Monthly Archives: July 2014

Is there any way to get the cross-collaterized credit card loan off of my truck loan with my credit union?

Yes.  The fourth option below (chapter 13) is probably the best bet.

First:     You can pay if off (I know, this isn’t the one you were looking for).

Second:  You can refinance the truck through another lender.  Just remember that if you are behind on payments for that credit card, your current credit union may refuse to release the title unless the loan balance the the truck and the credit card are rolled into the new loan.

Third:  You can file a chapter 7 bankruptcy and surrender both the truck and the credit card.   Just remember that if you try to re-affirm the truck loan with your credit union, they will attach that credit card balance to the loan as well.

Fourth:  You can file a chapter 13 bankruptcy.  In the chapter 13 bankruptcy, you can strip off that cross-collateralized credit card loan from the truck, you can change the interest rate on the truck loan to about 5%, and you can stretch out those car payments over the next 3 – 5 years, even missing the next payment due while we get the case ready to be filed.

Can I strip a mechanic’s lien from my property when I file bankruptcy?

Maybe.

In a chapter 7, definitely not.  In a Chapter 13, maybe.

Chapter 7 only allows you to strip judicial liens.  Under 11 U.S. Code § 522 – Exemptions, you can strip judicial liens in chapter 7 bankruptcy case only where

(f)
(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523 (a)(5); or

(2)
(A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;
exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
(B) In the case of a property subject to more than 1 lien, a lien that has been avoided shall not be considered in making the calculation under subparagraph (A) with respect to other liens.
(C) This paragraph shall not apply with respect to a judgment arising out of a mortgage foreclosure.

In other words, you can strip a judicial lien is there is no equity in your home to secure that lien after your homestead exemption is considered.  So, if you house is worth $100,000, and your mortgage is only $70,000, then you have $30,000 of equity.  However, your homestead protects that $30,000.  So unless a creditor can prove that the house is worth more than 100k (70k +30k), his judicial lien can be stripped, because there is no equity to secure it.

Not, however, that this only says “judicial lien.”  A mechanic’s lien is a lien arising out of statute, and a chapter 7 won’t let you strip that.

If you want to strip a mechanic’s lien, then you’ll need to file a chapter 13.  In a chapter 13, you can avoid liens, like a mechanic’s lien, if there is no equity in the property that secures that lien.  The calculation above is the same.  The only difference is that you have to file a Chapter 13 to get rid of it.

Is it hard to finance a new car after I file bankruptcy?

Yes and no.

Just don’t make the mistake of rolling the negative equity of your current financed car into a new loan.  Then you’re simply adding bad, dischargeable debt onto your new loan.

If you filed a chapter 7 today, you would start getting 2-3 car loan applications and credit card applications in the mail by the end of the week.  Now you’re a safe bet, because if you get a discharge in this case, you won’t be able to get a discharge in another chapter 7 for 8 more years.

So right after filing a chapter 7 bankruptcy, you’ll get lots of car loan applications saying that you’ve been approved.  However, you’ll generally have to buy a newer car with low miles, and the interest rate will be somewhere in the +25% interest range.  If you can just hold out with your current car until you receive your discharge (about 3 months after we file), then the interest rates will drop to +15%, which is bad but not nearly as bad.  Even better, if you have parents or even grandparents who can finance the car solely in their names, then the interest rate will be wonderfully low.  (However, if Mom and Dad or Grandma and Grandpa asked me if it was a good idea to finance a car for someone else, I would tell them, “NOOOOOOO!”).

So in a chapter 7, someone will finance you, somewhere, virtually right away.  That being said, I’d advise driving a non-financed beater for as long as you can.  Insurance is cheaper and you don’t have ongoing car payments on a car that will eventually get older.  finance a car

In a chapter 13, it is hard to finance a car.  I have covered this elsewhere in the blog, but basically, you need to get court approval for your car purchase.  This means that you need to find a car, sign the loan paperwork, and then your attorney files it with the court and you wait 30 days for approval by the court.  After jumping through these hoops, your attorney can file an application with the court for more fees from your chapter 13 plan, and the dealer may not be willing to wait for you to get court approval.

Can I face criminal charges if I don’t turn over a vehicle that a creditor wants to repossess?

I had a client who was planning on surrendering his car in bankruptcy.  We listed the car and the secured loan in the bankruptcy and then listed on our Form 8:  Chapter 7 Debtor’s Statement of Intention that he intended to surrender the vehicle (give it back to the creditor).  About 4 months after we filed the case, the creditor called me and said that he hadn’t made the vehicle available for pick-up.

I called my client, and he told me that he had moved out of state and was still driving the car.  He would turn it over eventually, but in the mean time, it was cheap transportation.  He wasn’t making the car payments, but he knew that they wouldn’t be able to track him down in another state.  I told him that this was a bad idea, and he needed to turn it over immediately.

When we file bankruptcy, we list your intention for financed cars/trucks/boats/atvs under a section called “Statement of Intention.”  When we meet with the bankruptcy trustee about a month after we file the case, he orders you to follow-through with your intentions in the next week.  If you fail to turn over property within a reasonable time, the creditor has every right to turn you in to the police for criminal prosecution for theft.  repossession becomes theft

Some states have laws which prevent you from hindering a secured creditor, but Utah is not one of them.  Here, the creditor must rely on the state theft statute.  Utah Code 76-6-404 defines theft as “A person commits theft if he obtains or exercises unauthorized control over the property of another with a purpose to deprive him thereof.” In other words, you have surrendered the car in your bankruptcy.  If you refuse to turn it over, you are exercising “unauthorized control,” and you could be subject to criminal actions.

In short, turn over the vehicle when the trustee tells you to.

I have to go to a 2004 exam in my bankruptcy case. What is it?

It’s a deposition.  This is kind of like what you see on tv.  You will sit at a table with your attorney, and another attorney will ask you questions under oath.  Your attorney may even object to the format of some of the questions.  The main difference is that nowadays we use tape recorders instead of court transcriptionists, so there won’t be a stern looking lady in the corner watching you and typing out your every word.

At the 341 Meeting of Creditors, the bankruptcy trustee usually takes less than 10 minutes asking you questions on your case.  He then gives creditors an opportunity to ask you questions, but only for a few minutes.  If the trustee or one of your creditors wants to ask more in-depth questions, they will schedule a 2004 exam.  I have quoted the 2004 rule below, but it is basically a bankruptcy court deposition.

If the trustee wants clarification on a more complicated issue in your case, he’ll schedule a 2004.  If he thinks you may be committing fraud, he’ll also schedule a 2004.  Creditors usually schedule 2004 exams because they are litigation attorneys fishing for answers from you that may allow them to file non-dischargeability adversary proceedings (bankruptcy court lawsuits).  If they can get statements from you that you were attempting to commit fraud when you took out loans from their clients, they’ll sue.  However, this is very hard to prove.

You will definitely want an attorney with you for the 2004 exam.  If you filed your bankruptcy case on your own, please hire an attorney for this portion.  It is normally boring and non-productive, but you’d hate to mess up here.

Rule 2004 of the Federal Rules of Bankruptcy Procedure states:

RULE 2004. EXAMINATION

(a) Examination on Motion. On motion of any party in interest, the court may order the examination of any entity.

(b) Scope of Examination. The examination of an entity under this rule or of the debtor under §343 of the Code may relate only to the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or to the debtor’s right to a discharge. In a family farmer’s debt adjustment case under chapter 12, an individual’s debt adjustment case under chapter 13, or a reorganization case under chapter 11 of the Code, other than for the reorganization of a railroad, the examination may also relate to the operation of any business and the desirability of its continuance, the source of any money or property acquired or to be acquired by the debtor for purposes of consummating a plan and the consideration given or offered therefor, and any other matter relevant to the case or to the formulation of a plan.

(c) Compelling Attendance and Production of Documents. The attendance of an entity for examination and for the production of documents, whether the examination is to be conducted within or without the district in which the case is pending, may be compelled as provided in Rule 9016 for the attendance of a witness at a hearing or trial. As an officer of the court, an attorney may issue and sign a subpoena on behalf of the court for the district in which the examination is to be held if the attorney is admitted to practice in that court or in the court in which the case is pending.

(d) Time and Place of Examination of Debtor. The court may for cause shown and on terms as it may impose order the debtor to be examined under this rule at any time or place it designates, whether within or without the district wherein the case is pending.

(e) Mileage. An entity other than a debtor shall not be required to attend as a witness unless lawful mileage and witness fee for one day’s attendance shall be first tendered. If the debtor resides more than 100 miles from the place of examination when required to appear for an examination under this rule, the mileage allowed by law to a witness shall be tendered for any distance more than 100 miles from the debtor’s residence at the date of the filing of the first petition commencing a case under the Code or the residence at the time the debtor is required to appear for the examination, whichever is the lesser.

 

 

Can I get sued for fraud in my bankruptcy case because of incorrect numbers on my “stated-income loan?”

Yes, but unless you were really trying to commit fraud back when you applied for the loan, you’ll probably be okay.

Back in the heyday of market speculation, stated income loans (or “Liar’s Loans”) were very common.  I remember in 2007 I had taken a part-time job with a law firm for $3,600 a month, and when I went in for a mortgage loan, the loan officer advised me to do a stated income loan.  The reason:  as an attorney with my experience, they could impute income of about $90,000 a year to me without documentation.  This is why the banks termed the phrase “liar’s loans.”

In 2011, Judge Mosier ruled on an adversary proceeding against someone based on an allegedly fraudulent stated income loan in Cyprus Credit Union v. Dehlin, 09-2176 (March 31, 2011).  The court website quickly summarized its opinion as:

In deciding the dischargeability of a debt arising from a “stated income loan” under 11 U.S.C. § 523(a)(2)(B), the Court found that the evidence presented confirmed the Debtors’ statements that their income listed on the loan application was correct and the creditor failed to carry its burden of proof. Further, an inadvertent mistake on a confusing form was not sufficient to prove the Debtors had an intent to deceive the creditor. Finally, a debtor’s representation cannot be the sole basis upon which a creditor can reasonably rely because a creditor has a duty to ensure some basis exists for relying upon the debtor’s representations. Self-developed procedures that excuse reasonable reliance cannot insulate a creditor’s claim from discharge.

In other words, the bank couldn’t justify its reliance on a stated income loan without having reasonable measures in place to verify income or statements on the loan application.

The court’s opinion goes on to chastise/mock the bank in my favorite footnote of the case, “Apparently, the Committee did not view either the stated income of $9,800/month
for a dental hygienist or $8,600/month for golf pro employed by Salt Lake County as red flags.”

What this means for you is that if you had a stated income loan back in the day, the odds are pretty good that you won’t be sued on this loan application, unless you really did commit fraud with false documents or some other kind of false statement (that the bank can prove).

Will my payday loans keep deducting auto-pays from my bank account after I file?

Probably yes.  They are not supposed to do that, but they probably will unless you take affirmative steps to stop them.

The moment we file bankruptcy, the court assigns you a case number, and everything stops.  The court issues an Automatic Stay that stops any creditors from collecting on you.  It stops garnishment, foreclosure, repossession, etc.  This should stop your payday lenders from cashing those post-dated checks or from taking automatic withdrawals from your checking account.  Unfortunately, the payday lenders are smart enough to drag their feet on cancelling those auto-withdrawals.

I can send a demand letter to get the post-petition monies returned to you, but it takes time.  And although the automatic stay stops collections efforts, I have a hard time stopping you from voluntarily paying back those creditors through autowithdrawals that you have authorized.

So what do you do:  contact your bank and cancel those previously approved autopays or autowithdrawals coming out.  It would be nice if the bankruptcy could automatically notify the court and stop all electronic transactions, but it doesn’t.  You need to take some stops to stop those payments as well.

Can a creditor enforce a civil arrest warrant or bench warrant against me after I file bankruptcy?

No.

That being said, bankruptcy may wipe out (discharge) the underlying debt (the judgment), but you will most likely have to pay the fine associated with the bench warrant.

There is a wonderful case from 2001 called  In Re Goodman, 277 B.R. 839 (Bankr. M.D. Ga. 2001), which discusses in detail whether or not a creditor can use a civil arrest warrant against a debtor after the debtor has filed bankruptcy.

Short answer:  the automatic stay stops ANY collection efforts, including the bench warrant.

In the Goodman opinion, the court’s Conclusions of Law clearly lay out why the warrant cannot be used:

The automatic stay, which goes into effect upon the filing of a bankruptcy petition, serves as broad protection against interference with the bankruptcy estate. Among its effects is to bar “the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy] case.” 11 U.S.C. § 362(a)(2). However, it does not apply to “the commencement or continuation of a criminal action or proceeding against the debtor.” Id. § 362(b)(1). Therefore, the first step in this analysis is to determine whether the arrest warrant in this case was criminal or civil in nature.

The warrant in this case is in the nature of civil contempt. A contempt order that allows the debtor to purge himself of contempt, as the warrant here does, is civil in nature. In re Maloney, 204 B.R. 671, 674 (Bankr.E.D.N.Y.1996). Also supporting a conclusion that the warrant is a *842 civil contempt remedy are the facts that “it was initiated by a private party, to coerce the Debtor’s compliance with his duty to provide discovery responses.” Atkins v. Martinez (In re Atkins), 176 B.R. 998, 1007 (Bankr.D.Minn.1994).

As a civil contempt remedy, the arrest warrant would appear to fall within the scope of Section 362(a)(2). However, some courts have held that the civil contempt penalty in question was issued to uphold the dignity of the court and therefore was not stayed in bankruptcy. Stovall v. Stovall, 126 B.R. 814, 816 (N.D.Ga.1990); Rogers v. Overstreet (In re Rogers), 164 B.R. 382, 391-92 (Bankr.N.D.Ga.1994). The warrant in this case specifically states that it is issued for that purpose. But it is also being used as a coercive tool to enforce a judgment, as evidenced by the fact that Debtor could purge himself of the contempt by complying with the March 27 order. See Siskin v. Complete Aircraft Servs., Inc. (In re Siskin), 231 B.R. 514, 519 (Bankr.E.D.N.Y.1999). The very fact that it was issued at Albany’s request also suggests that its purpose is to enforce a judgment. Mitchell Constr. Co. v. Smith (In re Smith), 180 B.R. 311, 319 (Bankr.N.D.Ga.1995); Atkins, 176 B.R. at 1006.

Albany would have this Court dissect the purposes behind the warrant and hold that to the extent it is used to force Debtor to comply with their efforts to enforce a judgment, it is controlled by the automatic stay, but to the extent it issued due to Debtor’s disregard for the authority of the superior court, the automatic stay does not apply. However, these purposes are inextricably intertwined and cannot be severed. Debtor may purge his contempt and avoid incarceration by answering interrogatories and paying the attorney fees. Albany’s position would require Debtor either to forego the option of purging contempt or to forego the protection of the automatic stay. Therefore, even if the warrant were based on Debtor’s disrespect for the superior court, it is still being used as a collection device. As a result, the Court concludes that the arrest warrant is covered by the automatic stay.[1]

The automatic stay goes into effect by operation of law,[2] so it is not the Court’s responsibility to issue a duplicate injunction to prevent execution of the warrant. The burden is on the creditor to ensure that it does not violate the automatic stay. Smith, 180 B.R. at 319. The Bankruptcy Code provides a remedy to Debtor if Albany fails to meet its burden. 11 U.S.C. § 362(h).[3] Therefore, Albany must take steps to ensure the warrant is not executed. Siskin, 231 B.R. at 519 (finding that the creditors “had an affirmative obligation to ensure that the outstanding Warrant of Arrest was not enforced”); Smith, 180 B.R. at 319 (finding the creditor in violation of the automatic stay due to *843 its failure to act to nullify a contempt order).

In conclusion, the Court holds that the automatic stay prevents execution of the arrest warrant issued by the superior court for Debtor’s civil contempt because it was issued to aid in the collection of a judgment. Therefore, a permanent injunction is unnecessary. Furthermore, as the creditor seeking to collect that judgment, Albany has a duty to take affirmative steps to ensure that, so long as the automatic stay is in effect, Debtor is not arrested under that warrant.