Articles Posted in Bankruptcy

Over the past three years, a series of impactful events have significantly influenced the housing market. In response to the economic challenges posed by the COVID-19 pandemic, the Federal Reserve injected unprecedented amounts of money into circulation. This infusion of funds gave more individuals cash in hand to make down payments on homes. 

Why Did California Home Prices Rise So Fast? 

Simultaneously, the widespread adoption of WFH (work from home or remote work) reshaped living preferences, prompting a shift from urban to suburban and rural areas. People realized that if they didn’t need to consider commuting, they saw their relationship with work differently and could make lifestyle choices accordingly. Those who made a home purchase in 2020 or 2021 likely secured favorable fixed-interest rates, while those with adjustable rates may find themselves facing financial challenges. With interest rates at historic lows during the 2020-2021 period, the National Association of Realtors (NAR) highlighted in a report that the qualifying income for a median-priced home in America was approximately $50,000. Fast forward to 2023, and this figure has surged to around $107,000. This means that prospective homebuyers, who would have met the criteria for a home loan just a few years ago, now need significantly higher incomes to afford a similar property. This makes the number of possible home buyers shrink immensely over just a few years, not because they don’t want to buy a home but because they are no longer able to qualify for the mortgages. There are even stories floating around online that people who no longer qualify for the mortgage they already have, are being forced to refinance under the new interest rates simply because they no longer qualify based on the current conditions. That means theoretically people who had a 3.5% fixed mortgage could be forced into a 7.5% mortgage simply because they don’t make enough money after inflation. America has a habit of charging people more money when they can’t afford their current situation. 

How it started 

When Covid-19 hit America it was a black swan event that nobody could have predicted the series of financial turmoil it would cause for many Americans. Several major factors contributed to the reasons why Americans decided to buy new cars. Huge stimuluses were provided giving millions of Americans cash in hand as they pivoted from working in offices to working at home. With overflowing bank accounts and the fact that nobody could travel, eat out or do anything, many people decided to go out and finance new cars. Supply chains were also virtually shut down making car production and delivery difficult resulting in people fighting over what inventory was available. Many people are now asking how to give a car back and we are going to explore the options available to you. 

What dealerships did 

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How to File for Bankruptcy and Keep Your Car

If you’re contemplating bankruptcy and worried about keeping your car or truck, the solution isn’t straightforward, but there are strategies available to help you keep it. If you bought a brand-new or even a used vehicle over the last few years and you paid a premium for it, the vehicle may be underwater. There were many buyers during covid and people were offering over value on many hard-to-find vehicles when both manufacturers and dealers were unable to keep up with demand. This in turn pushed many Americans to agree to buy the car or truck that they wanted sometimes for thousands of dollars over the median price. Now that demand has slowed a bit there are many car owners who have vehicles in which they owe far more than the vehicle is worth. 

Can I file for bankruptcy? 

California Student Loan Debt Options 

For people in debt right now, things just got a lot worse. Notices have gone out to student debtors across the US that the moratorium has expired and can’t be extended thanks to the debt ceiling agreement. Payments have resumed since October 2023 and there are many unlucky people that simply can’t pay another bill right now. If you are considering your California student loan debt options, there is a lot to untangle. This article will focus on how you can (or can try) to discharge your student loans through bankruptcy, however there are some other good options I have listed below the article that you may want to consider if bankruptcy is not a consideration or of interest to you.

 How do you start the process? 

If you are a resident of the state of California you can take advantage of the state’s generous exemption laws to protect your property and other assets but it is important to understand the limitations of these laws and how they apply to your specific situation. When filing a Chapter 7 bankruptcy it is important to note that the majority of Chapter 7 bankruptcies are no-asset cases where the trustee does not make any attempt to sell your personal property. With that said, if you own a home or have other expensive assets you want to protect you will want to understand all of the rights you have under California law and apply them when possible. California has created bankruptcy laws in order to protect people and their property allowing them to become debt free and get their finances back on track. Exemptions enable you to retain specific assets following bankruptcy. It’s essential to choose the set of exemptions that aligns with your particular requirements. You cannot blend exemptions from both sets; rather, you must exclusively utilize exemptions from one set or the other. For married filers, both spouses must utilize the same set of exemptions without the option to double their exemptions.

Homestead Exemption:

Most states in the United States offer homestead exemptions to safeguard one’s primary residence in the event of bankruptcy. Unlike some other states, California does not permit the utilization of Federal exemption laws in a California bankruptcy proceeding. Instead, California offers two distinct exemption schemes as specified in Section 703 and Section 704 of the California Code of Civil Procedure. When deciding whether you should be Using California’s 703 vs. 704 Exemptions you need to understand the difference between and what best applies to your situation.  While it is possible to negotiate with your mortgage lender to bring your delinquent mortgage up to date in Chapter 7, it’s crucial to recognize that the lender is not obligated to cooperate, and a significant number choose not to. To safeguard your home from potential loss in Chapter 7, it is advisable to ensure that your mortgage payments are up-to-date, that you can shield all equity through a homestead exemption, and that you are capable of maintaining your mortgage payments even after the bankruptcy process.

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What happens if I default on my SBA loans?

Covid-19 hit small businesses hard, leading the U.S. government to initiate several programs aimed at supporting struggling American businesses. As part of the U.S. Small Business Administration’s (SBA) Disaster Assistance program, these efforts included the Paycheck Protection Program (PPP), which played a central role within the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. The PPP was designed to provide vital resources to small businesses, enabling them to sustain their payrolls, rehire laid-off employees, and cover essential overhead costs during these challenging times. The CARES Act, along with the subsequent Coronavirus Response and Consolidated Appropriations Act of 2021, swiftly delivered direct economic assistance to American workers, families, small businesses, and various industries in need.

What was the plan? 

Introduction

The COVID-19 pandemic brought unprecedented challenges to the United States, with small businesses being hit particularly hard. Recognizing the urgent need to provide relief to these struggling enterprises, Congress introduced a new bankruptcy option known as the Small Business Reorganization Act of 2019, commonly referred to as Subchapter 5. This groundbreaking legislation aimed to offer a lifeline to small businesses grappling with mounting debts during one of the most significant financial crises since the 2008 housing bubble burst. Prior to Subchapter 5, Chapter 11 bankruptcy was the primary mechanism for debt reorganization, but it proved to be complex, costly, and inaccessible for many small businesses lacking the financial resources to navigate its intricacies. Subchapter 5 offers small businesses debt relief by being an efficient, affordable, and accessible alternative, providing a ray of hope for struggling entrepreneurs.

The Genesis of Subchapter 5

China’s Evergrande files for Chapter 15 Bankruptcy 

In breaking financial news, China’s troubled developer Evergrande has just filed for Chapter 15 bankruptcy in a New York Court yesterday.  In this article we will explore both what a Chapter 15 bankruptcy is and how this bankruptcy is showing the cracks in the Chinese financial system. 

What is Chapter 15? 

I have been seeing more and more people with HOA issues. HOA’s can foreclose against a property. HOA attorney’s like Fiore Racobs and Power do exclusive HOA work and rack up very large attorney fees on behalf of HOA’s when people are in default. Filing Chapter 7 bankruptcy will wipe out your personal liability against an HOA but they typically still have a secured aspect on there ability to collect against the property. I have seen HOA’s foreclose on people post bankruptcy because although the can’t collect on pre-petition HOA’s against the person, they do collect on HOA’s that become due after the bankruptcy.

One issue that a lot of people are facing with HOA’s is that although they file bankruptcy the bank doesn’t take back the property for a long time. Filing bankruptcy isn’t necessarily surrendering the property back to the bank. The bank still has to foreclose before you are taken off title. HOA’s are able to collect on the property based on who is on title. The benefit of the HOA goes to the title owner so even though you may have abandoned the property if you are still on title the HOA’s can collect against you. I have had clients that have left a property filed a bankruptcy case only to get sued for $5000 dollars two years after the bankruptcy. Because the banks didn’t foreclose my clients are still legally on the hook for post-petition HOA dues. I use the metaphor to explain this as HOA’s are like utilities, if you don’t pay your power bill for a few months, and then you file a bankruptcy case, you can get rid of the money you owed for the benefit of using the power before the bankruptcy. Any utilities that come due after the bankruptcy must be paid.

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California has had some decent growth in property values lately with the lowering of interest rates, investors buying homes, and some people trying to get into a hot market before interest rates go up. This has been somewhat a good thing for housing prices. If you are considering filing bankruptcy for other debt related issues you may want to jump in before the market continues to rise. I have had two clients in the last month who have come to me from Cathedral city and haven’t paid there mortgage in over a year. One wanted to file a chapter 7 as he was divorced, the ex-wife was living in the house and he just had too much debt to manage. Amazingly he didn’t realize that his house was an asset. Last year the house was probably worth 150 and his not was about 160. Since he had no intention of saving his house and couldn’t pay the arrears with a now split family I decided to recommend a realtor to him before we filed. He was able to put 20k in his pocket within a month and we have delayed the filing of the bk for him. Once the money is out of escrow and in his account I can file using the 703 exemptions and protect the money with the wild card. So without the bankruptcy and a good lawyer spotting the value in the house he could of either lost the house and let the bank capitalize on that or we could have just filed the bankruptcy quickly and the trustee might have sold the house and paid the 20k to unsecured creditors. Having someone on your side with your interests and not a person who is just trying to file a million cases allows these kinds of insights to manifest into truly starting over with a fresh start.

My other client is in the same boat but wants to try to save the house as the mortgage is reasonable and renting would be just as expensive. We will pay back her arrears through a chapter 13 and if when she decides we can sell the house with court approval during the process. This might allow her to capitalize even more if the housing prices start to go up.

The other thing an experienced bankruptcy lawyer will look out for and make motions should he need to is that when you file a case your house might be worth what you owe and you use the 703 exemptions with the wild card to protect cash, cars, toys etc. You feel that is the better route since the property doesn’t really have equity. The thing is the trustee could keep the case open and even though you get a discharge he doesn’t file the no asset report and the case is not closed. If in 6 months the property has gained 5 % and its got 20k in equity the trustee could make a motion to sell and meanwhile you and bankruptcy attorney were asleep at the wheel thinking you got the discharge case closed. If a no asset report is not filed at the time of a discharge I will make a motion to the court to abandon assets. You don’t want the trustee buying the benefit of time and potentially selling one of your assets. In this market its something you have to be aware of.

Frequently Asked Questions: Debt Consolidation in California
How does debt consolidation affect credit scores?

Initially, it might cause a slight dip due to credit inquiries. However, consistent payments can improve your credit score over time.

What is the difference between debt consolidation and debt settlement?

Debt consolidation involves taking a new loan to pay off debts, while debt settlement is negotiating to pay less than you owe. Settlement can negatively impact your credit score.

What are secured vs. unsecured debt consolidation loans?

Secured loans require collateral (like a house or car), usually with lower interest rates. Unsecured loans don't require collateral but typically have higher rates.

Is debt consolidation right for me?

It depends on your total debt, interest rates, credit score, and payment capability. It's suitable if you can pay off your debt within five years and secure a lower interest rate than your current debts.

Should I consider long-term financial planning?

Yes, debt consolidation should be part of a broader financial strategy including budgeting, cutting expenses, and building an emergency fund.

How do Chapter 7 and Chapter 13 bankruptcies in California differ?

Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 allows debt restructuring over a set period, usually three to five years.

Can my spouse's bank account be garnished for my debt?

Bankruptcy laws offer protections against such actions, but specifics depend on individual cases and state laws.

How can I learn more about my options?

Consulting a California bankruptcy attorney can provide clarity. Firms like The Law Offices of Christopher Hewitt offer free consultations to explore debt relief paths.

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