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California Bankruptcy Law
IMPORTANT: The new California bankruptcy law has passed and been signed into law. The main provisions are expected to become effective for bankruptcy cases filed on or after October 17, 2005. Some provisions have already gone into effect. Regardless of your personal situation, if you are planning on filing bankruptcy, it will be easier and cheaper to file bankruptcy prior to October 17, 2005. Contact Sacramento Bankruptcy Attorney Eric J. Schwab today. Call (916) 564-9588 for your free bankruptcy consultation

California Bankruptcy Fraud
A creditor may challenge the discharge of a debt in bankruptcy if it believes the debt was incurred by fraud. In the credit card context, that usually means that the creditor alleges that either the card was obtained by using false information, or, more frequently, that the use of the card by the debtor was fraudulent. Just claiming that the debt was incurred by fraud is not enough to except the debt from discharge: the creditor must present facts that prove fraud at trial.

Factors suggesting fraud
To decide whether a credit card charge was incurred by fraud, judges sometimes use a checklist of factors that suggest fraud, since there is seldom explicit evidence of dishonesty.

Those factors which the court weighs in making its decision are :

• the length of time between the charges and the bankruptcy filing;
• whether or not an attorney had been consulted concerning the filing of bankruptcy before the charges were made;
• the number of charges made;
• the amount of the charges;
• the financial condition of the debtor at the time the charges were made;
• whether the charges were above the credit limit of the account;
• whether the debtor made multiple charges on the same day;
• whether or not the debtor was employed;
• the debtor's prospects,
• whether there was a sudden change in the debtor's buying habits; and
• whether the purchases made were luxuries or necessities. See In re Dougherty, 84 B.R. at 657.

California Business Bankruptcy
Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. What happens to your investment will depend largely on how the company declares bankruptcy and whether it succeeds in reorganizing its business and becoming profitable again.

If a company declares bankruptcy under Chapter 11 of the Bankruptcy Code, it will attempt to reorganize. In that case, management may continue to run the day-to-day business operations, although the bankruptcy court must approve all significant business decisions. While some Chapter 11 companies continue to trade during bankruptcy, others do not. If the company ultimately succeeds in reorganizing, you may be able to exchange your old stocks or bonds for stocks or bonds in the new company. But the new securities may be worth less than your original investment -- or the bankruptcy court may determine that stockholders don't get anything because the debtor is insolvent.

A company also can file for bankruptcy under Chapter 7 if it intends to stop all operations and go completely out of business. The bankruptcy court will then appoint a trustee to liquidate the company's assets to pay off the debt, which may include debts to creditors and investors. But while bondholders sometimes get back a fraction of their investment, the stock of a Chapter 7 company is generally worthless.

Some Pros and Cons of Filing Bankruptcy
Probably the single biggest positive aspect of bankruptcy is that once you’ve filed the federal district court will issue a stay order to your creditors, which orders all the creditors listed to cease and desist from attempting to collect the debts listed. The telephone calls and letters will usually stop within just a few days after the stay order is issued.

Bankruptcy does not really “get rid” of debts–they’re still there after bankruptcy–but the creditors can’t generally collect them. But the fact that you’ve filed bankruptcy can legally remain on your credit reports for 10 years. This will definitely affect your ability to borrow from the lenders who’d give you the best interest rates, as they’ll order your credit report and see the bankruptcy record.

ALL Debts Must Be Listed
Many people believe that only the debts they want to discharge will be listed. This is not true. The law requires 100% disclosure of ALL debts. Failure to list each and every debt can be bankruptcy fraud, or even prosecuted as a crime. So debts to Mom, Uncle George and your favorite doctor MUST be listed...no exceptions.

All Debts Are Not Created Equal
One of the first tasks of your bankruptcy lawyer will be to categorize your debts into 3 broad classes:

1. Priority Debts: These are debts that are NOT dischargeable. You still have to list them in the bankruptcy petition, but that is so they can get the preferential treatment the law requires. These debts include: child support payments, maintenance (alimony), taxes, fines, student loans, penalties imposed by a court, such as punitive damages, and judgments against you because of alcohol or drug-related conduct (such as an automobile accident caused by you when you were intoxicated). A bankruptcy court will not reduce or modify your child support payments–only the divorce court will do that. A Chapter 7 will not get rid of priority debts; a Chapter 13 might be able to "reorganize" the priority debt to paid over the term of the Plan.
2. Secured Debts: This is the second most protected kind of debt after priority debts. Basically, “secured” means there is collateral for the debt. The most common kinds of secured debts are mortgages on homes and car loans, where the home is the security, or collateral, for the mortgage and the car is the security for the car loan. If you don’t pay the mortgage or the car loan, the bank takes the security—the home or the car. Bankruptcy law may allow you to keep your home or car; in fact, this is common in bankruptcies (but doesn’t always happen–each case is unique). What bankruptcy will not do is allow you to discharge the debt but keep the asset. So, it is often possible to keep your house IF you continue to pay the mortgage payment, or keep the car IF you continue to pay the car payments. You can surrender the house or car (that is, give the house or car back to the bank), and if you do, then the debt becomes uncollectable, at least through you.
3. Unsecured Debts: This is the least protected kind of debt. These are debts without collateral or a signed security agreement. The most common unsecured debts are credit card debts, debts to doctors and hospitals, debts to gasoline stations, discount stores and department stores and to relatives and friends. In a Chapter 7 these debts are totally discharged; in a Chapter 13 a minimum, set in each district court, must be paid. In the Southern District of Illinois at least 10% of unsecured debts must be paid in a Chapter 13; but up to 100% could be required, again, depending on the circumstances of each individual case.

Conduct Before Filing a Bankruptcy–The 90 Day Rule
You cannot go out 10 days before a bankruptcy, buy $10,000 worth of furniture, then file bankruptcy and expect to get to keep the furniture and get rid of the debt that goes with it.

There is a “90 day rule” in bankruptcy that you cannot engage in any “unusual” kind of financial activity in the 90 days before filing. So, for example, you cannot make a loan in that period, or make significant purchases, or pay off loans or debts in that 90 day period. To do any of these things in the 90 days before filing is presumed to be fraud. This could be considered a crime and/or bankruptcy fraud, which could result in the dismissal of your bankruptcy.

In fact, in the 90 day to one year period prior to filing bankruptcy, the same kinds of conduct described in the previous paragraph can be deemed “suspicious”, but the burden of proving fraud is on the creditor, not the debtor, and creditors seldom are able to meet this proof requirement.

Any of the same kinds of conduct described above which occur more than one year prior to filing bankruptcy are presumed non-fraudulent.

Bankruptcy Exemptions
One of the unique features of bankruptcy law, which is federal law—and, therefore, bankruptcies are filed in federal court—is that the exemptions can be determined by state law.

Exemptions are legal grants to “exempt” certain kinds of property, or at least some portion of certain kinds of property from claims of creditors.

For example, let’s say you and your spouse own a home appraised at $100,000. You owe $85,000. The difference, $15,000, is the “equity” in the house. That is what you would theoretically get if your house were sold. So the Trustee in bankruptcy might look at that equity and want to sell your house so that he could take the $15,000 and distribute it to your creditors. But you and your spouse each have a $7,500 exemption, for a total of $15,000, which just matches the equity in this example. So you’d list your exemption on the bankruptcy petition and the Trustee could not take the house for sale. But the situation would be much different if, instead of owing $85,000, you only owed $50,000. Now there’s a problem. Even after taking your exemption, there’s equity left for the Trustee to get:

• $100,000 - appraised value of the residence
• 50,000 - mortgage owed
• $ 50,000 - equity remaining before exemption
• 15,000 - exemptions (two $7,500 exemptions)
• $ 35,000 - unprotected equity subject to taking by the Trustee.

The solution, which is only a partial help, is to file a Chapter 13 bankruptcy. Under a Chapter 13 you can “buy back” the $35,000 unprotected equity. So you make an additional debt to be paid off under the Plan, for $35,000, making sufficient payments during the Plan to pay off the entire $35,000 to the Trustee, who would then take that money and pay it to the creditors. You’d get to keep the house, making you happy; the Trustee would get his $35,000, making him and the creditors happy. The bad news is, of course, that you had to buy back your own property to protect it from being sold.

There are many other exemptions, too numerous to mention. The exemptions vary greatly in amount. Suffice it to say, that while exemptions are obviously helpful, they are not always sufficient. Sometimes there are still ways to help you keep your property, but as shown above, that can be too expensive or too difficult, so that often the best option is to surrender the property and be done with the debt.

Reaffirmations and Redemptions
Depending on the circumstances, there can be a reaffirmation or redemption.

A reaffirmation is a voluntary agreement between yourself and the creditor which allows you to keep the asset on which you owe a debt, and to continue payments as you had before. So, if you had a car on which you owed $5,000 and your monthly payment is $350, you and the car loan company could agree to let you keep the car; you would continue to pay the $350 per month; and you continue to be obligated under the car loan agreement. Put another way, you would be agreeing that that debt would not be discharged in bankruptcy and you could keep your car. Typically, a reaffirmation agreement puts you back where you were before you filed bankruptcy, as to the reaffirmed debt. You still owe the same amount, your payments typically stay the same, and you keep the car. Occasionally a creditor will agree to modify the loan agreement, extending the term of the loan so that payments in arrears can be tacked on to the back-end of the car loan. It is important to remember, however, that the creditor does not have to do this; these agreements are voluntary.

A redemption is a variation from the reaffirmation agreement. In a redemption the creditor often will agree that you only have to pay back the value of the asset, rather than the whole debt. Sears sometimes does this. So, if you bought a washing machine for $500, and you owe $350 on it at the time of filing the bankruptcy, but the washing machine has depreciated so that it’s only worth $200, Sears might agree that you pay back only $200 and still be allowed to keep the machine. Typically, the creditor will want the debtor to agree to surrender their charge card, or at least agree to a very limited credit amount, as part of the deal. Again, this is voluntary; neither party has to agree to do this.

If you are having financial hardship and are considering filling for bankruptcy, please call our office at (209) 473-8211 for a free confidential stockton bankruptcy consultation.

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