Bankruptcy Basics Slideshow

Disclaimer
This slideshow was presented at the National Conference of Vietnamese American Attorneys intended for an audience of attorneys
It is not intended as legal advice in any shape or form
Please contact a duly licensed attorney regarding the specifics of your case.

4 th ANNUAL CONFERENCE | OCTOBER 16-17, 2009 | HUNTINGTON BEACH, CA LOAN MODIFICATION & BANKRUPTCY BASICS PANEL 9:00 am – 10:30 am

WELCOME TO THE LOAN MODIFICATION AND BANKRUPTCY BASICS PANEL PANELISTS: DAMIAN NASSIRI | CUONG M. NGUYEN LYNDA T. BUI | ANN N. NGUYEN MODERATORS: DUYEN NGUYEN | MINH HOANG

PRE-FORECLOSURE TIMELINE
LOAN SERVICER ACTION
Borrower default
Mail breach letter
Breach expires (referral to foreclosure)
Attempt to contact borrower to discuss financial situation and options to avoid foreclosure
- Only applies to loans made 1/1/03 – 12/31/07 and only for owner-occupied residences
DAYS
0
30
90
STATUTE
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(i)

PRE-FORECLOSURE TIMELINE ( CONTINUED… )
LOAN SERVICER ACTION
Contact made:
- Advise borrower of right to request a subsequent meeting, which must be scheduled within 14 days if requested
- Provide borrower with HUD toll-free phone number to find a HUD-certified housing counseling agency
Or unable to contact  due diligence:
- Mail borrower HUD toll-free phone number to find a HUD-certified housing counseling agency
- Attempt to contact 3 times at different hours on different days, unless all numbers on file are disconnected
Trustee records Notice of Default
DAYS
-30 (90)
-0 (120)
STATUTE
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(a)(2)
Civ. Code § 2923.5(g)(1)
Civ. Code § 2923.5(g)(2)(A)
Civ. Code § 2923.5(g)(2)(C)
Civ. Code § 2923.5(a)(1)

FORECLOSURE TIMELINE
TRUSTEE ACTION
Record Notice of Default
(include Declaration that contact was made with borrower to discuss options, or due diligence attempts, or borrower has surrendered property)
Mail Notice of Default to borrower
Mail Notice of Default to borrower’s successors in interest , and junior recorded interests
Servicer to attempt loan modification if:
(1) Loan recorded 1/1/03 – 1/1/08
(2) First mortgage
(3) Borrower occupied property as principal residence at time of delinquency
(4) Notice of Default recorded
Unless Servicer obtains exemption
(http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf)
DAYS
0
10
30
90
STATUTE
Civ. Code § 2924(a)(1)
Civ. Code § 2923.5(b)
Civ. Code § 2924b(b)(1)
Civ. Code § 2924b(c)(1)
Civ. Code § 2923.52(a)
Civ. Code § 2923.52(b)
Civ. Code § 2923.53

FORECLOSURE TIMELINE ( CONTINUED … )
TRUSTEE ACTION
Record Notice of Trustee’s Sale
(if NOD recorded before statute enacted, incl. Declaration contact was made with borrower, or list efforts made to contact borrower)
Mail Notice of Trustee’s Sale to borrower
Mail Notice of Trustee’s Sale to borrower’s successors in interest and junior recorded interests
Post and publish Notice of Trustee’s Sale
Last day to reinstate loan
Trustee’s sale
DAYS
180
-20 (180)
-5 (195)
-0 (200)
STATUTE
Civ. Code § 2924(a)(3)
Civ. Code § 2923.5(c)
Civ. Code § 2924b(b)(2)
Civ. Code § 2924b(c)(3)
Civ. Code § 2924f(b)(1)
Civ. Code § 2924c(e)

FORECLOSURE LEGISLATION PROPOSAL AB 1588: MONITORED MORTGAGE WORKOUT PROGRAM
INTRODUCED 9/9/09
NOD must contain notice of borrower’s right to elect to participate in MMW Program
Program to be administered by the Cal. Housing Finance Authority (CHFA)
Borrower must communicate to CHFA and Trustee his election to participate in MMW within 30 days of receiving NOD
If borrower elects to participate, a “Monitor” is appointed to oversee the loan modification process
Once MMW is elected, foreclosure must be stayed until MMW is completed
The Monitor shall assist the parties in assessing affordability of any loan modification and its NPV versus foreclosure
If the parties cannot agree, the Monitor shall prepare a reasonable loan modification proposal that satisfies HAMP guidelines, if feasible
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
If the borrower rejects the proposal or acts in bad faith as determined by the Monitor, foreclosure may resume
The Monitor is paid up to $750 by the Trustee; if loan is modified, the borrower reimburses ½
Borrower must establish a trust account and deposit 60% of monthly mortgage payments
“ Trustee” means lender, mortgagee, trustee, beneficiary, or authorized agent that recorded NOD
Cf. Nevada Foreclosure Mediation Program

FORECLOSURE STATISTICS ( REALTYTRAC ) CALIFORNIA RATE MAP FORECLOSURE ACTIVITY BY MONTH FORECLOSURE ACTIVITY BY COUNTY FORECLOSURE ACTIVITY & HOME PRICE INDEX
459,698 FORECLOSED HOMES
92,326 IN AUGUST 2009
1 IN 27,844 HOMES
6-MONTH TREND: DECLINE
STATE FORECLOSURE
RATE RANKING
NEVADA
FLORIDA
CALIFORNIA
ARIZONA
MICHIGAN

BANKRUPTCY BASICS
LYNDA T. BUI
Bankruptcy and Commercial Litigation
Shulman Hodges &
Bastian LLP
Foothill Ranch, CA
www.shbllp.com
ANN N. NGUYEN
Debtor and Creditor Bankruptcy Attorney
Law Office of Ann N. Nguyen
San Francisco/Oakland/
San Jose Bay Area
http:// www.AnnLawyer.com
http://www.bayarea-lawyer.com

GOAL OF BANKRUPTCY
A fresh start!

UNITED STATES BANKRUPTCY COURT
Bankruptcy is filed in federal court, not state court

PROS AND CONS OF BANKRUPTCY
PROS:
Could wipe out debt
Catch up with behind payments
Could keep all/most of property
Could strip amount owed down to current value (redeem car/ avoid 2 nd lien on house)
Stop creditors from debt collection (foreclosure/communication/
lawsuit)
CONS:
Stays on credit report for up to 10 years
Bad credit
Non-discharge
Assets could be taken

BANRUPTCY CHAPTERS
Helping your clients select the right chapter is your ethical obligation
Chapter 7
Chapter 11
Chapter 13

ETHICAL OBLIGATIONS: WHAT CLIENTS MUST KNOW
BK is a serious event
Petition and schedules are signed under oath and penalty of perjury (should not be taken lightly)
Do not transfer property > non disclosure of assets> Bankruptcy fraud
Sloppiness, inconsideration
Severe Consequences:
Criminal prosecution (fines and/or imprisonment for up to 5 years)
discharge

ETHICAL DUTY to properly advise clients:
Whether to file
What Chapter to file
What exemptions to claim
Depends on:
situation
assets/obligation
MEET YOUR CLIENT (preferably in person), CONSULT THEM!

BANKRUPTCY: AUTOMATIC STAY
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).
If your home is being foreclosed and the sale has not taken place, bankruptcy may stop this.
If your car is about to become repossessed , this automatic stay may stop them from taking your car
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)
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.

DEBTS IN BANKRUPTCY
Bankruptcy Debts That May Be Discharged:
most credit card debts
most medical bills
most court judgments
most loans
Bankruptcy Debts That Are Not Discharged:
Debts you don't list in your bankruptcy forms (subject to some exceptions in a Chapter 7 case) (11 USC 523, 727)
Back child support and alimony
Court imposed fines and restitution
Student loans (with a exception which is extremely difficult to get in most cases)
Recent back taxes (taxes for years you did not file a return)
Judgments arising out of willful or malicious conduct (personal injury or drunk driving)
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))

CHAPTER 7 VS. CHAPTER 13
CHAPTER 7: LIQUIDATION
Allows you to wipe out many debts
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)
Governed by state law
CHAPTER 13: REPAYMENT PLAN
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)
Allows you to keep your property while using your income to repay some or all of your debts
You can keep control your property regardless of value
BUT you will have to repay unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy
After you complete your payment plan, your remaining debt (subject to some exceptions) are discharged
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)

CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… )
CHAPTER 7: LIQUIDATION
Emerge from bankruptcy without having to pay any of the discharged debt
CHAPTER 13: REPAYMENT PLAN
Allows debtor to catch up with past due payments (home mortgage, car)
Pay taxes without interest over a period of time (non dischargeable in a Chapter 7)

CHAPTER 7 VS. CHAPTER 13 ( CONTINUED… )
CHAPTER 7 ISSUES
Qualification:
Means test (low enough income?)
Exemptions
Can they keep all of their property?
Depends on state law
Fraudulent conveyance
Have they transferred any property recently? (cash to parents, sold cars, took their name off property, etc)
Preference transfer
CHAPTER 13 ISSUES
Debt limit:
Do they owe too much debt?
Motion to value and avoid lien (lien stripping)

DENIAL OF DISCHARGE
Fraudulent transfers
Making false statements
Hiding assets
Disobeying court orders
THIS MAY BE A FEDERAL CRIME!

NON-DISCHARGEABLE DEBTS
Student loans
Fraud (obtaining loans through false statements, incurring charges with false intent/ability to pay)
Alimony/ child support
Federal tax

COMMON EXEMPTIONS
Equity in home
Equity in car
Tools of trade

EXEMPTIONS
SYSTEM 1
(CCP § 703)
SYSTEM 2
(CCP § 704)

WILDCARD EXEMPTION
SYSTEM 1
(CCP § 703)
Can apply up to $21,825 that debtor or dependent use as residence, or in personal property.
SYSTEM 2
(CCP § 704)
None

RESIDENCE/HOMESTEAD EXEMPTION
SYSTEM 1 (CCP § 702)
None
SYSTEM 2 (CCP § 704)
(1) $50,000 is single debtor
(2) $75,000 if debtor is family unit.
(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.
“ Declared homestead”
“ Automatic homestead”

IN ORDER TO KEEP A CAR OR HOUSE
Debtor needs to continue to make payments in order to keep the property
Example:
Debtor wants to keep home
Exempt the equity in home if any
Continue to make payments on home
If Debtor is behind, debtor may want to file a Chapter 13 and pay arrears over a 3-5 year period

BANKRUPTCY PRACTITIONER PITFALLS
Client says they have no property but…
They are on the grant deed on their mother's home
Joint savings accounts with family members
Just transferred their home to a brother
Had their family member file a lien on their property
Checking account shows they have more income than they actually have
Their bank statements shows numerous transfers of funds

ETHICAL OBLIGATIONS
Double check the numbers
Tax returns
Pay stubs
Grant deeds
Insurance documents
Bank statements
Use appropriate fair market value numbers
Zillow.com
Appraiser
Asset search

WATCH OUT FOR TRUSTEE’S AVOIDANCE POWERS:
Preferential Transfer (11 U.S.C. §§ 547, 550)
Fraudulent Transfer (11 U.S.C. §§ 544, 548, 550)
Post-Petition Transfers (11 U.S.C. §§ 549, 550)

HAVE QUESTIONS?

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Bankruptcy Basics Slideshow

by Law Office of Ann N. Nguyen on Oct 31, 2009

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Bankruptcy Basics Slideshow — Presentation Transcript