Debtors prison end run in California and elsewhere. Beware “Contempt of Court” and the Debtors exam.

Numerous articles are appearing recently about debtors prisons and whether a debtor can be thrown in jail for owing money to private individuals.  Debtors prisons were written about by Charles Dickens they were outlawed in the 1800s in America and we all thought debtors prisons were gone for good.

It seemed like a good idea a long time ago to not put people in jail for owing money to private individuals.  It appears that they have resurfaced in some state as I blogged about here  http://bit.ly/HPAMsQ  and here http://bit.ly/JmsMFt

I also blogged about how in the California constitution people could not be jailed for owing private debts here  http://bit.ly/I9TkYh .  This California constitutional prohibition of debtors prison seems to solve the problem in this state and we can rest easy because that is just other states that jail people for debts right?  Wrong.

I received comments on my blogs that related real life situations where people had been put in jail for owing debts here in California.  I also researched the issue some more and spoke to other attorneys to see what they were facing.  It appears that in the end judges can do an end run around this prohibition on debtors prisons  They do this with the contempt of court citation and the debtors exam.

A contempt of court citation comes if a judge issues a valid order to pay a debt, and the debtor has notice o the order, and then he debtor willfully fails to comply with the order.  The the debtor can then be jailed.  This comes up most commonly in child support cases where a party is ordered to pay and does not when it has been determined that he or she has the ability to pay.  I would argue though that this is an end run around the debtors prison prohibition because child support is a debt owed to a private individual.  Your ex is not a public agency.

In a number of other states creditors like credit card companies or other creditors have gone to court and moved judges to somehow issue these orders to pay.  When the debtors failed to pay the judge jailed them for contempt.  Some didn’t even have notice as the Sheriff showed up at their door one day and carted them away to jail.  (So such for the notice requirement).  These creditors have circumvented the laws, used the court to collect their private debts, and reinstituted debtors prisons.

I have not heard of these types of creditors getting judges to give them such orders for credit card type debt yet in California but I would not put it past them to try in the future.  For now the contempt of court citations seem to be limited to child support and unpaid court fines.  I don’t expect it to stay that way forever as word gets out of what other states are doing.

But remember always that a creditor in California can get you into a debtors exams. They have similar proceedings in other states.  These debtors exams are bad things all the way around for debtors to attend.  If a debtor is summoned to attend a debtors exam by a creditor the debtor must attend and a warning appears on the summons that failure to appear will result in an arrest warrant for the debtor.  So there is the first way that debtors exams can land you in jail for a private debt by failure to appear at a debtors exam.

This is exactly what happened to a debtor in Pennsylvania according to a blog I read online.  There a debtor failed to attend a deposition session for a type of debtor’s exam at a lawyer’s office and the lawyer immediately filed motions to have the debtor arrested which he was.  This same tactic could be used here in California if a debtor misses a debtors exam.  An arrest warrant will be issued for failure to attend the debtors exam or violation of a court order or contempt.  Creditors are aggressive and they will try anything to get around the California constitution.

If a debtor attends a debtor’s exam then he or she is required to answer questions under penalty of perjury.  These questions are very intrusive and they relate to the debtors entire financial situation.  All sort of personal questions about income, assets, and bank accounts could be asked for the purpose of getting the debtor to pay the debt.  If assets and income is uncovered in these exams then it is possible that the creditors could move for some kind of court order to force payment of the debts.  Violation of that order could also land a debtor in jail.  Debtors prison again.

There is a great way to avoid debtors exam, debts, and creditors though.  That would be to file bankruptcy.  A bankruptcy filing will stay the collection procedures for all dischargeable debts and a discharge will mean that the debtor is off the hook for the debt.  I filed a bankruptcy for a client the night before his debtors exam and he went the next day and the judge through the whole case out because of the bankruptcy stay.

If bankruptcy is unavailable there is the Fair Debt Collection Practices Act (FDCPA) that establishes procedures that debt collectors must file or face sanctions.  Contact an attorney for advice on FDCPA or bankruptcy.

I am a San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com for more info. about any of these topics.  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: “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” please send a request by e-mail to: farquharesq@yahoo.com.

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What debts are non-dischargeable and what debts are dischargeable in a chapter 7 bankruptcy?

Non-dischargeable debts

1) Student loans- Sorry!  Totally non-dischargeable unless you can prove undue hardship which is very hard to prove.   Any loan for any educational purpose is probably not dischargeable in bankruptcy.

2) Government fines, fees, and penalties- Generally not dischargeable in a bankruptcy.  Any ticket or fine from a government agency is non-dischargeable.  The exception to this rule is the three-year old income tax debt.  Generally the government exempts its debts from the bankruptcy system.

3) Spousal and child support obligations- All non-dischargeable and in fact the trustees often ask if these obligations are being paid whether the debtor is the party that owes the support or the party that is owed the support.

4) Debts involving criminality and fraud-Not dischargeable and drunk driving is specifically mentioned in the bankruptcy code under debts that are non-dischargeable.

Dischargeable debts

1) Credit cards and personal loans- Generally all dischargeable.  The exception is when the creditor can prove that you had no intention to pay back the debts when you incurred them.  They do this by looking at when you charged something and what you charged.  Generally old charges are safe as are all charges for necessities.  But recent large charges on credit cards for luxuries might be challenged by a creditor at an adversary hearing in bankruptcy court.

2) Medical debts- Usually dischargeable without a problem unless you got some purely cosmetic surgery recently that you had no intention to pay for when you underwent the surgery.

3) Deficiency balances-Deficiency balances on autos, jewelry, furniture, and even second and third loans on homes are all dischargeable in a bankruptcy without a problem if the creditor has already repossessed the original property.  If the creditor has not then all he can do is recover the property.  He must leave you alone.

4) Debts not listed in the bankruptcy- There is case-law that states that if there is an unintentional failure to list a debt in the bankruptcy then it is dischargeable if there was no fraud, and there were no assets that were distributed by the trustee, and you received your discharge.  These are 9th circuit rulings and there are two cases that support this principle so don’t worry about this one.

E-mail me today at farquharesq@yahoo.com if you have a particular debt that you have questions about.

I am a bankruptcy lawyer practicing bankruptcy law in San Diego.

What debts are not dischargeable in bankruptcy?

The most common types of non-dischargeable debts are student loans, government fines and fees and some taxes, spousal and child support.  There are other categories such as debts incurred due to fraud but these are much less common.

Student loans– These debts are almost always not dischargeable.  Whether they are government backed student loans or loans from a private agency they are not dischargeable.  The 2005 BAPCA law saw to that.  Loans issued “for any educational purpose” are now all non-dischargeable in bankruptcy and student loans will pass through the bankruptcy unaffected and you will have to pay them.

There is a hardship discharge for student loans in bankruptcy but it is very hard to get.  To get a hardship discharge of student loans your attorney would have to bring an adversary proceeding in bankruptcy court.  This amounts to a mini-trial where all the facts of the hardship would have to be proven.

It is expensive and time-consuming to bring such a s case and there is no assurance that you will win.  In fact it is apparently very hard to win one of these trials at all.  There are stories of judges looking at a disabled debtor and telling them that they though they cannot work any more in their field, they could teach and earn money to pay the student loan back that way.

Government fines, fees, penalties, and some taxes– If you get a traffic fine or criminal fine levied by a court or other government agency then those fines are not dischargeable in bankruptcy.  That is easy but taxes are more difficult.  The main rule for taxes is the 3 year rule that states that 3-year-old income taxes are dischargeable in bankruptcy.

So in 2012 (after April 15th)  income taxes for 2008 would be dischargeable.  This is because these taxes were due in april of 2009.  Both state and federal  income taxes are dischargeable in bankruptcy if the meet this 3 year rule.  There are other rules too but this is the main one that applies to most people.

Other types of taxes are not dischargeable so consult with an attorney for advice on your tax situation.

Spousal and child support– Forget about discharging these.  You will have to pay your ex-spouse or your children after you get a support obligation levied against you.

Fraud– Debts where fraud is proven will not be dischargeable.  If you get sued and the plaintiff alleges fraud then you want to fight these cases because bankruptcy will not save you from having to pay.  The normal credit card suit usually will not contain a fraud allegation but credit card companies can allege fraud in a bankruptcy.  This usually occurs if you have very large recent charges on your cards for cash advances or luxury items.

If you have such charges then tell your attorney so he can wait some time to file or advise you on the possible consequences if you do file right away.

The good news is that if your debt does not fall into one of the non-dischargeable categories then it is probably dischargeable in a bankruptcy!

For more info. check out my websites at:   www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office to speak toe for free about any bankruptcy or debt related issue  at (619) 702-5015.  Call now for free credit report and analysis!  I am a San Diego bankruptcy lawyer.  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.