Many people considering filing Chapter 7 or Chapter 13 bankruptcy in the Sacramento metropolitan area are interested to know the statistics associated with filing for protection from their creditors and elimination of their debts. These people are relieved when they find that most individual bankruptcy cases are not caused by reckless spending. The number one reason that causes a person to file bankruptcy is financial hardship.

As we have seen over the last few years, peaks in bankruptcy petitioner typically occur during times of economic downturn. Interestingly, states with the least consumer friendly laws ordinarily receive the most bankruptcy petition filings. This is because those laws make it easier for creditors to collect unpaid debts from the individual. The United States saw the highest number of bankruptcy filings in 2005 (likely due to a change in the law making it more difficult to file bankruptcy). That year the Courts processed over 2 million bankruptcy cases. Since reform of the bankruptcy laws in 2005 the statistics have gone up and down. Over the last 5 years the Courts have seen the highest number of filings in 2010, with over 1.5 million cases filed. Last year, the federal bankruptcy courts saw less than 950,000 cases filed.

California has typically seen the highest number of bankruptcy cases filed throughout the nation. This is in large part due to our high population. Conversely, Alaska typically sees the fewest number of bankruptcy filings. For example, Alaska residents accounted for less than 1,000 bankruptcy filings in 2011 whereas California saw more than 240,000.

As a Sacramento Bankruptcy Attorney, my potential clients are often concerned with the ramifications of filing a Chapter 7 or Chapter 13 bankruptcy Petition. It is my job to help people understand and explain some of the myths that surround this process. Some potential filers may be concerned with the effect bankruptcy may have on any security clearance as a condition of his or her employment. My short answer is: Bankruptcy will have little impact on a security clearance.

The major reason that the Bankruptcy has no negative impact on a security clearance is because it makes a person less of a security risk. The United States Department of Defense states: “The purpose of a security clearance is to determine whether a person is willing and able to safeguard classified national security information, based on his or her loyalty, character, trustworthiness, and reliability.” The fact of the matter is that when a person files for Chapter 7 or Chapter 13 for a legitimate reason, it shows that this individual is making a responsible choice and confronting whatever economic situations are troubling them.

“All available, reliable information about a person, past and present, favorable and unfavorable, is considered in reaching a clearance determination. When an individual’s life history shows evidence of unreliability or untrustworthiness, questions arise whether the individual can be relied on and trusted to exercise the responsibility necessary for working in a secure environment where protection of classified information is paramount.

Sacramento area residents considering a Chapter 7 or Chapter 13 Bankruptcy should be aware the Eastern District of California has decided to raise the costs of filing a case effective June 01, 2014. The new Chapter 7 filing fee for the Sacramento jurisdiction is now $335.00. The Chapter 13 filing fee has also been raised to $310.00.

The Judicial Conference of the Administrative Office of the United States Courts approved the increase earlier this year. This fee increase reinforces the Federal Court’s continuing policy of shifting costs from the general population to the people who actually use the courts. In the context of a bankruptcy, this shift can be problematic, however, since the individuals seeking protection of the bankruptcy code have difficulty coming up with the filing fee to begin with, much less, paying the increased fees.

Every time the court Imposes a fee increase, we find less people being able to take advantage of the protection offered by the Bankruptcy Code. Supporters of the fee increase would argue that a debtor who cannot afford to pay the increased fees may apply for a fee waiver or alternatively request to make the fee in installments over the course of several months.

Yesterday, a local Sacramento man received a 17 year sentence for committing Bankruptcy Fraud after filing for Chapter 7. Steven Zinnel was convicted last July of hiding assets during his bankruptcy in an effort to avoid paying his wife significant support during their divorce.

Zinnell and his wife terminated their relationship in 1999 and engaged in a bitter divorce. Mr. Zinnell later filed his bankruptcy petition on July 20, 2005. He hid the assets by placing them in other individual’s names. Evidently, Mr. Zinnel concealed assets and income in order to avoid having to pay his wife spousal and child support. As the divorce intensified between the parties, Zinnel asked FBI to investigate his wife. Upon conducting their investigation, FBI agents uncovered multiple bankruptcy crimes committed by Zinnel and his attorney, Derian Edison. FBI agents uncovered an elaborate money laundering scheme whereby ZInnel funneled concealed assets back to his name by using his attorney’s trust account after receiving the bankruptcy discharge.

Upon his conviction, The Federal Court imposed a $500,000 fine on Zinnel and sentenced him to almost 18 years in federal prison. He was also ordered to hand over almost $3 Million in corporate assets to the US government.

Sacramento area residents who feel ashamed with the idea of filing for Chapter 7 or Chapter 13 bankruptcy need to understand that there should be no personal guilt or shame associated with this decision. The determination to file bankruptcy is an economic decision, period. There is no moral association attached to the concept of bankruptcy. In fact, bankruptcy principles have been in existence since the middle ages and are even included in the United States Constitution!

Sadly, creditors have worked very hard at shifting an economic question into a moral question in an effort to dissuade people from making this decision. They have attempted to embarrass or make those who find themselves in economic peril to feel guilty for having to file. What people fail to remember, however, is that creditors are voluntarily taking risks by extending credit. Having a debt discharged is part of the risk associated with doing business in the lending arena.

Lenders are sophisticated and completely aware that some of their customers will file for bankruptcy; in fact, it’s a part of their business model. This recognition should enable a person considering bankruptcy to focus on the economics of the decision rather than the morality that has been improperly associated with it.

People residing in the Sacramento metropolitan area must make many decisions when deciding to file Chapter 7 or Chapter 13 bankruptcy. I am often contacted by individuals who have already made his or her filing but now needs an attorney to review the case in order to correct the mistakes that have been made in the case. I will offer some suggestions to take into consideration for those who have considered filing for bankruptcy.

Using a bankruptcy “mill.”

In an effort to increase volume and reduce fees many local bankruptcy firms have established a “mill” approach to serve the demand the market has seen over the last few years. Because bankruptcy law involves significant paperwork firms are able to batch cases together and file them concurrently. While convenient for the attorney, this process does not serve the client well. These firms become overly burdened and often lose sight over the individual needs of their customers. The clients are batched in with other clients who are in a similar financial position and led through the process as if they were cattle. This mass production approach to bankruptcy reduces the potential benefits of the bankruptcy code for the individual client.

As a Sacramento bankruptcy attorney I have previously written about student loans and filing a Chapter 7 or Chapter 13 bankruptcy. The general rule regarding student loans is that they are not dischargeable unless the individual can prove that paying the loans would create “undue hardship.” Undue hardship is a difficult standard to prove as it is indeed a vague concept. I would typically tell my clients that undue hardship exists when a person has zero ability to earn any income. As a result, there is a low chance at discharging student loans for most bankruptcy filers. This situation creates a vicious cycle for many recent graduates who have entered the uncertain job market of the last few years.

A recent case from the United States Ninth Circuit Court of Appeal, Hedlund v. The Educational Resources Institute, reminds us that there are still some situations where a person can get the debts discharged through bankruptcy.

The debtor in this case, Michael Hedlund, obtained student loans on his undergraduate and law school degrees. Mr. Hedlund received a business degree from the University of Oregon and a law degree from Willamette Law School. He failed the bar exam and took a job earning approximately $10.00 an hour. After requesting hardship forbearances and loan consolidations Mr. Hedlund wound up defaulting on the loans. He was not able to implement any successful attempt at a modified repayment plan although he made several payments from various bank accounts when he could. The student loan creditors eventually began to garnish his wages.

As tax day approaches many of my clients often ask if they can discharge tax debt when filing Chapter 7 or Chapter 13 bankruptcy. The short answer to the question is: maybe. It is safe for an individual to presume that his or her tax debts will probably not be dischargeable in bankruptcy as a general rule. However, there are certain situations when the tax debt can be discharged through the bankruptcy process. An individual can eliminate his or her tax debt if and only if that person satisfies all of the following five rules:

(1) The due date for filing the tax specific year must be at least 3 years old.

(2) The return must have been filed at least two years before the filing of the bankruptcy petition.

As tax season approaches, many Sacramento area residents look forward to getting their refund checks over the upcoming weeks. Whether filing for Chapter 7 or Chapter 13, however, local residents must keep in mind that any income received is taken into account when qualifying for bankruptcy.

Few people realize that by receiving a significant tax refund they may no longer qualify for the bankruptcy. In order to qualify for Chapter 7 the individual must pass one of 2 income requirements. The first is the median income test. This means in order to qualify for Chapter 7 a person must earn less than the “average household income” for the same family size in his or her geographic region for the 6 months before the month in which they file the bankruptcy. The tax refund comes into play in this case because the median income test must account for all sources of income in the time period. Thus, if a person receives a significant tax refund they may no longer satisfy the median income test.

The second way to qualify for Chapter 7 bankruptcy is under the means test. The means test is a complex equation and comparison of a person’s debt to income ratio. In this test a person who makes more than the average income for his geographic region may still qualify for the bankruptcy provided their debts and monthly expenses rise to a significant portion of their income. Again, the receipt of a significant tax refund could effect the numbers enough so that the individual does not qualify under the means test either.

Focusing my practice on Chapter 7 and Chapter 13 Bankruptcy in the Sacramento metropolitan area I take notice of headlines that might interest individuals considering filing for bankruptcy in the region.

Most of us are familiar with the controversy surrounding the Maloof’s proposed sale of the Sacramento Kings to a Seattle based investment group.

Well, it seems this melodrama has taken a turn for the more interesting to say the least. According to bankruptcy trustee David Flemmer, bankruptcy law could be what ultimately keeps the Kings in Sacramento. Although the Maloof’s own a controlling stake in the Sacramento Kings, they do not own the entire team. Their relationship with the minority shareholders could wind up killing the entire deal.

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