Check out Student Debt: Lives On Hold, a major new story from Consumer Reports about the privatized student loan industry and the $1.3 trillion in debt it holds from 42 million Americans, many of whose professional lives have been all but ruined by crippling student loan payments–and the laws that make them so difficult for ordinary people to manage. It’s a sobering tale, and one we see all the time in this business. Contact us if you are having trouble managing your own student debt–we may be able to offer you a way out.
Prospective bankruptcy filers are often tempted to forgo dedicated legal representation and attempt to manage the process on their own, or hire a cut-rate “bankruptcy mill” that specializes in high volume and extra-low fees. The desire to cut costs here is understandable: for someone in financial trouble it can be difficult to envision paying a lot of money for an attorney, and filing bankruptcy can appear simple at first glance to a layperson reading about it online. But appearances can be deceiving. The bankruptcy process can be surprisingly long and drawn out, and dealing with recalcitrant creditors can be confusing and very stressful. What may initially seem like a straightforward bankruptcy can turn out to be a complicated and strongly contested legal dispute. A recent case that we successfully argued before the United States Court of Appeals for the Ninth Circuit vividly illustrates the importance of having an attorney who knows your rights and will fight for them in the face of creditor misconduct.
Snowden v. Check Into Cash of Washington, Inc. (In re Snowden, 769 F.3d 651 (9th Cir. 2014))
The automatic stay is a cornerstone of the federal bankruptcy system and one of the most important protections the law gives to bankruptcy filers. When a debtor files for bankruptcy, the automatic stay instantly stops all creditors from attempting to collect any debts held by the filer. This includes phone calls, threatening letters, cashing checks held by the debtor, and any other collection activities. The automatic stay can be a literal lifesaver for someone who’s besieged by rude, aggressive debt collectors. Clients often tell us of the overwhelming sense of relief they feel knowing that they don’t have to be afraid to answer the phone or open the mail anymore. When a creditor violates the automatic stay, though, that relief goes away, and the nightmare of dealing with creditors returns. That’s a serious matter, and the courts take it very seriously. But it can take a lot more than simply notifying the court to ensure that your rights are protected. As we learned arguing the Snowden case, it can take a lot of time, effort, and legal expertise to bring a misbehaving creditor to justice and win a debtor the relief to which she is entitled.
In November of 2008, Ms. Snowden obtained a $500.00 payday loan from Check Into Cash, a national chain of payday lending outlets. Like many people, Snowden ran into financial difficulties after missing some work due to an injury, and informed Check Into Cash that she was contemplating having to file bankruptcy and might not be able to repay the loan.
Snowden filed for bankruptcy in January 2009. About a month later, Check Into Cash initiated an electronic funds transfer to recover the outstanding loan from Snowden’s bank account. The unexpected transfer caused Snowden’s account to be overdrawn, which in turn resulted in several hundred dollars’ worth of overdraft and returned item fees. In total, the withdrawal and subsequent charges cost Snowden more than $800.
In April of 2009, as attorneys for Snowden, we filed a motion in Bankruptcy Court requesting sanctions against Check Into Cash. Snowden requested the return of the original sum plus the overdraft fees, punitive damages, emotional distress damages, and attorneys’ fees. In the subsequent trial, the Bankruptcy Court awarded $27,483.55 to Snowden, an amount that included $12,000 for emotional distress damages and $12,000 in punitive damages, in addition to loan and bank fee reimbursement and attorneys’ fees. After several appeals the case was heard by the Ninth Circuit Court of Appeals. Despite Check Into Cash’s ongoing insistence that the punitive and emotional distress damages awarded by the prior court were not justified the Ninth Circuit Court of Appeals upheld all damages awarded to Snowden.
What Does This Case Mean For You?
In the Snowden case, Check Into Cash fought hard to avoid paying punitive and emotional distress damage, which resulted in us spending many hours of effort on our client’s behalf both in and out of court on this matter. Without effective legal representation, a lone bankruptcy filer would have no hope of obtaining relief in a case like this. Fortunately, we were able to recover significant compensation for the distress and trouble our client went through, and because the bankruptcy code provides for the recovery of attorneys’ fees incurred in stopping and fixing automatic stay violations, our client did not have to see that award get swallowed up by her own legal bills.
From the point of view of a debtor contemplating filing for bankruptcy, this case shows that high quality legal representation is imperative for effective handling of a bankruptcy case. We believe that it is imperative that debtors understand their rights and be empowered to hold creditors who violate those rights accountable. It takes a thorough understanding of the bankruptcy code and its many nuances to recognize when a creditor is not playing by the rules and see that justice is done.
If your primary residence has a first and second mortgage, or a first mortgage with a home equity line of credit, it may be possible to “strip off” the second mortgage and/or home equity loan from your home. In a declining real estate market, lien stripping may make it possible for you to avoid foreclosure and keep your home.
To understand how lien stripping works, it’s important to know a bit about the difference between secured and unsecured debt. A secured loan is backed by an asset—in the case of a mortgage loan, usually the property you’re borrowing to pay for. (Unsecured debt, by contrast, is not backed by collateral; the creditor simply loans you money and expects you to pay it back according to the terms of the loan agreement. Most credit card debt is unsecured debt.) Whereas unsecured creditors frequently do not receive the full amount of their claim in a bankruptcy case, the law usually entitles a secured creditor to receive full compensation up to at least the value of the collateral, or it may seize the collateral itself. For example, if you owe your lender $600,000 on your house and your house is worth at least that much, your bankruptcy plan must either provide for the lender to receive the full $600,000, or it must surrender your house to the lender. Usually, payment may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan.
In a declining real estate market, however, lien stripping becomes a viable option for pursuing relief from some secured debt. For example, suppose the house in the previous example was purchased for $600,000 in late 2007, at the top of the market in Seattle. The debtor purchased the house with a $500,000 first deed of trust from one lender and a $100,000 second deed of trust from another lender. Since being purchased, the house has lost value and is now worth only $490,000. This is less than the value of the first deed of trust, so there’s no value left over to serve as collateral for the second deed of trust—it is considered “wholly undersecured.” In a Chapter 13 bankruptcy, you can move to have a wholly undersecured lien stripped from the property, meaning that it will be treated like an ordinary unsecured debt. If you and your attorney can develop a bankruptcy plan that provides for payment of the arrears on your first mortgage, eliminates your credit card debt, reduces your car payments, and entirely removes the second mortgage on your home, you may find that your whole financial picture looks very different, making it possible to keep your home.
Lien stripping is an example of debt avoidance, a legal term that basically means having a debt legally cancelled or reduced. A lien can also be stripped if it is a judgment lien that is undersecured and impeding a debtor’s homestead. Other common examles of avoidance on other property and houses other than the debtor’s primary residence include the ability to cram down the lien or mortgage to the value of the property, bifurcating the lien obligation into secured and unsecured elements.
Before making the decision to surrender your real estate to the bank, contact us and find out if we can help you stay in your home.
Exemptions enable a debtor to protect certain assets during bankruptcy so that he or she does not lose them. An exemption can apply either to an asset in total, such as a car, or to the value of an asset up to a certain amount of equity. The federal government has its own set of exemptions it allows, as do individual states, including Washington. The state of Washington allows the debtor to apply either the federal or state exemption rules, and debtors are free to choose whichever set of rules is most advantageous for them, although they are not allowed to “mix and match” between the two sets of bankruptcy exemptions.
Debtors living in Washington are not necessarily entitled to select the Washington state exemption scheme unless they have lived here continuously for two years (actually 730 days) prior to filing for bankruptcy. A debtor who has lived here for less than two years must choose either the federal exemptions or the exemptions of the state where the debtor lived for the majority of the 180 days before the two-year period.
There are also limits on exemptions for married couples. If spouses file separate bankruptcies, the first spouse to file determines the exemptions for the married couple. In a joint case, the married couple must choose the same exemption scheme—they cannot mix state and federal schemes. If the spouses cannot agree, the joint filers are deemed to have selected the federal exemptions.
Here are the current federal and Washington state exemption lists:
|Exemptions||Limit (where applicable)|
|Real property or personal property; this includes co-ops and mobile homes.||$22,975 [$45,950]|
|Motor vehicles||$3,675 [$7,350]|
|Household furnishings, goods, appliances, books, animals, crops and even musical instruments.||$575 for any single item or $12,250 in aggregate|
|Tools of the Trade||$12,250.00|
|Universal or Whole Life Insurance Policy||$12,250|
|Unmatured Life Insurance Policies||Exempt|
|Alimony, child support payments needed for support||Exempt|
|Retirement Funds / 401K / 403(b) etc.||Exempt|
|Lost earnings payments, public assistance, social security, unemployment compensations, veterans’ benefits, wrongful death payments||Exempt|
|Personal bodily injury award||$22,975|
|“Wildcard”||The debtor’s aggregate interest in any property, not to exceed in value $1,250 plus up to $11,500 of any unused amount of the exemption provided under “Real property or personal property” above.|
|Tuition Education Credits||Within 1 year = not exempt; prior to 720 days = exempt; 6,225 otherwise|
|Exemptions||Limit (where applicable)|
|Homestead—net value of lands, improvements & personal property||$125,000|
|Future earnings on day of filing||75 percent|
|Motor vehicle for each individual; 2 motor vehicles as community property of spouses||$3,250; $6,500|
|Household furnishings, goods, provisions; no single item can exceed $750||$6,500; $13,000|
|Private libraries, including electronic media||$3,500; $7,000|
|Family pictures and keepsakes||Exempt|
|Jewelry, furs, personal ornaments||$3,500; $7,000|
|Other personal property (except earnings); not more than $500 in cash or bank account||$3,000; $3,000|
|Occupational or trade tools||$10,000|
|Professional tools of trade, supplies, furnishings||$10,000|
|Annuities contract proceeds||$3,000 per month|
|Federal pension benefits||Exempt|
|Life insurance proceeds—group||Exempt|
|Life insurance proceeds||Exempt|
|Retirement, disability benefits||Exempt|
|Alimony, child support payments needed for support||Exempt|
|Lost earnings payments, public assistance, social security, unemployment compensations, veterans’ benefits, wrongful death payments||Exempt|
|Personal injury on account of personal bodily injury not including pain and suffering or compensation for actual pecuniary loss or the right to loss of future earnings||$20,000.00|
|Tuition Units purchased more than 2 years prior to bankruptcy||Exempt|
Exempting an asset protects it from liquidation by the bankruptcy trustee. In a Chapter 13 case, if the debtor’s assets are fully exempt, the debtor is only required to pay disposable income into the plan. However, if the debtor’s assets are only partially exempt (for example, if the debtor owns a car outright that is worth more than the maximum allowable exemption for a vehicle), he or she will have to make enough payments over the course of the plan to equal the fair market value of the non-exempt assets the debtor intends to keep. In some cases where the debtor has significant non-exempt assets, the debtor may be able to convert non-exempt value into exempt value with the help of an attorney.
This is obviously an incomplete treatment of the subject of exemptions, and there are additional rules, exceptions, and complications that prospective bankruptcy filers need to be aware of. Contact us to find out more about filing for bankruptcy and to be sure you know your rights.
Picking the right Chapter to file can be simple, or it can be a very delicate, even difficult choice. And appearances can be deceiving. A situation that seems at first to call out for an obvious choice can turn out to have a twist or two that turns the case upside down.
That twist can come in the form of an unexpected disadvantage in filing a bankruptcy under the intended Chapter, or instead an unexpected advantage in filing under the other Chapter.
Let me be clear. The majority of my clients walk into their initial consultation meeting with me with a strong idea whether they want to file a Chapter 7 or a 13. After all, there is a wealth of information available—like this blog that you’re looking at now. So lots of my clients come in having read up on their alternatives. Whether their inclination to file one or the other Chapter comes from their head or from their gut, it’s often correct.
But often it is not correct. Continue reading
Both Chapter 7 and Chapter 13 stop a foreclosure of your home. One or the other COULD be better for you, but which one is it?
Many considerations come into play in deciding whether a Chapter 7 or 13 is better medicine for you. I could list literally dozens of possible ones. Focusing here just on factors involved in saving your house, there are still lots of advantages and disadvantages to each one. The answer turns on your unique circumstances. Lawyers are sometimes given a bad time for seemingly answering every question with “it depends.” But when it comes to your home and your financial well-being, the fact is that what you want and deserve are what is best for you in your unique circumstances. You don’t want a cookie-cutter answer but rather one that does in fact “depend” on your individual facts and on your personal financial goals.
Let’s assume that after looking at all the other aspects of your financial life, the choice between the two Chapters comes down to how that choice impacts on your house. And let’s also assume that this is a house in distress, where a foreclosure is already scheduled or is just around the corner.
In one sentence, the key difference between Chapter 7 and Chapter 13 is that the first one generally buys you a relatively short time while the second one buys you a much longer time.
So that leaves as the main question whether—in your unique situation—a Chapter 7 would buy you enough time, or if you instead need the much stronger medicine of Chapter 13.
Chapter 13 deservedly has the reputation of being the home-saving chapter of bankruptcy. But every day of the week Chapter 7 bankruptcies are filed which save people’s homes. If you have a sale pending on your house but you’ve run out of time with a scheduled foreclosure; if you have some money coming to cure the arrearage but again have run out of time; if you are very close to getting a mortgage modification approved or are more likely get it approved after discharging you debts in bankruptcy; or if you’ve decided to surrender the house but need a little more time to get into another home—these are possible circumstances where Chapter 7 could well buy you enough time to do what you need to do for your home.
Admittedly, these are relatively rare situations. The much more common one is that you had lost some income or had emergency expenses, making it impossible to keep up the home mortgage payments. And then you regained that income, but maybe not all of it, and now you owe a whole lot in missed payments, late charges and other fees. No way can you catch up all that in just a few months. Chapter 13 can give you as much as five years to do so. Chapter 13 can also buy you much more time to sell your home, such as to get to a better selling season, or even maybe to allow a kid to finish high school. Chapter 13 can also be much better at dealing with other house-related debts, such as property taxes, second mortgages, and income tax liens. As I said, these choices depend on your unique set of circumstances.
You can build a nice gingerbread house out of cookie-cutters. But when it comes to your home, and you and your family’s well being, get the advice of an experienced attorney. Nothing gives me more satisfaction than helping save a family home. Let me help you make the very best choices about yours.
One of the worst ways to hurt one of your creditors is by being nice to him, her, or it. Specifically, if, before you file a bankruptcy, you pay a creditor more than you are paying at that time to your other creditors, then that favored creditor may be required to give back that extra money so that it is shared among all the creditors. This is especially true if you are paying one creditor when you are no longer paying anything to anyone else. Your payment to your favored creditor is called a “preference”—you are considered to be paying that creditor in “preference” to your other creditors.
So your good intentions backfire. Your desire to be nice to that special creditor, who is often a family member or some other kind of sensitive creditor, by paying off that debt and keeping it out of your bankruptcy case results in the opposite. Your favored creditor gets mixed up in the bankruptcy case you may well have been trying to avoid having him or her even know about. He or she has to give up the money you paid—and may have to come up with it somehow after having spent what you paid him or her. The trustee may well sue him or her to get the money back. And afterwards, assuming that you feel a moral or family obligation to make that person whole, you would be paying that debt a second time after your bankruptcy is done.
The good news about this problem is that it can be avoided altogether if you get legal advice from an experienced bankruptcy attorney before you make the “preferential” payment or series of payments to that favored creditor. Or even if you’ve already made that payment or series of payments when you see your attorney for the first time, there are often ways to get around it. Continue reading
Bankruptcy gives you a wide range of tools that can help you keep your home or sell it on your own schedule. Many of these tools provide surprising advantages for you. Especially when it comes to your home, know your options before you make decisions.
This is the last of a series of three blogs covering ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the final four of those reasons.
1. Want to Pay off Ex-Spouse: After going through a divorce, you are often required to sell the marital home to pay off your ex-spouse. In most circumstances, debts that you owe from a divorce are not written off by a bankruptcy. But sometimes they are. And even with debts that are not written off, bankruptcy can affect the timing of payment or favor you in other ways. Divorce is often such a traumatic process. Even if during the divorce you received advice about how a possible future bankruptcy filing would affect the terms of your divorce, understandably you may not remember that advice. And frankly, many divorce attorneys do not understand bankruptcy enough to give thorough advice about it. You do not want to base decisions about your home without advice about your options, or, often worse, with incomplete advice. So now, before you sell your home to pay off your ex-spouse, get that advice, from a competent bankruptcy attorney.
2. Need to Pay off Property Taxes, Homeowners’ Association Dues: Creditors with the strongest rights against you and your home include your county or similar governmental entity which collects your property taxes, and your homeowners’ association. So you may feel powerless in dealing with them if you fall behind on paying them, especially if they are threatening to foreclose on your home. Bankruptcy can give you a leg up on fighting them, and so find out about this before you are pushed into selling your home to pay them off.
3. Selling to Avoid a Foreclosure: You’ve likely heard that the filing of a bankruptcy stops a foreclosure. And you probably know that Chapter 7 and Chapter 13 each deal with foreclosures differently. The truth is that every homeowner who is facing a foreclosure has a unique set of circumstances, and requires and deserves an individual analysis. Bankruptcy gives you many different combinations for addressing the issues you’re facing. Only by being informed about and thoroughly understanding those options can you make the right choices about whether and when to sell your home, and how all these fit into your whole financial picture.
4. Can’t Afford an Attorney: If you’re selling your home because you believe it’s the best way to deal with your debts, and you can’t afford to pay an attorney to get legal advice about that decision, consider the following. A decision about your home is likely about your biggest asset and your biggest debts. I assume you agree that if you could get solid, practical advice about that, you would do so. Since I do not charge for my initial consultation, I can give you that advice. Let me help you create the best possible game plan for dealing with your home.
The SINGLE overarching reason to get advice from a bankruptcy attorney before selling your home is to save money, possibly a great deal of money. I’ll tell you ten ways to do so—three today and then the rest in my next couple blogs.
1. Avoiding judgment liens: If some creditor has sued you in the past, that creditor likely has a judgment against you. You might not even realize or remember if this has happened to you. Or, a creditor may sue you in the near future, and get a judgment against you before the sale of your home closes. If a judgment has been entered against you, this usually means the creditor has a lien against your home. That lien amount is almost always substantially larger than the amount you owed the creditor. Most of the time, that judgment lien has to be paid in full before the house can sell. If the judgment is paid out of the proceeds of the house sale, this reduces the amount you receive. Or the lien could reduce the money you thought would go to more important debts, such as taxes, child support, or an ex-spouse. If there aren’t enough sale proceeds to cover the judgment, you will either have to pay the full judgment amount out of your pocket, or at least some discounted amount to get the creditor to release the lien. If you don’t pay it in full, you would likely continue owing the balance. And if the creditor won’t settle, you may not be able to go through with the sale. In contrast, either a Chapter 7 or 13 case often can get rid of that judgment lien and write off the underlying debt, allowing you to sell the home without paying anything on that debt.
2. Stripping second and other junior mortgages: Chapter 13 often allows you to “strip” your second (or third) mortgage from the title of your home. The law changes that debt from a secured debt to an unsecured one. It can do this when your home is worth no more than the first mortgage (plus any property taxes or other “senior” liens) by acknowledging that all of the home’s value is exhausted by liens that legally come ahead of that junior mortgage. As a result, these junior mortgage balances are thrown into the same pot as the rest of your other regular unsecured debts—all your other debts that have no collateral attached to them. When this happens, depending on your situation, you often don’t pay anything more into your Chapter 13 Plan. And even if you do have to pay something more because of that stripped “junior” mortgage, almost always you only have to pay pennies on the dollar. And you end up with your home completely free and clear of that mortgage.
3. Buying time for a better offer: A home sold in a hurry is seldom going to get you the best price. A basic rule of home sales is that the maximum price is gotten through maximum exposure. If you feel under serious time pressure to sell because of creditor problems, the extra time provided by filing either a Chapter 7 or 13 case could get you just the additional market exposure you need. No question–filing a bankruptcy can in some respects complicate the sale of your house, and there many situations when a bankruptcy filing will not likely help you reach your goals. But in the right situations the advantage of getting more time on the market far outweighs any potential disadvantage.
In my next blog I’ll give you more ways that bankruptcy can give you huge advantages involving your home. If some of these apply to your situation, they can totally change whether or not you should sell your home, and if so, when you should do so.
If you’re a homeowner who is selling his or her home for any of the following three reasons, think again: 1) you can’t afford the house payments, 2) you owe income taxes with a tax lien on your house, and/or 3) your mortgage modification application was rejected.
In my last blog I told you the first three of ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the next three. All of these are about saving you money, and helping you make much better decisions about your home.
1. Can’t Afford the House Payments: It’s sensible to sell your home if it’s more house than you need, or you’re not able to make the payments. But you may really need to hang onto the house, and are selling it because you think you have no choice. If so, you may instead be able to keep your home either by reducing the debt attached to the house or by reducing the rest of your debt so that you can afford the house debt. I gave you some ways to reduce the debts on the house in my last blog, and will give some more in the next one. As for reducing or getting rid of the rest of your debt, even if you are resisting the idea of filing bankruptcy “just so I can afford my house,” you still owe it to yourself to know your options. We live in truly extraordinary times in terms of home values and economic uncertainty. So especially now, it’s wise to be open to creative ways of meeting your financial needs.
2. Have Income Tax Debt: If you owe back income taxes, these taxes may have already attached to your home’s title with the recording of a tax lien. Or that may happen in the near future. You may feel extra pressure to sell your home to pay those taxes. But Chapter 7 and 13 bankruptcy options can often help you deal with your tax debts, sometimes in ways better than you expect. Some income taxes can be legally written off altogether. Others would likely be able to be paid much less than outside bankruptcy, through huge savings in interest and penalties, and other possible advantages. The details are beyond what I can cover in this blog. But if income tax debts or tax liens are part of why you are selling your home, first find out how bankruptcy would deal with them.
3. Your Mortgage Modification Application Was Rejected: Mortgage modification programs—both governmental ones like HAMP as well as private ones—have been tremendously controversial and of questionable benefit to homeowners. They are almost always terribly frustrating to go through. Without getting into all that here, there are definitely times when mortgage modification requests are rejected because the homeowner did not fully complete the application or the mortgage lender did not process it accurately. Often it is not really clear why the modification was not approved. After going through this challenging process without a reduction in your mortgage payments, understandably you may well feel like you have no choice but to sell your home. But sometimes a bankruptcy filing—either Chapter 7 or 13, depending on the circumstances—can help get a mortgage modification approved, either the first time or in a renewed application. Reducing your debts through bankruptcy provides you more resources to put into your house, generally making you a better candidate for mortgage modification.
Deciding whether to sell your home involves a whole lot of factors–personal, financial, and legal. Virtually every time I meet with new clients who are thinking about selling their home, they learn a bunch of things which puts that decision in a whole different light. Often, my clients are pleasantly surprised by options and advantages they did not know were available. Let me help you, too, make an informed and wise choice about most important asset.