Spousal Waiver of Exemptions

In California, there are two exemption schemes: CCP 703 and CCP 704.  (In rare circumstances the Federal Bankruptcy Exemptions are available as well – but I’m ignoring that for now) Each allows a person filing for bankruptcy to exclude property from the estate.  This is just another way of saying that it is property that would be kept by the debtor in a bankruptcy.

For individuals filing for bankruptcy and using the 703 exemptions (the more common exemption scheme) after separating from their spouse but before a divorce has been filed or finalized, it is essential that a spousal waiver of exemption be obtained from the spouse.  This waives the other persons right to use the 703 exemptions, as the bankruptcy does not want couples double dipping.

This can be a problem if the person filing can’t find the other spouse or the other spouse is unwilling to sign.  This being the case, the best scenario would be to wait until the divorce is finalized.  However, in some situations, if all assets were exempt or most likely uninteresting (i.e. worthless) to a Trustee, it would be okay to go forward without it.

I learned this the hard way when I didn’t get a Spousal Waiver from one of my clients who hadn’t seen his wife in more than five years, but who had never gotten a divorce.  Luckily, there were no assets that the Trustee wanted so converting the exemptions wasn’t necessary.

Bottom line: if you’re separated from your spouse, but your divorce isn’t final, tell your bankruptcy lawyer.

 

 

New Bankruptcy Forms

Substantial changes were made to the bankruptcy petition on December 1st, 2015, probably the most significant changes since October 2005 when BAPCPA was passed.

The intent of the Judicial Conference was to make the petition easier to understand for regular people.  Whether this is the case remains to be seen.

That being said, there has been a lot of think about for us bankruptcy attorneys.  Being a creature of habit, and having handled my fair share of cases, I am embarrassed to say that I’ve had some awkward signing appointments, as my software still looks relatively the same, but the actual physical petition looks radically different.  This has led to some awkward moments where I have had to anxiously flip through the petition to locate a section at the behest of some question that ordinarily I could have answered half asleep.

That being said, here are some notable changes:

1. Gender neutrality (Debtor 1 and Debtor 2) instead of Huband and Wife.  Thanks Obergefell!
2. Lots of different numbers that I have to memorize.
3. Different forms for individuals and non-individuals whereas before they were consolidated.
4. It is now more difficult (well, theoretically) to use bankruptcy to stop evictions, as there are questions that ask the Debtor on Form 101A and Form 101B whether the debtor is in arrears to his or her landlord, whether he can cure the entire amount, and the debtor will give the bankruptcy court this amount 30 days after the case is filed.  If this isn’t done, then the landlord can proceed with the eviction as the automatic stay would expire with respect to the unlawful detainer.
5. Combination of Schedule A and B, so that real estate and personal property is on the same page.
6. Boxes which ask for specific information regarding vehicles which normally would have just been filled in the employ “description box.”  This has led me to file some petitions  which repeats the mileage, model, and make of my client’s car twice.  Whoops.
7. Instructions not to itemize property worth less than $500 or less.  Experienced bankruptcy lawyers already know this, but this will make it much less anxiety provoking and labor intensive for Debtors without representation.  “I have to list EVERYTHING?  Okay.  Let’s specifically list describe each card in my 2,500+ Pokemon collection.”
8. Incorporation of Schwab v. Reilly, 560 U.S. 770 (2010) via language that explicitly communicates that the Trustee doesn’t have to object to exemptions in order to claim a right in unexempt property.
9. Stricter language in the Declaration Concerning Debtor’s Schedules.  Basically the “I promise this is all true” part.  Prior to December 1, 2015, it had to be true to the best of the Debtor’s knowledge.  Now, it simply says “true and correct.”

These are just a few of the changes – nothing too exciting if you’re not already intimately familiar with the forms already, but again, the interest lies in the case law that follows and the manner of enforcement by the courts.  (the proof in the pudding, a cliche I never understood and was always too lazy too google)

 

 

 

Bankruptcy Primer

The Basics of Insolvency

Bankruptcy can be a scary experience.  That being said, most of the people who come to me usually have a pretty bad credit score already.  The most common reasons why you want a good credit score (besides status) is the low interest rate you can get on your car or house.  These are oftentimes the most expensive items that a person will purchase in his life, and a quarter (.25) of a percent can make a huge difference on a thirty year mortgage.

That being said, bankruptcy isn’t really that bad – especially Chapter 7.  It only takes about three months, and two months of that is waiting.  It usually requires one court hearing which lasts roughly five minutes.  The worst part really is the decision to do it, and the document gathering for your attorney.

All your debts are generally discharged – common exceptions include child support and governmental fines.  Income Taxes are even dischargeable under certain conditions.  (the first being that they have to be more than three years old)

Most people can take years to pay off their debts whereas bankruptcy can give you a fresh start in about 90 days.  After the filing your credit score will drop to about 590 or so, the average score of the person that I meet BEFORE they file.

Now, if you’re current on all your payments and haven’t missed any payments in a few years, debt negotiation may be a better option for your, especially if you are only struggling with one primary debt.  In these situations, the threat of bankruptcy and negotiations with a bankruptcy attorney can often get the creditor to soften their demands.

All in all, bankruptcy isn’t so bad, but obviously each person is different and it will eventually depend on your situation.

Present Future Value

 

Present Future Value

One way that we can think of money is not just how much it can purchase today, but also what it is capable of buying tomorrow.  This is a basic principle of economics and is sometimes known as the Time Value of Money.  For instance, if I purchase a car for $20,000 cash, that is $20,000 that I am not investing somewhere else.  This could be the loss of something else I could be buying, or it can be the loss of value in investment.  If I had put that in a savings account with a 1% annual rate of return, I would be losing $200 that year if I had merely let that money sit in a savings account.  Now, that may not seem very much, but lets look at the other side of the coin.

Let’s say I spend $20,000 on a car, and make a minimum payment of $300 per month and the annual percentage rate is 5%.   That’s about $1,000 that I’m spending on interest.  Of course most people can’t afford to buy a car outright, and $1,000 a year breaks down to only $2.74 a day which isn’t too bad.

Thing’s get interesting when one is a consumer as opposed to a regular guy with money in a savings account.  Let’s say I’ve spent $20,000 gradually over time, and that is the outstanding balance on a credit card.  The annual percentage rate is likely to be much higher in this situation, let’s assume 13% because I think that’s the prime rate.  If the minimum payment is $300 this would result in $2,600 a month in interest. If we divide by the monthly payment, roughly only 3 months of those annual payments are going towards principal – the rest is profit for the credit card company, and the principal is not being reduced.

This is the seductive attraction of credit cards – you are sacrificing tomorrows money for some extra enjoyment today.  Obviously there isn’t anything wrong with credit cards per se – however the potential to get caught in an endless death spiral of paying increased interest and increased spending is a terrible dilemma that faces many Americans.  The (now defunct) Dodd-Frank Act had made this painfully obvious, as credit cards were  required to show how long it will take to pay off a card if only the minimum payment is made.