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Will I Face My Bankruptcy Creditors?

Will my creditors come to the court if I file bankruptcy?

What many of my bankruptcy clients worry about is that their bankruptcy creditors will be at the banker’s meeting if they file bankruptcy in San Diego and it will be embarrassing for them. The good news is, bankruptcy creditors rarely attend bankruptcy meetings of creditors (also called 341 hearings).  However, this does not mean that your bankers are giving up their right to object to your bankruptcy discharge.

Bankruptcy Bankers are not required to go to the  meeting of bankers

When you file for bankruptcy in San Diego, your creditors receive notice of the date and time of your meeting of bankers. But this does not mean that they will show up. Your creditors are invited, but not required, to attend your hearing. In 98 percent off all bankruptcy cases, no creditors will appear at the meeting of creditors. If a creditor does show up, your attorney will usually know about it and so will you.

Most Bankruptcy Lenders will not appear at the meeting of bankers

Creditors are not allowed to conduct an extensive examination of you and your situation at the meeting of bankers. Mostly creditor questions are limited to the nature and location of the debtor’s assets. In San Diego most creditor meetings are very short over in 5 to 10 minutes so, the bankruptcy trustee only has a few minutes to devote to each case.

As a result, unless a creditor believes that you are committing fraud or hiding assets, it will not benefit from taking the time to come to your hearing. However, even if a creditor does not attend your meeting of creditors, it can still object to your discharge

san diego bankruptcy lawyer Can bankruptcy stop foreclosure?

Can bankruptcy stop foreclosure?

Can bankruptcy stop foreclosure?

One of the most difficult and traumatic challenges that a person can face is the prospect of foreclosure. A person’s home normally is the center of life. The idea that one’s home might be taken away from him or she can be a most bitter pill to swallow. Considering bankruptcy is the next thought. If you have found yourself facing the prospect of a foreclosure on your home — or if you have already found yourself smack dab in the middle of a foreclosure case — you did not necessarily have to assume that all is lost. In this day and age, there are some options available to you should you find yourself involved in foreclosure proceedings.

Bankruptcy can hold the foreclosure

Chapter 7 versus Chapter 13 has very different effects when your house is getting foreclosed on. In  Chapter 7 bankruptcy, if the borrower’s behind on the mortgage, the lender is simply going to ask the bankruptcy court for permission to ahead with the foreclosure. And that’s done by filing a motion. Those motions are routinely granted and then the lender goes ahead with the foreclosure.

Now, that used to be the standard operating procedure for lenders, but that was before the real estate bubble sort of burst and now there are practical considerations coming into the picture as well as legal ones and lenders are prioritizing which foreclosures. Lenders will go after the larger balance mortgages first. So, someone with a relatively modest mortgage loan um, might stay in their home for months. So far the record, in my practice, I’ve seen, I had one client stay in his home for 20 months before even receiving a notice of default.

Chapter 13 is actually designed to be able to help the homeowner stay in the house and catch up on the mortgage payments that they’ve missed. the best case is a borrower who has to be in Chapter 13 because of some kind of temporary financial setback. Because, if it’s a permanent financial setback, in their income flow they’re just not gonna be able to keep up with all the payments. That is because they’ve gotta make not only the entire on-going mortgage payment but, then they’re gonna have to make the Chapter 13 plan payment for the credit payment, bills and to catch up all the missed mortgage payments. But, for someone who’s had a temporary setback, it’s a wonderful thing.

Tax bankruptcy discharge

Some tax debt is not dischargeable through bankruptcy. Tax bankruptcy discharge can happen through  Chapter 7 and Chapter 13 bankruptcy if they meet specific criteria. The criteria include five rules: 1) the due date for filing a tax return is at least three years ago; 2) the tax return was filed at least two years ago; 3) the tax assessment (if any, other than the filing of the return) is at least 240 days old; 4) there is no fraud or willful evasion; and 5) the taxes are income taxes (as contrasted with, say, payroll taxes or sales taxes).  Naturally, the tax bankruptcy discharge is first of all contingent on the taxpayer being eligible for a discharge, period. But that’s a whole ‘another page.
1. The Three Year Rule
The tax return (and therefore payment) for a particular tax year must have been due without penalty at least three years before filing for a tax bankruptcy discharge.
 If you filed an extension, the three years are determined by the extension. For example, Adam Smith’s return would have been due on April 15 – or the next business day thereafter – but he applied for an extension out to October 15. If the tax year was 2010, his return would and payment without penalty would have been due October 15, 2011. Unless October 15 fell on a weekend, which I didn’t bother to verify, but you get the idea. Measuring from October 15, 2011, the earliest date his taxes are dischargeable is October 15, 2014 – three years later. But all this assumes Mr. Smith filed his return.

2. The Two Year Rule
The tax return must have been filed at least two years before filing for a tax bankruptcy discharge. In our hypothetical above, let’s assume Mr. Smith procrastinated in filing his 2010 return. October 15, 2011, comes and goes and, well, no tax return. Maybe he owed more than he could pay and figured if he put his head in the sand it would go away. It didn’t. He comes to his senses in time to get his return filed on October 14, 2012. Dodged a bullet, did Mr. Smith. Come October 15, 2014, he’ll still be able to discharge his taxes if he files bankruptcy on October 15, 2014. His taxes were due without penalty for more than three years (measuring from October 15, 2011-October 15, 2014), his return was filed more than two years prior to his bankruptcy filing.

Let’s see how our favorite capitalist did on the rest of his criteria.

3. The 240 Day Rule
Taxes must have been assessed by the IRS at least 240 days before filing. Poor Adam. His CPA fouled up or somehow or other the IRS found fault with his 2010 return filed on October 14, 2012. On February 14, 2014, the IRS files a NOTICE OF ASSESSMENT (or some similarly named form) informing him that his return had errors and that the IRS has assessed an additional…let’s just say $2500, not that the amount much matters. It’s all about the timing. Now our Mr. Smith must wait 240 days beyond the assessment date before he files for his tax bankruptcy, even though he already has satisfied the two-year and three-year rules.  He breaks out his calendar and counts out the days until October when he can safely file his bankruptcy.
4. Fraud or Willful Evasion Rule The tax return must not be fraudulent, and there can be no willful attempt to evade taxes. These are often described separately (4. Fraud; 5. Willful Evasion), creating six instead of five rules. What’s fun about doing it that way is you end up with the so-called “six-gun rule”, i.e., miss one bullet in the chamber and your discharge of taxes in bankruptcy is D.O.A. It probably goes without saying but I’ll say it anyway: tax fraud and tax evasion are two sure ways to risk not only potential civil and criminal penalties but will forever bar the discharge of taxes in bankruptcy.
5. Other Income Taxes: Taxes other than income taxes, such as Trust Fund Recovery Penalties, payroll taxes, and other types of taxes cannot be discharged.  The good news, though, is that even these taxes have a statute of limitations – of sorts. TEN YEARS the IRS has to collect these. Few of us can hold out for that long with tax liens and levies hanging over our heads.

Can creditors stop my bankruptcy?

It’s pretty difficult for a creditor and rare  to stand in the way of someone getting through a bankruptcy and getting a discharge. But creditors aren’t always completely out of luck when a customer / borrower files bankruptcy. There are several things a creditor may do to make the best out of what for them is a bad situation. Let’s talk about the most common forms of roadblocks likely to be thrown in the path of the person who files bankruptcy but there are rare.
In a Chapter 13, your creditor may file a “Proof of Claim.” Usually that just means that the creditor stands in the same line as all the other creditors to get the “pro rata” share. That means : they can get out of the Chapter 13 plan payment. No big deal. The plan payment doesn’t change as a function of them being in the line. They’ll just diminish the amount everyone else in that line receives. That’s how that facet of a Ch. 13 works.
In either a Ch. 7 or a Ch. 13, a creditor may file a motion or adversary proceeding in the bankruptcy court to have the bankruptcy court determine that . These are rare and usually you know they are coming.
  • (1) the debtor is a rascal who shouldn’t be allowed to enjoy the benefits of bankruptcy at all (creditor moves to have the court deny discharge of ANY debt; extremely rare, difficult to prove the grounds the creditor alleges which are usually fraud or deliberately dishonest behavior);
  • (2) The debtor is not a complete rascal but is enough of one that at least the complaining creditor should be treated better than the rest, i.e. no discharge as to the debt but only as to the debt owed the one creditor;
  • (3) the creditor is secured (read as in mortgage or car payment lender; occasionally a more exotic instrument like a UCC-1) and is entitled to have its collateral (again, usually a house or car) returned to it because the debtor is in default – this requires a motion for relief from stay, i.e. getting permission from the judge to go forward with a repossession or foreclosure.
There are some kinds of debts which are automatically nondischargeable. Where Child / Spousal / Family support and / or certain taxes are involved, the creditor doesn’t have to lift a finger to avoid the debt being discharged. It won’t be.
A word to the fearful and conflict avoidant: It’s common for someone involved in an ongoing lawsuit, feeling like it’s a David vs. Goliath situation then they  think they should sign an agreement, any agreement, to get out of the law suit. If you’re the defendant who owes (or may owe) the money, don’t sign anything until you’ve talked to a really good bankruptcy attorney. I’ve seen stipulated judgments, in a civil suit, which recite facts that amount to my client having confessed to committing fraud. That sticks in bankruptcy.

bankruptcy means testing Bankruptcy Means Test for San Diego co.

What is the Bankruptcy Means Test?

The Bankruptcy Means Test is a 2005 addition to bankruptcy law. Created as a way of disqualifying petitions for Chapter 7 bankruptcy protection, the bankruptcy means test takes into consideration a lot of complex factors to force more people into Chapter 13 than Chapter 7. The creditors’ lobby loves the bankruptcy means test, because it means they get paid more, and more often than they used to.

If you are starting to do your research about bankruptcy then you should not do an online means test   They’re abysmal.  I have never ever seen one that came out correctly. Not a single one in nearly 10 years has been correctly done. Even getting close isn’isn’t good enough. This is not horseshoes or hand grenades.

San Diego County residents who file bankruptcy

First, the bankruptcy means analysis measures your income against median income in the area. If you earn below the median income, there is a better chance the Chapter 7 will work. Most people in San Diego who are thinking about bankruptcy or at least who I speak to earn more than the proposed income of the means test. However, if your income is higher than the median, the bankruptcy means test becomes much more challenging. Don’t try to figure it out on your own.

I take the time to go through the bankruptcy Means Examination with each person who sits down with me to do a Fresh Start Planning Session. For free. It takes me about an hour, and I do it every day, four times a day. An online bankruptcy means test calculator will not give you the answers you need If you’re online trying to do your own Means Test it is the first sign that you’re in enough trouble that you really need to talk to a good bankruptcy lawyer.

So go ahead, research online. Educate yourself. Then please save yourself and more important the stress and ask a bankruptcy lawyer to qualify you. The Bankruptcy Means Test is also supposed to help determine if you would be able to pay off your debts under Chapter 13 bankruptcy protection. Using the bankruptcy means test, and a couple of other forms and formulae, the court will calculate your disposable income. This is done by mixing fixed expenses and estimates for variable other expenses. If it looks like you can pay off the debts within a three to five-year time frame, you’re in Chapter 13, not a 7. Call me to schedule your Fresh Start Planning Session. You’ll get the answers you need, all you have to do is ask.

do i need to file bankruptcyDo you need bankruptcy ? How do you know when to file?

 

 First of all there are no easy answers , but you probably know that…. Are creditors constantly calling you? Does the thought of opening your mail  stress you out? Are you worried that utilities may be shut off or your car repossessed? Do you lie awake at night because you’re afraid of losing your home? Have you already dipped into savings or, worse, your retirement funds just to pay bills and buy groceries? These are all signs that you might be eligible to file bankruptcy  .

Now, probably more than at any other time in the last fifty years, people are having financial trouble because of events beyond their control, such as recession, layoffs and small business owners suffering acute drop-offs in sales. No one assumes anymore that the need to file bankruptcy is somehow a reflection of the moral character of the person filing. For centuries bankruptcy has been the ultimate relief valve for those in direst of straits. Americans seem pretty unanimous in continuing to believe that bankruptcy is a valid, valuable tool in our economy.  The choice of whether to seek bankruptcy relief is difficult and can be close to
heartbreaking. Many people experience shame and anxiety over filing bankruptcy.  they are sometimes afraid that filing bankruptcy makes them look irresponsible, or like people who don’t want to pay their bills. But the truth is that there is no shame in filing bankruptcy. Some people need bankruptcy, and bankruptcy  law exists to make sure that people having serious financial trouble can survive.

95% of the people who come to my office qualify to file bankruptcy. 

 This is what I have found in my over 20 years of practicing bankruptcy law. By the time a person gets to seeing a  bankruptcy lawyer face to face it is bad. No no wants to come and see a lawyer about being eligible for bankruptcy .

One of the first things you might have done to discover if you are eligible to file bankruptcy is  an online means test.  Big mistake (… really

It is virtually impossible for a middle class person in San Diego with a home and maybe a job  to go online and have any clue if they are eligible to file bankruptcy. There are no easy spreadsheets or lists to help you figure this out.  The process usually takes me about an hour to go over all the issues and questions to really understand are you eligible for bankruptcy. In my practice,we have had  many people who file Chapter 7 who were making a salary of $100,000.00 per year. You might ask, how is that possible?  

There are as many variables to the computation in who and how a person can file for bankruptcy, as choices of cereal at the local grocery store. How much do you owe? How close you are to retirement? Who lives with you? What is your house really worth in San Diego? Who knows that these days? It really does take a professional to figure this out.

One of my practices specialties is taking people who didn’t think they qualified for bankruptcy(or sometimes other lawyers who told it was not possible )and making that happen. Then they can move on with their lives. I am good with the difficult situations,that others can’t seem to figure out. So, if you think it is just not possible to file bankruptcy, or you make too much money or aren’t sure if you qualify. Come down to the office and let’s talk.

paul staley bankruptcy lawyer
The Law Office Of Paul Staley provides legal advice and representation for residents of San Diego County. The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.
Paul Staley
Bankruptcy Attorney
1901 1st Ave., FLR 1 San Diego, CA 92101
Phone: +619 235 40 95
Email: pstaley@paulstaley.com

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