Sacramento Bankruptcy Attorneys Blog

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.

Sacramento bankruptcy lawyers who file Chapter 7 and Chapter 13 bankruptcies on behalf of individuals will be glad to know that the Center for Responsible Lending has published a study that shows that it makes more sense for lenders to modify a distressed homeowner's loan than to immediately foreclose on the individual's property. The Center released a study on March 22 that researched whether investors who held a defaulting loan could retrieve more money through foreclosure or modification. The study used the net present value test (NPV), which is used by the federal loan modification program in addition to numerous private programs. The answer turned out to be (under most circumstances), whether the loan was securitized or not, that it made more sense to modify because the lender received more money in the long run.

The authors explained that when considering whether to modify a loan, a prudent investor must balance the cost of foreclosing with the costs of reducing a borrower's monthly payment. The NPV test is a ready tool to calculate this ratio and the authors using the instrument were able to evaluate over 1,500 test cases. The authors were also able to include different circumstances such as original size of the loan, different property values, and well as the size of the reduction in monthly payments. According to the study then, if the end result of the test shows a lower re-default rate than the actual re-default rate, the value of modifying the loan is higher than what could be gotten through foreclosure. Therefore, under these conditions the lender should grant a loan modification rather than initiate foreclosure proceedings. The Center's study calculated that most real-world circumstances should lead to a loan workout.

According to the study, a loan modification that discounts the loan by 10% would be profitable more than 86% of the time under existing self-cure numbers. Thus, the Center has concluded that NPV tests should begin to inspire a lender's willingness to implement the loan modification process into its business model.

As a Sacramento Bankruptcy Attorney I am dedicated to ensure that my clients receive the best information available to assist them in determining what course of action works best for his or her financial situation. Whether Chapter 7, Chapter 13, or a Loan Modification rests in an individual's best economic interest is, of course, determined by the special circumstances that are unique to every person. As a local practitioner I incorporate litigation as well as aggressive negotiations to get fair consideration and treatment for my client's loan modification applications as well as equal and fair treatment from the court should they decide to file for bankruptcy.

If you or someone you know has been dealing with these sorts of circumstances recently, you should contact someone who has experience dealing with these issues in order to know what options may be available and therefore can begin to re-take control over the economic conditions that have significantly affected your living situation.

Recent data proves what practitioners in the Sacramento metropolitan area have already noted with regard to the loan Modifications being sought by individuals or corporations filing for Chapter 7 bankruptcy. On February 3, 2011 the Federal Reserve bank of Chicago released a study that shows that bank -held mortgage loans are one fourth to one third percent more likely to be modified than a similar securitized mortgage. The study also shows that individuals who receive the loan modification are almost 10 percent less likely to default on the new loan generated by the bank. Similarly, the Center for Public Integrity notes that homeowners are more likely to get their loan renegotiated if a bank owns their mortgage by a margin of 26% - 36%.

The practice of securitization consists of investment banks or brokers who bundle individual loans into a pool whereby investors are then able to buy a stake in the pool of loans with the lenders continuing to collect the monthly payments. This "securitization" is completely legal, but is widely blamed for contributing to the housing crash since it allowed institutional lenders to make high risk loans and then pass the risk of default onto the investors who purchased the bundled loan pools.

Borrowers have no say as to whether the loan on their residence has become securitized in this fashion. Unfortunately, these borrowers must deal with the consequences of their loan having been securitized if they seek a modification later. The increased chances of receiving a loan modification existing in a bank held loan appear to remain firm regardless of the borrower's credit rating. The reasons for this may be due to coordination problems among investors, legal constraints, as well as a lack of servicers' financial incentives (such that the servicers control the "loans" but do not have an ownership stake since it has been passed along to investors).

I am always interested to see data that sheds light on the current housing and financial situation being experienced by most of us in the nation. While securitization was initially blamed as a contributing factor to the housing crisis attention to the matter has since been shifted to other areas. A lender's willingness to engage in loan modification discussions remains the biggest issue facing a home owner when trying to hold onto his or her residence. However, hopefully these types of studies will provide a framework to future policy makers who can attempt to resolve or avoid similar scenarios in the future.

As a Sacramento Bankruptcy Attorney I have heard from numerous individuals who have tried for months to get a modification on his or her home loan. Regardless, of whether or not a home loan has been securitized the homeowner has a right to be considered for a HAMP modification. If a person qualifies under HAMP their loan is required to be modified and made permanent. Since these questions are often complex and time consuming my offices are available to anyone who has considered exploring the option further.

Sacramento residents who have recently considered or filed Chapter 7 or Chapter 13 bankruptcy should beware the stiff penalties associated with Bankruptcy fraud. A report from the Des Moines Register shows just how serious the federal government takes people who are abusing the bankruptcy code.

A Federal Judge sentenced Gerald Schurer to more than four years in prison after he and his wife were convicted for their part in a scam to take advantage of the revised bankruptcy code. Schurer's wife received a two year sentence for her role in the plot.

Prosecutors claim the Schuerers made false sales of assets to "insiders" with the understanding that the friends or relatives would return the personal property to the Schuerers after they had received their discharge in bankruptcy. The Schuerers disposed of jewelry, stock, vehicles, and a boat in this manner before they filed their petition in order to avoid those items becoming a part of their bankruptcy estate. In all, the total value of hidden assets totaled approximately $380,000.

After disposing of their property to family members, the Schurers allegedly moved to Florida where they would receive higher limits on their bankruptcy exemptions, filed for bankruptcy, and then returned to Iowa to retrieve their possessions from the family members. The Schuerers were tried and convicted in Florida since they filed their bankruptcy petition in that jurisdiction.

The U.S. Trustee, a division of the Justice Department and the Federal Courts take bankruptcy fraud very seriously. Because the law rests on self-disclosure of the debtors individual assets, the debtor must testify under penalty of perjury that the assets they have included on their bankruptcy schedules are accurate and represent the individuals actual financial situation.

Since the distinction between having a non-asset case or a case where the trustee can foreclose and sell a debtors property in order to pay creditors can be razor thin. When the case exists that a debtor's assets exceed the specified exemptions then the temptation arises for the debtor to fail to disclose or accurately value the property listed in the bankruptcy schedules.

Oftentimes individual debtors are unfamiliar with the exemptions that may apply to them and the proper manner in which to claim them to protect their property from the trustee. This is why I always suggest a person considering Chapter 7 or Chapter 13 bankruptcy should hire an attorney who is familiar with the law and can appropriately classify and claim property in order to avoid them being miscategorized or unclaimed which then exposes the debtor to criminal liability.

As a Sacramento Bankruptcy Attorney I am familiar with the law and the exemptions that are available to individual debtors when filing their bankruptcy petition. I always take a vigorous inventory of my debtors personal property and financial situation in order to ensure that the property is listed properly in order to avoid this situation that the Schuerers found themselves.

Unemployed Sacramento residents facing possible foreclosure or Chapter 7 or Chapter 13 bankruptcy may be glad to know that the California Housing Finance Agency has finally decided to start the application process that will give unemployed homeowners up to $3,000 per month to pay their housing mortgages according to an article published in SFGate.

California has decided to implement the first of four programs launched by the United States Treasury as part of the Hardest Hit Fund. This fund consists of $7.6 billion that will provide the 18 hardest hit states with the largest drops in housing prices or high unemployment rates.

In order to qualify, a homeowner must meet specific eligibility requirements that are based on age as well as income restrictions. Additionally, the individual homeowner's loan servicer must agree to participate in the federally funded program. Unfortunately, only three mortgage loan servicing companies had decided to join the program, but CalHFA plans to more than double that number over the upcoming week.

California intends to implement three other programs under the name "Keep Your Home California," which will: give up to $15,000 to homeowners who have fallen behind on their mortgage payments, provide borrowers with up to $50,000 to reduce principal balances who owe more money than what their homes are worth, provide homeowners with up to $5,000 in transition assistance who give up their homes in connection with deed-in-lieu of foreclosure or a short sale. Homeowners may qualify for more than one program but are not eligible for more than $50,000 in total assistance.

While CAlHFA had planned to begin these programs last Fall, the process was delayed since the programs require the participation of loan servicers. Unfortunately, assistance from the corporate servicers has been difficult to achieve even though the lenders have something to gain from these programs as well.

These assistance programs are structured as a non-recourse, non-interest-bearing lien against the homeowners property which will be forgiven after three years. If the homeowner defaults on his or her payments then the homeowner would risk having to repay the loan. As of Friday, only Chase, CalVet and CalHFA have signed up for the unemployment assistance program.

As a Sacramento Bankruptcy Attorney I am pleased to inform individuals about the existence of these sorts of public assistance programs. Numerous people may benefit from the assistance offered and should explore these as well as the other options available to them in order to get through these difficult financial times. If you or someone you know is facing possible foreclosure you may be eligible for one of these programs. It is important to get informed and contact an individual who may be familiar with the many options available for debt relief.

Residents in the Sacramento metropolitan area are probably aware that, in general, the law provides judges with broad discretion to impose sanctions on the individuals and corporations that appear before them. As such, any resident facing foreclosure or possible Chapter 7 bankruptcy may be interested to know that judges have become increasingly stringent against mortgage lenders in the foreclosure cases being heard in their courtrooms. Today, The Washington Post published a story highlighting the current trend with judges' behavior against mortgage companies in their courtrooms. While the level of tolerance for mistakes in paperwork depends on the particular judge hearing the case, judges as a whole have an increasing reputation for ruling against mortgage lenders when paperwork issues or problems come up.

One Judge, Jeffrey Spinner, out of New York estimates that he has dismissed up to 50 percent of the foreclosure cases brought before him on the basis of sloppy or fraudulent paperwork filed by lenders. In fact, Judge Spinner recently erased nearly $300,000 in debt and gave a house back to the borrower for free because the lender's paperwork was so flawed and its behavior in negotiations with the individual was "repugnant."

Decisions like these strike panic in the mortgage lending industry and foreclosure process. Mortgage companies fear that dismissals like the one seen by Judge Spinner could establish an extraordinary precedent and stir up the country's foreclosure system. These types of decisions have the banks worried and they plan to appeal what they consider to be drastic remedies from between 20 to 50 percent of foreclosure cases in the New York City area.

Thousands of judges across the country have wide latitude to impose sanctions, erase debts, or allow companies to proceed with flawed foreclosures. Given the differing laws in all 50 states lenders could find themselves dealing with a chaotic situation in foreclosure cases across the nation. Lenders have begun to vigorously appeal foreclosure dismissals since they have so much at stake in these cases. This situation is likely to continue for years.

Some mortgage lenders have even begun to segregate their foreclosure cases to special departments in areas that have seen high levels of foreclosure dismissals by courts. Experts explain that this increase in foreclosure dismissals results from a judge's lack of trust for the big banks. Typically, a judge is more inclined to dismiss a case when he has encountered numerous inaccurate filings from the lender. Areas affected more significantly by the foreclosure crisis appear to have eroded judge's trust in the entire sector. Analysts predict that the trend seen in these cases will only increase over time until these mortgage companies shape up.

While CA does not implement the judicial foreclosure system as in New York, one can only surmise that local homeowners caught in the foreclosure crisis will begin to see a very specific reaction by lawyers and lawmakers in an attempt to deter or delay sloppy lenders from foreclosing against their client's property.

If you or someone you know is facing foreclosure you should contact a Sacramento Bankrupty Attorney familiar with the foreclosure process who may be able to assist you in obtaining an injunction on the foreclosure sale due to questions surrounding the legitimacy of the lenders action against them.

Sacramento area debtors who are considering filing either Chapter 7 or Chapter 13 may be interested to know that JPMorgan Chase has decided to re-examine documents they filed on approximately 56,000 foreclosure cases. These current issues revolve around signatures obtained by employees on affidavits about loan documents that they failed to review independently.

Chase has asked the courts reviewing the affected cases to refrain from entering judgment until they have reviewed the documents in question. Analysts from Chase say this process can take up to several weeks. Chase has decided to comply with the technical aspects of the law even though Chase officials believe the accuracy of the loan information contained within the documents will be unaffected by whether the employee signer had personal knowledge of the loan details, or not. Approximately 500,000 of borrowers who have used Chase are either 3 months or more in default or in foreclosure on their loans.

In addition to JPMorgan Chase, GMAC Mortgage and Bank of America have suspended all foreclosures in 23 states each after discovering similar problems with their respective foreclosure documents. An executive from OneWest Bank recently admitted that none of her employees read the approximate 6000 documents they sign per week.

The technical aspects of the foreclosure process confronting these major banks is that the entity foreclosing on the property must certify that whomever signs the affidavit has verified the information and knows it to be true. A signed affidavit is legal testimony that the language contained within the document is true. Legally speaking, these large banks and employees may be guilty of having perjured themselves by signing the affidavit when they have not in fact verified the information in the documents. The problem exists because the individual who does the fact-checking on a particular loan is not the same person who signs the affidavit. One Bank of America executive testified that she had signed approximately 8,000 affidavits a month without having reviewed them.

Lenders maintain an ethical as well as legal obligation to confirm that when they begin foreclosure proceedings on a property, that they do so correctly and by the book. Because the stakes are so high in any foreclosure situation the lender must eliminate any instance of mistake to prevent people from being removed from the house unjustly. If the these lenders practice of signing without confirming the accuracy of the information contained in the document is in fact industry wide, then this could only be the tip-of-the-iceberg with regard to a flawed process which would in fact affect millions of homeowners.

By having these lenders pause on the foreclosure process as they review the internal procedures under which they operate gives lawyers an opportunity to object to the action if and when appropriate. As a Sacramento Bankruptcy Attorney I always keep the best interests of my clients foremost on my mind. If you believe that you could benefit by filing for Chapter 7 or Chapter 13 please contact my office immediately for a free consultation.