How Filing Bankruptcy in 2013 Provides Enhanced Asset-Protection

Happy New Year! New Year New Life

Many individuals will start the New Year resolving to improve their financial affairs. Though bankruptcy is a great tool, which generally includes benefits such as the discharge of credit card and medical debt, a new exemption scheme, effective January 1, 2013, will give potential filers even more to be excited about.

Exemption Basics

A key protection offered by the Bankruptcy Code is found in Section 522. This section details a debtor’s rights regarding exempt property—property that is shielded from liquidation.

Exemptions are statutory provisions that generally protect individual assets from liquidation based on an assigned dollar value. For example, pursuant to CCP § 703.140(b)(3), debtors are permitted to shield up to $600 per “household” item.  In other words, you can prevent creditors from seizing any of your appliances or furnishings if they are worth less than $600/item.  Under CCP § 703.140(b)(2), you can shield up to $4,800 of the fair market value of your motor vehicle.  There are numerous exemptions that apply in different contexts and can even apply in conjunction with each other.  A vehicle that is valued at $6,000 can be fully protected by combining the Motor Vehicle (b)(2) exemption with the “Grubstake” (b)(5) exemption (see below).

The bottom line is that a careful application of the exemption statutes can often allow debtors to retain their assets during and after a bankruptcy filing.

The 2013 Exemptions

The assigned exemption values change every three years to account for inflation. On January 1, 2013 a new exemption scheme became effective allowing debtors to take advantage of even stronger protections. Whereas a person filing for bankruptcy protection in California on December 20, 2012 would have been able to exempt up to $23,250 in “any property” under CCP § 703.140(b)(5) & (1), a debtor that filed on January 15, 2013 would have been able to exempt up to $25,340 under the same statutes—a $2,090 difference!

More Than a “Fresh Start”

The Bankruptcy Code and the attendant exemptions were created to give filers a “fresh start.”  They were designed with the idea that a person free from burdensome debt would be a more productive member of society.  But the protections offered by the exemptions, particularly the new valuations, provide more than a fresh start—they provide an invaluable tool and an opportunity.  Instead of rewinding and requiring individuals to begin their lives anew, the exemption scheme allows debtors to carry on—without the worry of losing invaluable possessions.

-Caroline M. Reebs, Attorney-at-Law

Spring Forward! Don’t Fall Back…

My favorite holiday is here again: the weekend when Daylight Saving Time returns and, suddenly, the sun is up an extra hour every evening.

What?  It’s NOT a holiday?  Well, as far as I’m concerned it is.  After the dreariness of winter’s long nights (peaking on December 5th, when the sun sets the earliest by our clocks, though if you use a sundial it’s December 21st), the gradual increase in the day’s length isn’t fast enough for me.  I truly celebrate the day when, as if by magic, it’s still light out an hour later than it was the day before.

This “holiday” is so cheerful that even its mnemonic device is optimistic!  “Spring Forward — Don’t Fall Back.”  Who could disagree with THAT?

Sometimes, alas, you reach a point in your life when it seems like Fall Back, Fall Back — even in brightest sunshine.  For example, maybe illness, unemployment, an underwater mortgage, or something else has led you to run up debts you’re never going to be able to pay off.  Interest keeps accruing, collectors keep calling, monthly bills keep arriving.

If so, don’t despair; the law allows you to Spring Forward again and force the debt collectors to Fall Back while you receive a fresh start:

Bankruptcy.

Yes, the word sounds a little scary, and yes the benefits of bankruptcy are partly offset by the requirement to give full disclosure of one’s financial position (and perhaps by a period of bad credit).  But other than that, it couldn’t be better; and even though there are some debts that don’t go away (some student loans, some income taxes, unpaid spousal and child support, to name a few), getting rid of all the rest makes it much easier to finally pay everything off.

What are some of the other benefits?

  • The great anxiety of seemingly insurmountable debt no longer haunts the debtor; she can get on with her life and start saving for the future.
  • Creditors can’t sue the debtor.
  • Most unsecured debt will vanish.
  • The debtor can begin building up a good credit rating again.
  • In a few years it is almost as if the bad times never happened at all.

For most people, bankruptcy takes one of two forms: Chapter 7 or Chapter 13.  Chances are, if someone has few assets and not much income, Chapter 7 will be the appropriate route; for those who can count on a good future income and/or own valuable assets, Chapter 13 is more likely.  For the most part, it’s up to the debtor, but Chapter 7 is unavailable to those who have too much income (which varies depending on the case), and Chapter 13 is off-limits for those who have too much debt (more than $360,000 unsecured or $1,080,000 secured debt).

Chapter 7 allows people to rid themselves of all debt, except a few categories such as those mentioned above.  Debtors agree to liquidate almost all their assets, but in California they’re allowed to choose $23,000 of assets to keep — even if that’s all they have.  In some cases, debtors can use gifts from friends and family to keep more than $23,000-worth by “paying” (in effect) for the surplus.  They’re protected in the meantime by the automatic “stay” until the discharge is entered, so creditors can’t bother them.  These provisions help debtors hold onto their car and remain in their home while they look for less expensive alternatives.

Chapter 13 provides protection from creditors as long as the debtor sticks to a payment plan during a period ranging from three to five years.  Debtors are excused from almost all unsecured debt (that means credit cards, for one thing).  However, they are obliged to settle up with creditors who hold secured debt (usually, that’s the debt for a house or car).  Like Chapter 7, Chapter 13 in California allows debtors to keep $23,000 of their property while liquidating the rest.  However, they don’t have to liquidate everything: in effect they’re allowed to “buy” their property from the estate.  If, say, the debtor’s two cars together are worth more than $23,000, the Chapter 13 plan can provide that unsecured creditors will be paid what they would otherwise have received in a Chapter 7 liquidation.

If this is the season for you to Spring Forward after too long Falling Back, regain this weekend’s missing hour by spending it in an initial consultation with the Mlnarik Law Group.  We’ll be there to help you let a lot more sunshine into your life.

- Jim Erickson, Associate Attorney

 

Seeing Your Shadow in the Form of an Identity Thief? Here’s What to Do.

Groundhog Day AGAIN? Why, it seems like the last one was just yesterday …

Of course, I’m referring to the classic Bill Murray romantic comedy. Bill plays a TV weatherman covering Punxsutawney Phil‘s annual moment in the sun (or the shade). The “next” day, the hapless reporter discovers that every day is Groundhog Day, over and over again.

But if there’s anything worse than being the same person on the same eternal day, it’s being a different person EVERY day. That’s what it’s like if you’re a victim of Identity Theft — and it’s neither romantic nor a comedy.

If someone steals your name, birth date, social security number and so on, you could find yourself on the wrong end of a lawsuit when creditors try to collect the debts the thief has run up. Meanwhile, your hard-earned credit score could take a big hit.

Even before you contact an attorney, there are a few things you should do yourself.

1.  Above all, file a police report.  Some stations let you file online, but if that’s not an option, speak in person to an officer or deputy and let them know that the law requires you to file a report.  (And here we should digress:  one peculiarity of some identity theft laws is that you are not defined as a “victim” of identity theft until you file a police report!  Yes, that’s a strange definition of the word “victim,” but it lets the authorities know you are serious and not just claiming that the dog ate your homework.)

2.  Make a photocopy of your driver license or other state-issued ID.

3.  Photocopy a recent utility bill with your current address on it.

4.  Write a statement describing the particulars of the theft and your attempt to report it to the creditor and its attorney.  For example, if your theft involved a credit card, give the credit card name and account number, and say how much was fraudulently charged and for how long. Also supply your social security number and phone number. If your address has changed since either a) your ID was issued, or b) some or all of the theft occurred, give the dates you moved and any additional interim addresses. Finally, above your signature, write: “I certify the representations made are true, correct, and contain no material omissions of fact.”

Got that?  OK, gather it together with a cover letter stating that you are reporting the information as a “Request that Creditor be Notified of Identity Theft Under 15 USC Section 1681c-2“, which should also be the statement in the “re” line at the top of your letter template. Then send it all to the following addresses (accurate as of February 2012):

Equifax Security Freeze
P.O. Box 105788
Atlanta, Georgia 30348

Experian Security Freeze
P.O. Box 9554
Allen TX 75013

TransUnion Fraud Victim Assistance Department
P.O. Box 6790
Fullerton CA 92834

Also, send copies to the creditor (or, if the debt has been repackaged, to the debt collector who contacted you), and send yet another set of copies to any attorney who has contacted you in an attempt to collect the debt. At the bottom of the template copy (since every letter will be the same except for the address to which it’s sent), put a “cc” indicating all the places you’ll send the cover letter and copies.

Having done all the necessary “self-help” work, it may be necessary to contact an attorney. In fact, if you are being sued, you must answer the suit (usually within 30 days) and also, if advisable, file a cross-complaint with your answer. The cross-complaint enables you to request damages from the debt collector (sometimes including attorney fees) if the suit against you unreasonably goes forward, or if the attempts to collect the fraudulent debt don’t stop. Even if you’re citing federal law (for example, this one [pdf]), your cross-complaint can be filed in the state court hearing the suit against you; you also have the option to request that the suit be removed to federal court, and still include state claims.

This Groundhog Day, if you see your shadow in the form of someone pretending to be you, give the Mlnarik Law Group a call.  We’ll whack those debt collectors back into the hole where they belong, but for you the winter of your discontent will be over.

- Jim Erickson, Associate Attorney

UPDATE

Mlnarik Law Group Inspires Policy Review by FTC and U.S. Dept. of Justice

Inspired by correspondence from the Mlnarik Law Group, the Federal Trade Commission’s Bureau of Consumer Protection and the Department of Justice’s Office for Victims of Crime are in the process of reviewing an important aspect of Identity Theft protocols.

In fact, the matter is so significant that the agencies intend to meet with both the International Association of Chiefs of Police and also Experian (one of the Big Three credit reporting agencies). Together, they hope to address the issue raised by the Mlnarik Law Group: how and whether Identity Theft victims may file police reports online.

Credit reporting agencies require a valid police report in responding to claims of Identity Theft. However, there is some uncertainty as to whether an online report is valid, particularly given a preference that police reports include an officer’s badge number. Also, even though a given police department (for example, San Jose’s) posts an online warning that making a false report is a crime, this might not be considered as strong as the warning provided by a police officer in person.

Unfortunately, however, some victims complain that their local police department or sheriff’s office refuses to take their police report. Such complaints are especially troublesome given the fact that the legal definition of “Identity Theft victim” is not met in some states unless a victim makes a report.

This is a crucial aspect of Identity Theft policy in a digital world. The FTC agent who responded to the Mlnarik Law Group’s concerns is to be commended for so quickly taking such decisive action.