What is community property and how does it affect my bankrupty?

property 3Community property is, in short, the property you and your spouse acquired while you were married.  It includes any real estate and property 5personal property that you bought while you were married.  So cars, clothes, jewelry, furniture are all considered community property if they were acquired while you were married.  Real estate acquired during the marriage is considered community property in the same way.

It gets a little more complicated when you have a piece of real estate that was yours alone prior to the marriage.  If you get married after you bought the property your new spouse can gain (over time) a community interest in your real estate.

Real estate requires the regular and continuous paying of fees for maintenance, taxes, and even the mortgage payment.  Even if you continue to pay these yourself (with no contribution from your new spouse) your spouse is getting a growing community interest as you make those maintenance payments.

The money you use to pay these ongoing property expenses are community funds even if the funds come from income you earn alone.  This is because every dollar you earn during your marriage is half owned by your spouse.  This works both ways as every dollar your spouse earns is half yours too.  Therefore if you are married and the only one working and you pay these expenses out of your income alone on property that was yours before the marriage, your spouse is still getting a gradual community interest.

So when it comes time to file bankruptcy the trustee will want to know if you are married.  If you are then community property issues arise and he will ask questions about any property you or your spouse own individually or together.  If your spouse files bankruptcy and you do not your spouse may have a community interest in your real estate.  This will be true even if your spouse did nothing to and for the property.

These issues can get complicated so you need an attorney to analyze your property and your spouse’s to see if there are any community property issues.  Property can and will be seized and sold by a trustee if there is any value owned by the person filing bankruptcy if that value is not properly exempted.

Community property does not include property that you alone inherited and that you have kept segregated and separated from your spouse’s property.  If you have not commingled that property with your spouse then that property can be considered separate and not community for bankruptcy and other purposes.

But if you inherited real estate it may have started out as separate property but it may lose its separate property nature over time.  Again as you pay on it you may be giving your spouse a community interest even in separate property that was inherited by you.

There are other issues related to community property such as whether you gifted property to a spouse by putting the title it in their name.  If you do put a spouse on title then there is a presumption of gift and depending upon how title is held that property will probably be considered half owned by the spouse.  It would then lose its separate property status.

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.

 

Private property photo courtesy of hworks.  House photo courtesy of danzoO8.

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What is a “cramdown” in bankruptcy?

Bankruptcy is filled with interesting terms like the “cram-down”.  A cram-down is just where property that is encumbered with a loan is restructured in a chapter 13 bankruptcy so that the debtor only has to pay the loan to the extent of the property’s worth.  A cramdown can also be done in a chapter 11 bankruptcy.

A cramdown can be a very helpful and powerful tool in a bankruptcy if a debtor has property that he wants to keep but is upside down (meaning he owes more on it than it is worth).  With a cram-down a debtor can strip away the part of the loan that is unsecured and pay the secured part in the 5 year chapter 13 bankruptcy period.  The unsecured part is the upside down portion.  So if you have a car worth $10,000 but it has a $15,000 loan on it then the cramdown would strip off the $5000 unsecured portion of the loan and let you pay the $10,000 secured portion.

The loan is actually bifurcated or divided into two parts in a chapter 13 cramdown.  The secured part is paid in the plan.  The unsecured part drops in with the general unsecured debts.  These debts are paid only to the extent that any unsecureds are paid.  Sometimes it can be very low like 10% or 20%.  The rest (80% to 90%) is discharged at the end of 5 years.  The creditor is thus forced to “eat” the rest of his loan and the debtor does not pay it.

Keep in mind that this is usually done in a chapter 13 bankruptcy.  A chapter 13 is a pay back plan where debts are paid out over 3 to 5 years.  In the chapter 13 the unsecured portion of the loan will be paid out of disposable income by the debtor.

Disposable income is the amount the debtor has left after he pays his bills.  This can be as little as a few hundred dollars a month that goes to pay unsecureds.  This same cramdown tactic can be used for furniture, jewelry or any other personal property.

There are special rules for car cramdowns though.  You must have owned the car for 910 days (2 and one half years) before you are eligible for the cramdown.  For other personal property it is only one year.

Real estate can be crammed down too in a chapter 13.  If you have a piece of real property that is an investment property and not your residence then it too can be crammed down in a chapter 13.  If a property is worth $200,000 but has $350,000 mortgage on it then the $200,000 can be paid in the plan and the $150,00 can be paid at the low rate along with the other unsecureds.

The $150,000 then would be essentially stripped off and would go away if a workable plan is proposed and is paid on over the five-year period.  This is obviously a tremendous advantage to the debtor and a great disadvantage to the creditor.  But remember too with real estate the secured portion ($200,000 in the above example) must be paid over the 5 year period just like with a car or other personal property.  This is of of course difficult for most debtors as the monthly payments would be very high.

Cramdowns are also available in a chapter 11 just like in a chapter 13 upon approval of the reorganization plan by the court and the creditors.

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 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.

Shiller says housing prices won’t rebound for a generation. Are we headed for a society of permanent tenancy?

In an interview with Reuters Yale economics professor Robert Shiller (creator of the Case/Schiller housing index) has expressed his concern that housing prices may not rebound for a generation.  He says that the combination of high gas prices, a weak labor market, and a general sense of unease among consumers have all combined to keep housing prices low for the foreseeable future.  He apparently added in the interview that he was worried that we would not see a housing rebound in our lifetimes.

If this is true could it mean that our generation is doomed to low housing prices?  Will we really not see increases for the foreseeable future?  What effect will that have on future home sales?  Don’t people buy homes because they are a good investment and because they will increase in price in the future?  Will they now stop?  Won’t this radically affect our whole economy and what about all of the people who work in the real estate industry?

These are just a few of the questions I had when I read this.  I hope this economist is wrong but if he is right then we could see a whole different society in the future.  It could be one where people won’t invest in real estate anymore.  People could merely rent their home or apartment and not buy because they have little hope of getting any appreciation or equity out of their investment.  This could mean the end of the American dream of home ownership.

It is well-known that there are kids who are staying longer and longer at home.  Much longer than they did in previous generations.  These are the “failure to launch kids”.  According to CBS fully 70% of children under 30 still live with their parents. These people will probably not buy homes until much later if at all unlike previous generations when people usually left home at 18 years old.

This factor combined with the recession, the foreclosure crisis, and the failure of housing appreciation is creating a different kind of nation.  One where real estate is not purchased nearly as often.  I believe that there could be a future for America where people don’t invest in real estate.  One where they rent and don’t own ever. One where they are tenants for life.  This will be a different society than the one we know now.  Some realtors I know claim that the whole economy is so dependant on real estate that it cannot climb out of this recession until real estate does.  (See here for my blog on how foreclosures are predicted to increase in the near future).

I hope the realtors are wrong and I hope Schiller is wrong.  I personally don’t want to see our country abandon the American dream of homeownership and trade it or a society of permanent, lifetime tenants.  It sounds too much like medieval Europe to me.  I don’t foresee good coming out of us becoming tenant/peasants who have not hope of owning homes.  I believe housing prices must rise again in the not too distant future if we are to avoid an unraveling of society and a return to a more slavish tenant existence.  This would not be good for anyone and a departure from everything were moving towards up until this point in our history.

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 a 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.

A new wave of foreclosures is expected while housing prices decline for 6th staight month. What does it mean?

According to an article in Smart Money last month foreclosure sales are still flooding the real estate market in America.  35% of all home sales in January were foreclosed homes or for short sales.  This amounts to 91,100 properties in January and this number was up 29% from the month before.

The head of a real estate research firm predicted that this will cause a decrease in prices for homes in the next year.  Statistics have indeed showed that the median home price has declined 8.5% since June of 2011.  This same analyst predicted in the article that home prices are going to go down for a long time to come.

In the city of  Las Vegas foreclosures accounted for 59% of all sales and in Sacramento 50% according analysis done by RealtyTrac.  Other cities have similar statistics.  There is a huge number of foreclosures coming back to the banks currently and these foreclosures are then going back on the market for sale.  This flood of foreclosures will continue to press home prices lower in the future according to analysts.

This is exactly what an article in Yahoo Finance stated yesterday.  According to that article home prices dropped for the 6th straight month in a row.  The Case-Shiller housing price index reports that housing prices dropped in February in 16 out of the 20 cities tracked.  Atlanta, Chicago and Cleveland saw the worst declines while San Diego and Phoenix saw price increases.  This represents a 35% decline in home prices since the recession hit and home prices are now at 2002 levels.

Another article came out in Reuters that a new wave of foreclosures is expected.  In that article they predict that 2012 will be a bigger year for foreclosures than 2011.  Just when you thought it was over.  But it is not over.  Many in the article predict a growing number of foreclosures ahead.  They point to the statistics that show that many major banks and many major cities are showing a rise in foreclosures.

The Reuters article points out that the toxic mortgages are now gone.  Sub-prime, and balloon payments, and negative amortization mortgages have been foreclosed on or short sold and are no longer in effect.  Now we have regular mortgages that are being foreclosed on.  Mortgages with normal interest rates and fixed rates for 30 years.  Mortgages that are owned by regular working families.  Families who are extremely responsible but still can’t afford the mortgage.

These people are being stressed now.  They cannot afford the mortgages I argue because the price of everything is going up especially food and energy which are not counted in government inflation statistics.  That is what I argue in this blog http://bit.ly/HUNMNJ .

But it is clear that the housing/foreclosure is not ending but may get worse and be with us for some time.  I believe that we underestimated the depth of the crisis from the beginning.  I had realtor tell me years ago that this was serious.  At a realtors convention he was told to expect 10 years of depressed prices in real estate.

The amount of foreclosures is astounding and these all have to be put on the market at some time and they will depress it.  Indeed there appears to be a shadow market of these homes that the banks are holding off the market as I argue here  http://bit.ly/IUF0k0.  When these homes are put on the market instead of being kept off, prices could decline further.

So with home prices declining, foreclosures increasing, and prices of living increasing we have a perfectly bad storm it appears.  The government printing of money and the resulting devaluation of currency is increasing prices of food and energy so that people can’t afford their homes.  This stresses their finances so they cannot afford their homes which leads to more foreclosures and more homes on the market.  We seem to be in a downward spiral economically.  Don’t expect housing prices to go up anytime soon.  It is also a good time to take care of unneeded unsecured debt do you can afford to pay for your home.

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 a 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.