The most powerful feature of a bankruptcy is the automatic stay. It functions as a restraining order against almost everyone and all legal proceedings. There are a few exceptions (certain divorce and criminal matters) and allows you breathing space to sort out your finances.
Many people file in order to stop foreclosures and to keep their homes, or to stop garnishments on their wages, and even to get property (like cars) that were repossessed.
The last year has seen some changes to the automatic stay however – the changes to the Petition Form on December 1, 2015 now reduces the cost of a landlord trying to evict a client. A tenant filing a bankruptcy who is late on his rent now has thirty (30) days to deposit the rent arrearage with the court. In the past, the landlord would have had to file a motion for relief from the automatic stay, which would have required some legal knowledge and possibly a lawyer. The burden essentially has been shifted to the tenant to show that he is capable of affording the unit.
Another important change is the overruling by the Ninth Circuit Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010), which held that a Debtor could only recover fees associated with stopping stay violations, but not the costs associated with the lawsuit for damages. In America’s Servicing Co. v. Schwartz-Tallard, the Judge’s ruled that the plain language of 362(k) allowed Debtors to recover for both the costs of stay violation and the resulting damages.
The practical consequences are huge, as stay violations were not being litigated since client’s often couldn’t afford the litigation involved (they were filing bankruptcy after all) and the Creditor’s often prolonged litigation knowing full well that the Debtor’s attorney wouldn’t get paid for it at the end of the day.
Well, this gives some hope for us all. A student loan was discharged for a 56 year old securities lawyer here in the good old Northern District of California. (In re Barrett, Case No 14-43516)
The Department of Education Lawyers argued that his failure to apply for Income Based Repayment precluded qualification from the Brunner test but the Honorable Judge Charles Novack in Oakland, California rejected that argument.
More than $250,000 was discharged so I have a feeling that this is still only the beginning. The Department of Education’s next move will be to appeal the case to the District Court. Why? Because they appeal everything.
As I said in my previous post, the Brunner test is a pain in the butt. However, people do manage to get rid of their debts. However, it’s usually not on the first try, it’s not the full amount, and the attorneys for the creditors settle the cases outside of court because they don’t want to have a Judge make an unfavorable decision that sets a precedent, hence weakening the Brunner test.
(I also have a theory that it has something to do with China and the government being able to paint a better financial picture of itself via accounts receivable so it gets more favorable interest rates, but I have absolutely no data to back that up.)
In California, the Brunner Test is the standard for discharging student loans. There are three prongs
- You cannot maintain a minimal standard of living for yourself and your dependents if you repay your loan based on your present income.
- Your current financial situation will most likely continue for the length of the payment of the student loan.
- You did your best (good faith) to pay your student loans.
Doesn’t sound that difficult. Unfortunately, the devil is in the details and the way it is applied makes it well nigh impossible for many students to qualify. The Brunner standard is notoriously difficult to meet and most people fail. I had a 65 year old cancer patient who lost her job, was undergoing chemotherapy, and still was unable to get a Brunner discharge. (maybe the chemo will work, the cancer will go into remission, and she will be back to work in no time!)
That being said, a new provision is being explored right now to give relief to students who were given student loans based on false employment numbers. The litigation is currently going on, and may finally create a exception to the stringent requirements of Brunner. The Defendant being targeted is Corinthian Colleges, (e.g. Everest, Heald and Bryman). On a sidenote, Corinthian College declared Bankruptcy on May 4th, 2015. Irony.
When a Chapter 7 BK is filed, an estate is created. This estate is managed by a Trustee who is legally the owner of all your property. This is a legal fiction in most no asset cases because you carry on with your life as before – however, if you are operating a business, the Trustee may be concerned about liability.
For you Uber driver’s out there, you may be ordered by the Trustee to stop operating your business (yes 1099 independent contractors are businesses according to the IRS) unless a motion for abandonment is filed by your attorney. This is because even though the Trustee has the perks of standing in your shoes (allowing him or her to snoop through your bank statements, settle your lawsuits, sell your assets if there is non-exempt property) it also exposes the Trustee to liability if you are in an accident. Accidents being more likely when you are a driver for hire, they tend to get a little worried when they see you putting heavy mileage on your car. The abandonment motion essentially absolves the estate of all liability arising from your driving, or whatever risks your business entails.
That being said, in the Northern District of California, rarely is it a huge issue, unless you are operating heavy machinery or there is something terribly dangerous about your job. That being said, you may want to bring up with your lawyer the possibility that you may have to stop running your business for a couple of months while the bankruptcy is pending.
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