Sacramento Bankruptcy Attorneys Blog

As a Sacramento bankruptcy attorney, I typically take a client's case before the he or she files the bankruptcy petition. I do this in order to help him or her prepare the petition before the actual filing Chapter 7 or Chapter 13. Preparation for bankruptcy can mean a lot of things, including making strategic decisions regarding which assets are important to an individual. Understanding the bankruptcy process and knowing the complex rules become an important aspect of any Chapter 7 or Chapter 13 filing in order to eliminate or minimize a person's exposure to his or her creditors.

Unfortunately, unrepresented litigants often fail to understand the complexities involved in a case and that seems to be what happened with a debtor in In re Ruiz, a case from the Bankruptcy Appellate Panel of the Tenth U.S. Circuit Court of Appeals. In this case, Jose and Carrie Ruiz wrote checks for business purchases, a charitable donation and their monthly mortgage payment just before petitioning for Chapter 7 bankruptcy. The checks had not yet cleared on the day of the petition, so their trustee argued that they technically still had the money and should be required to turn it over to the estate. A bankruptcy court in Utah disagreed, but the BAP reversed it, requiring them to turn over about $3,700.

The Ruiz's checks were written between March 29 and April 23 of 2010; they filed their bankruptcy petition electronically on April 24. On their schedules, the Ruiz's listed a checking account with $10.02. This was the number that would be true once the checks cleared; however, the account actually contained $3,764.99. The last of the four cleared on April 28, 2010. During the section 341 hearing, the Ruiz's trustee discovered the discrepancy and moved to require them to turn over the rest of the money. The bankruptcy court denied the Trustee's motion and found that the disputed money was not debtor property. Rather, it found that the checking account was a debt owed by the bank to the Ruiz's, and that debt was the estate's property; the bank had actual control and possession of the money. The court further held that the trustee, not the Ruiz's, had the obligation to collect that debt on behalf of the bankruptcy estate. The trustee appealed.

On appeal, the trustee argued that the law requires the debtors to turn over property of the bankruptcy estate, and because the money was still technically the Ruiz's property, he may properly pursue it. The Ruiz's denied that they controlled the money or had any duty to pay it to the trustee. The BAP sided with the trustee, rejecting the bankruptcy court's reliance on Citizens Bank of Maryland v. Strumpf. Rather, the panel cited Tenth and Eighth Circuit cases, as well as precedent from numerous bankruptcy courts, holding that the money in a checking account as of the petition date is the property of the bankruptcy estate. The Ruiz's had control over the funds from the day of the petition until they were debited from the account, the panel said. It analyzed the bankruptcy code's requirement that this control be "during the case," but concluded that this applies to any time during the case, not just when the trustee demands it, because to hold otherwise would enable evasion of the law.

The panel took time in the opinion to recognize that their decision puts the debtors in a tough position, since they now do not have the money and could have been prosecuted for stopping payment. Nor is it usually practical to require the trustee to take quick action, it said. "Although this result does little to advance the Bankruptcy Code's policy of providing Debtors a fresh start through bankruptcy, it does promote an equally valid policy of providing for a fair and equitable distribution of Debtors' assets to their creditors."

The lesson to be taken from this case is that it's imperative to be well informed before petitioning for bankruptcy. The Ruiz's clearly did not intend to abuse the system -- they wrote checks for ordinary expenses - however, they happened to make a mistake. As a result, they appear to be responsible for re-payment of this money. In fact, the bankruptcy appellate panel pointed out that they will end up paying the money twice, to the estate and to the original payees of the checks. While this result may be the legally correct conclusion, I argue that it does nothing to help the Ruiz's get a fresh start once they receive the discharge. For future bankruptcy filers, I strongly recommend that you talk to our Sacramento area bankruptcy attorneys before filing to avoid this kind of accidental error.

If you feel overwhelmed by your debt and don't see how you can ever pay it back, you should talk to a Sacramento Bankruptcy Attorney about whether bankruptcy is right for you. You can call us at 916-361-6028 or send us a message through our website.

As an attorney who protects my clients against foreclosure, I am very familiar with the concept of filing a Chapter 13 or Chapter 7 bankruptcy stop the foreclosure sale. Since the filing of a bankruptcy petition includes an automatic stay - a court order prohibiting all creditors from collecting against debts held by the debtor - the filing often results in providing the bankruptcy client with some temporary or even permanent relief.

The Chapter 7 or Chapter 13 bankruptcy can even help a debtor in the long run if the bankruptcy allows the debtor to catch up on any arrearages and reorganize their unsecured debts. This may also work in the event that a mortgage lender has a flawed claim on the property held by the debtor or has broken some sort of predatory lending law. However, as the Ninth Circuit Bankruptcy Appellate Panel ruled in Edwards v. Wells Fargo Bank, N.A., filing bankruptcy is not the right avenue to pursue for a debtor whose property has already been foreclosed against. In Edwards, the appellate Panel upheld the bankruptcy court's decision to grant relief from stay to the bank.

Lupi Paulo Edwards, from Southern California, filed a Chapter 7 bankruptcy petition in August of 2010. Her home lender, Wells Fargo, moved the court for relief from stay shortly thereafter. Wells Fargo included a copy of the Trustee's Deed whereby they purchased the property at a sale on May 17, 2010. Wells Fargo then began proceedings to eject Edwards from the property. Edwards attempted to oppose the bank and argued that Wells Fargo had no standing to request that the court allow it to begin the foreclosure proceedings.

In their decision, the Panel noted that under California law, a debtor no longer has an interest in the property after the foreclosure sale. Since Wells Fargo acquired title to the property on May 17, 2010 they had standing to request that the court permit them to proceed with the eviction despite the automatic stay granted in August. Edwards then argued that since she filed an adversary proceeding against Wells Fargo to determine whether they had legally foreclosed against her that the court should not have dissolved the automatic stay against Wells Fargo. The Panel disagreed with her and re-iterated that a bankruptcy court has the discretion to grant relief regardless of any adversary proceeding. Lastly, the Panel noted that California law does not permit a litigant to make arguments that undermine the legality of a foreclosure sale once they have lost the unlawful detainer case. In short, the Panel affirmed the bankruptcy court's actions.

As a Sacramento Bankruptcy Attorney I try to avail myself of the multiple options to keep my client in his or her house for as long as possible when they are behind on their mortgage and foreclosure is on the horizon. If there is one piece of advice I can give to anyone regarding foreclosure and bankruptcy that is that an individual must file their bankruptcy before any foreclosure sale in order to maximize his or her position to save their house. Once the foreclosure sale occurs and title vests in another individual or entity, it becomes almost impossible to keep the debtor from losing the residence.

Sacramento area residents considering a Chapter 7 or Chapter 13 bankruptcy should be interested to learn about the recent United States Ninth Circuit Court of Appeals case: In re Brenda Marie Jones, which affects how a second bankruptcy filing affects a persons tax debts. The Ninth Circuit Court of Appeals governs all appeals made from Sacramento area federal courts, including bankruptcy matters.

Federal and State income taxes can typically be discharged if they were due more than three years ago. However, the three-year standard can be extended if the debt could not have been collected. This means that when an automatic stay is issued in a previous bankruptcy, the debt cannot be collected, which therefore extends the time period to which a debtor must wait before he or she can discharge that tax debt.

In the Brenda Marie Jones case, a California woman filing for a Chapter 7 bankruptcy owed a debt, more than three years old, to the California Franchise Tax Board (CFTB). Ms. Jones attempted to discharge that debt in her new bankruptcy but the CFTB argued that because Jones had previously filed for bankruptcy, they were prevented from collecting the tax debt and it was therefore improper for her to discharge the debt in the recently filed case.

Ms. Jones originally filed a joint Chapter 13 Bankruptcy in 2002. As with all bankruptcy filings, upon filing of the Chapter 13 petition, the automatic stay issued by the bankruptcy court froze all attempts by creditors to collect the debts, including the CFTB. In October of 2003 the Jones' filed a tax return and asked for an extension but failed to pay the balance due. The Jones came out of Chapter 13 in September of 2006. Later, Ms. Jones filed an individual Chapter 7 petition in October of 2007. Naturally, Ms. Jones included the tax debt in her Chapter 7 filing since it was more than three years old.

The CFTB moved to reopen Ms. Jones' bankruptcy in an attempt to collect the back taxes. The CFTB argued that the three-year window should have been extended due to the prior Chapter 13. While the bankruptcy court re-opened the Jones case it decided against the CFTB. The local bankruptcy court held the CFTB could have collected the debt either during or after Ms. Jones' bankruptcy. The CFTB appealed to the Bankruptcy Appeals Panel and then later to the Ninth Circuit.

In it's ruling, The Ninth Circuit specifically noted that the three-year discharge rule for tax debts related to Ms. Jones' Chapter 7 petition, not her Chapter 13 petition. The Court then looked at whether Ms. Jones' previous bankruptcy should have suspended the three-year rule. Ultimately, the Ninth Circuit concluded that the Chapter 13 should not have suspended the three year rule. The Court noted that the law permits the three-year rule to be suspended when a stay is in effect in a prior bankruptcy case.

The Ninth circuit noted that some property re-vests in a debtor after the Chapter 13 plan is confirmed. Since the tax debt arose after the Bankruptcy court confirmed the Jones' Chapter 13 plan, the Ninth Circuit found that the CFTB would have been free to collect against the Jones' anytime before Ms. Jones' filed for Chapter 7. Specifically, the Court noted that the CFTB had a year between the bankruptcies where it could have unquestionably collected the tax debt. For that reason, the Ninth Circuit decided that the bankruptcy court properly discharged the tax debt and the three-year rule could not be suspended.

As a Sacramento Bankruptcy Attorney, I believe this ruling can be regarded as a victory for bankruptcy debtors seeking to discharge tax debts more than three years old. Since tax debts are more difficult to discharge than most other debts, I still typically advise my clients to always take care of these debts before other creditors.

California residents who reside in the Sacramento metropolitan area may be interested to know an update in case-law that could potentially impact any home loan modification. The ongoing trend regarding litigation surrounding the Home Affordable Modification Program (HAMP) has been re-affirmed by a Washington D.C. Judge in Doreen Edwards et al v. Aurora Loan Servicers LLC. In Edwards, the Plaintiff argued that an individual borrower should have the right to sue because they were impacted by the HAMP agreement between Aurora , a private loan servicer and Fannie Mae.

All Plaintiffs in the case were eligible under HAMP for a home loan modification but were nonetheless denied by Aurora even though they were qualified under the program. The plaintiff's cited "endless bureaucratic incompetence coupled with a lack of effective recourse for wrongful denials" as a basis for their against Aurora after having been denied a modified loan. The lawsuit alleged a violation by Aurora of its independent agreement with Fannie Mae: (1) that Aurora failed to act in good faith and fair dealing and (2) Aurora violated their right to Due Process. Aurora responded that the plaintiffs were not eligible to sue since they were not parties to the agreement with Fannie Mae and Aurora.

Judge Rothstein agreed with Aurora and held that the individual borrowers had no right to sue because they had no vested interest under the HAMP agreement. Judge Rothstein joined numerous other court decisions making similar findings. Judges in all District Courts of California have held this same decision including the Eastern District of California, which hears all cases brought in the Sacramento area. These courts have held in order for a person to have standing, the homeowner plaintiffs had to show that Fannie Mae and Aurora intended to include the borrowers, individually, to their HAMP agreement.

Essentially, this means that just because the homeowners had an interest in the performance of the contract between Fannie Mae and Aurora does automatically entitle them to participate in the HAMP program. Judge Rothstein also dismissed that plaintiff's argument that Aurora had a duty of good faith and fair dealing. Since the borrowers never had an explicit contract with Aurora or Fannie Mae, the Judge ruled that Aurora did not have to give them the modification.

This situation would be analogous to having a person insist on receiving the same deal on a car purchase, bought at a car dealership, made by a separate party on a similar vehicle. While the dealership may want to offer a similar deal, the Judge Rothstein holds that the car dealership will not be forced to offer the same deal to separate parties if they are not inclined to do so.

As a Sacramento Bankruptcy Attorney I like to keep my clients updated on developments in the legal world that may affect their financial circumstances. If you or someone you know is considering filing Chapter 7 or Chapter 13 Bankruptcy you should have them contact a lawyer who is knowledgeable on these matters as soon as possible.

The 9th U.S. Circuit Court of Appeals, which has jurisdiction over all Sacramento area residents who file Chapter 7 or Chapter 13 bankruptcy, ruled yesterday that a Chapter 7 bankruptcy trustee may be able to sell a debtor's house if its value increases during the bankruptcy, even though the debtor's equity was fully exempt at the time of filing. The 9th Circuit consolidated two bankruptcy appeals within their jurisdiction in the case, In re Gebhart, No. 07-16769.

Debtors from Arizona and Washington each argued that the Chapter 7 trustee's failure to object to a homestead exemption claim within the prescribed time frame permitted to contest the property's value results in the property being withdrawn from the bankruptcy estate.

Gebhart focuses on a debtor who filed for Chapter 7 in Arizona in 2003 and claimed the full value of his home as exempt. The trustee assigned to the case did not object to the exemption when the debtor claimed it. However, the debtor's case remained open and in 2006 the trustee attempted to sell the house as property values increased in order to reclaim the appreciated value for the debtor's creditors. The debtor lost in the district court when he objected to the sale arguing the homestead exemption covered the full value of his home when he filed for Chapter 7. Oddly, a court in Washington with facts almost identical to the case filed in Arizona held that the original exemption did in fact cover the inceased value of the debtor's home.

By hearing Gebhart the 9th Circuit resolved the discrepancy between the District Court's opposite treatment of debtors involved in a similar situations within the jurisdiction. The three judge panel rejected the debtors' joint arguments and found that a homestead exemption that caps the exemption at a particular dollar amount only applies to the amount claimed exempt, not the entire property. This means that the bankruptcy trustee may sell the debtor's home if the value of the property increases during the bankruptcy in order to claim the excess value on behalf of creditors. The 9th Circuit relied heavily on the Supreme Court's decision in In re Reilly, 130 S. Ct. 2652, which holds that an exemption that names a specific dollar amount exempts only an interest in property, not the entire property.

California requires debtors to use a specific dollar amount exemption which caps claims for equity in homesteads. Therefore, this recent decision means, in California, the bankruptcy estate is entitled to appreciation in the value of partially exempt property so long as the bankruptcy case remains open.

As long as real estate values remain flat the decision in Gebhart should have little practical impact on the average Chapter 7 debtor. What makes this decision even more dubious is the fact that the Arizona debtor's case remained open for over 3 years. For undisclosed reasons, the Trustee failed to close the original debtor's case, which resulted in debtor's property increasing in value. Typically, a chapter 7 bankruptcy lasts several months and would therefore unlikely affect the value of real property.

However, this case demonstrates that future filers as-well-as bankruptcy practitioners need to take an active role in terminating the bankruptcy case once the debtor has received his discharge to prevent this situation from happening to them. You should contact a Sacramento bankruptcy attorney familiar with these issues if you are dealing with extreme debt and/or are behind on your mortgage payments. The Law Offices of Matthew D. Roy helps people navigate the legal channels to secure a more stable economic future.

Sacramento area debtors who have filed Chapter 7 or Chapter 13 bankruptcy are frequently concerned with the implications of the FDCPA (affecting a creditor's ability to collect on a debt) while his or her case is pending in the local bankruptcy court.

The Seventh U.S. Circuit Court of Appeals, which covers the Midwestern U.S., recently decided that some communications sent to borrowers by a loan servicer may fall under the provisions of the FDCPA. In Gburek v. Litton Loan Servicing LP, a borrower appealed after the trial court dismissed her case when she sued her mortgage servicer for violating her rights under the Act when the mortgage servicer hired a third party company to communicate with her about the debt. In her original complaint, Gburek claimed that Litton violated the FDCPA by contacting her despite knowledge that she had a lawyer, using deceptive means to obtain her personal information, and for disclosing her personal information to a third party.

According to the case, Litton contacted Gburek to discuss Gburek's default on her mortgage. Litton sent Gburek a letter that asked her for a variety of financial information which also discussed Gburek's possible alternatives to foreclosure on the property in an attempt to settle her mortgage-loan debt. The letter contained a disclosure that Litton was a debt collector and that the letter was sent as an attempt to collect a debt. Sometime thereafter Litton contracted with Titanium Solutions to contact Gburek. Gburek received a letter from Titanium that also asked for Gburek's financial information but stated that it was not a debt collector and could not accept payments even though they had been hired by Litton to contact Gburek in order to facilitate a settlement between them.

Litton filed a motion to dismiss the case with the trial court saying that the two letters did not fall within the scope of the FDCPA since they were not sent "in connection with the collection of any debt." The trial court found for Litton and said they had not violated the FDCPA since neither letter specifically demanded payment of the debt. The appellate court disagreed with the trial court, however, and determined that the issue revolved around whether the letters were sent in connection with the collection of Gburek's debt. The appellate court's decision revolved around factors that consider the relationship between the parties and the purpose and context of the communications between them. The court noted that "there is no specific test for proving this, but in this specific context, the letters had clearly been sent to collect on the debt." Thus, the 7th Circuit determined that the trial court had improperly dismissed Gburek's case.

As a Sacramento Bankruptcy Attorney, I am pleased to see that the 7th Circuit Court of Appeals looks more deeply into the purpose of the FDCPA versus a dry and strict interpretation of its provisions. I can only hope that judges and courts that have jurisdiction in Sacramento and the surrounding areas look at the law in a similar fashion. If you or someone you know has been contacted by a debt collector and you believe they have violated your rights you should contact a qualified attorney immediately.

For those of you living in the Sacramento area that have a second mortgage on your real property which is essentially "unsecured" due to the fact that the value of your house has fallen below the amount secured by your first mortgage may be able to stop the bank from foreclosing and save your home by filing Chapter 7. In the case In Re Lavelle, 2009 Bankr., a bankruptcy judge for the Eastern District of New York allowed debtors to void the second mortgage lien held by the bank against their property by filing Chapter 7 when the value of their home fell below the amount secured by the first mortgage.

Since the case-law has not been settled in the Ninth Circuit, whose rules apply to those of us living in the Sacramento area, a debtor could conceivably prevent foreclosure and save their house so long as they can afford to continue making payments on the first mortgage after all other debts have been discharged in addition to the second mortgage. It makes sense that local judges could be inclined to interpret the bankruptcy code in a similar fashion as the court in the Eastern District of New York since a bank holding an unsecured second mortgage would not see a penny whether the house gets foreclosed on or the debt is stripped-off and voided under Chapter 7. Given the economic "fresh start" principles that Chapter 7 is designed to provide to a debtor, and the number of people that this interpretation of the law could help from losing their homes, I believe judges will become increasingly receptive to the argument. This view rests on a novel interpretation of the bankruptcy code, however, and would probably be an uphill legal battle. Nonetheless, In Re Lavelle shows at least one judge has become sensitive to the current economic situation and there is enough wiggle room in the law to provide a legal basis for making such a claim.

As a Sacramento bankruptcy attorney I have spoken with numerous clients with these types of questions. The only way to know for sure is by locating a debtor who finds himself in this situation to retain a lawyer who is willing to bring the case before a local court and present the argument. This would almost certainly become a drawn out legal process, but the courts would probably allow the debtor to at least remain in the property until all appeals have been exhausted and a final decision, perhaps by the United States Supreme Court, has been made. If you believe that you could benefit from this interpretation of the law it may be in your best interest to consult an attorney familiar on the subject.