What is a chapter 20 bankruptcy?

twentyIt is really just one bankruptcy followed by another.  It is a chapter 7 followed by a chapter 13 which added together equals 20 so it is called a “chapter 20”.  Most people have heard of bankruptcy chapters 7, 11, and 13 but a chapter 20 is really just a combination of a 7 and a 13 and there is no official chapter 20 that you can file.

In a chapter 20 bankruptcy someone will first file a chapter 7 and get a discharge.  They then decide some time later to file a chapter 13 bankruptcy.  A chapter 20 is sometimes referred to as a “no discharge chapter 20” because the debtor is not entitled to a discharge in the chapter 13 if he filed it within 4 years of his chapter 7 according to section 1328(f) of the bankruptcy code.

One reason why people file a chapter 20 is because of the debt limits of a chapter 13.  Some want to file a chapter 7 to discharge the unsecured debt they owe to bring that debt within the limits of chapter 13.  Chapter 13s have specific debt limits and if you exceed them you could be forced into a chapter 11 which is far more complicated.  One strategy to avoid a chapter 11 is to file a chapter 7 to lessen the debt through the chapter 7 discharge and then do a chapter 13.  This would be an example of a “good faith” reason to file a chapter 20.

Another common reason why they would want to file a chapter 20 is because of the chapter 13 lien strip capability not offered in a chapter 7.  In a chapter 13 homeowners can strip (eliminate) second mortgages if they are completely unsecured.  Second mortgages are completely unsecured if you owe more on your first mortgage than the entire home is worth.  This leaves nothing (no equity in the home) to secure the second mortgage so it is in effect an unsecured debt.

But of course it is a lien that exists and will continue to exist on your house if you do nothing or even if you file a chapter 7 bankruptcy.  The lien will remain on you home virtually forever and the only way to get rid of an unsecured second mortgage it is to strip it off in a chapter 13 bankruptcy.

So some people try to get rid of their credit cards in a chapter 7 bankruptcy and then file a chapter 13 to strip the second mortgage.  If they just filed a chapter 13 without the prior chapter 7 they would have to pay some of the credit cards back in the chapter 13.  So it seems that filing a chapter 7 followed by filing an immediate 13 makes sense right?  After all you save all of those credit card payments you would have to make for 5 years in a chapter 13 right?

Wrong!  You cannot be seen to be manipulating the system just to get rid of your credit cards and then strip a mortgage.  This would be an example of a “bad faith” bankruptcy filing and this would be challenged by the bankruptcy trustees in an adversary proceeding.  If you file one chapter and then another to create a benefit for yourself that would not exist in either chapter then that could be considered bad faith.  So you must not attempt to merely get a credit card discharge and then apply for a lien strip.

This tactic would be considered bad faith because if you filed a chapter 7 you would not be allowed the lien strip.  If you filed just a chapter 13 you would have to make payments to the credit cards for the length of the chapter 13 plan.  The courts will want you to pick one or the other but no both chapter in succession merely to seek maximum benefits.

One way to avoid a possible bad faith challenge to your chapter 20 is to show that there has been a subsequent change in your situation since the filing of the chapter 7.  If for instance you intended to surrender your house at the time of filing the chapter 7 but your situation substantially changes after your chapter 7 discharge then you may have a valid new reason to keep your home.  You could get a divorce or suffer a lessening of income for instance.  Then you could possibly do a chapter 13 to strip the second mortgage and this could prevent a bad faith challenge.  Courts examine chapter 20s carefully though so you should be aware of this increased scrutiny over your case when you attempt one.

It is also possible that housing values change and your second mortgage might become unsecured sometime after your chapter 7 discharges.  If you are in a period where housing values are declining then the value of your house may drop below the value of your first mortgage sometime after your chapter 7 is complete.  Now you can strip the lien in a chapter 13 whereas before you filed the chapter 7 you could not.  This would be a valid circumstance that could defeat a bad faith claim.   There are many other possible good faith circumstances in addition to these mentioned above.

Chapter 20s used to be more common.  Doing a chapter 20 became a problem after the 2005 bankruptcy law was passed.  This law can be interpreted to not allow a chapter 13 discharge unless 4 years have passed since the filing of a chapter 7.  (A second chapter 7 cannot be filed until 8 years have passed since a first chapter 7).  This prohibition is contained in section 1328(f) of the bankruptcy code which relates to discharge.

With this code section in mind the question then becomes how can you receive a discharge from your second mortgage after the chapter 13 plan is completed if section 1328 disallows such a discharge?  This can create problems for you as you proceed with the chapter 20 bankruptcy.

Most courts have maneuvered around this by turning to other sections of the code and they have allowed you to do a chapter 20 anyway.  Remember though that the possibility is still there that you will get a challenge if you attempt to do a chapter 20.  It appears that at this time the law is not completely settled and the courts are not in complete agreement on this issue of allowing a chapter 13 within four years of filing a chapter 7.

It also appears to help if new debt exists.  If some sort of new debt has been acquired post chapter 7 judges apparently like that.  It seems as if there needs to be something to make payments on in the chapter 13 and not just a lien to strip.

Bt I still believe that the safest thing to do though is to not run afoul of section 1328(f) at all.  Just wait the required 4 years after your chapter 7 to file a chapter 13 and strip your lien.  You then won’t be in violation of 1328 and there should be no argument to stop you from filing.  Nobody wants to buy a court challenge or court case when filing bankruptcy.

The additional advantage of waiting the full four years to comply with section 1328 is that it is a longer period in which to argue changed circumstances.  It is harder for anyone to argue bad faith if you waited a full four years after your chapter 7 to file a chapter 13.  This is because people don’t generally plan that long in advance and circumstances do naturally do change considerably in four years.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

 

Twenty photo courtesy of takomabibelot.

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Do I have to go to court if I file bankruptcy?

courthouse 4The answer generally is no you don’t have to go to court for most bankruptcies, especially the chapter 7.  In a chapter 7 bankruptcy you go to a 341 hearing with a bankruptcy trustee presiding but you don’t have to go to court usually.

These hearings are much more informal than a court proceeding and they usually last for only a few minutes.  The trustee will ask you about your assets, your income, and any other questions he or she has about your bankruptcy schedules.

If the trustee sees anything wrong he will call for a continuance of the 341 hearing and ask for clarification or more documentation.  If there is nothing wrong then he will conclude the hearing and you will be done.  With a chapter 7 you will then wait for your discharge and closing of your case.

If the trustee finds something wrong with the case then you could end up in court.  The trustee could file some challenge to your case as could a creditor that does not want his debt discharged.  These challenges are somewhat rare though especially if a competent bankruptcy attorney files your case and thoroughly investigates all aspects of you financial situation beforehand.

These challenges to your case would be addressed by the trustee or the creditor filing an adversary proceeding.  If an adversary proceeding is filed in your case then you probably will appear in court.  These are somewhat rare though and most bankruptcies sail through the 341 hearing and never go near a courtroom.

Another example of a situation that could land you before a bankruptcy judge is the reaffirmation hearing.  A reaffirmation hearing is when you reaffirm a debt for which your personal liability has been discharged in the bankruptcy.

This most often happens in a case where you financed your car.  A car company wants you to in effect sign back up for the debt or they may elect to repossess the car after the bankruptcy stay lifts.  This is especially true if your income is less than your expenses on schedules I and J which is common for chapter 7 debtors who file bankruptcy.

If the trustee wants to object to your discharge then the same could happen and if he wants to take property then he could file an adversary proceeding that could land you in court ut this is very rare.

These things are not all that common though and a good bankruptcy attorney should be able to guide you through the process and advise you on the possibilities of going to court.  Usually though you should only see the 341 hearing room and the bankruptcy trustee for you chapter 7 bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Courthouse photo courtesy of w.marsh.

What is a bankruptcy reaffirmation agreement? Do I need one?

contractA reaffirmation agreement is simply an agreement that reaffirms or recreates a contract that has been broken by your chaper 7 bankruptcy.  After you file for bankruptcy all of your previous contractual obligations for things like credit cards, auto loans, jewelry and furniture loans, mortgage loans, and leases for personal or real property go away.  You no longer have those contractual obligations once you pull the trigger and file your case.  If your case goes all the way to discharge then these obligations go away forever.

This is what makes bankruptcy such a powerful tool for people.  Any contract that is difficult, onerous, or they just can’t afford is cancelled by bankruptcy.  This is what gives you a fresh start when it is all over as you can go on in life free from these big contractual balls and chains.

The problem is that some of these creditors have a secured interest in some property you bought from them.  This is not true of credit cards which are unsecured but it is true of cars, boats, jewelry, and furniture as well other types of property you could finance.  Whenever you buy something and make regular payments for it the seller probably took a security interest in the property you bought from them.

Though the contractual obligations owed by you are cancelled in a bankruptcy this security interest gives finance companies certain rights in the property that you purchased.  They can move against the property to repossess it after the bankruptcy case closes (or if they file a motion for relief from stay).

It used to be before the 2005 bankruptcy law change that you could buy a car, go bankrupt, and then continue to pay for and keep the car.  This was called the “ride through”.  You had that right before 2005 and people regularly did this in bankruptcy.  The creditors hated this because you could turn the car in at any time thereafter and be done with it.  Creditors could not then come after you for the “deficiency balance” because the contract was cancelled in bankruptcy.  They would be stuck with only the car of limited value.

So the creditors eliminated this option in the 2005 law.  A case called “Dumont” in the 9th circuit confirmed this and that was that.  Now the ride though option is gone and you must either reaffirm, pay off the balance, or surrender the car.

Even having said this though there is a loophole out there.  Most creditors will allow you to keep the car and pay though they are not obligated to do so because they don’t want people to return cars.  Many bankruptcy filers will not reaffirm and if the car company wants the car back then they will return it.  We call this “let them eat steel” because the finance companies then sell this car at a great loss when the could have had some payments.

Many car companies recognize this fact and they have allowed the “ride through”.  They therefore don’t exercise their legal right to repossession and they allow you to keep the car as long as your payments are current.

But there are those others like Ford and in San Diego the San Diego County Credit Union.  These lenders tend to demand that debtors sign and file reaffirmation agreements with the court or they will pick up their cars.  It appears that they may just want to make a point or scare people into signing reaffirmations.

It gets complicated here but you must at least attempt to get a reaffirmation agreement in the court or the creditors can and some will pick up cars.  Losing the car can be extremely inconvenient for those who want and need the car or for those who recently put down a large down payment.  It is also true that financing a new car can be difficult and costly right after a bankruptcy so sometimes reaffirmations make sense.  (Have your bankruptcy attorney discuss these issues with you when you are considering signing one).

If you go into court and attempt to get a reaffirmation and it is denied for some reason by the judge who does not think it in your best interest then there is still an out.  Many judges will insert special language into the judicial order that denies the reaff. that will prevent any pick up of the car by the finance company.  Consult your bankruptcy attorney in your area as he or she should know which judges do this and he will be sure to request such language into the judicial order.

This is especially necessary if you have one of those lenders who tend to be more demanding like Ford or in San Diego, the San Diego County Credit Union.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Contract photo courtesy of Steve Snodgrass.

When do I need a chapter 13 bankruptcy instead of a chapter 7?

Chapter 13 bankruptcies and chapter 7s are very different bankruptcies bur both have advantages and disadvantages.  A chapter 7 is good because it is clean and fast.  It discharges debts quickly.  It is all over in 90 days and you can then go on with your life if you qualify for the chapter 7.  Not everyone does qualify though.

Some people are “means tested” out of a chapter 7 because they make too much money to file one.  They have disposable income and thus bankruptcy law says that they must therefore file a chapter 13 bankruptcy if they want to file one at all.  (They would also qualify for a chapter 11 but that is another story).

Others don’t qualify if there is too much equity in their home.  In a chapter 13 they could then keep the home and continue to make payments on it in the 13.  One must always be careful that you do not violate the “best interests of creditors test”.  This is where the creditors have the right to demand that they get as much in a chapter 13 as they would in a chapter 7 liquidation.

The 13 differs from the 7 in that it is a payback plan where the debtor makes payments to the trustee for from 3 to 5 years.  In this period the debtor pays back some or all of his debts.  Most plans pay only a percentage of the debts but some do pay back 100%.  After the payback period is over then the unpaid debts (if there are any) will be discharged.

But why pay back the debts if you can discharge and escape them?  There are many reasons and one is the income limits of a 7 discussed above.  If you exceed these income limits then you cannot file a 7.  Debtors also file chapter 13s to take advantage of the lien strip and the cramdown.  See here for a blog on what is a cramdown?

The cramdown allows you to write down loans to the value of the property and is useful if you have property that is underwater.  The lien strip allows you to strip off or eliminate a second mortgage on a home if it is completely unsecured.  So if you have a home that is worth less than the first mortgage then the entire second mortgage can be eliminated after the 5 year payment plan is over.

Both of these cannot be done in a chapter 7 and if you want a cramdown or a lien strip then the chapter 13 is your chapter.  If your income is too high then a chapter 13 also makes sense.  There is one more advantage though to a chapter 13.  It can be dismissed by the debtor at any time.  Once you file one you are not locked in like you are with a chapter 7.

The disadvantage though is that you are locked into paying a trustee for a period of five years if you want to complete the plan and get a discharge.  Most chapter 13 fail because people can’t make these regular payments for five years to a trustee.  According to one article I read as many as 92% of them fail and are dismissed or converted to a chapter 7.  This is a very high fail rate and this is the reason why most people file chapter 7s.

You can pay a chapter 13 bankrupty off early though if you have the money.  So if you payments are $300 per month and you are three years in you could pay off the remaining two years early and get out of the 13.  Most people though don’t have the money to do this.

You should consult a bankruptcy attorney to see which chapter is right for you.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis! 

For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

What is a chapter 11 bankruptcy and how do they work?

A chapter 11 bankruptcy is designed to first protect and then help a business survive and succeed.  If a business is struggling under the weight of a tremendous debt then a chapter 11 can be filed to preserve the business.  Public policy says that a business is a going concern that employs people and thus should be saved from breakup and destruction.

A chapter 11 can also be filed by an individual instead of a business if that individual has debt that exceeds the debt limits of a chapter 13.  This is less common than business chapter 11s but it gives individuals with a great amount of debt an opportunity to file a payback type of bankruptcy if they can’t file a chapter 7.

A chapter 11 business filing will theoretically give a business time to reorganize and develop a plan to pay back the creditors at least partially.  The problem is that though many are filed most chapter 11 bankruptcies for small businesses do not work.

If a business is failing then it is unlikely that a suspension of the collection efforts of creditors will save it.  There is usually insufficient income generated by the business to pay much of its debts.  If the business reaches this point where it needs a chapter 11 then the business model is probably unworkable.  Most attorneys will advise their clients to at least consider the possibility of closing the business.  In the end most chapter 11s are converted to chapter 7s or they are dismissed.

In addition chapter 11s are very expensive to file.  The filing fees are over $1000 and in addition there are administration fees charged by the court.  There is a tremendous amount of work for the attorneys to do too and thus large attorney fees are also required.  There are also numerous legal documents and motions that must be filed on the first day and then more of these within the next 7 days.

There are also numerous trips to court.  Court appearances are necessary to ask the judge for permission to do many things like pay your attorneys.  The business becomes the “debtor in possession” after the filing but the business must take out all new bank accounts after the filing is done and it must close all of the old bank accounts.  On each account it must be stated that this business is in chapter 11.  The debtor in possession can run the business though during the chapter 11.

Then there are the reports.  Profit/loss statements must be filed along with balance sheets and monthly operating reports.  Keeping business accounts in a chapter 11 is very difficult and must be done correctly.   The court must be specially petitioned for permission to pay an accountant and other experts to do this kind of work.

All of this is why chapter 11s work better for a large business than a small one.  Most law firms will charge $20,000 at least to do one and the court fees, accountants, and business specialists must be paid are in addition to these fees.  Large law firms handling large businesses are the norm in workable chapter 11s.

There is also the problem of the creditors committee that must be set up with a chapter 11.  The creditors of the business must be gotten together to approve of the reorganization plan for the business and the reorganization plan must be carefully produced.  The reorganization plan is a plan that the business comes up with to both run the business and pay back part of the debts.  This plan must then be approved by the creditors committee.

With a small business the formality of a creditors committee may be waived but if there is one or two large creditors they are definitely have something to say.  They may be foreclosing on property or want their other assets back or they may want to break up the business.  Creditors can even demand that the management of the business be turned over to someone else (instead of the business owner) resulting in you losing control of the day-to-day operations of the business.

There are advantages to a chapter 11 like it does not have a five-year limitation to paying back creditors like a chapter 13.  Also you may be forced into one if you have more debt than is allowed in a chapter 13.  (And remember that individuals can file a chapter 11 bankruptcy in cases where their debt exceeds 13 limits and where a chapter 7 will not work).

But remember the purpose of the 11 is to turn around a business and make it work.  If the judge thinks you are using it for another purpose like stalling the paying of creditors or for stalling a foreclosure then he could move for sanctions, move to dismiss the case, and even lift the automatic stay.

In a SARE cases (single asset real estate) it is common that the debtor/business filed when a foreclosure was pending.  The creditor/mortgage holder will then move to lift the stay and sell the property unless the debtor makes payments or files a “workable” plan.  Both of these things the debtor may not be able to do.  Therefore in these cases the lifting of the stay is often allowed and the property is then sold at foreclosure.

You can see from this short blog on chapter 11s that they are expensive, time-consuming, extremely complicated, and prone to dismissal or failure.  The good news it that there are alternatives to these 11s.  Contact a competent bankruptcy attorney to discuss your options if you are considering filing a chapter 11 bankruptcy.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation about a chapter 11 bankruptcy or for any other advice about bankruptcy or debt at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

The economy might be improving. It therefore might be a good time to file bankruptcy.

The economy appears as if it might be improving.  If this is true the in a better economy it is more likely that you will obtain a better paying job.  Therefore it might e a good time to file for bankruptcy before you get this job and you become “means tested”out of a chapter 7 bankruptcy.

Believe it or not many people wait too long to file and then they cannot file because they earn too much income or they receive too much property.  If you might get a job with a moderate to high income in the near future they it would be advisable to file for bankruptcy now when you have an underpaid job or if you are altogether unemployed.  You should only file of course if you have large debts you cannot currently pay.   (See here for my website article on why you should file for bankruptcy).

There is a  problem with waiting to file for bankruptcy though.  When you get a good job you may get enough income to survive and pay your bills.  his is a good thing but your income may be too much for you to easily file for bankruptcy.  There is a thing called the means test which will force you to pay back your debts in a chapter 13 if you make too much money.  The artificiality of the means test may create a situation where on paper you have enough money to pay back our debts but in reality you do not.

The means test may show extra income in your household when you look in your account and see none.  That is when you will wish you had filed for bankruptcy and rid yourself of your debts when you could have with no problem.  Don’t let those debts follow you into your new life.  Those old credit card debts are usually attributable to your borrowing money to survive when things were very bad.  They usually do not reflect a wasteful or luxurious lifestyle but mere borrowing to survive.

Also remember that if you are going to receive some property by will, trust, winnings, or gift then that too may make it harder to file for bankruptcy.  This is also true if your home or other asset will increase in value.  Better to file now before these things happen.

Why then let these old debts impact your future life after you come out of the bad times.  You will need the money you will earn from you job to pay for your family’s expenses.  Don’t wait until you get too much income or assets that will push you out of bankruptcy.  Excercise your federal right to file for bankruptcy and rid yourself of these old debts.  Get a fresh start but do it now while you can and your income is low and your assests are few.  You do not know what the future holds.

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

Short Sale and foreclosure- watch out for the small lenders! Can bankruptcy help?

I believe that short sales are preferrable to foreclosures because of the credit score hit that you take in a foreclosure.  Most large banks should readily do a short sale for you but watch out for small lenders who may lure you in with the promise of a short sale only to cancel the short sale at the last-minute and sell the house at auction.  Watch out for the game they play where they lure you in thinking you have a short sale approved only to find out that you don’t and the house is sold at auction to a third-party buyer.

Don’t worry the big banks are involved in 95% of loans these days so chances are you don’t have a small lender at all.  The big banks like Chase, Wells Fargo, and B of A are usually all very amenable to short sales.  They have too much foreclosed housing inventory currently and they prefer to execute short sales of homes whenever possible.  My realtor told me of a case where they told the owner to go get a realtor and do a short sale.  They apparently had no interest in a foreclosure if it could be avoided with a short sale.

This is good for you because short sales are better for your credit score.  A foreclosure can last longer on you credit report than even a bankruptcy which prevents you from getting a FHA loan for 2 years.  A foreclosure prevents FHA loans for 3 years traditionally and there are stories of them precluding FHA loans for 5 years.  A short sale appears on your credit report as a “settled” debt which is also two years so even with a bankruptcy you would only have to wait two years for a loan.

The problem I just faced in a case was with a small bank that falls in the 5% of loans category.  My client had his loan sold from a big bank to one of these small ones years ago.  We attempted to do a short sale on the property but the bank stalled our efforts from the beginning.  In the end we had a great buyer and all the docs in and the bank came up with an excuse at the last-minute and went ahead with the sale on the courthouse steps.  It was clear after that they never really wanted a short sale at all and that they were determined to do a foreclosure from the beginning.  I just wish they told us that before we jumped through all the hoops and wasted everyone’s time.

We looked up this company and discovered that they approve less than 10% of short sales brought to them.  We speculated that they are getting some government bonus for the foreclosure because the government appears to want to see more foreclosures.  It seems silly as this is hurting people’s credit but the government disincentive programs are often hurtful and wrong.

A chapter 7 bankruptcy would have stalled the foreclosure sale it is true (This client had insufficient income to fund a chapter 13).  But then the bank could have filed an immediate motion for relief from stay and it would have been granted by the bankruptcy court quickly.  Once the relief was granted, the stay lifts and the bank can proceed with the sale.  So a bankruptcy filing can only stall a foreclosure and it will not force a determined bank t accept a short sale.

I just looked up a case for a client who had a stay lifted in 3 weeks and a new sale date scheduled three days after that.  So it’s possible that a chapter 7 bankruptcy will only stall a foreclosure sale for 20 to 30 days.  But it is all dependent on how quickly they file the motion.  I have seen them take 6 weeks to file but two weeks is more common and they could file the motion for relief within just days of the bankruptcy filing.

If you have one of these small banks then the most you can do is stall them with a chapter 7 bankruptcy unless you can afford to fund a chapter 13 for years to come.  Most people cannot afford this so they opt to do a chapter seven or hope that they can get a sale through as we did.  But then you run the risk of the bank pretending to want a short sale and then cancelling it at the last moment when it is too late to file a bankruptcy.

A bankruptcy can still get rid of most of your other debts though if you have them so don’t be afraid to use bankruptcy where necessary.  A chapter 7 can’t stop a foreclosure sale but only delay it though and it can’t get your house back once it’s sold to a third-party buyer.

Beware of the tricks these small banks play on you!

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call for a free consulation on any debt or bankruptcy matter at (619) 702-5015.  Call now for a free credit report and analysis!

If you or someone you know needs to file a bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by emailing me at farquharesq@yahoo.com.

Local San Diego restaurant goes bankrupt! Say Goodbye To Pat and Oscar’s.

Apparently another victim of the economic crisis that seems to still be gripping America, Pat and Oscars filed for Chapter 7 bankruptcy in September with the last three corporate stores closing on 9/27/11.  A chapter 7 means that they will be liquidating the company and not reorganizing it as they would in a chapter 11.  This could mean the end of Pat and Oscars but possibly it will survive in some form as it was alluded to in an article the “Restaurant News”.

According to that article there are numerous franchised stores out there that are not operated by the corporation but are in fact operated by individuals.  Many of these people undoubtably want to continue with the operation of their restaurants as they have families to feed and bills to pay.  But the question becomes how do they do this when the corporation goes bankrupt?

The company did everything it could in the past to keep the brand alive including cutting costs and creating a new proto-type store.  None of this worked though to save the company as sagging sales and a bad economy has claimed another restaurant victim.  People do tend to eat at home more in a down economy as they have far less disposable income.  I usually tell my clients to eat at home more to cut their expenses after filing a personal bankruptcy.

So nobody blames Pat an Oscars for filing but the individual franchise owners could be left in the lurch.  But according to the article there is possibly a way out for them.  The company itself has been around since 1991 when it was founded by Pay and Oscar Sarkisian.  Sizzler bought it in 2000 for $16 million and Sizzler became Worldwide Restaurant Concepts which was then acquired by Pacific Equity Partners in 2005.  In the bankruptcy the parent company was listed as “FFPE LLC”.

They got a new chief executive in 2008 and they tried to grow the restaurant and that didn’t work.  When they filed bankruptcy there were 14 locations of which 9 were owned by franchisees.  These franchisees could get liquidated too if they are not careful but there is an alternative.  In the article they say they will have to “go to court”.  That is true if they want to save the brand and operate it themselves.

The problem is that they are now part of a bankrupt corporation.  That bankrupt corporation will have debts.  It is the job of the Trustee in any chapter 7 bankruptcy to liquidate any assets the corporation may have to pay creditors.  It is possible though that in the franchise agreement for Pat and Oscars the franchisees are owners of all of the property in their restaurants and they just have some contractual agreement to purchase supplies from the mother corp.  Then their individual store assets would fall outside of the bankrupt estate.

That still leaves the name of Pat and Oscar’s.  That is surely owned by the corp. and the trustee would probably be duty bound to sell the name as that is an asset of the estate.  But according to an article in “Sign on San Diego” the parent company is listing assets of $331,459 and liabilities of $4.1 million so we know that there are considerable debts owed to creditors who will want to get paid from any asset that the Trustee can discover.

But also the article quotes a “consultant” who says that the franchisees will have to first form an association and then petition the court to use the name.  This is possible I believe as they will have to form a new business as the old one is defunct.  It is also possible that the trustee will allow the use of the name if he determines that it has no value to the estate.  It is unlikely that anyone would buy it so the franchisees would at most have to pay a nominal fee for its use and they could possibly use it for free is the trustee abandons the name.

Then they would take this new business and operate their restaurants and they could even change the name to something similar if they can’t get the name or if they don’t want to pay for the name.  This is not unprecedented according to the “Restaurant News” article as “Ground Round” franchisees in Boston operated their 24 restaurants after their parent company went bankrupt.  80 units of “Bennigans Steak and Ale” were similarly operated under a new franchisee owned business after their parent company went bankrupt.

Therefore it is possible that we will see more of Pat and Oscars as it is certainly okay from a bankruptcy perspective to operate a new franchisee owned restaurant chain after a parent company bankrupts.  The question though is if the restaurants can operate profitably in this down economy.  We shall see.

So you still may be able to take the family to Pat and Oscars in the future.

I am a bankruptcy attorney practicing bankruptcy law in San Diego, CA.  Please visit my websites for further information at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for a free credit report and analysis!

If you or someone you know needs to file a bankruptcy please get my FREE E-BOOK: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by e-mailing me at farquharesq@yahoo.com.

Is the economy improving? Will I be “means tested” out of bankruptcy if I get a good paying job?

I don’t know if the economy is improving but if you are going to be starting a new job soon it could mean that it’s a good time to file bankruptcy.  If you have been unemployed and you have a lot of debts that you wish to discharge in bankruptcy then it might be good for you to file before you get a new job.  If the economy is actually improving then so will job prospects.  If you get a new job then this will possibly impact your ability to file.  If you make too much money you may be “means tested” out of bankruptcy.  There are limits to how much income you can make and still file a chapter 7 bankruptcy.

The means test was added in 2005 to force people into a chapter 13 so the creditors could get some sort of payments on their debts.  The law was lobbied for and written by the credit card companies and big banks (same thing).

At the time of this article in San Diego county income limits range from just over $47,000 per year for an individual to $77,596 for a family of four.  (You add $7,500 per year for each family member after 4 people).  If you make more than these amounts that are allowed for your family size then you would go into the means test.  When you are in the means test then all of the deductions for mortgages, cars, healthcare, charity, and taxes are subtracted from your income to see if you pass.  If you do not pass the means test then you must do a chapter 13 bankruptcy as you are “means tested” out of a chapter 7.

It is far better though to not go into the means test at all.  It is better to fall below the means test cut-off line and not take the test at all.  If you file while you are still unemployed or soon after you job starts then you will have a higher chance of coming in below the means test limits.

If your income is going to go up significantly then it is a good time to file sooner rather than later.  The means test looks back six months so if you just started a job then you would still be okay but don’t delay the filing and risk not qualifying for a chapter 7.   A chapter 7 will allow you to eliminate all of your dischargeable debts and then get a fresh start as you move on with your life and your new job.

Remember that most people can keep most of their assets in a bankruptcy and most people can eliminate all of their dischargeable debts.  Some debts are not dischargeable but consult me or another bankruptcy attorney if you are wondering which debts are dischargeable.  Also you can file alone and your spouse does not have to file with you.  Bankruptcy will remain on your credit report for up to ten years but with the proper re-building most people can get their score up significantly after two or three years.

So bankruptcy is not the end but a new beginning!  It is a fresh start that many need!  It might be a good time to file now though if you are going to start a new job so you can start a new life debt free!

I am San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

Do I need a chapter 7 bankruptcy attorney to do my bankruptcy or can I do it alone?

I believe that you do need a chapter 7 bankruptcy attorney to file your bankruptcy for you.  Bankruptcy filing is a difficult process and it impacts many areas of your life.  Filing a bankruptcy is far too complicated to do alone and I believe that you would be much better off with an attorney to assist you for the following reasons:

1) Property– A chapter 7 bankruptcy attorney can help you list, exempt, and save your personal property and your real estate.  He or she can determine if you transferred any property recently out of your estate or if any property was transferred to you recently.  This makes a big difference for your case.  You want to be aware of the fraudulent transfer laws and avoid losing any property in the bankruptcy.  In California the trustees can look back four years to determine if they are going to reverse any property transfers (and possibly take your property from you).  A chapter 7 bankruptcy attorney can help you to protect your property so it is not taken by the bankruptcy trustee.

2) 341 hearing– A chapter 7 bankruptcy attorney will accompany you to the 341 meeting of the creditors.  The creditors rarely show up but the trustee always does.  The attorney can prepare you in advance for the hearing and then deal with any issues that arise with the trustee.  Also a chapter 7 bankruptcy attorney will invariably have attended many such hearings (if he or she has experience doing bankruptcies) and he or she will know what to expect there.

3) Software and electronic filing- Bankruptcy attorneys that do chapter 7s probably file the cases electronically which is a much easier way to file than the old “over the counter” way.  The software that is used by a chapter 7 bankruptcy attorney to do this is far too expensive for you to buy just for you to do your bankruptcy.  With the software a chapter 7 bankruptcy attorney can efficiently and correctly complete your case and file it with the court.

4) Deciding which set of exemptions to use- Deciding which set of exemptions to use in a chapter 7 case may require a bankruptcy attorney to analyze your situation.  There are many issues relating to whether you should choose the “703” set of exemption with the “wild card” or the “704” set if you have a house with equity in it that you need to homestead.  You must choose between the two and a chapter 7 bankruptcy attorney can advise you of the issues you face as you choose.

5) Download credit reports-Most bankruptcy filing software programs have the ability to download your credit reports into the bankruptcy case.  It is a tremendous advantage to have credit reports from all three major credit reporting agencies directly put into your case so there are no mistakes.  These credit reports will accurately reflect what these agencies say you owe and the reports will come complete with the dates that you made the various charges to your credit cards.  These dates will tell the trustee when you were incurred your debts so there will be no mystery as to how old they are.

You can get these reports yourself and enter the information manually but it is a great advantage to have this direct and efficient system to do it for you.  The chapter 7 bankruptcy attorney can then compare that information with your creditor’s bills to make sure that your creditor information is listed in your bankruptcy as accurately and completely as possible.

6) Assistance with the means test– The means test is very difficult to fill out by yourself.  It was added to chapter 7 bankruptcies in 2005 to force debtors who earned too much income into a chapter 13.  The rational behind the test was that if they had enough extra income then they had the “means” to pay their debts back.

A chapter 7 bankruptcy attorney will use the same bankruptcy filing software to help him or her complete your means test and an experienced bankruptcy attorney will undoubtably have worked on many means tests for a number of clients.  After examining your situation the attorney can determine if you pass the test and he or she can look to see if there is anything you can do to pass in the future.  Also the attorney can make sure that you get the full use of all of your deductions to the means test so you can pass.

6) Representation in court– If something goes wrong with your bankruptcy case or if you need to defend against a challenge to the dischargeability of a debt then you will need a chapter 7 bankruptcy attorney to represent you in court.  Only an attorney can represent you in court and a chapter 7 bankruptcy attorney should be familiar enough with the issues to do so.   Having an attorney on the case already is a big advantage if things do go wrong and you wind up before a judge.

7) Reaffirmation agreements– You may need to reaffirm your car debt in the bankruptcy if you want assurance that the creditor will not repossess it.  In California, according to the Dumont case (decided in the 9th circuit), an auto finance company can repossess you car after a bankruptcy even if you are current on the payments. Many of my clients don’t like this uncertainty and they demand a reaffirmation agreement even if I advise against it.

I have often ended up before a judge in bankruptcy court with these cases and the judges seem to not like these reaffirmation agreements.  If you have a chapter 7 bankruptcy attorney then you will have someone who can argue for your reaffirmation agreement in court and this gives you a better chance of getting it approved.

There are other reasons but these are some of the main reasons why you should use a chapter 7 bankruptcy attorney to file your bankruptcy case.  They will facilitate and expedite the process and be by your side when you need them.  If he or she is experienced then a chapter 7 bankruptcy attorney can be invaluable to you for filing your bankruptcy.

I have seen debtors with no chapter 7 bankruptcy attorney show up at 341 hearings.  The often get continuances for not filling out their schedules and means test correctly.  Some draw a representative from the U.S. Trustee’s office who also looks over their case and some even get their cases dismissed.

Don’t let this happen to you.

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.

I am a bankruptcy lawyer in San Diego.

For a free e-book: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.