After filing will bankruptcy be a “skeleton” in your closet?

I just read an article that really set me off.  According to an article posted online by the Washington Guardian 13 people running for the US Senate have bankruptcies or criminal records.  One candidate, Scott D’amboise, filed for chapter 7 bankruptcy protection in 2003 where he listed more than $100,00 in credit card debt, doctors bills, and a mortgage.

In the article they state that D’Amboise’s son had a medical crisis that caused him to undergo seven operations and at the time his medical coverage was insufficient to pay for these expenses.  His $100,000 in credit card debt was also probably related to that medical bill too.  This is very common as many of my clients run up their credit cards in an attempt to pay medical bills before they throw in the towel and file for bankruptcy.

Though this type of bankruptcy scenario seems common to me the article takes on a disapproving tone about these bankruptcies.  They describe these people as “candidates with past troubles” and they include bankruptcies and criminal records in the same article which mixes the two up as if they are the same thing.

Bankruptcy is a legal, moral, and federally approved and legitimate way of dealing with debts that one cannot pay.  There is certainly nothing immoral, unethical, or criminal about it.  To include criminal issues and bankruptcy in th same article is extremely unfair.  D’Amboise in under a legal, moral, and ethical duty to provide medical care to his son.  If he does not have the money to pay for it then he has to borrow just like all my other clients and just like any of us without the resources to pay the medical bills.

The monthly payment on a $100,000 credit card debt would be astronomical depending on the interest rate and probably beyond the ability of the vast majority of Americans to pay.  If D’Amboise did not file for bankruptcy he would be hounded by creditors who mostly have no mercy and will call his home endlessly.  He would then be subject to lawsuits and collection efforts which would tap his bank accounts and garnish his wages leaving hin even less money to live on and pay his bills which would undoubtably get him into further trouble.

Another candidate, Hector Balderas, apparently filed for bankruptcy back in 1995 when he was a college student working on an assembly line.  How many college students do you know that also work on assembly lines?  Instead of congratulating him for his hard work there seems to be a strong note of disapproval for his filing bankruptcy when he was only 21 years old.

The article then goes on to talk about the crimes of other candidates as well as alleged bankruptcy fraud of another candidate.  To compare bankruptcy with crime and fraud is a very bad and unfair thing to do in my opinion.  Bankruptcy is certainly legal and often he only good option for people in serious debt.  There are other options to bankruptcy when one has a high degree of debt except they are all worse than bankruptcy for the debtor.

Bankruptcy settles debt by discharging it legally.  If debtors have any surplus assets (above the allowable exemption amounts) those assets are sold to pay their creditors.  The whole system is monitored by a series of bankruptcy trustees and a bankruptcy judge as well as federal law enforcement to prevent fraud and crimes.

How is it then that we still get these articles that seem to connect bankruptcy with fraud and crime as if they are all the same sort of skeletons in closets?  This is ludicrous and wrong. Bankruptcy is not doing something wrong, it is doing something right.  If you have debts you cannot possibly pay and the wolves are at your door to take your bank accounts, your assets, and your income what are you to do?

You can’t escape the debts and you can’t pay them but you have to live.  Many hide or go underground to avoid this situation and that is wrong.  Some check out altogether and that is tragic.  The right thing to do is to admit you cannot pay and file a bankruptcy.  If your kid needs operations then what choice do you have?   He must have the operations which can run into the hundreds of thousands of dollars.  Who in America can pay for this?  Very few.

Again there is often only one good and right and moral and legal answer to this debt situation and that is bankruptcy.  But let’s not mix that up with criminality because it is legal and has been so for hundreds of years.  It is also moral and sanctioned in Deuteronomy in the Old Testament of the Bible.  Bankruptcy has been around a long time and its time we stop trying to put a scarlet letter on any one who does the right thing and files one.

It is time for bankruptcy to come out of the closet and shed its skeletal image.  I say file one and be proud that you took the moral, legal, ethical, and right path to debt freedom and not another road that leads to bad things. The good news is that after a few of these people get elected and the public sees that they are still good people then they will pave the way for others to run for political office proudly after having done the right thing and filed 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 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 fraudulent transfer? Did I do something wrong?

I know that fraud sounds bad and fraudulent transfer sounds even worse.  But his term is often used in and out of bankruptcy.  (Sometimes it is referred to as a fraudulent conveyance).  In your bankruptcy you may have gotten a notice that you are being accused of a fraudulent transfer by the bankruptcy trustee.  Fraudulent transfer rules come from section 548 of the bankruptcy code.  But don’t worry, this can be addressed in the bankruptcy and it does not mean that you are guilty of any crime or even that you are a bad person.

This is because they are not (usually) talking about you committing an actual, intentional fraud where you decided to de-fraud someone of their money or property.  They are instead talking about a “constructive fraud” which is one where there is a law against doing these trnasfers but intent to do fraud is not there.  Fraudulent intent is inferred from your actions.

The fraudulent transfer label is used most often when an asset/property has been transferred to someone else under circumstances that look suspicious. This could be real estate or personal property like a car or a piece of jewelry. In the bankruptcy context it occurs when you transfer an asset to someone else, you receive little or nothing in return, and you are insolvent at the time.

You may have had no bad intent at the time you transferred the asset so don’t worry.  You may not even have thought that it was wrong.  I have had clients transfer all kinds of things for many different reasons.  You will need to disclose the transfer to your bankruptcy attorney and describe the circumstances surrounding the transfer any time you have transferred property before a bankruptcy.

And the look back period varies in different states but in California it is four years.  So any property transferred to someone else in the last 4 years for less than its full value needs to be reported in the bankruptcy.  Especially if that transfer leaves you insolvent which means that your liabilities are greater than your assets.  This would not include a property sale to an outside buyer, especially to a buyer who pays full value.  There is a much shorter “look back” period for these transfers and they are usually not questioned by the trustee.

The purpose of the fraudulent transfer rules in bankruptcy is to prevent people from moving assets out of their estate and then going bankrupt on the debts.  Everyone would give their property to family members if they could and then get rid of their debts.  After the case was concluded then they could take the assets back.  This would not be fair to creditors and is not allowed so report these transfers to your attorney in a bankruptcy.

If you received a notification of a fraudulent transfer in a bankruptcy then the trustee could file or possibly has already filed what is called an adversary proceeding.  An adversary proceeding is a complaint filed within a bankruptcy case that is objecting to some aspect of the case.  A trustee will file one if there is a suspected fraudulent transfer of an asset.  He will want to bring this asset back into the estate to sell it for the benefit of the creditors.  (See here for more on adversary proceedings).

The problem here is that the trustee will seek to recover the asset from the person who received it.  If the transferred asset has gone to your relative or friend then they would be drawn into the case so that the trustee could take the asset from that person.  This person, the recipient of the asset, is not going to be too thrilled about this so this is a fairly serious problem.

As with all adversary proceedings this complaint must be answered.  Even if no adversary has been filed you still need to contact an attorney to deal with this issue.  Sometimes a settlement can be worked out but often the proper procedures must be followed timely or a judgment can occur for the entire asset.  If this is a piece of real estate or and expensive piece of jewelry then this can mean a great loss of money if a settlement could have been worked out.

I am bankruptcy attorney in San Diego who handles adversary proceedings for both settlement and trial.  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.

What the heck is an bankruptcy adversary proceeding? Why would someone bring one against me?

Adversary proceedings happen sometimes in bankruptcy cases.  I write about this because a debtor will sometimes file for bankruptcy and then get a notice of an adversary proceeding that has been filed in the case.  This can cause tremendous worry to the client.  But don’t despair, a good attorney will be prepared to handle one of these cases and protect your rights.

An adversary proceeding is literally a lawsuit within a bankruptcy case.  A case within a case.  It means that someone objecting to or fighting about something in the bankruptcy case.  Somebody is letting you know that they have a problem with some aspect of your bankruptcy and they are going intervene in your case to get their problem/objection dealt with.

An adversary proceeding can be brought by just about anyone.   A debtor, a creditor, or even the bankruptcy trustee who is tasked with looking for things like fraud in a bankruptcy case. Almost anyone can file one if they have a legal claim against the debtor or his property.

An adversary proceeding most often happens when someone is intervening in the bankruptcy case to say that some debt is not dischargeable.  Allegations of fraud are the most common reason to file one of these.  Creditors or the trustee himself can file an adversary to challenge the dischargeability of some debt if fraud is suspected.  These are the cases filed under the “exceptions to discharge” under 11 USC § 523(a)(2) of the bankruptcy code.  In addition to fraud, but less often, misrepresentation, false pretenses or other allegations can be pleaded in these cases.

The fraud cases usually come down when a credit card company files an adversary challenging a large charge made on one of your credit cards prior to filing.  These same companies can also object to a large cash advance taken out on a card especially if the cash advance is taken out at a gambling casino.  (I have had a number of these cases over the years as this is more common than one might suspect).

There can be other larger allegations of fraud that can allege fraud over some asset like real estate.  These cases can reach into the millions.  If you find that an adversary was filed against you for very large debt then it is even more important to contact an attorney right away to protect your rights.  With all of these cases is the other side wins then the debt they are challenging will be deemed not discharged in bankruptcy and you will still owe it when the bankruptcy case is finished.  This tends to defeat the whole point of bankruptcy and therefore these cases must be dealt with quickly and correctly.

If it is the trustee who is trying to recover property for the bankruptcy estate (property that was transferred out of the estate prior to filing) then he would file an adversary action alleging fraudulent transfer.  In that case he would go after the recipient of the property which could be a problem if it is a relative or friend of the debtor.  (See here for more on fraudulent transfer).

Other reasons for adversary proceedings would be when a creditor believes a bankruptcy was filed in bad faith.  A debtor can also file an adversary proceeding against a creditor for violations of the bankruptcy automatic stay when a creditor attempts to collect a debt which he cannot because of the bankruptcy.  There are adversary proceedings filed by the debtor’s attorney to strip off second mortgages.

There are numerous reasons for adversary but contact a bankruptcy attorney right away if you get one filed against you.  There are distinct timelines to respond to one of these and definite procedures for doing so.

I am bankruptcy attorney in San Diego who handles adversary proceedings for both settlement and trial.  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.

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.