But What If You're the Debtor? Some Bankruptcy Pointers

In my last post, I looked at things from the creditor's point of view.  That was because previously, I had discussed employees filing lawsuits against their employers.  I wanted to show what could happen to employees if their employers decided to file for bankruptcy.  I addressed the most simple scenario; for instance, I didn't discuss some of the steps available to employee-creditors if their employers filed for Chapter 11 business bankruptcy.  Chapter 11 is very different from Chapters 7 and 13, and will usually be discussed separately.  I will discuss Chapter 11 in a future post, but suffice it to say that employee-creditors can be involved in the Chapter 11 reorganization process.

What I wanted to stress was that the creditor is not always a mortgage lender or a credit card company: sometimes the creditor is you.  However, you could just as easily be the debtor, especially if you are an employee who was demoted, wrongfully terminated, or otherwise denied wages.  If that's the case, what can you do?

Figure Out How Much Debt You Owe.  When you don't have a job and are struggling to pay your credit cards and mortgage, it can be tempting to choose bankruptcy as the first step.  But bankruptcy is a serious decision, and if you have the time, you should definitely consider other options first.  Those options include seeking a loan modification with your mortgage lender, which could lower your monthly payments and interest rate, and negotiating with the credit card companies.  You might also consider selling certain property and using the money to pay down your debts.

If your debt is mostly credit card debt, and is fairly low -- such as $10,000 or $20,000 -- you might be able to wipe it away through a method other than bankruptcy.

If Bankruptcy, Which Type?  If you have tried the above options and still can't manage your debts, you need to figure out what type of bankruptcy would be best.  For that, you should consult a Bay Area bankruptcy attorney.  Individual debtors usually file for Chapter 7 or Chapter 13.

Chapter 7 is the most common form of bankruptcy, and usually the fastest.  With Chapter 7, the property you own before you file becomes "property of the estate," and the Chapter 7 trustee will determine which of your assets can be sold to pay off your creditors.  Before you file, you state which property is "exempt" (off-limits) and "non-exempt" (can be used to pay creditors).  To figure out which property to exempt, you would choose one set of California's exemptions, 703 or 704 -- whichever set best suits your needs.  If the Chapter 7 trustee and the creditors do not object, then the non-exempt assets will be sold and the proceeds paid to your creditors.

Chapter 7 is a good option for those with a lot of credit card debt who are not attached to their property.  But Chapter 7 does not get rid of your obligation to pay off most secured loans -- loans secured by the house, car, or other property as collateral.  If you have defaulted on your mortgage payments and want to keep your home, you may want to file for Chapter 13.  Whereas Chapter 7 is usually fast -- 3 to 6 months -- a Chapter 13 bankruptcy lasts from 3 to 5 years.  During that time, you pay off your creditors a little each month through a court-approved payment plan.

Whether you file for Chapter 7 or 13 may depend solely on whether you pass the "means test": if your income is more than the median income for your state, you are required to file for Chapter 13.  If your income is less than the median income, you could potentially file for Chapter 7 or Chapter 13.  However, if your debts are above a certain limit ($1,149,525.00 for secured debts; $383,175.00 for unsecured debts), then you are not eligible for a Chapter 13 -- you must file a Chapter 7.  In the case where you earn too much and have too much debt, you could file an individual Chapter 11.

Prepare Beforehand.  Before the papers are filed, attend credit counseling.  You must have a credit counseling certificate before you can file.  You should also consider moving your checking account to a different bank, as your current bank might freeze your account after you file.

Attend the Creditors Meeting.  Once you file for bankruptcy, you are obligated to appear at the 341 creditors meeting, which will be held no more than 40 days after you file.  This meeting is very important to your case, so don't miss it.  Your attorney will tell you what you need to bring.

Be Honest and Cooperative.  Both before and during the bankruptcy, disclose everything, even if you are concerned it could hurt you.  Your attorney will help you figure out how to deal with it.  If you forgot something, bring it up as soon as possible.  If you have a change in circumstances, bring it up as soon as possible.  Follow whatever procedures the court or your payment plan has in place.  If you do these things, your bankruptcy is more likely to be smooth.

These are just some of the things you should consider when filing for bankruptcy.  For more information, contact a local bankruptcy attorney.

If you need a Contra Costa bankruptcy attorney or a Bay Area employment law attorney, contact the Wild Law Office today.

The above should not be construed as legal advice.

If You Are a Small Creditor, What Are Your Options In Bankruptcy Court?

You're an employee who has spent months trying to claim back wages that your employer owes.  You finally obtain a judgment against him in state court… and he files for bankruptcy.

Or you are a homeowner who paid far too much for your home remodeling because the contractor lied to you about the cost of materials.  You sue the contractor and get a state court judgment against him… and he files for bankruptcy.

Now what do you do?  Bankruptcy court is bewildering enough for debtors who file, let alone the creditors.  At least debtors usually understand the process before they file; creditors have this bewildering world thrust upon them.  They might then hire an experienced bankruptcy attorney to navigate the process.  If they receive notice of the bankruptcy, but wait too long to file a proof of claim, they could be out of luck.

So how does bankruptcy affect state court claims, and what can you do if you are the creditor?

When a debtor files for bankruptcy, an injunction is created known as the automatic stay.  The automatic stay bars creditors from taking any further action to collect on a debt.  Any action.  If you have taken the debtor to court, even if you are in the middle of litigation, you must stop once the debtor has filed for bankruptcy.  Any actions beyond that point are void.  

The automatic stay lasts only as long as the bankruptcy.  If the bankruptcy is dismissed before discharge, the automatic stay lifts, and creditors can pursue legal action once more.  However, if the debtor does everything right and the automatic stay remains until discharge, what are the creditor's options?

1.  File a Proof of Claim.  If the debtor filed a Chapter 7 or 13 and you are an unsecured creditor (the debt owed to you is not secured by collateral) this must be your first step.  You must file within 90 days after the first meeting of the creditors.  On the proof of claim, you would include your name and address, the amount owed, the basis of the claim, and the type of claim.  

If you don't file a proof of claim until after the 90 days, your claim could be disallowed unless you successfully argue "excusable neglect."  Failure to file a proof of claim means you could be barred from receiving payment distributions from the trustee handling the bankruptcy.  

2.  File a Motion for Relief from Automatic Stay.  This option can be used by secured or unsecured creditors.  A secured creditor (debt secured by collateral) might request relief from automatic stay to ensure "adequate protection."  The secured creditor might argue that the collateral is losing value, and the creditor must be assured that it will receive payments from the debtor.  An unsecured creditor might seek relief from automatic stay for debts that won't be discharged, such as child support or spousal support payments.  An unsecured creditor who is a landlord might seek relief from automatic stay to evict for the debtor tenant for failure to pay rent.

3.  File an Adversary Complaint to Prevent Discharge.  If you believe that the debt came about as a result of fraud or defalcation, you could have your attorney file an adversary complaint under 11 U.S.C. section 523.  You would argue that because of the fraud or defalcation, the debtor should not receive a discharge for that particular debt.  You might also have a claim under 11 U.S.C. section 727, which bars discharge of ANY debts.  The adversary proceeding would be an offshoot of the main bankruptcy case and would proceed very much like any other litigation.  If you win, the debt remains even after discharge, and you can pursue it as before.

There are other options as well, such as requiring the debtor to reaffirm the debt.  However, that option is usually exercised by business creditors (such as auto retailers), rather than small individual creditors. 

Small creditors with unsecured debts often face an uphill battle to get paid.  But don't be discouraged: contact a Bay Area bankruptcy attorney to learn what you can do.

If you need a Bay Area bankruptcy attorney or a Contra Costa employment law attorney, contact the Wild Law Office today.

The above should not be construed as legal advice.

When Is the Right Time to File an Employment Law Claim?

When you are mistreated at work or fired, your first thought may be filing a lawsuit against your employer.  But that is often the wrong action to take.

Depending upon your problem, you may first need to exhaust all available administrative remedies, especially if you live in California.  That means you must first contact the agency that deals with your situation and file a claim.  The agency would then investigate, and either inform you that it found no evidence to support your claim, or that it will pursue the case on your behalf.

Even if the agency finds no evidence, usually it will give you the right to file a lawsuit.  You could then file an employment law claim in state or federal court.  Although agency evidence of wrongdoing would help your case, that does not mean your case would be unsuccessful without it.          

Administrative agency reviews often take several months, even a full year.  Many employees find this process frustrating, but if they try to get around it by filing in court, the judge will dismiss their case.    

An employment law attorney can still help you even with the agency process.  An attorney can review paperwork for the agency claim and point out any errors or unclear statements, so that the employee can correct them before filing.    

So what are some cases where an employee may first need to go to an agency?

Discrimination and Harassment: An employee in California would file with either the federal Equal Employment Opportunity Commission (EEOC) or the California Department of Fair Employment and Housing, or both, depending upon the nature of the problem, the size of the workplace, how much time has passed since the injury, and other factors.

Wrongful Termination: If the termination stems from discrimination or sexual harassment, an employee would again file with the EEOC or the California Department of FEH.  However, an employee who was fired due to engagement in a protected activity (such as political activity) can file with the California Labor Commission.  An employee who files with the Labor Commission is not precluded from filing a private lawsuit and may have attorney representation at any Labor Commission hearings.      

Union Representation: While a union-represented employee does not need to file with an agency for every grievance, he or she must follow the procedures in the union's collective bargaining agreement.  That agreement may require several steps, including mediation, before the employee is free to file a private lawsuit.  

Whatever your problem, it is important to check whether an agency must first investigate your claim before filing in court.  An attorney can help you investigate and determine which agency, if any, you should seek out.

If you need a Bay Area bankruptcy attorney or a Contra Costa employment law attorney, contact the Wild Law Office today.

The above should not be construed as legal advice.