A blog about debt, credit and bankruptcy

September 5, 2011 By jenleelaw

New California Law Regarding Short Sales and 2nd Mortgages

I have recently been getting a number of questions about the new CA short sale law that took effect on July 15, 2011. The law is supposed to make it better for homeowners who are trying to do a short-sale on their houses by not allowing the second mortgage to come back and collect on the note after the sale is made. California had previously passed a bill that applied to first mortgages, but junior lienholders (like 2nd and 3rd mortgages) were not included in the original bill.

What’s the new law?
Before the junior lienholder is considered as having waived its right to seek a deficiency, both of the following must occur:

The junior lienholder must agree to the short sale; and
It must receive some payment amount against its loan as “proceeds from the sale” of the property.

What happens if both of the requirements do not occur?
The junior lienholder can still refuse to accept the terms of the short sale. In that case, the first lienholder may then choose to proceed with the non-judicial foreclosure. While the first lienholder will be prevented from seeking a deficiency (because of the one-action rule), the junior lienholder will retain the right to try and collect on the deficiency.

As another alternative, the junior lienholder could just release its lien without demanding a payment, allowing the short sale to proceed. Since the lienholder did not receive any payment from the proceeds of the sale, its right to seek a deficiency judgment would remain.

What’s the bottom line?
Be very careful in negotiating a short sale where there is a junior lienholder. If the 1st and 2nd mortgages are held by the same bank, it may be easier to negotiate a short sale that releases liability for both mortgages. If the 2nd mortgage will not agree in writing to the short sale, the bank retains its right to come after you for the difference after the foreclosure.

This is just a basic overview and is not legal advice specific to your situation. If you are considering bankruptcy or are feeling overwhelmed by debt, you should speak with an attorney in your area for legal advice. To speak with me regarding your situation, please email me at jen@jenleelaw.com or call 925-586-6738.

August 28, 2011 By jenleelaw

My Credit Card Company is Suing Me-Now What?

One of the main reasons people call me to discuss bankruptcy options is that they were just served with a lawsuit. Usually a bank or credit card company has not received payments in several months and they’ve hired a law firm to try and collect some or all of the balance due. Ignoring the summons for the lawsuit is a bad idea, but there are several options you can consider.

Make Payment Arrangements

If you acknowledge that you owe the debt and can afford to pay it back over time, you can call the attorney who filed the lawsuit and discuss repayment options. This will usually suspend the lawsuit, as long as you are making payments on the debt. Generally, the law firm will want to do automatic monthly payments from your checking account.

If you have multiple credit cards that you are behind on and it is quite possible that there will be multiple lawsuits against you, a payment plan might not be feasible.

File an Answer (Response)

If you have some reason to believe you do not owe the money or there is some question around the debt, you also have the option of filing an answer with the court. The response form is included when you are served with a lawsuit, so you would need to fill that out, pay the filing fee, and file the documents with the court. You usually have 30 days from the day you are served to file your response.

Consider Bankruptcy

Many times, people have other financial issues besides that one credit card that need to be handled. When you file for bankruptcy, the court case for the credit card is put on hold while the bankruptcy is processed. When (if) you receive your bankruptcy discharge, that court case is then dismissed and the creditor can no longer come after you for that debt.

Ignoring the Summons

So what happens if you totally ignore the summons? After the 30 days has passed for you to respond, the lawyer for the credit card will obtain a default judgment against you. After the judgment is granted, the lawyer is able to obtain a judgment lien. A judgment lien can result in a lien on your house, garnishment of your bank account, and/or wage garnishment as well.

It is very important for you to deal with a summons for a lawsuit before your accounts or wages are garnished. If you are in this situation in CA, please feel free to contact me at 925-586-6738 or jen@jenleelaw.com to discuss your options.

August 17, 2011 By jenleelaw

What About My Credit Score?

I probably get asked this question at least ten times a day – really any time I meet with anyone to talk about bankruptcy. Won’t filing bankruptcy ruin my credit score? My general answers to this inquiry:

First – why do you care about your credit score?

A credit score is mostly useful for…getting credit, which is often part of the problem when considering bankruptcy. Granted, there are situations where a credit score is used to determine deposits or a credit report is run for a job because you are handling money, but this being stuck on credit scores thing is exactly what the card issuers want. They want you to apply for their cards, keep a balance, and pay them lots of interest. There’s also another myth out there that you can’t buy a house for 10 years after filing bankruptcy – don’t even get me started on that one (but I will do a follow-up blog post on that topic).

Second – Is your credit score all that great now that you have not been making credit card or mortgage payments for the last 12 months?

Most of the people considering bankruptcy already have a fairly low credit score. Bankruptcy is not going to make it lower. In fact, that fresh start often increases your credit score. The reason for this is that you are a better risk without all of that debt hanging over your head. Not that I’m advocating going out and applying for new credit cards, but bankruptcy isn’t a financial death sentence.

Third – Are you ready to plan for the future?

I always tell clients that I never want to see repeat business in my line of work. Part of the bankruptcy process should involve setting up your future with savings and retirement accounts. Many credit problems can be solved by having a good-sized downpayment available for large purchases, like houses and cars. When you file for bankruptcy, you have the possibility to grab that fresh start and create a great future for yourself by understanding your budget and being honest about what you can afford.

August 15, 2011 By jenleelaw

Where Do I File for Bankruptcy?

This question often comes up with people I talk to because I file cases in 2 different districts (Northern District of CA and Eastern District of CA). Where you file your bankruptcy is generally based on where you have lived for the majority of the past 180 days. This usually comes up when you have recently moved to the area and are trying to get back on your feet. As long as you have been in the district for 91 of the past 180 days, you can file there.

So how are the districts divided?

The Northern District of CA has 4 divisions: Oakland, San Francisco, San Jose, and Santa Rosa. If you live in Alameda or Contra Costa County, your bankruptcy case will be filed in the Oakland division and that is where your meeting of creditors will take place. Most of my Northern District cases are filed in Oakland.

The Eastern District of CA has 3 divisions: Fresno, Modesto, and Sacramento. If you live in San Joaquin County (where Tracy is located), your case is filed in the Sacramento division. However, your meeting of creditors will take place in Modesto. I always warn people who live in Tracy about this difference during the initial consultation. If you have to attend any court hearings associated with your case, those take place in Sacramento.

How does the court know if I have been in the district for at least 91 days?

One of the items that you have to fill out in your bankruptcy schedules is where you have lived during the past three years, including the dates you lived there. By asking this, the court is ensuring that you are using the right exemptions and whether you are eligible to file in the district. When I meet with someone who has recently moved, I calculate out the date when that person is able to file in the district and advise them of any potential issues that I see.

August 13, 2011 By jenleelaw

My Friend’s Brother’s Roommate’s Dog Told Me…

I seem to be hearing about or reading a lot of stories these days where someone decides that the legal advice received from an electrician (or CPA or any other non-lawyer) must be true. I decided to do a quick blog post on some of these misconceptions.

I don’t have to list my mortgage company on the bankruptcy schedules.

The theory behind this was that the person was going to pay their mortgage directly, so the mortgage company did not need to know about the bankruptcy. This is absolutely wrong. Everyone you owe must be listed on your bankruptcy schedules. Mortgages are listed as a secured debt and you will have the opportunity to indicate what you intend on doing with the property (either continue making payments, surrender the property, or other options available in a Chapter 13). Intentionally leaving out assets or debts on your bankruptcy petition is fraud and punishable by fine, imprisonment, or both. See also the recent story about Lenny Dykstra and his indictment for bankruptcy fraud.

I can’t file bankruptcy unless I am totally broke.

Another misconception I heard this week was that you have to be flat broke to file for bankruptcy. This is not completely true. In CA, there are fairly generous exemptions that apply to you when you file for bankruptcy. These exemptions allow to retain necessary items and also allow some flexible options for maintaining savings and vehicles. Part of the bankruptcy planning process is to make sure you understand what you can and cannot keep, but you do not need to wait until you have only pennies left to obtain a fresh start.

I know I can’t get rid of taxes.

This one is a fairly big misconception. There are a lot of rules that determine whether a tax is dischargeable or not, but it is not accurate to say that all taxes are nondischargeable. Personal income taxes that are more than 3 years old are taxes that should be analyzed by a bankruptcy attorney to see if they can be discharged in your bankruptcy.

Filing for Chapter 7 means that the court will come to my house and sell everything I own.

This is similar to the one above about being totally broke, but I hear this a lot from people not familiar with bankruptcy. People often ask me if they can keep their beds or if the court is going to sell the household items to pay creditors. The short answer to that is…no, the judge or trustee is not going to show up at your house to sell your bed. You are allowed to keep items necessary for you and your family’s welfare. Again, talking and planning with a bankruptcy attorney will help you keep as many of your assets as legally possible and will also help alleviate some of your concerns in filing for bankruptcy.

Please feel free to contact me at 925-586-6738 or jen@jenleelaw.com if you would like to discuss your situation and the options available to you.

New California Law Regarding Short Sales and 2nd Mortgages

My Credit Card Company is Suing Me-Now What?

What About My Credit Score?

Where Do I File for Bankruptcy?

My Friend’s Brother’s Roommate’s Dog Told Me…

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