oh no We sold our house TT seized the moneyI have written several times about exempting assets in bankruptcy.  The gist is that in a Chapter 7 bankruptcy, the debtor gets to keep all assets that are exempt using the appropriate exemption table, but the Chapter 7 Trustee assigned to the case is empowered to seize and liquidate the nonexempt assets for the benefit of the debtor’s creditors.  And in other chapters the value of the nonexempt assets is one of the factors that are used to determine how much the debtor must repay the general unsecured creditors through the plan.

I have also written about the six-month reinvestment requirement for a homestead exemption after a debtor receives the exempt proceeds from the sale of the debtor’s primary residence.  The idea here is that if the debtor has nonexempt equity in the primary residence, the Chapter 7 Trustee will sell the property for the benefit of the creditors, and write the debtor a check for the exemption amount; but the debtor must reinvest the proceeds in a new domicile within six months of receiving the check from the Trustee or else the Trustee can reclaim the money.

When the Trustee sells a nonexempt asset, the sale is, from the debtor’s perspective, an involuntary sale.

In this post I will discuss what happens to the homestead exemption when the debtor voluntarily sells the primary residence, either in bankruptcy, or outside of bankruptcy. Continue Reading Voluntary Sales And The Homestead Exemption

FDCPA- Part IISome time ago I wrote in great detail about a split among the circuits over whether the Bankruptcy Code preempts the Fair Debt Collection Practices Act (“FDCPA”).

The gist of the split is over whether a debtor can simultaneously sue a creditor under both the Bankruptcy Code and the FDCPA for violating either the automatic stay of 11 U.S.C. § 362(a) or the discharge injunction of 11 U.S.C. § 524(a).

In my previous post I wrote that on the one hand the Seventh Circuit permits this sort of suit, reasoning that no federal statute preempts another federal statute absent a clear congressional statement, or the presence of an absurd result due to an irreconcilable conflict between the statutes.  See Randolph v. IMBS, Inc., 368 F. 3d 726 (7th Cir. 2004).  And on the other hand, the Ninth Circuit does not permit this sort of suit, holding that the debtor is only entitled to relief under the Bankruptcy Code.  See Walls v. Wells Fargo Bank, NA, 276 F. 3d 502 (9th Cir. 2002).  I also gave my reasons for thinking that the Walls decision was wrong.

Well the Second Circuit just held that there is no preemption, meaning that a debtor can get relief under both the Bankruptcy Code and the FDCPA against a violator.  See Garfield v. Ocwen Loan Servicing LLC, 2016 Westlaw 26631 (2d Cir.).

As with the Seventh Circuit’s Randolph holding the reasoning is sound.  It remains to be seen whether someone will take the circuit split to the Supremes for resolution.  In the meantime, if you’re in the Ninth Circuit ― like me ― you’ll just have to settle for relief under the Bankruptcy Code.

If you’re a debtor in the Central District of California who is facing a creditor who has violated either the automatic stay or the discharge injunction, call an excellent litigator to represent you in a suit against the offender.


Absolute Priority Rule (1)Some time ago I wrote in great detail about personal Chapter 11 bankruptcy.  In that post I discussed the application of one of the complexities of Chapter 11 bankruptcy to individual (as opposed to business) cases.  That complexity is the absolute priority rule.  At the time of the post, we had a patchwork of inconsistent case law on the topic, making the success of a personal Chapter 11 case dependent, in part, on the identity of the judge assigned to the case.

Things have been resolved ― at least in the Ninth Circuit ― and not in favor of individuals.  Let’s recall the setting:


I.  The Absolute Priority Rule


The absolute priority rule is an important idiosyncrasy of Chapter 11 that has no analogue in either Chapter 7 or Chapter 13 bankruptcy.  We’ll begin by describing the absolute priority rule in the business Chapter 11 context.


A.  The Business Chapter 11 Absolute Priority Rule


In bankruptcy not all debts are treated equally.  For example, the law distinguishes between secured debts ― debts that are secured by collateral that can be repossessed in the event of a default ― and unsecured debts.  Secured debts are not treated the same as unsecured debts because the secured creditor has special rights attached to the collateral securing the debt.

Even among unsecured debts there are distinctions.  Some are given priority over others.  The various priority classes are listed in 11 U.S.C. § 507(a).  This distinction sets the stage for the so-called absolute priority rule for Chapter 11. Continue Reading The Absolute Priority Rule Applies To Individual Chapter 11 Debtors

Oh no The IRS will arrest me if I dont pay nowI’ve written before about IRS scams involving a call or robocall supposedly from the tax agency demanding immediate payment and threatening arrest if the payment isn’t made.  However, I’m still getting calls from anxious clients rattled by these calls.  Let me repeat, the IRS will never call you to demand immediate payment over the phone.

Here’s what the IRS has to say about this scam:

The IRS will never:

  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you several bills.
  • Call or email you to verify your identity by asking for personal and financial information.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone or e-mail.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money or to verify your identity, here’s what you should do:

If you don’t owe taxes, or have no reason to think that you do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.


Stay safe, my readers.  Do not fall for these IRS scams.

However, if you really do have debts and are being harassed, either by legitimate collectors, or by scam artists, consider filing for bankruptcy protection.

And if you are a debtor in the Central District of California, and want to get relief from your creditors, or deal with overwhelming tax debt, contact an extremely knowledgeable and highly skilled bankruptcy/tax attorney to guide you through the process.


Image based on Flickr (Licensed) by zenjazzygeek

I'm gonna offer you a jail cell you can't refuse.The National Association of Consumer Bankruptcy Attorneys (“NACBA”) has asked its members ― I am one ― to post the following warning on their blogs:

Telephone-Scam Soliciting Wire Transfers Prompts NACBA and Vermont Attorney General to Issue Consumer Warning

Across the country, consumers are falling prey to a new scam targeting people who have filed for bankruptcy and others just getting started with the process. Bankruptcy attorneys are joining forces with public officials to sound the alarm bell to unsuspecting consumers.

The con artists are using software that “spoofs” the Caller ID system so that the call appears to be originating from the phone line of the consumer’s bankruptcy attorney.  Victims of the scam are being instructed to immediately wire money to satisfy a debt that supposedly is outside the bankruptcy proceeding.  Some consumers have been threatened with arrest if they fail to wire money to pay the debt.

In some instances, the perpetrators are using personal information from public filings to identify consumers, assume the identity of their attorneys and sound more convincing by phone.  These calls are typically placed during nonbusiness hours, making it difficult for clients to verify the call by getting in touch with their attorney to ask about it.

The National Association of Consumer Bankruptcy Attorneys (NACBA) and its individual members want consumers to know that under no circumstance would a bankruptcy attorney or staff member telephone a client and ask for a wire transfer immediately to satisfy a debt.  Nor would the bankruptcy attorney and staff ever threaten arrest if a debt isn’t paid.

Consumers should be advised that legitimate debt collectors and agencies cannot threaten arrest in order to satisfy.  If you or a family member receives this kind of call, the best thing to do is to hang up and contact your bankruptcy attorney as soon as possible.  Do NOT give out any personal or financial account information to the caller.

If you are my client, by the time we file your papers you and I will have spent hours together preparing the documents.  Therefore, you will know the sound of my voice.  If someone calls you on my behalf asking you to wire money, hang up and call me directly.  Let’s avoid you becoming a prey of these scammers.


Image based on Flickr (Licensed) by Pat Loika

ScamsterI have written many times on debt collection scams, and they just keep on coming.  If the scamsters would devote their efforts to legitimate labor, they might be very successful.

James Rufus Koren and Jim Puzzanghera wrote in the October 2, 2015, L.A. Times:

Two auto lending companies controlled by low-profile L.A. billionaire Don Hankey will have to pay more than $48 million in fines and refunds after a federal consumer watchdog found the lenders were using illegal tactics to collect on loans.   Among the hardball tactics, according to the Consumer Financial Protection Bureau, was a program that disguised debt collectors’ caller ID information to make it appear calls were coming from pizza parlors or florists.  Westlake Financial Services and subsidiary Wilshire Consumer Credit, both part of Hankey’s Mid-Wilshire conglomerate Hankey Group, also falsely threatened to file criminal charges against borrowers; contacted employers, family and friends without required permission; and changed the terms of loans without informing customers, the bureau said.

Since he’s a billionaire, it looks like Hanky-Panky has made crime pay handsomely.  One of the lies stands out:  The claim that a collector can file criminal charges against a debtor (with the implied threat of jail time).

There are only two kinds of debts that you can be jailed for:  Willful refusal to pay taxes (26 U.S. Code § 7201) and willful refusal to pay your bankruptcy attorney; oops, I mean willful refusal to pay child support).

Therefore, if a debt collector threatens to have you jailed if you don’t pay the debt, you can point to the Handy case as an example of what the law can do to the debt collector.  Better yet, why not just get rid of the debt altogether through bankruptcy?

If you are a debtor in the Central District of California, and want to get debt relief, contact an extremely knowledgeable and highly skilled bankruptcy attorney to get you the bankruptcy relief to which you are entitled under article I, §8, cl. 4 of the U.S. Constitution, and mandated by God in Deut. 15: 1-2):

At the end of every seven years you shall grant a release of debts.  And this is the form of the release:  Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord’s release.


Image based on Flickr (Licensed) by Mackenzie Black

Yeah I can settle your debt for yaYou’ve got too much debt to ever pay off.  What can you do?  Some people facing gargantuan debt don’t want to avail themselves of bankruptcy, the most effective way of dealing with debt, and instead hire a debt settlement company to negotiate with their creditors.  The following exchange appeared in Liz Weston’s March 13, 2016 column in the L.A. Times (emphasis added):

Dear Liz:  My wife and I owe about $46,000 in credit card debt.  We are considering a debt consolidation plan in which our debt would be reduced to about $27,000.  According to what I’ve read and what’s included in the paperwork, any reduction in our debt may be reported to the IRS as income.  I’m assuming this would not only increase our tax burden but could result in the forfeiture of some of my Social Security benefits. Am I correct in these assumptions?

Answer: What you’re considering is debt settlement, not debt consolidation.  With debt consolidation, you get one loan to pay off other, smaller debts in full.  The right debt consolidation loan would offer a fixed interest rate and would allow you to pay off what you owe within three to five years.  Debt settlement, on the other hand, means you’re trying to get your creditors to accept less than what you owe.  Debt settlement typically requires that you stop making payments to your creditors, which will trash your credit scores and could lead to lawsuits.  You typically accrue interest, late fees and penalties that could offset or even wipe out any savings the debt-settlement company is promising you.  And the fact that the company seems to be promising you specific results, such as a $19,000 reduction in your debt, is a red flag all on its own.  Your creditors don’t have any obligation to settle with you, and a debt settlement company shouldn’t promise that it can make the debt disappear.  To answer your specific questions: Yes, any debt that is “forgiven” in a settlement is considered income that can be taxed.  It isn’t considered earned income, however, and so doesn’t trigger the Social Security earnings test that can reduce your benefits.  You’d be wise to read what the Federal Trade Commission and the Consumer Financial Protection Bureau have to say about debt settlement on their sites.  In the vast majority of cases, you’re better off avoiding this option.  Pay off what you owe if you can. If you can’t, explore a debt management plan offered by a nonprofit credit counselor and also make an appointment with a bankruptcy attorney so you understand all your options.

Brava Liz!  (Brava is the feminine of bravo.)  Exactly how will a debt settlement company be able to force a creditor to reduce a debt from $46,000 to $27,000?  What power do they have over the creditor?  Answer:  none; not even the Vulcan death grip.

Occasionally I come across stories of debt settlement companies that reinforce my opinion of them.  A recent one involved an entity that had fleeced one of my clients.  Over an eighteen month period my client paid them almost $9,000 for debt settlement services.  Then one of the creditors filed suit against my client.  At that point my client hired me to do a bankruptcy.  The bankruptcy was successful, and my client emerged debt-free.  Continue Reading Debt Settlement Scams

Frauds R Us bannerAlthough I have written at length on debt collection scams, I am still amazed by the fact that they continue to proliferate.  You’d think the word would get out far enough so that people would be on their guard against these Frauds-R-Us franchises.  Not so.

In yesterday’s (January 22, 2016) L.A. Times, David Lazarus discussed the recent proliferation of scam calls on cell phones.  He quoted Nadege Joly’s comment on the regular cell phone calls she receives from Scamway representatives:  “‘I get a scam call on my cellphone at least once a week,’ she told me.  ‘Each time, they say I owe them money and I’m going to get in trouble if I don’t pay.’”  Nadege’s experience is very common.One interesting twist in the tactics this wave of crooks uses is a tax scam:

An especially popular racket last year was the IRS scam, which involved a call supposedly from the tax agency and a threat of arrest if overdue taxes weren’t immediately paid.  The IRS said this week that such calls are now the most common tax scam. Since 2013, it said, at least 5,000 victims have been bilked out of more than $26 million.

Holy fake tax liability, Batman!  5,000 victims paid out $26,000,000!  That’s an average of $5,200 per victim.  That’s a 16% down payment on a bottle of 50-year old Macallan. Continue Reading Debt Collection Scams

Social Security checkI have written in great detail about the treatment of social security income in a bankruptcy case.  What happens outside of bankruptcy?  The answer is obvious:  It depends.

Well, that was a worthless answer, wasn’t it?  Not so fast.  What if I throw in some statutory authority?  And if you act right now, operators are standing by to give you a special deal on some case law!

It turns out that my apparently flippant answer, “It depends,” really is correct.  Let’s see why.


I.  What The Right Hand Giveth


The federal statute dealing with social security is the Social security Act (no big surprise there), which is Chapter 7 of Title 42 of the U.S. Code.   Among its many provisions is what appears to be a blanket protection of social security benefits from the depredations of all creditors except the IRS (with emphasis added): Continue Reading Can A Creditor Garnish My Social Security Check?

Mortgage lien stripA very recent opinion from the Bankruptcy Appellate Panel for the Ninth Circuit (“BAP”) establishes the legitimacy of something I have been doing in Chapter 20 cases.  It’s nice to know I was right all along.  This post brings you up to speed on the good news for debtors in the BAP case.  A bit of background will help to put the case into its proper perspective.

If you are new to bankruptcy practice, and have given the Bankruptcy Code a cursory glance, you might think I am out of my mind referring to a Chapter 20 bankruptcy in the tile to this post.  After all, the Code doesn’t even have a Chapter 20.  (Whether or not I am out of my mind is best left to the many voices in my head to determine.  What did you say?  Are you calling my dog a liar?)  The term, “Chapter 20” is used by bankruptcy attorneys to refer to a Chapter 7 followed by a Chapter 13.  Since 7 + 13 = 20, Chapter 20 is used as a short hand.


I.  Reasons For Doing A Chapter 20


Since Chapter 7 discharges most debts without the debtor having to make any payments to creditors, why would anyone want to do a Chapter 20?  One reason lies in 11 U.S.C. § 109(e)’s debt ceilings (I have corrected the dollar amounts, which haven’t been updated at the linked site for quite some time.):

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525 may be a debtor under chapter 13 of this title.

Based on this Code section, if a debtor has more than $383,175 in noncontingent (i.e., doesn’t depend on a triggering event for its validity), liquidated (i.e., the dollar amount of the debt is certain), unsecured (i.e., there is no collateral securing the debt) debt, then Chapter 13 is unavailable.

Since Chapter 7 has no debt ceilings (though it does have income ceilings, which can be made precise using 11 U.S.C. § 707(b)), the debtor can first do a Chapter 7 to get rid of as much unsecured debt as possible, and then do a Chapter 13 to deal with debts that weren’t discharged in the prior Chapter 7, or to catch up on a delinquent mortgage. Continue Reading Lien Stripping In A Chapter 20 Bankruptcy