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.

Economists and legal experts believe that 2011 could see a slowdown in personal bankruptcy filings. As indicators point to an improving economy and consumers borrow less money, "there is less reason for people to take the step of filing for bankruptcy" according to University of Illinois Professor, Robert Lawless.

American consumers filing for Chapter 7 or Chapter 13 topped 1.5 Million in 2010. This number represents an increase of 9% from 2009. The Southwestern and Southeastern States accounted for a majority of the increased filings last year. It appears that conditions in the Southeast have improved to some degree with decreased filings in states like Tennessee, South Carolina, and Alabama. However, communities in the Southwest remain mired in the economic turmoil experienced by numerous households across the country. Both California and Arizona saw an approximate 25% increase in bankruptcies from 2009. The economic crisis has forced individuals to make difficult choices or uncomfortable compromises with regard to managing their monthly budget. Numerous households have been forced to make these decisions with regard to their houses or mortgages.

Here in the Sacramento metropolitan area I have met many people who continue to hold onto mortgages they cannot afford because they are unable to get a loan modification or, until real estate values rebound, refinance their property. The fact remains, however, that personal bankruptcy is available to individuals who have extreme amounts of debt and are unable to pay their financial obligations. Eliminating staggering debt, or creating a plan to repay it, can help individuals use their financial resources more efficiently to meet other financial obligations.

With personal bankruptcy filings reaching such high numbers most individuals will have come into contact with someone they know who has been impacted by the economic downturn and has sought relief through the Bankruptcy process. While some people may experience personal shame or guilt by resorting to this process, they need to understand that the decision to file for bankruptcy is merely an economic decision and not a moral one.

As a Sacramento Bankruptcy Attorney I was disappointed, but not surprised, to see the overall number of filings in 2010 reach a staggering level. Fortunately, as noted in the Wall Street Journal, economists and legal experts predict 2011 will be a better year for individuals. My office represents individuals of all income levels and backgrounds who have considered Bankruptcy as a possible solution to deal with overwhelming debts. The majority of my clients have used Chapter 7 or Chapter 13 as a last resort to manage the unfortunate circumstances they face financially.

The decision to file for either Chapter 7 or Chapter 13 is a big one. This decision is one that requires substantial consideration and expertise. One of the most significant aspects of my work as a Sacramento Bankruptcy Attorney is to advise Sacramento area residents as to whether bankruptcy is a viable decision for him/her to begin with. Many individuals who schedule a consultation with my office are anxious to avoid filing Chapter 7 or Chapter 13 and come to my office in an attempt to explore the options available to them. In some cases, potential clients have specific matters that need to be addressed under their economic circumstances.

The first thing a person considering bankruptcy needs to take into account is the amount of debt the person has looming over his/her shoulders. Chapter 7 or Chapter 13 is really not a wise step to take if your debt to income ratio or debt to assets ratio are relatively low. The Bankruptcy code was revised in 2005, making it more difficult for a person to qualify for Chapter 7 in the first place. Thus, this question of whether bankruptcy can provide a solution to the debtor is often resolved by a simple mathematical equation. If an individual qualifies for Bankruptcy under the revised code, then there is a high probability that the individual has a high debt to income ratio which can be resolved by filing.

A simple way to calculate this ratio is for a person to examine his/her monthly expenses for all your necessary monthly obligations. This means the debtor needs to compile his/her monthly payments for things such as housing, vehicle, and living expenses. Do not include payments for credit cards or other nonessential expenses. Next, the debtor must compare that number with his monthly income. As a general rule, if the debtor cannot pay off his outstanding debts with the balance of his income that exceeds the necessary monthly expenses, over a three year period, bankruptcy may be a good option.

Sacramento residents considering bankruptcy must also remember that Chapter 7 or Chapter 13 is not a solution for every type of debt. Certain debts are not dischargeable under the bankruptcy code. For example, a debt incurred through fraud, debts for child or spousal support, taxes, criminal fines or penalties, and most student loans cannot be erased. If a person is saddled with these types of debts then bankruptcy may help to the extent that any unsecured debt becomes eliminated and permits the debtor to use his income to pay those outstanding obligations instead of the other debt.

The decision to file bankruptcy is not only complicated but requires some degree of strategic planning. This is why a person should always seek legal counsel when making the decision to file Chapter 7 or Chapter 13. As a Sacramento Bankruptcy Attorney I am prepared to offer legal options beyond traditional bankruptcy to individual's struggling with burdensome debt or in otherwise financial distress. Whether a person wants to negotiate a debt settlement plan or defend against a foreclosure action I always recommend taking the time to schedule a consultation to explore the best available options.

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.