Southern California Bankruptcy Law Blog

Yet More Debt Collection Scams

Posted in Debt

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

More Debt Collection Scams

Posted in Debt

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

Debt Settlement Scams

Posted in Debt

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 Collection Scams

Posted in Debt

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

Can A Creditor Garnish My Social Security Check?

Posted in Debt, Tax debts

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

Lien Stripping In A Chapter 20 Bankruptcy

Posted in Chapter 13, Chapter 7

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

Discharging Income Taxes In Bankruptcy After A Substitute For Return Is Filed: Part II

Posted in Chapter 11 for Individuals & Married Couples, Chapter 13, Chapter 7, Uncategorized

tax return with hundred dollar billsSome time ago I wrote about discharging income taxes in bankruptcy.  I subsequently wrote about discharging income taxes in bankruptcy for a tax year in which the debtor filed a return after the taxing authority ― for simplicity I will generically label the authority as the IRS, though the discussion applies to other taxing authorities ― filed a substitute for return and assessed the tax.

A fellow bankruptcy attorney of the highest caliber, who is also a good friend, read the substitution for return post ― Yippee!  I always love hearing that people are reading the blog ― and drew my attention to a brand new decision of the Bankruptcy Appellate Panel for the Ninth Circuit (the “BAP”) in the appeal of one of the cases I discussed in substitute for return post.  He suggested that I write a follow up post.  Following the rule always to take requests from the audience (please try the veal piccata, and be sure to tip the wait staff), I offer the following update.

To set the stage for this post I will begin with a précis of the aforementioned (does anyone other than an attorney use the word “aforementioned”?) two previous posts.  If you want more detail, read those two posts.

 

I.  The Three-Part Tax Dischargeability Test

 

For a tax to be dischargeable in bankruptcy, it must satisfy three requirements:

1.  (The three-year rule) The tax return for the tax year in question must have been due (including extensions) – but not necessarily actually filed – at least three years before the filing of the bankruptcy papers,

2.  (The two-year rule) The debtor must have actually filed a legitimate, nonfraudulent tax return for that tax year at least two years before the filing of the bankruptcy papers, and

3.  (The 240-day rule) The taxing authority cannot have assessed the tax during the 240 days prior to filing the bankruptcy papers.

The second requirement, the so-called two-year rule, has been the subject of extensive litigation throughout the country, with a wide range of inconsistent outcomes.  It is the afflatus for this post. Continue Reading

Prepackaged Chapter 11 Bankruptcy

Posted in Chapter 11, Chapter 11 for Individuals & Married Couples, Small Business Bankruptcy

Christmas presents under the treeIn this Christmas season children are eagerly awaiting prepackaged presents.  That’s an odd locution, isn’t it?  We usually refer to the gifts as wrapped rather than prepackaged.  I chose the word “prepackaged” because when something is prepackaged it’s all wrapped up.  What does this have to do with Chapter 11 bankruptcy?  A little background will help to put the answer in perspective.

 

I.  Chapter 11 Bankruptcy

 

The Bankruptcy Code (title 11 of the United States Code) is divided up into chapters.  The first three chapters (1, 3, and 5) are foundational chapters.  Their content comes along for the ride no matter which chapter under which the case is ultimately filed.  The remaining chapters (7, 9, 11, 12, 13, and 15) are the chapters under which bankruptcy cases are actually filed.

Side Note:  Why The Shortage Of Even-Numbered Chapters?

You may wonder why almost all of the chapters have odd numbers.  The answer lies with Congress.  Congress has been wrestling with budgetary problems for some time, and has been unable to afford even numbers, which are more expensive than odd numbers.  As a special treat it got one even number, 12, but for now that’ll have to do.  And if you believe that, I have some real estate on the moon I would like to sell you.

The real reason has to do with the passage of the Bankruptcy Reform Act of 1978.  Prior to that, the bankruptcy statute had even-numbered chapters.  However, Congress felt that some of them had been abused (i.e., sections of the Uniform Bankruptcy Act of 1898, not members of Congress), in some cases by creditors, in others by debtors.  Therefore, it jettisoned the offending sections, which turned out to comprise all of the even-numbered chapters.  In the 1980s the need of family farmers for bankruptcy relief was not being satisfactorily addressed with the remaining chapters, so Chapter 12 was temporarily added.  But it had to be reauthorized every two years.  Then in 2005 the entire Code underwent revision.  As part of that revision, Chapter 12 was made permanent, and its ambit was expanded to include, not only family farmers, but also family fishing operations.

Back To Chapter 11:

Chapter 11 was originally envisioned as a corporate restructuring provision, though it is now available, not only to businesses, but also to individuals and married couples.

The big picture goal in a Chapter 11 is to deal with debt in a way that allows the debtor to reorganize so that is can continue to participate in the economy.  Some debt may be wiped out, some may be reduced to pennies on the dollar, some assets may be liquidated, and the debtor reorganizes its financial affairs.  The main vehicle for Chapter 11 restructuring is the Chapter 11 plan.  (I am ignoring the idea of a total liquidation Chapter 11 plan.) Continue Reading

Dealing With Tax Debts – The Innocent Spouse (And Other) Relief

Posted in Tax debts

Adam and EveIn the Genesis account of the Fall, when the Lord asked Adam if he had sinned by eating of the tree of the knowledge of good and evil, Adam immediately pointed the finger at his wife, Eve, as the cause of his disobedience:  “And the man said, The woman whom thou gavest to be with me, she gave me of the tree, and I did eat.”  Gen. 3:12.  The Lord then confronted Eve, who immediately pointed the finger at the serpent:  “And the woman said, The serpent beguiled me, and I did eat.”  Gen. 3:13.  The serpent had no fingers, so he couldn’t point the finger at anyone. What does this have to do with tax law?  Aside from the droll assertion of many that the IRS is actually the Infernal Revenue Service that is run by Old Scratch, himself, and Will Rogers witticism on the resulting corruption of the population, “The income tax has made more liars out of the American people than golf has,” it illustrates the tendency of spouses to sometimes blame each other for their malefactions.

However, while Adam was wrong when he blamed his wife for his own crime, sometimes a spouse can legitimately aver genuine innocence regarding income tax liability.  Such a defense is unsurprisingly called the “Innocent Spouse Relief.”

What is involved in successfully claiming innocent spouse relief?

 

1.  Joint And Several Liability When Filing A Joint Return

 

When a married couple files a joint income tax return, the spouses are jointly and severally liable for any tax debt for the given tax year.  What does this mean?

They are jointly liable as a marital unit ― probably not a surprise to you ― meaning that the IRS can go after them as a couple.

And they are severally liable, meaning that each one is on the hook for the entire tax debt.  This means that while the IRS cannot collect more than the total amount owed, it can go after one spouse for the entire amount and leave the other spouse alone.  As the IRS has stated:

Thus, both spouses on a married filing jointly return are generally held responsible for all the tax due even if one spouse earned all the income or claimed improper deductions or credits.  This is also true even if a divorce decree states that a former spouse will be responsible for any amounts due on previously filed joint returns.

Topic 205 – Innocent Spouse Relief (Including Separation of Liability and Equitable Relief)).

However, under the innocent spouse relief, one spouse can be relieved of joint and several liability.

There are three separate forms of relief available, though technically only one is called innocent spouse relief.  The other two are:  “Separation Of Liability Relief” and “Equitable Relief.” Continue Reading

Dealing With Tax Debts: Part 2

Posted in Tax debts

IRS forms on desk with coffeeMy last post dealt with two ways of dealing with tax debts:  1) immediately pay in full or 2) discharge the tax debt in bankruptcy.  This post deals with two more approaches: 3) enter an Offer In Compromise or 4) enter an Installment Agreement:

 

3.  Enter An Offer In Compromise

 

An offer in compromise (generally referred to in the IRS literature either as “compromise,” or as “OIC,” though I have had some agents call it an “offer”) is a way to reduce your tax debt and pay the reduced amount over a twenty-four month period.  An OIC is similar in spirit to a bankruptcy, but you resolve only your tax liability:  None of your other debts are addressed.  However, if you have other debts, the payments you make on them can help lower the amount you end up paying to the IRS (for linguistic simplicity I’ll stick with the IRS, but many other taxing authorities have similar ― but not identical ― OIC programs).

There are three grounds under which the IRS will accept an OIC:  (a) doubt as to liability; (b) doubt as to collectability; and (c) effective tax administration.  Here is the way the IRS describes these three grounds. Continue Reading