to appear before the judge to determine whether you qualify for the waiver.  The form, rules, and eligibility requirements for getting a fee waiver are available on the U.S. Courts website.

ISSUES FOR THE JUDGE

Chapter 7 bankruptcy is designed to run smoothly, and very few Chapter 7 petitions require a decision by an actual judge. Instead, the bankruptcy trustee basically runs the show.  However, you and your attorney (if you have one) will have to appear before a judge if any of the following situations occur:

- Your income appears to make you ineligible for Chapter 7 bankruptcy, and you want to argue that an exception should be made in your case;
- A creditor contests your right to file Chapter 7 bankruptcy or discharge a particular debt;
- You want the judge to rule that you are entitled to discharge a particular type of debt, such as taxes or student loans;
- You want to eliminate a lien on your property that will survive Chapter 7 bankruptcy if the judge doesn’t remove it; or
- You are handling your own case, are making payments on a car or other personal property, and want to keep the property and continue the contract after bankruptcy. (i.e., “reaffirming” the contract.)

CLOSING YOUR CASE

A Chapter 7 bankruptcy case ends with a discharge of all the debts you are entitled to discharge. When a debt is discharged, the creditor is forever barred from trying to collect it from you or reporting it to a credit bureau.  However, the bankruptcy itself will appear on your credit report for several years.

Finally, in addition to the requirement that you obtain credit counseling before you file for bankruptcy, you must also participate in a two-hour course on budget management before you get your discharge.  Most filers use the same agency for the budget counseling as they used for their pre-filing credit counseling certificate.

If you’re thinking about filing Chapter 7 bankruptcy, let us help.  Contact us for a free consultation to see if bankruptcy is a good option for you and your family.

1. Establish a Realistic Budget.

Before using your credit cards after bankruptcy, try paying cash for awhile. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments of any debts you reaffirmed in your bankruptcy.

2. It is important not to use credit cards to make up for a budget shortfall.

Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget each purchase is like a miniature loan. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.

3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.

If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.

4. Don’t get hooked on minimum payments.

Credit cards usually feature a minimum payment option in their monthly billing statements. These are usually set very low (usually at 1% of the balance plus interest and fees), barely covering the monthly interest charge. If you pay only the minimum, you will be paying your debt very slowly, and you may think you are managing the debt when you are really just getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17% interest rate, it will take over nine years to pay off your debt!  If you are also making new purchases every month while making your minimum payments, your debt will continue to grow and take even longer to repay. This means that your monthly interest obligations will increase, and you will have less money in your monthly budget for necessities.

5. Don’t run up the balance based on a temporary “teaser” interest rate.

Money borrowed during a temporary rate period of 6% or less is likely to be paid back at a much higher permanent rate of 15% or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer offers. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how your lender makes the most money.

6. Avoid the special services and programs credit card lenders offer to bill your card.

You are likely to get many mail offers and telemarketer calls from your credit cards about their special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It’s best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution.  And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.

7. If you can afford to do so, always make your credit card payments on time.

Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or penalty rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.

8. Know exactly when the grace period ends.

The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 21-25 days. Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees, but it is a good way to improve your credit rating after bankruptcy.

9. Beware of unsolicited increases to your credit card’s limit.

Some lenders increase your limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. If the credit card company asks you whether you want the right to go over the limit, it is dangerous to say “yes” because this gives your lender the right to charge you very high over-the-limit rates and fees.

10. If you open a credit card and discover terms you don’t like, close the account.

You can always cancel any credit card at any time. Although you will be responsible for any balance due at that time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.

If you’re overwhelmed by existing credit card debt, we may be able to help. Even if you’re currently in default, there may be options for managing and discharging your debt.  So don’t let things go from bad to worse. Contact us today for a free consultation, and we’ll help you get a fresh start.

Choosing to file without an attorney is not a step to be taken lightly.  The rules are often very technical, so there are many potential pitfalls that can jeopardize your bankruptcy case, which in turn can have serious, long-term consequences on your financial situation.  For example, failure to file a required document can result in your case being dismissed, forcing you to forego all of the benefits bankruptcy has to offer, including the automatic stay, reaffirmation, and a complete discharge of your debts, among many others.  Similarly, failure to list a debt on your petition can jeopardize your right to discharge it, and you will still be responsible for paying it off despite your bankruptcy.

Furthermore, the bankruptcy court will not afford you special treatment simply because you are not an attorney.  As a result, you will be fully expected to follow not only the rules and regulations contained in the US Bankruptcy Code, but the Federal Rules of Bankruptcy Procedure and the local procedural rules of the bankruptcy courts in Colorado and Oregon.

On top of the difficulty of filing a bankruptcy case correctly, doing so without an attorney can actually attract greater scrutiny to your case.  Given the complexity of filing a bankruptcy, pro se bankruptcies are randomly audited to ensure accuracy and completeness.  Even if you innocently left out required information or failed to disclose certain information, it might appear to the bankruptcy court that you purposely hid property from the bankruptcy trustee.  In this worst case scenario, you could face criminal charges for bankruptcy fraud.  But even if your case survives an audit, going through the audit process is one more headache that you could have avoided by hiring an attorney to handle your case.

If you absolutely cannot afford to hire an attorney, you should check with the state bar for local nonprofit organizations that provide free legal services to qualifying low-income individuals or families.  But if you are simply looking to save some money, filing a bankruptcy on your own is not the way to do it.  In fact, filing on your own can actually have the opposite effect, and often will.  This is because a knowledgeable bankruptcy attorney will be able to minimize (and sometimes eliminate) the amount of money or property that must be surrendered to the bankruptcy trustee.  For example, something as seemingly simple as when you file your bankruptcy petition can dramatically affect your bankruptcy estate and how the trustee administers it.  Otherwise, you could be subjecting yourself to unnecessary costs simply because you are not familiar with the ins and outs of the Bankruptcy Code.

If you are thinking about filing for bankruptcy and are wondering whether you should file it on your own, do yourself a favor and hire an attorney to handle your bankruptcy instead.  Not only will you avoid the time and stress it would take to do it on your own, it will ultimately end up saving you money.  Contact us for a free consultation and let us handle your bankruptcy case.  Trust us, you’ll be glad you did.

All of this got us thinking.  Where is same sex marriage legal?  US states are, literally, all over the map on the issue, but several countries around the world allow same-sex marriage nationwide.  Here they are:

1. Netherlands 2001

2. Belgium 2003

3. Spain 2005

4. Canada 2005

5. South Africa 2006

6. Norway 2009

7. Sweden 2009

8. Portugal 2010

9. Iceland 2010

10. Argentina 2010

In contrast, although discharging your debts in bankruptcy will certainly harm your credit score, it can help you rebuild good credit faster than after a foreclosure.  This is because bankruptcy will not only relieve you of your mortgage debt, it will also wipe out all of your other debts (with the notable exception of student loans, in most cases) and will leave you with more disposable income for a fresh financial start.

Even though a bankruptcy will stay on your credit report for up to ten years, this does not mean you cannot get a house, a car, a loan, or a credit card for ten years.  In fact, you can probably get a new credit card shortly after your bankruptcy!  The question is, how much interest and fees will you have to pay?  Can you afford another monthly payment?  What you don’t want to do is begin a new cycle of taking on more debt because you cannot file bankruptcy for another eight years.

Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not owe anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit.  You should monitor your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.

If you’re having trouble paying your debts and considering filing for bankruptcy, contact us for a free consultation.

While Chapter 7 is typically the preferred choice, not everyone can or should use Chapter 7 bankruptcy.  Here’s why:

You May Not Be Eligible.  Even if Chapter 7 bankruptcy would work for you, you may not be eligible.  Under the Bankruptcy Code, each state is assigned median income levels by family size (i.e., single, 2-person household, and so on).   You will not be eligible for Chapter 7 bankruptcy if your average gross income for the six-month period preceding the bankruptcy filing exceeds the state median income for your household size.  Nor are you eligible if your current income provides enough excess over your living expenses to fund a reasonable Chapter 13 repayment plan.  This determination is commonly referred to as the Means Test, and it is generally the first step for determining your eligibility for bankruptcy.  The reason why most people prefer to file under Chapter 7 is because it provides a complete discharge (subject to a few exceptions) of all of your consumer debts.  Chapter 13, on the other hand, requires you to pay back a portion of your debts over time in accordance with your disposable income levels.

As long as you are eligible for both types, you are free to choose which one makes the most sense for your situation.  This can be a complex determination, so it is a good idea to hire an attorney to handle your bankruptcy filing and help you decide which direction to go.

You Could Lose Property You Want to Keep.  Even if you are eligible, Chapter 7 bankruptcy might cause you to lose property that you don’t want to give up. For example, if your wedding ring is particularly valuable, it may exceed the dollar amount of jewelry you’re allowed to keep in your bankruptcy case (under what’s called the “jewelry exemption”). In this scenario, the bankruptcy trustee could order you to turn the ring over to repay your creditors.

To take another common example, if you are having trouble making your mortgage payments but you don’t want to lose your house, Chapter 13 allows you to include your mortgage payments in the payment plan and repay them over a five-year repayment period.  Under Chapter 7, because you are seeking a discharge, the bankruptcy trustee will determine whether you have any equity in the house and how much.  To determine this, the trustee will look at the difference between how much the house could be sold for and compare that against the remaining balance on the mortgage.  For Oregon filers that have more than $40,000 of equity in their home ($50,000 if jointly owned), they may be forced to sell the house in order to repay some of their creditors.  Colorado filers are in a better position in this regard, with up to $60,000 of equity allowed, and up to $90,000 if a dependent, spouse, or the owner is over the age of 60 and disabled.

There are several other considerations that might make one type of bankruptcy preferable over the other, but it all depends on your particular situation.  If you are having trouble keeping up with your debts and you want to find out if bankruptcy is a good option for you, contact us for a free consultation.

If Chen does indeed come to the US, it will be interesting to see if he applies for asylum, is granted asylum, or otherwise attempts to settle here.  One thing is clear, this fascinating story is far from over.

Please check back with our Immigration Blog for further updates.

Yet, CNN is now reporting that Chen stated he fears for his safety and wishes to leave China.  Apparently, a diplomatic firestorm has not been averted and Chen may still seek asylum protection in the US.

Please check back with our Immigration Blog for further updates.

On April 21st Chen, a self-taught legal expert and advocate against local injustice including forced sterilizations and abortions, escaped the house arrest he was serving after being released from a four year jail term in 2010.  His journey was particularly harrowing and, by now, has become the stuff of legend.  As The Economist and Stepehen Colbert reported (via Reuters), Chen (who you must remember is blind!!!) escaped from his home, which was guarded by 90-100 police.  He, first, feigned illness to lull his guards into a sense of complacency.  He then left the house, under cover of darkness, and scaled a two meter wall erected around his house by the Chinese government injuring his foot while jumping to the ground.  After that, he was able to cross a river and eventually rendezvous with friends who drove him approximately 300 miles to Beijing where he sought and received US protection.

Chen is only the second dissident ever granted protection by a US mission in China.  The other was Fang Lizhi, a dissident in the late 1980s accused of inciting Tiananmen Square unrest.  He was eventually granted asylum and died of natural causes in Arizona this year.

There was some speculation that Chen would similarly seek asylum in the US.  However, the Los Angeles Times reports today that Chen will be staying in China after being assured of his and his family’s safety in the country.  U.S. and Chinese officials reached an agreement in which Chen will be relocated to a safe environment and allowed to attend a university where he will be free of legal harassment. American diplomats were assured they could check in on Chen to see if he was still being treated fairly.  At this point, it appears that a potential diplomatic firestorm is resolved, preliminarily at least.  If anything else arises, please check back with us.

If you, a family member, a colleague, or a friend are seeking asylum in the United States or are in need of any immigration assistance, please contact us.  We are experienced and ready to help.

A person can become a United States citizen either at birth or after birth.

To become a United States citizen at birth, a person must be:

• Born in the United States or certain territories or outlying possessions of the United States, and subject to the jurisdiction of the United States or
• Had a parent or parents who were citizens at the time of your birth (if you were born abroad) and meet other requirement

To become a United States citizen after birth, a person must:

• Apply for “derived” or “acquired” citizenship through parents
• Apply for naturalization

Please stay tuned for future blog posts that will go into the citizenship and naturalization process in more detail.  If you, a family member, a colleague, or a friend are seeking immigration assistance, please contact us.  We are experienced and ready to help.