Articles Posted in Chapter 13 Bankruptcy

A “cram down” in bankruptcy refers to a legal process used primarily in Chapter 13 bankruptcy cases, allowing debtors to reduce the principal balance of a secured debt to the asset’s current market value. If you owe more on a loan than what the property (like a car, equipment, or sometimes real estate) is worth, you can “cram down” the loan amount to match the property’s value. The process effectively splits the debt into two parts: a secured debt equal to the property’s current market value and an unsecured debt for the remaining balance. It is essential to understand your leftover income after expenses on your Chapter 13 bankruptcy petition if you are trying to avoid paying for the unsecured debt.

An example of an auto cram down

You have a car loan with a balance of $15,000, but the current market value is only $10,000. You could reduce the loan balance to $10,000 by cramming down to the car’s market value. The remaining $5,000 becomes part of your unsecured debt, which the debtor will pay off at a significantly reduced rate through your Chapter 13 repayment plan. 

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? 

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

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.

Raymond Lee sues a lot of people in southern california and in Riverside county where I typically practice. Most cases in my jurisdiction are heard in Indio and are often brought by American Express who sends a lot of there accounts to Zwicker and Associates. You have many options in how to deal with the law suit that you have recently been served but first thing you need to do is speak with a competent lawyer to examine those options. When you have been sued you have 30 days to answer or you could face a default judgment which essentially says you agree to everything and allow them to collect against you through a judgement. Remember a judgment is good for 10-20 years with a renewal and collects 10% interest plus when they win they tack on attorney fees, costs for bringing the suit etc so now is not the time to put your head in the sand. Many times I negotiate these cases down to 50% of what you owe. Sometimes we have to answer the law suit, other times I call them directly and work on a settlement prior to answering to save money. If they won’t come to the right number then we answer to make them realize they are going to have to work and expend money to get potential money. This often brings them back to the negotiating table quicker. Another option that I have and they realize is that I file chapter 7 or chapter 13 bankruptcy cases which either means they get paid nothing or what you can afford over either three or five years. All of a sudden a settlement sounds good to them. Raymond Lee is located in Pasadena so sending someone out to fight this case with someone that fights them every step on the way in Indio is not cheap. This is done for clients that might not be perfectly situated to file a current bankruptcy. Sometimes filing a bankruptcy case is all about timing depending on where you income is or certain financial things that you have done too recently to filing a bankruptcy case which necessitate waiting. Filing an answer to buy time in these types of cases is critical. Also, sometimes bankruptcy isn’t necessary depending on how old other debt that you have is, if you are about to meet the statute of limitations on your other debt and make above the median income, filing a 13 might not make sense so answering and negotiating becomes advantageous. If you have debt and have been served and wonder your options, call a knowledgeable riverside county bankruptcy attorney who looks at things from all angles before sending you down a one road solution.

When looking at whether you qualify for bankruptcy as a chapter 7 or chapter 13 the size of your household makes a big difference. Chapter 7 allows you to not pay any money back to creditors whereas chapter 13 requires that you do a payment plan that last either 3 or 5 years depending on whether you are above or below the median income. In the central district of california which is the local bankruptcy court for Riverside, San Bernadino County and Los Angeles County, the trustees seem to use a heads on bed approach as opposed to traditional family or what your dependents that you claim on your tax return says. Sometimes there are children that live between to households which can benefit you if you can include them in your bankruptcy even though your spouse claims them on the previous year tax returns and things like that.

In Palm Springs, many of my clients are gay which allow me to find creative ways to qualify people for bankruptcy and determining whether to include a partner or not. Some people are domestic partners, married, or just living together which all have different and varying consequences and allow me to creatively think about how to get the best result. Because bankruptcy is federal most trustees only require federal tax returns which can be helpful to gay couple that are married and file joint returns in California but as single under federal taxes since the federal government does not recognize gay marriage. This can make a big difference in qualifying for chapter 7 since an individual income can be up to 48k a year but when you are a family of two its 62k. By treating to people as single it allows the household unit to make up to 96k which can be a huge benefit.

If you are thinking about bankruptcy and have debt problems and live in Riverside County, talk with a bankruptcy lawyer who deals with our local trustees and knows the in and outs of the bankruptcy court before walking down that path without counsel.

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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