News

Category Archives: Uncategorized

Chapter 13, Uncategorized

Voluntary Contributions to Retirement in Chapter 13

By Anerio Altman

This is you if you continue to make voluntary retirement contributions during your Chapter 13 proceeding.

Voluntary contributions to retirement are allowed expenses in Chapter 13 Bankruptcies for “below median” debtors if they are reasonable and necessary. Generally a Debtor is not allowed to make voluntary contributions to their retirement during a Chapter 13 if the Debtor’s income makes them a “Below Median Income” filer. There are certain situations in which it is acceptable.

The Means Test in Chapter 13

When a bankruptcy petition is filed, a bankruptcy estate is created, which includes all the Debtor’s property unless otherwise excluded by law.  11 U.S.C. Sec 541(a).  Under Chapter 13, the bankruptcy estate also includes the Debtor’s property and earnings acquired “after the commencement of the case but before the case is closed, dismissed, or converted.”  11 U.S.C. Sec. 1306(a)(1) & (2). 

Section 1325(b) requires that, if the trustee or the holder of an allowed unsecured claim objects to the Debtor’s Chapter 13 plan, the debtor must either pay all allowed claims in full or the plan must provide that “all of the debtor’s projected disposable income” be devoted to the Chapter 13 plan.  11 U.S.C. Sec. 1325(b)(1)(B). 

Debtors can be “above median” or “below median”. If the Debtors’ income is higher than the median income for a household of it size in the county in which they reside, they are considered an “above median” household. If less than the average, they are “below median”.

For above-median debtors, disposable income is measured by the means test contained in Sec. 1325(b)(2),(3), and 707(b).  For below-median debtors, disposable income is only determined by case law that existed prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”).

Pre-BAPCPA reasoning is embodied in the current code as the “current monthly income received by the Debtor…less amounts reasonably necessary to be expended…for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation.”  11 U.S.C. Sec. 1325(b)(2). 

In Re Bruce and “reasonably necessary”

Whether an expense is “reasonably necessary” under Sec. 1325(b)(2) is a factual determination by the court.  In Re Bruce 484 B.R. 387, 389 (Bankr. W.D. Wash. 2012); Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Ed. Sec. 165.1 at Sec. 1, Sec. Rev. 6/14/04, www.Ch13online.com.

This reasoning is displayed in the case of In Re Bruce 484 B.R. 387, 389 (Bankr. W.D. Wash. 2012). In the matter of In re Bruce, the Debtor was a below median Debtor with a household of 3, who proposed a 36 month 0% Chapter 13 Plan which allowed for a monthly contribution of $160.33 a month to a retirement account.

The Chapter 13 Trustee in Bruce opposed the Debtor’s plan citing to the case of In Re Parks 475 B.R. 703 (B.A.P. 9th Cir. 2012) for the proposition that deductions for voluntary retirement are not permitted as allowable deduction as reasonable and necessary.  The court in Bruce  distinguished Parks because the Debtor in Parks was an above median income Debtor, where the Debtor in Bruce was not, and the expense of $160 a month was reasonable and necessary.  

in Bruce the Debtor was allowed a match by his employer for the contribution enhancing the value of the contribution.  There was no objection to the expenses on the Debtor’s Schedule J budget, and the employer offered no other form of pension or retirement.  Bruce, supra 484 B.R. 387, 390.  The court noted that except for the largest employers and government agencies, the cost of traditional pension plans is prohibitive, and that 401(k) plans, TSP’s, and IRA’s have become the primary retirement vehicle for private employees in this country.  Id.

Below median debtors must often address pre-BAPCPA determinations of what is “reasonably necessary” as cases involving that analysis pre-date BAPCPA.  However, historical cases that have held that voluntary contributions to a pension plan were not reasonably necessary were written at a time when employers were more likely to maintain defined benefit pension plans.  Id. 

Post BAPCPA rulings have looked at the code’s considerate treatment of 401(k) contributions.  In Re Smith No. 09-64409, 2010 WL 2400065, 3 (Bankr. N.D. Ohio, June 15th, 2010)(“The enactment of section 541(b)(7) injected a policy favoring retirement savings into the bankruptcy code.  Therefore, the harsh approach toward 401(k) contributions taken by courts pre-BAPCPA is no longer warranted.”) 

The court in Bruce cautioned that a reviewing court should consider that it is manifestly unfair, and probably a due process violation, to discriminate against poor Debtors making reasonable contributions to a 401(k) plan who may be barred from deducting those amounts in determining disposable income, while similarly situated employees with involuntary contributions to a defined plan are allowed to fully deduct those contributions before determining disposable income.  Bruce, supra.

So below median Debtors can contribute to their retirement plans if such contributions are reasonable and necessary.

Uncategorized

FDCPA and the bankruptcy discharge-modifying walls v. wells fargo IN MANKIAN V. PETERS & FREEDMAN

A new case out of the 9th Circuit has opens the door to raising FDCPA Claims for discharged obligations.

Previously, the case of Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002)  had effectively eliminated the ability of individual debtors in the 9th circuit to bring claims under the Fair Debt Collection Practices Act 15 U.S.C. Sec. 1692 for any debt that was discharged in bankruptcy. Effectively, once a debt was discharged, the individual’s sole remedy for a debt collection violation was to request the bankruptcy court issue sanctions for a violation of the court’s discharge order. This sometimes eliminated the individual’s remedy as each remedy would depend upon the preference of the judge as to how such a violation would be addressed. Sometimes it would be helpful, sometimes not. The bankruptcy remedy however did not necessarily include attorney’s fees or costs for curing or addressing the violation, meaning that individuals often had to pay an attorney to address the bad acts of a third party.

The ninth circuit has now issued a new ruling which may resurrect these rights.

In Mankian v. Peters & Freedman, et al. (Case No. 19-55393) (9th Circuit COA) the court found that violations that are not rooted in the violation of the discharge order are not precluded from applying for a remedy under the FDCPA.

The court found that Walls did not extend to the circumstance of a cause of action that arose separately under the Fair Debt Collection Practices Act without reference to the discharge order.

In this case the Debtor, Mankian, had completed a Chapter 13 Plan and paid off an HOA debt through the plan. The entry of the discharge did not discharge any obligation owed to the HOA because there was no obligation to discharge at the end of the case.

Post bankruptcy, the HOA committed a billing error and initiated foreclosure on the Debtor and serving the Debtor with a Notice of Default after having a process server break into his yard and scare his family. They called the police on the server. Thereafter the server gave the Notice of Default to the Debtor. Soon thereafter it was resolved that there was no debt.

The Debtor sued under the FDCPA and the HOA responded that such a suit was precluded by the discharge injunction as stated in Walls. The trial court upheld and what followed was 8 years of litigation up to the Ninth Circuit Court of Appeals.

The Ninth Circuit took note that the debt in question was not discharged by the Debtor, and the violation in question had nothing to do , nor derived from, the entry of discharge in the case. As such the FDCPA remedy was available to the Debtor.

Uncategorized

Bankruptcy in the era of a Quarantine

Bankruptcy filings may continue during the Covid-19 quarantine. In many ways this has not affected the basic practice. In other ways, it has been seriously affected.

Bankruptcy practice takes place in the Federal Court system, and Federal Courts were already set up for this type of situation; For the past two decades, many hearings in Bankruptcy Court were able to be held by telephonic or video conferencing. Further, most of the arguments in Bankruptcy Court are based upon written documents filed weeks in advance of any given hearing. While it doesn’t make for great TV, it is efficient.

As of March 19th, 2020, the Chief Presiding Judge of the Central District of California has ordered that all hearings will be moved to telephonic or video conferencing; No one is going to a hearing in the courthouse. This is a temporary measure, but it is absolute. For the individual filer, this makes almost no difference to them. This is just something the attorneys have to deal with in their practice.

Individuals however must generally appear at a 341a hearing in their individual Bankruptcy Filing. It is not clear yet how that is to be held, or when it is to be held, but rules will be promulgated shortly.

As far as meeting with our office, it is 2020 and we can meet by telephone, Skype, Zoom or a variety of other non-personal methods. Really, it isn’t a problem. We just need to know you want to meet this way in advance.

If you need to file, give us a call.

Life continues.

Phone: (949) 218-2002 or email us avaesq@lakeforestbkoffice.com.

Non-Dischargeable Debts, Tax Debts, Uncategorized

Payroll Taxes: Don’t Take the Government’s Candy!

By Anerio Altman

Don’t take money from the Government.

They are big, they are powerful, and they are very possessive.

If you take their money, they become very angry.

One type of fund that an employer may wrongfully withhold from the government, and for which the employer will not discharge in Bankruptcy, are Payroll Taxes that the employer was supposed to collect on behalf of the U.S. Government from the employer’s employees.

The non-dischargeability of these taxes arises under Federal Law.  All things in Bankruptcy Practice are based on the U.S. Code.  (Bankruptcy Attorneys are not a horribly imaginative bunch so everything we do is based on the U.S. Code.)  The Non-Dischargeability originates from 11 U.S.C. 523(a)(1).  Everything under the code section of 11 U.S.C. 523 et seq. lists non-dischargeable debts in Bankruptcy.

11 U.S.C. 523(a)(1)  cross-references 11 U.S.C. 507(a)(8)(c) which specifically mentions as a non-dischargeable debt:  “(C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;”

(If that isn’t self-explanatory as to why that clause applies to payroll taxes, stop reading now and call our law office at (949) 218-2002;  You are obviously a legal danger to yourself and others.)

The Government wrote the Bankruptcy Code.  In writing the Bankruptcy Code, the Government made it very clear that taxes that are owed to the Government, that you were never supposed to touch as an employer, are still owed after your file your Bankruptcy. Keep in mind that income taxes, taxes you yourself owe as an employer on your own income may be discharged under certain conditions.  If you owe income taxes as the business owner, they can be addressed in Bankruptcy.  (But see an attorney….and for goodness sake don’t rely on this blogpost for a full legal explanation!)

Conversely, payroll taxes are taxes that the government requires an individual to deduct from the salary of their employees when the employees are paid.  The employer was supposed to hold onto them on behalf of the government. So if you “lose” these funds for some reason, the government becomes particularly distraught…and may want to talk to you. stan_smith_american_dadThey just want to talk.

If you’ve been naughty, and “lost” these funds as an employer, you can propose a Chapter 13 plan or Chapter 11 plan to payback the “lost” payroll taxes over the life of the plan. But they aren’t going away just because you would like them to.

Homeowner's Bill of Rights, Presentations, Uncategorized

Video Presentation on the Homeowner’s Bill of Rights

By Anerio Altman

This is our presentation on California’s Homeowner’s Bill of Rights which went into effect on January 1, 2013. This is a brief presentation so if you have any questions on this law, please contact my office or another attorney. Also note that I made one error in this presentation: If you are in a Bankruptcy, and relief is granted by the Bankruptcy Cout to the lender, then you MAY be eligible if the relief is granted.

Sorry, the sound is a little low.

Uncategorized

Short Sales: To Short Sell or Not to Short Sell

By Anerio Altman

I personally hate short sales…But they are here, they are an important consideration in today’s real estate market, and we have to talk about them.

I would prefer not to, but it has to happen.

A Short Sale occurs when the value of a house has declined so that it is no longer worth more than the value of the secured liens (mortgages) against the property. In that special magical moment, the borrower, by way of an agent (usually), finds a buyer and approaches the lender about accepting less than the full value of their lien. The entire process is somewhat reminiscent of the scene in The Wizard of Oz when Dorothy approaches the Wizard for the first time in the Emerald City and scares the heebie jeebies out of the Lion. In much the same way, the lenders particularly enjoy it if the approaching supplicant throws themselves out of a window after speaking to them about the topic.

OZ Picture
Wells Fargo Customer Service Line

However in 2013, the line of folk who have come down the Yellow Brick Road to see the lender for permission for a short sale stretches down the hall, around the corner and out the door; Lenders have, (amazingly), started to get a handle on processing short sales such that their initial bluster and equivocation has been devolved down to a bewildered muttering.

If the lender, in their blind idiot-god munificence, approves less than the full amount of the sale, the short sale is now possible. The lender lets the buyer and seller know how low they will allow their loan to become debased. THEN it comes down to the efforts of usually some truly heroic processors willing to take on the saturnine tasks of getting everything together for the sale itself. And, to give a shout out, the only people I recommend for short sale processing are the folk at Short Sale Solutions.

Incredibles-11695
That’s not what they look like, but they are that cool.

As I am not involved in any processes described so far, that isn’t the part I hate.

The part I hate is the decision my client has to make.

Lenders prefer short sales over foreclosure. Because lenders generally make the rules as to how easy or difficult it will be to buy a home in the future, you want to take actions that will at least put you in a position to purchase a property again following any period of great travail. To that end, lenders prefer you short sale a property rather than let it go to foreclosure. (They greet this opportunity much the same way one agrees to amputation over death so you understand how welcome these choices are to them.)

If my client is already out of the property, then they should short sell. Hands down, without question, at that point they should short sell. That one is easy. That rarely happens.

What happens more often is that my client is still living in the property. When they ask about whether they should short sell, this brings up a number of topics with me:

First, “Okay Then Where Are You Going to Live”?: About 30% of the time this question has never occurred to the borrowers. Call me crazy, I don’t think you should go homeless now in order to buy a house five years from now. Finding a rental is NOT guaranteed in today’s market. While you will probably find something, since you are probably not paying the mortgage anyway, why don’t you find a place to move to first BEFORE you move out of the property? Generally I tell my clients not to short sell unless they have someplace to go afterward.

Second, “If You Are On Welfare, Don’t Worry About Buying Another House.”: A short sale is better for you if you want to buy a house within the next five years only because the lenders currently say it is, and this is their game and their rules. However, if the likelihood you will acquire a new house within the next five years is between slim and none, then this is hardly a motivating factor; The effect of a foreclosure, and the effect of a short sale, on your credit score is pretty much the same if you won’t be able to buy a property for the next 5 years anyway; It’s moot.

And remember…there is this thing you have to deal with called a downpayment. Remember those? Back in the old days, the meth addict like days of the real estate boom of 2002, no one had to pay that. We’re all in withdrawal now and those days are done. Downpayments exist. That downpayment is usually equal to 20% of the loan. So in California, where the home price is around $400,000.00, the downpayment would be $80,000.00. Do you HAVE $80,000? Is that something you see in the future? Even if you aren’t paying a full downpayment and can take advantage of any number of programs that allow a lesser downpayment, say 3% down, that is about $20,000.00. Do you have $20,000.00? Do you know when you will?

So don’t get too hyped up about buying another home in the next five years unless you really think you’ll buy a home again within the next five years. And ask someone NOT INVOLVED IN THE SHORT SALE TRANSACTION whether that is a viable scenario because people who have money on the line because…well, sometimes their opinions get distorted.

Third “My Realtor Says it Is A Good Idea”: Maybe they are right. Maybe they are telling the truth. Or….maybe they want that $5K to $30K they’ll get in commission so bad they’ll choke a puppy if they need to to make that sale happen. Real Estate Folk become particularly myopic concerning whether a real estate sale should happen. Not all real estate folk are bad folk…but I’ve filed Bankruptcy for enough Real Estate professionals to know that many of them are on the financial edge too so their opinion may be a tad biased. Get a second opinion.

Fourth “I’ll Lose My Tax Incentive If I Don’t File This Year (2013)”: That part is true IF you have a recourse second that could otherwise come after you AND YOU ARE OTHERWISE SOLVENT. The appropriate laws relieving an individual of the taxes incurred through the forgiveness of debt were extended through 2013. However that only matters if you are solvent, i.e. can pay all of your debts when they come do, when the Debt Cancellation occurs. If you are broke or underwater in your debts when this happens, then there are not going to be tax issues with your forgiven second. I am but a novice on tax issues so for tax advice from a true tax professional give these people a call: Steve Olmsted at Olmsted and Associates. Ask for Steve and tell him you read that he was awesome on my website. Really. It will be funny.