Tag: homes

Liens in Bankruptcy: The Ultimate Guide, Explained

Posted by Hale Andrew Antico on January 3, 2023

Liens in Bankruptcy: The Ultimate Guide, Explained

Liens in bankruptcy typically survive and don’t get affected by the discharge. However, there are exceptions where the lien can be reduced or even eliminated. I try to break these down in simple terms that are easy to grasp. But don’t be fooled: bankruptcy is more complicated than you think. Get a consultation with an attorney, and make sure you check out my list of 12 crucial tips to do or avoid before filing bankruptcy.

What is a Lien in Bankruptcy?

A lien is a security interest of a debt that encumbers a thing owned by the borrower until the debt is paid. One common example is a car and the car loan. The borrower who “owns” a car can’t just sell the car outright. He has to pay the debt secured by the lien against the car first. Then, once the debt is paid, the lien is satisfied and removed.

Section 101(37) of the Bankruptcy Code defines “lien” as:

charge against or interest in property to secure payment of a debt or performance of an obligation.

How does bankruptcy affect a lien? The General Rule

The general rule for liens in bankruptcy (and there are exceptions) is that bankruptcy doesn’t affect a lien at all. If a debt is secured by a lien and collateral, if you wish to keep the asset, then that debt will survive the bankruptcy. You don’t get a free house or car in bankruptcy. Here, let me put that in a fancy quote because it is so important:

You don’t get a free house or car in bankruptcy.
– Attorney Hale Andrew Antico

There is a reason this is emphasized so strongly. For some reason — be it wishful thinking or confusion because the lender stopped sending statements or something else — people sometimes stop paying for a house or car. This is a mistake that can result in foreclosure or repo.

house lien in bankruptcy — Not really representative of a lien in bankruptcy, but it shows money and houses so pretend there’s a chain encumbering them.

If you wish to keep the thing with a lien in bankruptcy (e.g.: your house), then you must continue to making regular payments on the loan or loans that goes with it. With that general principle out of the way, there are some specific exceptions or applications.

Chapter 7 bankruptcy and Liens

How does bankruptcy affect a lien in Chapter 7?

Chapter 7 bankruptcy is the simpler bankruptcy. You don’t normally pay unsecured debts back here. But how does bankruptcy affect a lien in a Chapter 7? The short answer: liens don’t go anywhere. If you started a Chapter 7 with a debt secured by a lien, you will most likely end the Chapter 7 with a lien. Nothing changes. Let’s look at a few different things that come up.

Vehicles in Chapter 7: You don’t get a free car

Repeat after me: In Chapter 7 bankruptcy, you don’t get a free car. If you are financing a vehicle, if you want to keep the vehicle, you must keep paying the loan. No matter what happens, you must keep current and paying for the car (or truck or RV or quad or other secured vehicle) if you want to keep it.

If your bank turns off your online access, you must keep current and paying for the car if you want to keep it. If your bank stops sending you statements or coupons, you must keep current and paying for the car if you want to keep it. If aliens abduct your Aunt Nana, you must keep current and paying for the car if you want to keep it.

You must be wondering why I’m spending three paragraphs repeating something that seems quite basic. You know, the concept that you must keep current and paying for a vehicle if you want to keep it. This is because no matter how obvious, no matter how many times this is repeated, people still somehow stop paying for their vehicle because they read on some message board on Google Esq. that they get a free car in bankruptcy.

But that’s false. You know why? Because there’s a lien on the car. And it remains. Why?

Because you don’t get a free car in Chapter 7 bankruptcy.

lien in bankruptcy car — Lien in bankruptcy doesn’t go anywhere with regard to a car in Chapter 7 because you don’t get a free car in bankruptcy.

Reaffirmation Agreements in Chapter 7

Definition of Reaffirmation Agreement

A reaffirmation agreement is an agreement where you … reaffirm a debt. This has the legal effect of you promising to owe a debt after the bankruptcy, no matter what. I think we can all agree that vowing to be liable on a debt regardless of what happens after a bankruptcy is the opposite of what bankruptcy is supposed to be.

Why on earth would someone say, for example, yes, please, make me owe my mortgage balance even if I ever lose my house to foreclosure? You wouldn’t. Because that’s crazy. That’s what a reaffirmation agreement is: a contract where you make yourself owe a debt after the bankruptcy, regardless of what surprises the future throws at you.

That is crazy. Why would I ever sign a reaffirmation agreement?

Good question. You would never voluntarily promise to undo the bankruptcy for a debt on which you are trying to avoid personal liability. Again, it defeats the purpose of bankruptcy to say yes, I’d like to owe this debt after bankruptcy.

Bankruptcy is intended to get you out of debt. Reaffirmation agreements are intended to get you back into debt.

But you just told me I’ll owe the car debt after bankruptcy no matter what.

Not quite. The example above is just talking about payments for a car that you intend to keep. If you want to keep the car, pay for it on time. What we’re talking about now is the possibility you lose the car or house or RV after the bankruptcy.

Let’s say a year after the bankruptcy is done, an asteroid hits your employer and you lose your job and the can’t pay for the house or car. They repo or foreclose and you lose the thing, right? Right.

But if you signed a reaffirmation agreement, you not only lost the house or car, but you also owe for the contract for the house or car you no longer have. Why? Because you signed a reaffirmation agreement. Can we agree that’s a bad outcome?

Holy cow, that’s terrible. Why would I ever sign a reaffirmation agreement?

You wouldn’t voluntarily sign a reaffirmation agreement unless you had to. And for vehicles, if you want to keep the collateral, you need to stay current on payments and you need to sign a reaffirmation agreement if they send one to you. For mortgages, you don’t generally need to or want to sign one. Any lender that tells you you needed one during your bankruptcy is mistaken, lying, or evil. Probably just mistaken.

Note: the law is changing in California in 2023 to bring back bankruptcy ride-through. SB1099 will make it no longer a default on a car loan if you don’t sign a reaffirmation agreement for a vehicle.

522f Lien Avoidance in Chapter 7: Judgment Liens

Recap of the rule: liens in Chapter 7

The rule for liens and lien avoidance in Chapter 7 bankruptcy is that the lien doesn’t go anywhere and you don’t get a free house or car in Chapter 7. If you started Chapter 7 with a lien on your car or a second mortgage on your house, you will likely end the bankruptcy with one, as there usually is no lien avoidance in Chapter 7. There can be one exception to this, and you have to qualify for it, contract for it, and yes, usually pay for it: judgment liens.

Possible Exception: What is a Judgement Lien

A judgment lien is when someone sues you, and as a result of the lawsuit, the judge rules against you. As a result, there is a now judgment against you. One way to collect on a judgment is a judgment lien against real estate or property you own or have an interest in. In California, the judgment lien cannot foreclose on you and take your house. However, it can sit there and grow with interest until you sell, refinance, transfer, or otherwise try to change the title. Then, it needs to get paid in full.

Oh no. What is a Judgment Lien Avoidance in Bankruptcy?

A judgment lien avoidance is where, in some cases, you can remove, or avoid, the judgment lien in bankruptcy… even Chapter 7 bankruptcy. Yes, it’s possible in Chapter 7 bankruptcy to avoid a judgment lien. However, it is not possible in every case, and doesn’t happen automatically. It’s extra work, and unless you contract for (and pay extra for) this extra work, the judgment lien avoidance won’t happen. Plus, the calculations around your home equity and lien amounts have to be right to qualify for it.

What are the factors to qualify for Judgment Lien Avoidance?

To qualify for lien avoidance in bankruptcy, we turn to Section 522(f) of the Bankruptcy Code, which says, in part: “the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled.”

So, for judgment lien avoidance, you need to determine if the lien impairs an exemption. At its core, this is a simple math problem. Here, in the Central District of California, the form we use spells it out pretty clearly, as you can see below.

522f judgment lien avoidance calculations from CDCA form F 4003-2.1.Avoid.Lien.RP.Motion

The factors are pretty self-explanatory:

Value of Collateral: that’s what the house is worth
First lien: this is usually the primary deed of trust, or first mortgage
Amount of Debtor’s exemption: the amount of the exemption Debtor is entitled to

Lien Avoidance Formula: Take the value of the collateral, then subtract the debtor’s liens which cannot be avoided, and then subtract the exemption amount. That’s the amount that remains to pay judgment liens.

Still, this can be confusing. Read on!

522(F) Judgment Lien Avoidance Calculator

Below is a judgment lien avoidance calculator to help with the math of determining whether a judgment lien is impairing an exemption per 11 USC 522(f). You can only avoid the lien up to the amount it is impairing the exemption. If there is only partial impairment, there can only be partial judgment lien avoidance.

Timing of amounts used for lien exemption

If you learned of a judgment lien now but had an old bankruptcy where you didn’t avoid it, you may still be able to avoid the old judgment lien using the old bankruptcy. But exemptions change over time. Which home value and exemptions amount do you use?

If reopening an old case, the Ninth Circuit law is to use exemptions at the time of the bankruptcy filing, even if the exemption amount is higher now.
If filing a new case, Ninth Circuit law is to use the current exemptions even if the lien attached during the old exemptions.

Chapter 13 Bankruptcy and Liens

Section 506: Lienstripping a junior mortgage, mortgage cramdown, or avoiding a second mortgage lien

What Does the lienstripping law say?

There are really a few sections to focus on. First, section 506(d) of the Bankruptcy Code states, generally:

To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void

Making a lien void is a very good thing, and in Chapter 13 bankruptcy this can sometimes be done. The problem is it can’t be done all the time; the circumstances — and the math — have to be just right. Sometimes Sections 506(a) and 1322(b)(2) come into play in helping define what is secured.

The 9th Circuit BAP clarified when this can be done in In re Lam, 211 BR 36 (9th Cir BAP, 1997). It was in this major ruling when the Bankruptcy Appellate Panel ruled, “The Nobelman decision holding that section 1322(b)(2) bars a chapter 13 plan from modifying the rights of holders of claims, secured only by the debtor’s principal residence, does not apply to holders of totally unsecured claims.” Id. at 41.

liens in bankruptcy house — Liens in bankruptcy regarding a house, this time with a chain encumbering it in rich symbolism.

So, the key language in Lam is “totally unsecured.” Unlike avoiding a lien under 522(f) which can allow partial removal of a judgment lien, avoiding a consensual lien like a deed of trust or mortgage cannot be partially secured. “…a one dollar difference in property value could have a profound effect on a secured creditor’s rights.” Lam at 41. So the evidence for property value is key, and this can be where all the fight is.

Lam Lienstrip Examples

Let’s say Debtor has a home valued at $200,000 with a first mortgage of $225,000 and a second mortgage with a balance of $50,000. Because the second isn’t “touching” the secured house, it is totally unsecured and can be avoided with a lien-strip in a Chapter 13 bankruptcy. However, if that same property were valued at $230,000, then there’s about $5,000 of secured status for the junior mortgage. That’s enough to make it a secured claim, and then, because it’s not wholly unsecured, it cannot be avoided or lienstripped.

I made a handy calculator where you can test out the above lien stripping examples yourself, and of course, your own numbers to see if it’s totally unsecured and qualifies in the Ninth Circuit for lien avoidance under Lam.

If you are in the Los Angeles, Ventura, or Orange County, contact me and let’s go over your options.

Section 522(f) and Judgment Liens in Chapter 13 bankruptcy

Judgment liens, where for example, a credit card won in court against you and then liened your home, can be avoided in Chapter 13 if they impair an exemption. While there can be a huge benefit to removing a judgment lien in Chapter 13, it also wouldn’t be necessary if it’s a 100% plan. In other words, if you’re paying all your unsecured debt back, turning a secured debt to an unsecured one wouldn’t provide a whole lot of benefit but would increase legal fees. For a discussion – and a judgment lien calculator — see above in the Chapter 7 judgment lien section.

What is Cramdown in Bankruptcy (Chapter 13)?

Chapter 13 bankruptcy cramdown is where we can reduce the secured debt of a car to the fair market value of the vehicle. In other words, in Chapter 13, we can “cram down” the loan balance to what the car is worth if the loan was incurred over 910 days ago. The remaining debt gets paid through the Chapter 13 plan at the same percentage as the unsecured debt, potentially saving thousands of dollars on a vehicle loan.

A bankruptcy cram down example would be if a vehicle loan was $30,000, and the car was only worth $18,000. In Chapter 13, it’s possible to only pay $18,000 for the car loan, and treat the rest of the car debt like credit card debt. Again, this wouldn’t make a lot of sense if it’s a 100% plan or there is some doubt you’ll be able to finish the bankruptcy with the car “in the bankruptcy” because if the case is dismissed, you’re now late on the loan which was being partially paid through the case, which is now ended. You’ll need to ensure you can get to the finish line if you take this route. However, the benefit can be valuable.

Penrod and Negative Equity

Is The Negative Equity PMSI?

Penrod is not just a funny name, but a Ninth Circuit case. The Penrod case addresses trade-ins which had the old loan rolled into the new one, where the old loan is now called negative equity. We just learned that we can cram down a vehicle loan if the balance is more than the vehicle’s value if the debt was incurred over 910 days prior to filing. There is a way to remove the traded-in loan from the current loan, even if this happened in the 910 days before filing.

Marlene Penrod traded in an Explorer and bought (and financed) a 2005 Ford Taurus. She rolled about $7,000 of her old Explorer loan into the new Taurus financing. Less than 910 days later, she filed Chapter 13 bankruptcy. In the case, she bifurcate, or split, the Taurus loan into two, and said she’d only pay the new Focus price in full as Purchase Money Security Interest (PMSI). The negative equity from the Explorer wasn’t purchase money, and therefore wouldn’t be secured.

The new finance company objected, and the Ninth Circuit Court of Appeals agreed with Marlene Penrod when it wrote, “In sum, we find that a creditor does not have a purchase money security interest in the “negative equity” of a vehicle traded in during a new vehicle purchase.” In re Penrod, 611 F. 3d 1158 (9th Cir, 2010).

Penrod and Gap Insurance and Extended Warranties

Not only can negative equity can be removed from a vehicle loan in a Chapter 13 in the Ninth Circuit, other bankruptcy courts in the circuit have broadened this to other areas. For example, in Washington state, a bankruptcy court has held that Penrod also applies to removing gap insurance and an extended warranty. This is because, like negative equity, they are not part of the purchase money security interest. In re Jones, 583 BR 749 (WDWA, 2018).

In Jones, the court ruled:

Accordingly, this Court finds the Option Contracts are not part of the “price” of the Vehicle secured by the PMSI. Like negative equity, the Option Contracts are not sufficiently related to the purchase of the Vehicle. Unlike other expenses listed in Official Comment 3, neither the purchase of optional gap insurance or maintenance contracts are akin to sales tax and license fees, which are not optional but are required in order to obtain the vehicle.

Jones at 755.

It went on to write, “The Court concludes that Kitsap Credit Union’s purchase money security interest in the Vehicle does not secure sums advanced to pay for optional gap insurance and vehicle maintenance contracts.” Id. at 759.

Tax liens in Bankruptcy

Tax liens in bankruptcy generally don’t go anywhere. In Chapter 7, because they didn’t get paid, they survive the bankruptcy case. A tax lien in bankruptcy (Chapter 13) will have to be paid as a secured debt to avoid it and remove it. This can create feasibility problems in your Chapter 13 bankruptcy case, depending on the size of tax lien and secured debt. As always, discuss with a bankruptcy lawyer.

In sum

Liens in bankruptcy are generally not removed, and you don’t get a free car or house. Sometimes liens can be reduced, stripped, or avoided, if the math works out right in various situations. There is a lot more flexibility in Chapter 13 bankruptcy to reduce or even eliminate liens. Arrange a consultation with an experienced bankruptcy attorney in your area to learn your particular options. Thanks for reading.

Figuring the Los Angeles Country median home price size is like trying to calculate the median coin weight when all we have is data about stack size

How to Figure the Los Angeles County Median Home Price (2023)

Posted by Hale Andrew Antico on November 12, 2022

How to Figure the Los Angeles County Median Home Price (2023)

The Los Angeles County median home price in 2022 and 2023 can be tricky to determine. There are different sources that say different things. It’s not clear which of the many options will be relied upon by courts and trustees for the California homestead exemption. Also, while bankruptcy may seem to be “just forms,” make sure you check out my list of 12 crucial tips to do or avoid before filing bankruptcy.

2022-2023 update: there seems to be a consensus among local bankruptcy attorneys as to what the Los Angeles County median home price is. More than that, this L.A. median price changes each year. While it’s still untested in court, a lot of the initial uncertainty has cleared up. Read on!

Warning: This is provided as information only, and is not legal advice. If you are thinking of filing bankruptcy, do not rely upon any information on this webpage. You are assuming all risk and are literally gambling with your home. You will have only yourself to blame if you use the wrong numbers for the Los Angeles County median home value.

See a bankruptcy attorney for more updated information before you file, because there are ways you can lose the exemption.

Average is not Median

los angeles county median home value — The Los Angeles County median home value is not the mean

Before we can determine what the Los Angeles County median home price is, we’ll need to know what it’s not. A median is not the same as the average. This takes us back to high school math, but a quick couple of definitions:

Average (or mean): this is where you add up the data, and then divide by the number of data points
Median: this is where you list all the data, and then take the number which is at the midpoint

So, as you can see, the median is not the same as the L.A. County average home value.

The Median Changes Over Time

Because the median is the midpoint of all the data, each time there’s another home sale, the median changes and moves. You may figure with a random distribution of data, there would be an equal likelihood that future sales will be about half above and half below the median, keeping the median the same. But home prices change over time and are not static, and particularly during a virus pandemic like the COVID-19 coronavirus we had in 2020 and 2021.

For example, you might find some data sources that list the median home prices for last year, but only through December. Can you assume that houses would sell for the same prices in December around the holidays as they do during the summer when people move a lot and kids are usually out of school?

Read Our Means Test Guide on Median Income Limits.

Median Income Guide

The Los Angeles County median home price is not the same as that for the L.A. area

Los Angeles County is one of the largest counties in the United States, with over 4,000 square miles. While you may find data for the metropolitan area, that’s very different than the numbers for Los Angeles County. Why? Because L.A County goes from South Bay all the way up to the Antelope Valley and Lancaster. The Los Angeles County median home price is pulling together data from all these.

Los Angeles County is home to about 10,000,000 people, while the city of L.A. has “only” 4,000,000. If you use only city data, you’re missing out on home values in remote areas in LA County like Littlerock and Pearblossom on the 138 and on the way to Vegas.

The Median Home Value is not the same as Median Home Sales Price

You can find some sites which average the values of the homes in the L.A. area, or even Los Angeles County. The problem with that is this: you’re using their own estimate about the Los Angeles county median home values, even those that didn’t sell, when what you’re really needing is the sales price of homes that actually sold.

After reviewing all the above, you can see that we’re looking for a very specific thing here, and no one website reports the Los Angeles County median home price, or has information that in 2022 is depended upon reliably as the “go to” source for Los Angeles County median home value information. Over time, maybe one place will emerge, but for now there’s just a few “almost there” entries.

Some Data Sources Which are Close

which data source can provide the los angeles county median home price — Which of the various data sources is the right one?

With all that being said, you can understand the challenge of finding the Los Angeles County median home price. Most websites are using averages, some have only the L.A. area, and none of them let you have access to the data of all the home sales so you can calculate the median yourself.

Zillow: this company is famous for using its proprietary “Zestimate” to approximate home values. For example, if you go here, you can find what Zillow calls “the typical home value of homes in Los Angeles.”

But that number isn’t clear…. What does “typical” mean – average or median? Remember, they’re different. Home value or home price? There’s no indication this is relying on sales data. And for what time period? Now, at this snapshot in time, last month, this year, or last year?

The website doesn’t say what the Los Angeles County median home price is. It also doesn’t say if it includes single-family homes, is only single-family homes, or something else.

Realtor: This website features real estate, but if you dig down deep enough, you can find market data, research, and trends. It provides data by month, not year, and appears to be providing listing prices, not sales prices.

Redfin: Redfin is another national real estate website, which tracks listings and sales, and helps connect home buyers to realtors. It has market dataand trends, but seems to be restricted to only Los Angeles city, not all of Los Angeles county median home price info.

CAR: The California Association of Realtors also has some market data. But it cautions that the data which it is using comes from over 90 associations and counts “single family detached homes only” and “median price changes may exhibit unusual fluctuation.”

Trulia: Similarly, Trulia is a real estate website that tracks home sales and house prices. It has a way to filter for L.A. and show market information at the bottom of the page, but doesn’t show Los Angeles county median home price or value info. It appears to list home values the way Zillow does, but it doesn’t appear to be relying on sales data.

News reports: You may find news reports from Los Angeles-based newspapers that report data on home sales prices.

how to calculate the inflation-adjusted county median home price — When calculating the inflation-adjusted county median home price, the median coin isn’t the median stack.

Note: you may find some websites that provide spreadsheets of Los Angeles County median home price data, and lists medians by month. Taking the median of the medians isn’t the same as the median of all the sales data. It’s just creating garbage data. To find the true Los Angeles County median, you’d have to have access to all the sales data. This is something very few people have.

And that’s the problem: no one person has the data, and different places which are close report different numbers for the Los Angeles county median home value.

While some of these are close, none of these seem to provide “the” number. Not one can be relied upon, especially for something which involves risking your home.

Summing up the initial Los Angeles County median home price

Is there one bottom line source? Not yet, not until it’s litigated, and honestly, a lot of us in 2021 are trying to sift through all this information to make sense of it. Maybe in the months ahead, one choice will crystalize as the one we all rely upon.

This will likely be after litigation and people guess wrong. Sadly, they will lose their homes in some cases because they guessed wrong on home value. Currently, there is not one number that we can reliably “bet the house” is the median home price in Los Angeles County.

2022-2023 update: with all that said, it is generally agreed upon that the 2021 and initial Los Angeles County median home price is $600,000, adjusted for inflation.

But wait, there’s more!

California homestead exemption, county median price adjusted for inflation

Recall that the California homestead exemption is the county median price adjusted for inflation. So, each year, each county’s exemption amount is different. Section (b) of the new California homestead says:

The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.

We don’t know exactly where the county median number comes from, (though the Central District of Calif court seems to endorse CAR but that may or may not be valid evidence in a trustee challenge). Further, the inflation percentage is a different number whose source is similarly mysterious.

Here is how the inflation adjustment of section (b) would work.

The California fiscal year ends in June. Therefore, we take the difference between the old June CPI number and compare it to the most recent new June CPI number. What is that percentage?

CPI and inflation-adjusted California homestead exemption — CPI and inflation-adjusted figures to use in calculating the California homestead exemption, chart from ca.gov showing increases from June 2020 to June 2022

For 2022, the difference between the June 2022 number (297.447) and the June 2021 number (284.835) represents a 4.43% increase. Therefore, for counties capped by statute at the $600,000 maximum, the maximum 2022 median home price and homestead exemption would be $626,566.96. This number will change again in 2023, and “will adjust annually, beginning on January 1, 2022.”

I made a calculator so you can figure out this year’s California homestead exemption amount for any county in California (assuming you have the median sale price number), adjusted for inflation. Better yet, we can calculate next year’s inflation-adjusted homestead exemption if we have June’s CPI numbers already. So bookmark this page and return every few months or so.

Remember, these Calif CPI figures — and the resulting percentage increase — also impact the inflation-adjusted homestead exemption in counties where the minimum was $300,000, or counties in between that and the max, like Riverside and San Bernardino County.

Be cautious, use this information at your own risk, as you’re literally gambling with your (or your client’s) house. Thanks for reading.

Contact us

If you’re in Los Angeles County, contact us to request a case evaluation, or go ahead and schedule it for free right now.

California Homestead and Reside Away from Home and State presents challenges

California Homestead: Intent to Reside and the Out-of-State Home

Posted by Hale Andrew Antico on October 16, 2022

California Homestead: Intent to Reside and the Out-of-State Home

A bankruptcy attorney colleague recently asked, does the California homestead exemption protect you if you don’t reside in the house? Are you required to live in the home? For how long? Who qualifies? Does the homestead exemption protect the home if the house isn’t in California? The answer, like most things in law, is: “it depends.”

Dual residency in two states and and claim homestead in both?

No, there is no dual residency in multiple states for the purposes of homestead. As you’ll read below, a homestead is the place in which you primarily live. You can’t primarily live in two places. So, the determination is where you primarily reside, which state law applies, and is the house protected by the California homestead exemption.

Let’s look at these “away from home” situations one at a time.

The California homestead and intent to reside

california homestead away from home — California homestead is challenged if away from home, and the intent to actually live there is unclear

First, can someone claim the California homestead exemption if they live in the house on the date the petition is filed, but move out after? What if they move out after the Chapter 7 bankruptcy is filed, but it’s just a temporary relocation? Or what if the debtor who filed bankruptcy really has no intention to return?

The result is very fact-specific, and has had bankruptcy courts and appellate courts carefully examining the particulars for the debtor before filed, on the date the case was filed, and then after the case was filed. Let’s review a few significant cases in the Ninth Circuit to see how the courts have ruled.

Not residing in the house on date of filing

First, let’s look at the case of Andy Diaz. He owned and lived at a home in Orange County, Calif. He then suffered two brain aneurysms. Those required many surgeries, and left Mr. Diaz in a coma. After weeks, he awoke from the coma, but couldn’t walk or speak, and the symptoms were similar to a stroke.

Mr. Diaz got better, and to rehabilitate, moved into his mother’s house, which was across the street from his own home, six houses down. Diaz then filed bankruptcy, claiming the homestead exemption in his home where he wasn’t living.

The Chapter 7 trustee challenged, and won in bankruptcy court. Diaz appealed. Nobody disputed that the debtor didn’t live in the house when the bankruptcy was filed.

The 9th Circuit Bankruptcy Appellate Panel (BAP) ruled that, “California courts have long held that a lack of physical occupancy does not preclude a party from establishing actual residency and claiming the homestead, if the claimant intends to return.” In re Diaz, 547 BR 329, 335 (9th Cir BAP, 2016). It went on: “Physical occupancy on the petition date is therefore neither a necessary nor sufficient condition of residency.” Id. at 336.

Residing in the home at filing, but intent to move

Next, let’s look at the case of Kevin Gilman. He did live in his house on the date of filing. Residency established, slam dunk on the homestead exemption, right? Not so fast.

Not an actual photo of Gilman on the date of his bankruptcy petition was filed and the home in escrow

It turns out that Mr. Gilman also had his home in escrow at the time of filing. Creditor challenged. The bankruptcy court agreed with the debtor. The creditor appealed.

The appellate court found that, unlike Diaz, it was undisputed that Mr. Gilman had occupancy of the premises, and was a continuous resident of the property.

However, it also ruled: “To determine whether a debtor resides in a property for homestead purposes, courts consider the debtor’s physical occupancy of the property and the intent to reside there.” In re Gilman, 887 F.3d 956, 965 (9th Cir, 2018).

It then cited the case of Mr. Diaz when it wrote: “Physical occupancy on the filing date without the requisite intent to live there, is not sufficient to establish residency.” Gilman at 966, citing Diaz at 336.

After all that, the bottom line after Gilman to successfully claim a California homestead exemption is that, among other things, regardless of where the debtor lives on the date the bankruptcy petition is filed, there has to be evidence to show that the debtor intends to live at the residence.

california homestead residence intent extraterritorial — California homestead exemption is dependent if you’re moving away from home, or just going for a temporary walk

Intent to reside but only equitable interest

What if the person filing bankruptcy claiming the homestead exemption in California doesn’t even have title to the house? That brings up the case of Steve Nolan. There, Mr. Nolan claimed an exemption for a property in Corona, California. Like Gilman, he lived at the property, and intended to continue living there. Unlike Gilman or Diaz, he didn’t have legal title to the house.

Instead, he was both trustee and partial beneficiary of a trust, which held title to the property. The bankruptcy court ruled that Mr. Nolan did not have an interest in the property subject to an enforcement lien and not even bare legal title.

However, because he was 50% beneficiary of the trust, that portion is property of the estate per 11 USC 541(a)(1) and (c)(2). The Court then reviewed applicable case law that allows homesteading based on an equitable interest, and ruled in debtor’s favor. In re Nolan, 618 BR 860 (Bankr Ct CDCA 2020).

The California homestead exemption for the out-of-state house

Occupancy, future intent, but home outside California

Next, we ask if someone claim a California homestead exemption if the California debtor lives in the house, intends to reside there so it’s his residence and domicile, but the house isn’t in California? The Ninth Circuit Court of Appeals considered this and ruled: yes.

This is the case of Robert Arrol. He bought a house in Michigan. Then, without selling that home, he moved to California for two years. He then moved back to his Michigan house, and within 90 days of moving, he filed bankruptcy in California.

He used California’s homestead exemption to protect his Michigan residence. You guessed it: the bankruptcy trustee objected to the homestead exemption. The bankruptcy court ruled in favor of Mr. Arrol, and the trustee appealed, and lost again. The trustee appealed yet again, this time to the Ninth Circuit.

The Ninth Circuit’s ruling on an out-of-state California homestead

The appellate court examined 11 USC 522(b)(2)(A), which pointed to state exemption law. Given that Mr. Arrol lived in California for the greater part of 180 days before filing, California law applied. Looking at CCP 704.730 and 704.710(c), the appellate court determined whether the state law allowed this. The Ninth Circuit found that California state law didn’t limit the homestead exemption to dwellings in California, and concluded,

We find nothing in the California exemption statutory scheme, its legislative history, or its interpretation in California case law to limit the application of the homestead exemption to dwellings within California.

In re Arrol, 170 F3d 934, 937 (9th Cir, 1999).

California homestead exemption for out-of-state property with no intent

Mike Showalter owned an interest in a Florida house. He had lived at the Florida property for some time over decades. For the twelve years prior to filing bankruptcy, he lived in California in a rental property. After filing bankruptcy, he moved to a different rental property in California. A month before filing bankruptcy, while living in California, he signed a declaration that the Florida house is his principal dwelling, and it’s his homestead.

The appellate court determined that the declaration was “patently untrue” and by Mr Showalter’s own testimony, he hadn’t lived at the Florida property for about twenty years, he didn’t live in Florida, and no credible intention to return to live at the Florida property, and the claim of California homestead is invalid. In re Showalter, (12-22720, 9th Cir BAP, 2013).

Residency and the California Homestead: Piecing it all together

As of this writing, it seems the current law on the California homestead exemption for a home where you maybe don’t live which may be in a different state is the following. You can claim the California homestead exemption if it’s your residence, California law applies, and you intend to live in that residence as your future home, even if it’s not in California.

Sell a Home in Chapter 13 Bankruptcy: Motion to Sell or Refi

Posted by Hale Andrew Antico on October 13, 2022

Sell a Home in Chapter 13 Bankruptcy: Motion to Sell or Refi

My clients ask me, “can I sell a home in a Chapter 13 bankruptcy?” As a bankruptcy attorney experienced in Chapter 13, selling a house is an issue that comes up often, particularly in a robust housing market. This is written without giving advice to the specifics of your case, but merely addressing whether it’s possible to sell or refinance a house during Chapter 13.

The answer is “yes… but.” It’s not always in your best interests to sell a home in Chapter 13, and you really should consult on this with your bankruptcy lawyer, as facts vary depending on judicial circuit, state, local practice, and your particular case and its Order Confirming. As I’m a Los Angeles bankruptcy attorney, I’ll be focusing on practice in the Central District of California here in the Ninth Circuit, so the following may not apply to you if you’re elsewhere.

Can I move during a Chapter 13 bankruptcy?

Let’s start with the basic question of whether you’re allowed to move and change residence during the term of a Chapter 13. The answer is, “Yes.” There is nothing in a bankruptcy that prevents you from moving, or even changing states. You are free to move about the country.

As leaving the state would likely mean you’re now working out-of-state from where the case was filed, you will almost certainly want to update your Schedules with your new employer, income and expenses, and this may potentially affect your plan payment, and the percentage of debt which you’re paying the general unsecured creditors. And that may turn into a Motion to Modify (MoMod) being filed with the court, leading to new legal fees.

Motion to Sell or Refinance in Chapter 13

A Motion to Sell or Refinance in Chapter 13 is where you ask the judge permission to sell or refinance your home. So, yes, you can sell or refi in Chapter 13. Whether it’s a smart decision or not will vary based on the circuit, district, and even your particular case, and you’ll want to seek advice with your bankruptcy lawyer.

Chapter 13 can pay only a fraction of your debts. But that can trigger a couple of things that lead to it getting fed more money. If you’re paying less than 100% of the general unsecured creditors, sometimes you don’t get to keep tax refunds in Chapter 13. Similarly, when there is a ton of extra money from a home sale or refi, that too can lead to more debt getting paid.

Revesting of the Estate and Form Plans

Revesting

One factor as to whether you should sell a home in Chapter 13 (or refinance in your Chapter 13 bankruptcy) depends on whether the estate revests at confirmation or at discharge. That’s all a fancy way of saying, “when does the ownership and control of your stuff — including your home — return to you, the debtor?”

In bankruptcy, here’s the crux of the matter: when you sell or refinance in a Chapter 13, do you have to use the sale proceeds to pay all of your general unsecured debt, or all of the part you are intending to pay during the bankruptcy? Remember, Chapter 13 bankruptcy doesn’t necessarily pay all your debt. If a Chapter 13 is only paying a fraction of the credit cards, how much of the credit cards get paid by the proceeds of the house or other sale?

A recent case on postpetition equity

The issue as to whether you can sell in a Chapter 13 and who gets the proceeds was recently seen in Colorado, when the Chapter 13 trustee fought to get the postpetition appreciation of an LLC. In re Klein, WL 3902822 (Bankr. D. Colo. 2022). The trustee argued that proceeds were postpetition property under Section 1306 (nothing about 541a6). However, debtor argued that Section 1327 says that property vests in the debtor at confirmation, unless provided otherwise in the plan. The two sides fought about the tension between 1306 vs 1327. Ultimately, the Court concluded that 1327 was more specific and the proceeds belonged to Debtor.

What about Section 1322(b)(9)? That says the plan may “provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.” That “may” (coupled with 1327b) also indicates that it may not.

Black vs Leavitt (In re Black)

Glad you asked. That’s the issue the Ninth Circuit Bankruptcy Appellate Panel faced in 2019 in Black vs Leavitt (In re Black), 609 B.R. 518 (9th Circuit BAP, 2019). There, the BAP decided that when someone tried to sell a home in a Chapter 13 (actually, a rental property), the property — and the proceeds — were the debtor’s to do as he wanted.

In our view, the revesting provision of the confirmed plan means that the debtor owns the property outright and that the debtor is entitled to any postpetition appreciation. When the bankruptcy court confirmed Mr. Black’s plan, the Property revested in Mr. Black. See In re Jones, 420 B.R. at 515. As such, it was no longer property of the estate, so the appreciation did not accrue from estate property.

Id. at 529.

Great news, right? Not so fast. There’s some key language in footnote 9 of the same case. There, the 9th Cir BAP wrote:

If the plan did not vest the Property in Mr. Black, the result would likely be different. See Klein v. Chappell (In re Chappell), 373 B.R. 73, 83 (9th Cir. BAP 2007), aff’d sub nom. Gebhart v. Gaughan (In re Gebhart), 621 F.3d 1206 (9th Cir. 2010) (In a chapter 7 case, where property does not revest in the debtor, “[u]nder well-settled Ninth Circuit law, any postpetition appreciation in value in the residence in excess of the maximum amount permitted by the exemption statute invoked inures to the benefit of the estate.”); § 541(a)(6) (a bankruptcy estate includes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate ….”).

Clearly, the issue of who gets the sale proceeds is determined by what the Chapter 13 plan says. It’s important to know this crucial fact before asking your bankruptcy attorney to submit a motion to sell or motion to refinance real property.

In re Berkley

In one case, the debtor was repaying one percent (1%) of his unsecured debt. The plan said the estate revests at confirmation. After the case was confirmed, he started getting stock options. At month 57 of his plan, he sold his postconfirmation stock options for $3.8 million. Trustee filed a motion to modify for some of the sale proceeds. The Ninth Circuit BAP held that Section 1329 and a modification allows for change of circumstances, and the millions of dollars means that debtor can repay his debts.

The 9th Circuit BAP acknowledged that the estate terminated at confirmation, citing 9th Circuit precedent of In re Jones, 420 BR 506 (9th Cir BAP 2009), aff’d by 9th Cir in 657 F3d 921 (9th Cir, 2011). In Jones, the Ninth Circuit adopted the “estate-termination approach.” This approach is where the estate ceases to exist at confirmation. In the estate termination approach, all property then becomes property of the debtor, whether acquired before or after confirmation.

The Berkley BAP then nodded at its own recent ruling in the matter of In re Black (above).

However, the BAP then held that “[u]nder § 1329, the bankruptcy court can approve a plan modification that increases the debtor’s plan payments due to a postconfirmation increase in the debtor’s income, whether or not the additional income is property of the estate.” In re Berkley, 613 BR 547, 553 (9th Cir BAP, 2020). It distinguished Black and Jones from the instant case, as it is solely concerned with postpetition wages.

Central District Form Plan

Whether the estate revests at confirmation or at discharge is a key determining factor about who gets the sale proceeds of postpetition appreciation from a prepetition asset. So what does the form plan say here in Los Angeles County, in the heart of the Central District of California?

Locally, here in the Central District of California, the estate doesn’t revest in the debtor until discharge. We know this because this is what our Chapter 13 form plan says. Your mileage may vary.

cdca chapter 13 plan revesting in debtor — The standard Central District of California Chapter 13 Plan revesting in debtor at discharge

There is the key language that controls when you sell a home in Chapter 13 bankruptcy in most cases in the Central District of California when there is a Motion to Sell or Refi with proceeds. It means that the debtor and proceeds must not only pay “all of the plan” debt, but “all of the all” debt. This can be a strong disincentive. It often is better to just stay in the Chapter 13 until discharge, and get forgiveness of potentially tens of thousands of dollars of unsecured debt. After discharge, the house, and what you do with the proceeds, are yours.

Now, I supposed there is nothing preventing debtor from adding a nonstandard provision to the plan that debtor’s property revests at confirmation. But that may lead to other hazards that involve the automatic stay and debtor’s property which are no longer property of the estate. Try this at your own peril.

Conclusion

So, yes, Virginia, you call sell a house in Chapter 13 bankruptcy. You have the right to move cities, even states, as long as you maintain your plan payments, and update your schedules to reflect current income and expenses. However, who gets the sale proceeds is very specific to where you live, what your appellate courts say, and what your local district’s forms say. As always, ask your bankruptcy attorney, and thank you for reading.

sb1099 new california exemptions good news

SB1099: New 2023 California Bankruptcy Exemptions Increase

Posted by Hale Andrew Antico on September 29, 2022

SB1099: New California Bankruptcy Exemptions Increase for 2023 | 5 Major Wins

SB1099, the new California exemptions increase which gives debtors in bankruptcy more protections, is now law. The new California exemptions for 2023 help people in bankruptcy keep more of their assets, including their cars, their home, money, support pay, and sick leave. The bill was signed by the governor yesterday, and takes effect 1/1/2023.

Note that SB 1099 and the 2023 California exemptions are different from the 2021 increase in the California homestead exemption which is tied to Los Angeles County median home prices. Last year’s homestead exemption boost strictly involved homes. In contrast, the 2023 exemption hikes for California improves protections for homes, cars, savings, support, and accrued leave and wages.

Caution: as the new law has been in effect for just a few days, it’s likely that creditors and trustees will challenge key portions of it in court. As such, reliance on it and its changes should be done with caution until it’s established with some history and caselaw.

While the changes in the new California exemptions of SB 1099 are many and wide-ranging, below are some key highlights.

Home equity appreciation now goes to debtor, not the estate

The provision

A key provision of the new California exemptions law is that postpetition appreciation in the home equity of debtors cannot be taken to repay debts. Section 2 of the SB 1099 says:

[I]n a case where the debtor’s equity in a residence is less than or equal to the amount of the debtor’s allowed homestead exemption as of the date the bankruptcy petition is filed, any appreciation in the value of the debtor’s interest in the property during the pendency of the case is exempt.

This has the possibility to addressing the horrible, terrible, no-good decision of In re Jacobson, 676 F.3d 1193 (9th Cir, 2012) which provided the perverse result that debtors had a contingent homestead exemption.

New California exemptions provide more protection for home and appreciation — New California exemptions provide more protection for homes and their appreciation

There, the Ninth Circuit ruled, “That right was contingent on their reinvesting the proceeds in a new homestead within six months of receipt. Cal.Civ.Proc.Code § 704.720(b). The Jacobsons did not abide by that condition and thus forfeited the exemption.” Jacobson at 1199.

Now, with SB1099 becoming law, regardless which way the housing market goes after homeowners file bankruptcy, appreciation in their house is theirs, and not that of the trustee who previously could take it to pay their debts. However, there is a countering argument that the legislature here says exemptions are not fixed on the filing date, which agrees with Jacobson, and thus, perhaps the case and its ruling are still valid. We’ll have to see how that plays out in the courts.

November 2022 update: Did the Ninth Circuit just chip into Jacobson, in a gradual erosion towards the ruling’s demise?

A Note on Preemption and SB1099

Section 541(a)(6) says that the estate is entitled to postpetition appreciation. The Ninth Circuit BAP has held that to be the case, even if there is no equity on the date of filing. In re Viet Vu, 245 BR 644, 649 (9th Cir BAP, 2000). Creditors can challenge the new state law of SB1099 (or at least this portion of it) as being preempted by federal law, and even 9th Circuit authority on the point. It remains to be seen what courts would do.

Also, 11 USC 521(a)(2) says that a debtor must perform his or her stated intention about the collateral and secured debt with the filed petition. The options in the federal statute are: reaffirm, redeem, or surrender. Lenders can assert that state law SB1099 is preempted by federal law of Section 521. One counter to this is that, by and large, debtors in California have not been reaffirming mortgages, which are also secured debts that fall under 521. Perhaps treating vehicles the same way, pursuant to California statute, will be similarly allowed.

Ride-through for Cars is Back in California

Bankruptcy ride-through is where debtors can have their car loan “ride through” their bankruptcy without having to sign a new contact. In 2005, the bankruptcy reform known as BAPCPA required debtors in Chapter 7 bankruptcy to sign reaffirmation agreements if their lender provided one. This meant that the debtor owed the car loan, even if they lost the car to repossession after bankruptcy. With SB 1099, the debtor doesn’t need to sign the reaffirmation agreement, and the car loan can “ride-through” the bankruptcy case. Ridethrough was the norm before BAPCPA, and now in California, it has returned. The ride-through policy protects debtors from being liable for a big debt if they eventually default on the car loan.

The “ride-through” bankruptcy part from the new CA law helps debtors. In short, no longer is the person in bankruptcy gambling that they won’t suffer some future hardship and lose the car, and still be stuck post-bankruptcy with thousands of dollars in a car loan they can’t afford. Ride-through in bankruptcy for cars is back in California.

Car Exemption is Increased to $7,500

The new SB1099 law also increases the car exemption amount to $7500, regardless of which exemption scheme is chosen. The California exemptions have two tracks: in the 703 and 704 sections of the California Code of Civil Procedure. Each section previously has a different amount for protecting equity in a vehicle. Now, regardless which scheme debtors choose, they can protect $7,500 of equity. This is crucially important in this era of record prices for used cars.

Sick leave & family leave time protected up to $7500

Family leave, sick leave, and vacation credits are now exempted up to $7,500, as these terms are defined in Section 200 of the Labor Code.

Alimony and support

Pre-existing law included an alternative exemption for the debtor’s right to receive alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. This new California exemption adds a general exemption matching the existing alternative exemption.

And there are more.

New California Exemptions of SB1099 help debtors … a lot.

While the list goes on and on, these are the key provisions. It amends Section 2983.3 of the Civil Code, Sections 703.140, 704.010, 704.050, and 704.113 of, and to add Section 704.111 to, the Code of Civil Procedure, and amends Section 22329 of the Financial Code, which relates to bankruptcy. The bottom line is the newly-enacted SB 1099 California exemptions protect homeowners, car owners, people receiving support, and sick pay. It’s a win for Californians, and those who lose out are the credit card companies. Rejoice, California!

Chapter 13 Bankruptcy Ultimate Guide

Posted by Hale Andrew Antico on August 21, 2022

Chapter 13 Bankruptcy – the Ultimate Guide

What is Chapter 13 bankruptcy? Chapter 13 bankruptcy is like debt consolidation, but better. It’s a solution for people who have some money to pay some of their debts back. In five years from now, paying minimums on all your debt, you’d still owe much of your debt. It’s because of that darned interest, and you’re barely paying principle. Chapter 13 bankruptcy fixes the interest problem.

Who am I? I’m a Los Angeles bankruptcy lawyer. For years, I have served as the Chair of the Chapter 13 Committee of the cdcbaa. I’ve successfully confirmed hundreds of cases for my clients, and led those cases to discharge. I’ve been on committees with judges, trustees, creditor lawyers, and other debtor attorneys that have worked on forms and rules changes for our entire district, and have hosted, moderated, or presented on panels on the topic of Chapter 13 bankruptcy to other lawyers. Here I share just some of what I’ve learned over the last twenty years to help people trying to learn about this mysterious area.

Chapter 13 Bankruptcy Definition: In Chapter 13 bankruptcy, you pay some (not necessarily all) of your debt back, cannot be sued, the trustee doesn’t take your stuff, and interest is frozen so you’re not on the minimum payment treadmill forever. It’s a way out with peace of mind.

What is a Chapter 13 bankruptcy?

Filing bankruptcy under Chapter 13 is for people who have some discretionary income. With this extra money each month, the consumer bankruptcy debtor can repay some or all of their debts.

Discretionary income is money left after their normal and usual monthly expense are deducted from monthly income. For this reason, a Chapter 13 is called a “Wage Earner Bankruptcy” The focus is having money to repay debts, which we call “budget surplus.”

60 Monthly Payments

Chapter 13 Bankruptcy — Chapter 13 bankruptcy gives you a way out where you can’t be sued and you’re not paying interest forever.

A big difference between Chapter 7 bankruptcy and bankruptcy chapter 13 is that there are monthly payment plans for the chapter 13 debtor. The Chapter 13 plan payments can even help you pay back tax debt, which in Chapter 7 is usually not discharged. Plan payments are made to the Chapter 13 Trustee over a period of (usually) 5 years.

What are these payments? These payments are usually to firstly, tax debt. Secondly, they go to whatever you may be behind on your mortgage payment, or sometimes your car loans. Finally, they’ll go to pay some or all of your credit card debt. Chapter 13 bankruptcy therefore is a good way to stop foreclosure and save your house, as well as stop creditor harassment. And of course, all the California bankruptcy exemptions still apply, so you can keep your stuff.

Chapter 13 was intended to give the person with income a chance to make affordable installment payments. This comes out of future income so that creditors get paid at least something. The good new for you is that there is no liquidation in Chapter 13. The Chapter 13 bankruptcy trustee doesn’t take things. Generally, you keep your stuff.

You’re going to want a skilled Los Angeles bankruptcy attorney to help you so you can make your payment plan no more than you can afford for your Chapter 13.

The Stuffy Definition: Wage Earner Bankruptcy

Chapter 13 of the Bankruptcy Code lets debtors under Court protection apply a portion of future earnings to the repaying some or all their debts over time. Creditors can’t do anything during this time to collect the debts. The automatic stay protects the debtor while a plan of repayment is carried out. It is similar to a Chapter 11 Business Reorganization. In fact, Chapter 13 is sometimes called “Consumer Debt Adjustment.”

Consumer Chapter 13 Bankruptcy Overview

You currently have enough extra money at the end of the month to pay your credit card minimum payments. This, of course, is getting you nowhere. You’ll have the same debt in 8 years, and will still be paying $700 or $1000 or whatever it is each month… forever. There’s a way to eliminate debts on your terms, likedebt consolidation.

Or you’re behind in your mortgage payments, and want to keep your home. And you have extra money each month you’d like to use to catch up, but the mortgage company won’t work with you. This is one advantage of Chapter 13 over other types of bankruptcies.

In either situation, you can take that money you have left at the end of the month and start reducing the debt you owe so that you’re out of debt in 60 months.

Chapter 13 Bankruptcy Process

The process for filing Chapter 13 is a maze-like process, and you will want to have an attorney by your side. The paperwork involved is truly overwhelming, and the time is much greater than a Chapter 7 bankruptcy.

Preparing the Petition and Plan

Bankruptcy Petition

Like any bankruptcy case, you will need to have a bankruptcy petition for the court. This is often 30-50 pages thick and lists your debts, possessions and other information in a very particular order and fashion.

Payment Plan

The payment plan is the key to a Chapter 13 bankruptcy, and what sets it apart from a Chapter 7 bankruptcy. It sets out all the ways which the debt will be handled during the administration of the bankruptcy by the Chapter 13 Trustee. How much unsecured debt will be paid? Are you going to keep paying on the car, or give it back for a voluntary repossession? What about the mortgage: will it be caught up if you’re behind to avoid foreclosure, or if so, how long will it take to pay the arrearages that you’re behind?

In short, a lot of precise and important calculations go into the bankruptcy plan payment with the aim of determining the number that matters most to the debtor. This number, of course, is the monthly payment. You’ll pay this monthly payment for 60 months (yes, that’s 5 years). By definition, you’ll be able to afford it. A good bankruptcy attorney can ensure you are able to make the payment, but that it’s also something that can be accepted by the bankruptcy trustee and creditors.

Court Involvement

Filing the Bankruptcy Papers

After these are ready, the bankruptcy petition and payment plan are submitted to the U.S. Bankruptcy Court. The papers are filed and the case gets a number and the ball is rolling.

The Meeting of Creditors (341A)

Like a Chapter 7 bankruptcy, you must go under oath with penalty of perjury regarding the facts that are contained in your bankruptcy petition. You will need to appear in bankruptcy court to answer some brief questions. This is the 341(a) Meeting of Creditors.

Confirmation

After the bankruptcy court date, your attorney will need to return to court. This involves making sure that the numbers all add up, your chapter 13 payment plan is fair to both you and your creditors, and of course, to accept your next monthly payment. If all goes right, your plan will be “confirmed,” your plan is accepted and everything is on automatic pilot.

After Bankruptcy Court

After confirmation, from this point forward, you will just mail your monthly payments to the chapter 13 trustee. There usually are a couple of restrictions, such as notifying the trustee if you get a change in your income. Further, you’re not to get more than $500 on any future debt without permission. Something to remember: any extra money above and beyond your normal monthly expenses goes to the bankruptcy for debt. Consequently, the bankruptcy court and trustee follow anything that changes the formula of your confirmed plan. This is why the Chapter 13 trustee needs to see your tax returns, and gets any tax refund.

Read my in-depth article about tax refunds in Chapter 13bankruptcy.

Calculating the Bankruptcy Plan Payment

Chapter 13 Plan Payment, Generally

The Chapter 13 bankruptcy plan payment is often whatever you can afford. That is, it’s what’s left after your projected monthly income and reasonable and necessary expenses. By definition, the bankruptcy plan payment is affordable, and typically less than paying all your credit cards directly.

However, that’s not always the case. There are other factors that can set the “floor” of your Chapter 13 plan payment amount. Of course, if you can afford more than your floor, you normally pay what you can, up to the full amount of your unsecured debt , which I’ll call the “ceiling.” Somewhere between the floor and ceiling is your Chapter 13 plan payment amount.

Factors that can affect the bankruptcy plan payment

There are lots of things that can raise the “floor” and impact what your Chapter 13 bankruptcy plan payment. These exact figures aren’t usually known without some research or work.

the result of the long B22 form which analyzes all your pay stubs and income the past six months
while no one takes your assets in Chapter 13, they factor in what you would’ve lost in Chapter 7
the amount of your priority tax debt (both state and federal taxes)
the value of your financed car which is old enough that you can cram down and pay only what it’s worth, not the loan amount
the amount of mortgage arrearages, including all late fees
current value of any judgment liens on your residence
balances of all your credit cards bills, including nonpriority IRS and FTB debt
how much you owe in unpaid property tax debt
and more

Can you say with any certainty the values of any of these variables, let alone all of them? Of course not. Heck, even the answer to the first bullet point about the B22 often isn’t known until I see all your paystubs and bank statements. The bottom line is that while the ceiling is fixed to “all,” the floor of what you pay for your bankruptcy plan payment can rise or fall based upon the responses to all these and other factors.

So what’s my Chapter 13 plan payment amount?

Few of these factors are known for sure at the bankruptcy consultation. Consequently, anyone at the first meeting who predicts with any confidence your projected Chapter 13 plan payment amount is potentially ignorant, misleading, or both. The one exception is when someone says you need to pay all your debt, what we call a 100% plan, but even then, we’re not always sure of the exact balances of all your debts. Having a 100% plan can make it more sensible to sell a home in Chapter 13, give you less stress and more disposable income, and help you keep your tax refunds in Chapter 13.

However, in my best effort to help you, I can say this: while the above factors can throw a wrench into the works, your Chapter 13 bankruptcy plan payment is often based upon whatever you can afford, using average income minus reasonable and necessary living expenses.

Can I later reduce or change my Chapter 13 payment

Usually, yes, you can petition the court to reduce your plan payment in Chapter 13 if there’s a change of circumstances. This is done by a Motion to Modify, and needs to get approval from the trustee and, of course, your bankruptcy judge.

In bankruptcy, what’s allowable as a reasonable living expense?

People ask, since the Chap 13 plan payment factors in reasonable living expenses, what’s considered “reasonable?” Answer: whatever someone wearing black robe says it is. Ok, I kid (sort of). The truth is that what is considered reasonable types and amounts for expenses is often the type of thing debtors’ attorneys and the Chapter 13 trustee and creditors fight over. It typically is resolved by a bankruptcy judge. To make it even more complicated, the result is extremely fact-specific; what works for someone else may draw an objection here, or vice verse. An experienced bankruptcy lawyer will know what generally gets objected to and what is allowed. Let’s talk.

Why do I need a Chapter 13 bankruptcy lawyer

Chapter 13 bankruptcy cases are ones in which it is hard to be successful. Judge Johnson of the Central District of California (where Los Angeles is situated) has researched the topic. In his standing order, Judge Johnson finds that nationally, only 33% of Chapter 13 cases succeed. Locally, however, it’s much more rare. The judge finds that in the Central District of CA, only 3% of Chapter 13 bankruptcy cases succeed. He also found that this number drops to 0% when there’s not a bankruptcy attorney helping the debtor.

CDCA Low Chapter 13 Success Rates

Quoting the bankruptcy judge:

“A review of the Court’s records a few years ago indicated that only 3% of Chapter 13 cases in this district resulted in a completed plan with Chapter 13 debtors making all plan payments.”

That’s not a typo: 3%.

Judge Johnson Chapter 13 bankruptcy research — Chapter 13 bankruptcy is tough. Go with someone who knows what they're doing.

There’s no doubt that Chapter 13 bankruptcy is difficult to learn and navigate for the Los Angeles bankruptcy filer. Anyone who wanted to do one would need a bankruptcy lawyer to even out the odds of success. You’d want a bankruptcy attorney who had experience with Chapter 13. Not just experience, but success with these challenges.

Los Angeles bankruptcy attorney Hale Antico has Chapter 13 success

Bankruptcy filing statistics show that from 2008 to 2011 there was a peak of Chapter 13 filings.

Between 1/1/2008 and 12/31/2011, Los Angeles bankruptcy attorney Hale Antico filed 177 Chapter 13 cases.

Successful cases take 5 years to earn a discharge; unsuccessful cases end sooner.

Between 12/31/2013 and 12/31/2017, there were 104 of these earlier Chapter 13 bankruptcy cases which received discharges.

104 divided by 177 is 59%.

Or viewed differently:

Chapter 13 Bankruptcy Success Rates

The stats say you need an attorney for Chapter 13 bankruptcy. But not just any 3% successful bankruptcy lawyer. It would be a good move to go with one of the best bankruptcy attorneys whose success rate is almost double the national average, and 20 times higher than the local success rate.

Summing up Chapter 13 Bankruptcy

All in all, Chapter 13 bankruptcy is a successful debt consolidation where you pay a fixed payment for a fixed term. Everything after the term that didn’t get paid is discharged. Filing it freezes interest. Creditors can’t sue you. You just pay back what you can. This is often cheaper than what you’re currently paying all those minimum payments combined before the bankruptcy. Why? Because without bankruptcy all those minimums only go to interest. Chapter 13 bankruptcy works to get you out of debt.

Read my article of things to do (or avoid!) before you file bankruptcy. We’ve helped thousands of people in Los Angeles file bankruptcy. We’d be honored if you’d let us put our success to work to help you, too.

Contact us now.

California bankruptcy exemptions can save your house.

New! 2023 California Homestead Exemption Increased by Inflation

Posted by Hale Andrew Antico on March 29, 2022

2023 California Homestead Exemption, increased by inflation

The 2023 California homestead exemption numbers are already available, and different from last year, and even the original range of $300,000 to $600,000. In fact, in 2023, they top out even higher than $600,000, which helps you save more of your home from creditors than the homestead exemption could in 2022. Why? Because of inflation. The new California homestead exemption is tied to the CPI, or consumer price index. And everyone knows things lately aren’t cheap.

Basics about exemptions

Chapter 7 bankruptcy is liquidation; the bankruptcy trustee can take your stuff. They don’t take the shirt off your back, but at some point they draw the line regarding what you can keep. These are the bankruptcy exemptions, and each state has its own. The California exemptions include a way to protect home equity.

There are two sets of California bankruptcy exemptions. California bankruptcy attorneys call these the 703s and 704s. The California homestead exemption is found in the 704s, at California Code of Civil Procedure 704.730. If you choose this way, you lose other things, including the ability to protect a tax refund. Meet with a bankruptcy attorney to find out what’s best for you.

The Three Homestead Exemptions in California Before 2021

The California homestead exemption can save your house. — Talk to a experienced bankruptcy attorney about the California homestead exemption

In the old days, and by that, I mean prior to 2021, the California homestead exemption was based on the characteristics of the person filing bankruptcy, not the location of the real estate. It was subdivided a few ways. Firstly, there was the bankruptcy exemption that a single homeowner gets. This was in old subsection (a)(1). Most recently, a single person who lived in a house gets to protect $75,000 of home equity under the California exemptions.

Secondly, there was a higher exemption for a married person’s residence. This was in (a)(2). The California homestead exemption for a married person is $100,000 in the last year of this system.

Finally, if you can tick one of three boxes, you would get the superduper $175,000 homestead exemption in California’s bankruptcy exemptions. To level-up and qualify for this, you have to either be:

65 years old;
have a disability that prevents gainful employment; or,
55 years old, and make below a certain income level that changes from time to time

This may seem simple, but what exactly is “disabled?” What does “as a result of?” What is the income level, and which time period is measured? Also, a good thing about the $175,000 California homestead exemption is that it would extend to the spouse of the person filing Chapter 7. So if the debtor is, say, 63 years old, but their husband is 67 but really doesn’t want to file bankruptcy, the 63 year old who does file Chapter 7 bankruptcy gets the $175,000 homestead exemption in California anyway.

In the right circumstances, someone filing consumer bankruptcy can protect a lot more house equity under this third option, which is less than the minimum after the law changed in 2021.

The new California Homestead Exemption starting in 2021

Then, in 2021, the California homestead exemption increased dramatically. This provided tremendous relief to California homeowners. What this means to the person contemplating filing bankruptcy is that more of their home equity can be protected. Why? Because they really do take houses in Chapter 7 bankruptcy.

Previously, the amount of home equity which could be protected was inadequate and hardly kept up with the inflated Calif real estate. But then in 2020, COVID-19 struck, and people were suddenly unable to pay their rent and mortgages. Partially in response to the pandemic, the state legislature passed and the governor signed a dramatic increase to the California homestead exemption.

The result is a system which depends upon the location where the house is, and has nothing to do with marital status or age. And this makes sense, as a homeowner in Ventura County probably has a higher home value than someone who owns a home in Lancaster CA. It’s now tied to the median home price for the previous year.

So, starting in 2021, homeowners who’ve lived at a home for 4 years or more get a minimum of $300,000 of home equity protection, and a maximum of $600,000 of California homestead exemption, based on what is, or was, mysterious data. What exactly is the county median home price? In Los Angeles and Orange County, a consensus slowly formed about the amount of the Los Angeles County median home price. And it changes each year (more on that below).

But be warned: if you haven’t lived there that long (and there are other factors which could jeopardize the new massive California homestead exemption), you don’t even get the $300,000 minimum.

Los Angeles County median home price 2023 and Exemption Inflation Calculator

You will want to consult with a qualified bankruptcy attorney before you risk losing your house.

2023 California Homestead Exemption: Updated numbers

The 2023 homestead exemption amount adjusts starting on January 1, 2023. Due to today’s historic inflation, the California homestead exemption in 2023 will be higher than in 2022, which was higher than the the initial range of $300,000 to $600,000.

Why? CCP 704.730 (b) says: “The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.” So let’s walk through the progression.

Warning: there are those who think that the CPI adjustment is applied only to last year’s median, and not last year’s adjusted number. Or put differently, there is disagreement as to whether the CPI adjustments stack up other CPI adjustments, or go only to last year’s median. If the adjustment applies only the most recent year’s median, that will make this year’s homestead exemption lower. Beware!

In 2021, the top limit for the California homestead was $600,000. Then, in June 2021, the CPI was 297.447, a 4.4% increase from the June the previous year. Applying that factor to the homestead amounts, that would increase both ends of the spectrum to $313,200 and $626,400. As inflation in 2022 is higher yet again, 2023 California homestead exemption will be even more than that.

Now, in 2023, we do the same thing all over again. With such high inflation recently at 8.27%, the 2023 California homestead exemption will be a little over $675,000. To be more precise, the 2023 inflation-adjusted range of the California homestead exemption is $339,189 and $678,378. To see how these numbers are reached, check out our own custom calculator for county median home price to reach the homestead exemption after adjusting for inflation. This will be helpful for the many counties whose median home price is between these two numbers.

2023 California homestead exemption chart los-angeles-bankruptcy-net — 2023 California homestead exemption chart

Fun fact: Do you have to actually live at the home to get the exemption? For how long? Find out more here.

Be careful in Chapter 7 bankruptcy. It’s not always the best type of bankruptcies.

Read my 12 crucial tips before filing bankruptcy.

Do's and Don'ts

Don’t go it alone

You really should consult to a qualified Los Angeles bankruptcy lawyer, as you get what you pay for, and it’s not worth risking your home. If you don’t do this right, you’re literally gambling with your house.

Schedule a Zoom consult with me, and let’s talk.

Chapter 13 can Stop House Foreclosure

Posted by Hale Andrew Antico on March 12, 2018

Chapter 13 bankruptcy can Stop House Foreclosure

Save your Home and Catch up on the Mortgage

by Hale Andrew Antico, Esq.

In August 2005, just before the bankruptcy laws changed, I wrote in this space that there was a perfect storm brewing for the average consumer. Since then, the bankruptcy laws have changes (in the name of reform), and indeed, it is harder — but not impossible — to get a fresh start.

One area where we can get into debt trouble and feel a financial squeeze is with regard to mortgage payments. The past few years, property values have been soaring here in Southern California. This has led to many people to refinance their homes and take “cash out” — in essence using their house as an ATM. The result of this is that it leads to less equity and a higher mortgage payment.

What happens if these homes with tapped out equity drop in value? We’re conditioned to believe that property values only go up Up UP! in Southern California. However, in 1989-1991, the real estate market peaked, leading to dropping property values. The result is that many people were “upside down” in their homes, meaning that that they owed more than it was worth. We expect this from a car loan since a car almost always depreciates faster than we can pay it off. But with a house? Yikes.

Some experts believe that history may be repeating itself. Recently, economics experts are looking at reliable benchmarks like Price-to-Income Ratios and Price-to-Rent ratios and noting that home value are much higher than normal levels. Even houses in your neighborhood are no longer selling within the same week they’re listed with someone offering $10,000 over the listing price. Instead, we’re seeing “Reduced!” signs nailed onto those For Sale signs, and reading advice like that in theLos Angeles Daily Newssuggesting that you list your home in the lower 25% as related to the comparable homes in the neighborhood. Is there a real estate bubble which will shortly burst, or is the housing market temporarily resting before it continues upwards and onwards? No one knows for sure.

If you find yourself in the awful situation where you fall one or two payments behind on the mortgage, there is still hope to stop foreclosure. A Chapter 13 bankruptcy might be the solution. This option allows you to get some “breathing room,” stop the collection calls and headaches, and even stop a foreclosure. People can fall a few months behind, they want to catch up but the lender won’t accept anything but a massive lump sum payment that the troubled homeowner doesn’t have. A Chapter 13 case can allow you to catch your breath as you demonstrate how you will catch up on your past due mortgage payments, but on a schedule you can actually stick to and afford. This very helpful type of bankruptcy allows you to reorganize your debt and save your house in Southern California and stop foreclosure.

Even for people who don’t have a home, a Chapter 13 bankruptcy can provide a light at the end of the tunnel. It can provide a way to pay what you can afford, and in return, stop lawsuits, wage garnishments, collection headaches and yes, even foreclosures. And then, yes, you can be debt-free in three or five years. That time will tick off the calendar either way… why not be out of debt in that span?

So, just because you’re a payment or three behind on that car or home and don’t think you can stop the house foreclosure, don’t lose faith. There is a way to get some space and time to catch your breath. You can be out of debt and most importantly, save your home. Sometimes, bad things happen to good people. We don’t intend for things to work out the way they do. But when “life happens” and there is an unanticipated debt problem, when you’re ready to solve it then a Chapter 13 bankruptcy can be the solution to your problem.

CONTACT US FOR A CONSULT NOW

Hale Andrew Antico (aka Attorney Antico) is an attorney who specializes in consumer finance.