Bankruptcy Basics Slideshow


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Bankruptcy Basics Slideshow

  1. 1. Disclaimer <ul><li>This slideshow was presented at the National Conference of Vietnamese American Attorneys intended for an audience of attorneys </li></ul><ul><li>It is not intended as legal advice in any shape or form </li></ul><ul><li>Please contact a duly licensed attorney regarding the specifics of your case. </li></ul>
  4. 4. PRE-FORECLOSURE TIMELINE <ul><li>LOAN SERVICER ACTION </li></ul><ul><li>Borrower default </li></ul><ul><li>Mail breach letter </li></ul><ul><li>Breach expires (referral to foreclosure) </li></ul><ul><li>Attempt to contact borrower to discuss financial situation and options to avoid foreclosure </li></ul><ul><li>- Only applies to loans made 1/1/03 – 12/31/07 and only for owner-occupied residences </li></ul><ul><li>DAYS </li></ul><ul><li>0 </li></ul><ul><li>30 </li></ul><ul><li>90 </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(i) </li></ul>
  5. 5. PRE-FORECLOSURE TIMELINE ( CONTINUED… ) <ul><li>LOAN SERVICER ACTION </li></ul><ul><li>Contact made: </li></ul><ul><li>- Advise borrower of right to request a subsequent meeting, which must be scheduled within 14 days if requested </li></ul><ul><li>- Provide borrower with HUD toll-free phone number to find a HUD-certified housing counseling agency </li></ul><ul><li>Or unable to contact  due diligence: </li></ul><ul><li>- Mail borrower HUD toll-free phone number to find a HUD-certified housing counseling agency </li></ul><ul><li>- Attempt to contact 3 times at different hours on different days, unless all numbers on file are disconnected </li></ul><ul><li>Trustee records Notice of Default </li></ul><ul><li>DAYS </li></ul><ul><li>-30 (90) </li></ul><ul><li>-0 (120) </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(a)(2) </li></ul><ul><li>Civ. Code § 2923.5(g)(1) </li></ul><ul><li>Civ. Code § 2923.5(g)(2)(A) </li></ul><ul><li>Civ. Code § 2923.5(g)(2)(C) </li></ul><ul><li>Civ. Code § 2923.5(a)(1) </li></ul>
  6. 6. FORECLOSURE TIMELINE <ul><li>TRUSTEE ACTION </li></ul><ul><li>Record Notice of Default </li></ul><ul><li>(include Declaration that contact was made with borrower to discuss options, or due diligence attempts, or borrower has surrendered property) </li></ul><ul><li>Mail Notice of Default to borrower </li></ul><ul><li>Mail Notice of Default to borrower’s successors in interest , and junior recorded interests </li></ul><ul><li>Servicer to attempt loan modification if: </li></ul><ul><li>(1) Loan recorded 1/1/03 – 1/1/08 </li></ul><ul><li>(2) First mortgage </li></ul><ul><li>(3) Borrower occupied property as principal residence at time of delinquency </li></ul><ul><li>(4) Notice of Default recorded </li></ul><ul><li>Unless Servicer obtains exemption </li></ul><ul><li>( </li></ul><ul><li>DAYS </li></ul><ul><li>0 </li></ul><ul><li>10 </li></ul><ul><li>30 </li></ul><ul><li>90 </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2924(a)(1) </li></ul><ul><li>Civ. Code § 2923.5(b) </li></ul><ul><li>Civ. Code § 2924b(b)(1) </li></ul><ul><li>Civ. Code § 2924b(c)(1) </li></ul><ul><li>Civ. Code § 2923.52(a) </li></ul><ul><li>Civ. Code § 2923.52(b) </li></ul><ul><li>Civ. Code § 2923.53 </li></ul>
  7. 7. FORECLOSURE TIMELINE ( CONTINUED … ) <ul><li>TRUSTEE ACTION </li></ul><ul><li>Record Notice of Trustee’s Sale </li></ul><ul><li>(if NOD recorded before statute enacted, incl. Declaration contact was made with borrower, or list efforts made to contact borrower) </li></ul><ul><li>Mail Notice of Trustee’s Sale to borrower </li></ul><ul><li>Mail Notice of Trustee’s Sale to borrower’s successors in interest and junior recorded interests </li></ul><ul><li>Post and publish Notice of Trustee’s Sale </li></ul><ul><li>Last day to reinstate loan </li></ul><ul><li>Trustee’s sale </li></ul><ul><li>DAYS </li></ul><ul><li>180 </li></ul><ul><li>-20 (180) </li></ul><ul><li>-5 (195) </li></ul><ul><li>-0 (200) </li></ul><ul><li>STATUTE </li></ul><ul><li>Civ. Code § 2924(a)(3) </li></ul><ul><li>Civ. Code § 2923.5(c) </li></ul><ul><li>Civ. Code § 2924b(b)(2) </li></ul><ul><li>Civ. Code § 2924b(c)(3) </li></ul><ul><li>Civ. Code § 2924f(b)(1) </li></ul><ul><li>Civ. Code § 2924c(e) </li></ul>
  8. 8. FORECLOSURE LEGISLATION PROPOSAL AB 1588: MONITORED MORTGAGE WORKOUT PROGRAM <ul><li>INTRODUCED 9/9/09 </li></ul><ul><li>NOD must contain notice of borrower’s right to elect to participate in MMW Program </li></ul><ul><li>Program to be administered by the Cal. Housing Finance Authority (CHFA) </li></ul><ul><li>Borrower must communicate to CHFA and Trustee his election to participate in MMW within 30 days of receiving NOD </li></ul><ul><li>If borrower elects to participate, a “Monitor” is appointed to oversee the loan modification process </li></ul><ul><li>Once MMW is elected, foreclosure must be stayed until MMW is completed </li></ul><ul><li>The Monitor shall assist the parties in assessing affordability of any loan modification and its NPV versus foreclosure </li></ul><ul><li>If the parties cannot agree, the Monitor shall prepare a reasonable loan modification proposal that satisfies HAMP guidelines, if feasible </li></ul><ul><li>If the Trustee rejects the proposal or acts in bad faith as determined by the Monitor, the borrower can enforce the Monitor’s proposed loan modification in expedited court action </li></ul><ul><li>If the borrower rejects the proposal or acts in bad faith as determined by the Monitor, foreclosure may resume </li></ul><ul><li>The Monitor is paid up to $750 by the Trustee; if loan is modified, the borrower reimburses ½ </li></ul><ul><li>Borrower must establish a trust account and deposit 60% of monthly mortgage payments </li></ul><ul><li>“ Trustee” means lender, mortgagee, trustee, beneficiary, or authorized agent that recorded NOD </li></ul><ul><li>Cf. Nevada Foreclosure Mediation Program </li></ul>
  9. 9. FORECLOSURE STATISTICS ( REALTYTRAC ) CALIFORNIA RATE MAP FORECLOSURE ACTIVITY BY MONTH FORECLOSURE ACTIVITY BY COUNTY FORECLOSURE ACTIVITY & HOME PRICE INDEX <ul><li>459,698 FORECLOSED HOMES </li></ul><ul><li>92,326 IN AUGUST 2009 </li></ul><ul><li>1 IN 27,844 HOMES </li></ul><ul><li>6-MONTH TREND: DECLINE </li></ul><ul><li>STATE FORECLOSURE </li></ul><ul><li>RATE RANKING </li></ul><ul><li>NEVADA </li></ul><ul><li>FLORIDA </li></ul><ul><li>CALIFORNIA </li></ul><ul><li>ARIZONA </li></ul><ul><li>MICHIGAN </li></ul>
  10. 10. BANKRUPTCY BASICS <ul><li>LYNDA T. BUI </li></ul><ul><li>Bankruptcy and Commercial Litigation </li></ul><ul><li>Shulman Hodges & </li></ul><ul><li>Bastian LLP </li></ul><ul><li>Foothill Ranch, CA </li></ul><ul><li> </li></ul><ul><li>ANN N. NGUYEN </li></ul><ul><li>Debtor and Creditor Bankruptcy Attorney </li></ul><ul><li>Law Office of Ann N. Nguyen </li></ul><ul><li>San Francisco/Oakland/ </li></ul><ul><li>San Jose Bay Area </li></ul><ul><li>http:// </li></ul><ul><li> </li></ul>
  11. 11. GOAL OF BANKRUPTCY <ul><li>A fresh start! </li></ul>
  12. 12. UNITED STATES BANKRUPTCY COURT <ul><li>Bankruptcy is filed in federal court, not state court </li></ul>
  13. 13. PROS AND CONS OF BANKRUPTCY <ul><li>PROS: </li></ul><ul><li>Could wipe out debt </li></ul><ul><li>Catch up with behind payments </li></ul><ul><li>Could keep all/most of property </li></ul><ul><li>Could strip amount owed down to current value (redeem car/ avoid 2 nd lien on house) </li></ul><ul><li>Stop creditors from debt collection (foreclosure/communication/ </li></ul><ul><li>lawsuit) </li></ul><ul><li>CONS: </li></ul><ul><li>Stays on credit report for up to 10 years </li></ul><ul><li>Bad credit </li></ul><ul><li>Non-discharge </li></ul><ul><li>Assets could be taken </li></ul>
  14. 14. BANRUPTCY CHAPTERS <ul><li>Helping your clients select the right chapter is your ethical obligation </li></ul><ul><li>Chapter 7 </li></ul><ul><li>Chapter 11 </li></ul><ul><li>Chapter 13 </li></ul>
  15. 15. ETHICAL OBLIGATIONS: WHAT CLIENTS MUST KNOW <ul><li>BK is a serious event </li></ul><ul><li>Petition and schedules are signed under oath and penalty of perjury (should not be taken lightly) </li></ul><ul><li>Do not transfer property > non disclosure of assets> Bankruptcy fraud </li></ul><ul><li>Sloppiness, inconsideration </li></ul><ul><li>Severe Consequences: </li></ul><ul><ul><li>Criminal prosecution (fines and/or imprisonment for up to 5 years) </li></ul></ul><ul><ul><li>discharge </li></ul></ul>
  16. 16. ETHICAL DUTY to properly advise clients: <ul><li>Whether to file </li></ul><ul><li>What Chapter to file </li></ul><ul><li>What exemptions to claim </li></ul><ul><li>Depends on: </li></ul><ul><ul><li>situation </li></ul></ul><ul><ul><li>assets/obligation </li></ul></ul><ul><li>MEET YOUR CLIENT (preferably in person), CONSULT THEM! </li></ul>
  17. 17. BANKRUPTCY: AUTOMATIC STAY <ul><li>When you file bankruptcy, the court automatically (you do not have to ask for it) issues an order that prevents most creditors from collecting debt against you or your property (with some exceptions to this). </li></ul><ul><li>If your home is being foreclosed and the sale has not taken place, bankruptcy may stop this. </li></ul><ul><li>If your car is about to become repossessed , this automatic stay may stop them from taking your car </li></ul><ul><li>The automatic stay does not apply filed for bankruptcy and your case was dismissed in the past year (however, your attorney may be able to help with this) </li></ul><ul><li>The automatic stay lasts until: the court confirms your chapter 13 plan (if you filed Chapter 13), your case is discharged (in a chapter 7), your case is dismissed, a creditor is granted a motion for relief from the automatic stay. </li></ul>
  18. 18. DEBTS IN BANKRUPTCY <ul><li>Bankruptcy Debts That May Be Discharged: </li></ul><ul><ul><li>most credit card debts </li></ul></ul><ul><ul><li>most medical bills </li></ul></ul><ul><ul><li>most court judgments </li></ul></ul><ul><ul><li>most loans </li></ul></ul><ul><li>Bankruptcy Debts That Are Not Discharged: </li></ul><ul><li>Debts you don't list in your bankruptcy forms (subject to some exceptions in a Chapter 7 case) (11 USC 523, 727) </li></ul><ul><li>Back child support and alimony </li></ul><ul><li>Court imposed fines and restitution </li></ul><ul><li>Student loans (with a exception which is extremely difficult to get in most cases) </li></ul><ul><li>Recent back taxes (taxes for years you did not file a return) </li></ul><ul><li>Judgments arising out of willful or malicious conduct (personal injury or drunk driving) </li></ul><ul><li>Debts where a creditor files a motion in court to prove that the certain debt should not be discharged (fraudulent actions or recent credit card charges for luxuries (which are presumably fraudulent if incurred within the last 90 days)) </li></ul>
  19. 19. CHAPTER 7 VS. CHAPTER 13 <ul><li>CHAPTER 7: LIQUIDATION </li></ul><ul><li>Allows you to wipe out many debts </li></ul><ul><li>You must give up any property you own that is not protected by exemption laws (the law allows you to keep certain property up to a certain amount) </li></ul><ul><ul><li>Governed by state law </li></ul></ul><ul><li>CHAPTER 13: REPAYMENT PLAN </li></ul><ul><li>You agree to repay all or a portion of your debts over time under the supervision of the bankruptcy court (3 or 5 year payment plan) </li></ul><ul><li>Allows you to keep your property while using your income to repay some or all of your debts </li></ul><ul><li>You can keep control your property regardless of value </li></ul><ul><li>BUT you will have to repay unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy </li></ul><ul><li>After you complete your payment plan, your remaining debt (subject to some exceptions) are discharged </li></ul><ul><ul><li>For example: You owe $250,000 in credit card debt, during the plan you paid back $50,000 of the credit card debt, once you complete your plan, the remaining $200,000 credit card debt is wiped out (aka discharged) </li></ul></ul>
  20. 20. CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… ) <ul><li>CHAPTER 7: LIQUIDATION </li></ul><ul><li>Emerge from bankruptcy without having to pay any of the discharged debt </li></ul><ul><li>CHAPTER 13: REPAYMENT PLAN </li></ul><ul><li>Allows debtor to catch up with past due payments (home mortgage, car) </li></ul><ul><li>Pay taxes without interest over a period of time (non dischargeable in a Chapter 7) </li></ul>
  21. 21. CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… ) <ul><li>CHAPTER 7 ISSUES </li></ul><ul><li>Qualification: </li></ul><ul><ul><li>Means test (low enough income?) </li></ul></ul><ul><li>Exemptions </li></ul><ul><ul><li>Can they keep all of their property? </li></ul></ul><ul><ul><li>Depends on state law </li></ul></ul><ul><li>Fraudulent conveyance </li></ul><ul><ul><li>Have they transferred any property recently? (cash to parents, sold cars, took their name off property, etc) </li></ul></ul><ul><ul><li>Preference transfer </li></ul></ul><ul><li>CHAPTER 13 ISSUES </li></ul><ul><li>Debt limit: </li></ul><ul><ul><li>Do they owe too much debt? </li></ul></ul><ul><li>Motion to value and avoid lien (lien stripping) </li></ul>
  22. 22. DENIAL OF DISCHARGE <ul><li>Fraudulent transfers </li></ul><ul><li>Making false statements </li></ul><ul><li>Hiding assets </li></ul><ul><li>Disobeying court orders </li></ul><ul><li>THIS MAY BE A FEDERAL CRIME! </li></ul>
  23. 23. NON-DISCHARGEABLE DEBTS <ul><li>Student loans </li></ul><ul><li>Fraud (obtaining loans through false statements, incurring charges with false intent/ability to pay) </li></ul><ul><li>Alimony/ child support </li></ul><ul><li>Federal tax </li></ul>
  24. 24. COMMON EXEMPTIONS <ul><li>Equity in home </li></ul><ul><li>Equity in car </li></ul><ul><li>Tools of trade </li></ul>
  25. 25. EXEMPTIONS <ul><li>SYSTEM 1 </li></ul><ul><li>(CCP § 703) </li></ul><ul><li>SYSTEM 2 </li></ul><ul><li>(CCP § 704) </li></ul>
  26. 26. WILDCARD EXEMPTION <ul><li>SYSTEM 1 </li></ul><ul><li>(CCP § 703) </li></ul><ul><li>Can apply up to $21,825 that debtor or dependent use as residence, or in personal property. </li></ul><ul><li>SYSTEM 2 </li></ul><ul><li>(CCP § 704) </li></ul><ul><li>None </li></ul>
  27. 27. RESIDENCE/HOMESTEAD EXEMPTION <ul><li>SYSTEM 1 (CCP § 702) </li></ul><ul><li>None </li></ul><ul><li>SYSTEM 2 (CCP § 704) </li></ul><ul><li>(1) $50,000 is single debtor </li></ul><ul><li>(2) $75,000 if debtor is family unit. </li></ul><ul><li>(3) $150,000 if debtor or spouse is at least 65 years old, disabled, or if annual income is less than $15,000 or $20,000 if married. </li></ul><ul><li>“ Declared homestead” </li></ul><ul><li>“ Automatic homestead” </li></ul>
  28. 28. IN ORDER TO KEEP A CAR OR HOUSE <ul><li>Debtor needs to continue to make payments in order to keep the property </li></ul><ul><li>Example: </li></ul><ul><ul><li>Debtor wants to keep home </li></ul></ul><ul><ul><li>Exempt the equity in home if any </li></ul></ul><ul><ul><li>Continue to make payments on home </li></ul></ul><ul><ul><li>If Debtor is behind, debtor may want to file a Chapter 13 and pay arrears over a 3-5 year period </li></ul></ul>
  29. 29. BANKRUPTCY PRACTITIONER PITFALLS <ul><li>Client says they have no property but… </li></ul><ul><ul><li>They are on the grant deed on their mother's home </li></ul></ul><ul><ul><li>Joint savings accounts with family members </li></ul></ul><ul><ul><li>Just transferred their home to a brother </li></ul></ul><ul><ul><li>Had their family member file a lien on their property </li></ul></ul><ul><ul><li>Checking account shows they have more income than they actually have </li></ul></ul><ul><ul><li>Their bank statements shows numerous transfers of funds </li></ul></ul>
  30. 30. ETHICAL OBLIGATIONS <ul><li>Double check the numbers </li></ul><ul><ul><li>Tax returns </li></ul></ul><ul><ul><li>Pay stubs </li></ul></ul><ul><ul><li>Grant deeds </li></ul></ul><ul><ul><li>Insurance documents </li></ul></ul><ul><ul><li>Bank statements </li></ul></ul><ul><li>Use appropriate fair market value numbers </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Appraiser </li></ul></ul><ul><ul><li>Asset search </li></ul></ul>
  31. 31. WATCH OUT FOR TRUSTEE’S AVOIDANCE POWERS: <ul><li>Preferential Transfer (11 U.S.C. §§ 547, 550) </li></ul><ul><li>Fraudulent Transfer (11 U.S.C. §§ 544, 548, 550) </li></ul><ul><li>Post-Petition Transfers (11 U.S.C. §§ 549, 550) </li></ul>