Month: March 2020

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Rebuilding Credit after Bankruptcy Declaration in California

Credit Score Improvement Options for California Residents Following Bankruptcy

Filing for bankruptcy is a useful tool in providing relief for families that are undergoing overwhelming financial constraints. However, a successful bankruptcy injunction is bound to reflect negatively on your credit score, making it hard for the debtor to secure credit from other lenders for a significant length of time in the future. Despite this fact, a negative credit score should be the least of your worries when dealing with dire financial situations considering the alternative risks of leaving your debts unpaid.

For one, a negative credit score can be rebuilt after the bankruptcy declaration. Actions of creditors against your property, on the other hand, are irreversible, and at times much more costly than the former.

 Financial institutions in California take into consideration the efforts made in rebuilding your credit history following a successful bankruptcy declaration.

However, you probably will not qualify for a traditional credit card with most institutions after filing for bankruptcy.

Fortunately, an individual who has previously filed for bankruptcy in California is allowed to apply for a secured credit card. The secret to rebuilding a positive report is using the credit card responsibly, ensuring that the accrued bills are paid on time. Using 10-15% of your credit limit and paying them on time will slowly raise your credit limit.

Small deposits made on your credit card will also be reported as a positive step to the three national credit bureaus in the U.S, gradually increasing your credit scores. Additionally, the more deposits you make to your credit card, the more credit you would qualify for.

A critical measure to take when trying to rebuild your credit score after successfully filing for bankruptcy is to monitor your credit reports constantly. These reports are available from the three credit bureaus at any time.  

If you are worried about the costs of such a measure, you are in for luck. The federal law allows citizens to access one free annual report every year. As a resident of California, you would be entitled to your free report yearly to help you monitor your secured credit card.

Such a step will be useful in identifying possible irregular activity, given the rampant cases of fraud and identity theft in California.

A combination of these measures will gradually help you rebuild your credit scores, eventually allowing you access to the financial benefits you had before your bankruptcy declaration.

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California Farmers Bankruptcy Protection

Chapter 12 and Farm Bankruptcy in California

In its desire to protect every citizen from dire financial situations, the federal government came up with Chapter 12 bankruptcy code to look into family farmers. The code is specifically tailored to protect farmers with a regular income from actions of creditors. Such a farmer whose significant portion of revenue is realized from farming is referred to as a family farmer. Like any other individual in regular employment and business, these groups of individuals are susceptible to extreme financial situations too.

California laws recognize family farmer bankruptcy protection through the Chapter 12 option. Through this plan, the farmer is protected from the effects of fluctuating land values, commodity prices, emergency events and unfavorable trade policies.

Farmers in California are required to present a Statement of Financial Affairs when seeking to file for Chapter 12 bankruptcy protection. Upon successful petitioning, an automatic stay will be imposed, preventing creditors from collection activity.

A primary difference between Chapter 12 and other bankruptcy codes is that it also extends protection to co-debtors through the ‘co-debtor’ stay.

Upon approval of the Chapter 12 bankruptcy code, the farmer will endeavor to create a debt repayment plan with the help of a court-appointed trustee, while engaging the creditors within the first month of a successful petition.

As a farmer in California, you would greatly benefit from Chapter 12 bankruptcy code when undergoing dire financial challenges that are likely to last for a significant period. From a successful petition, you would be allowed to make payment plans that include regular payment to creditors over three to five years.

You would, however, be required to work with a court-appointed trustee to ensure the debts are cleared at the stipulated time to avoid further challenges. Claims, in this case, would include those that are a priority, secured and unsecured. The primary focus would be on the priority claims such as taxes and costs of the proceeding, followed by those that could be liquidated and finally unsecured debt.

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What is a Proof of Claim?

A proof of claim is the paperwork that a creditor must file before getting paid in a bankruptcy case. These documents tell the bankruptcy trustee about the type of claim and how much a creditor is owed. This information allows the trustee to determine the amount to pay the creditor if anything. Under the bankruptcy payment system, some debts such as income tax and domestic support obligations have “priority” status and are paid before any other claims.

Proof of claim forms can be downloaded from the United States Courts website.

Creditor’s attorneys and anyone with an Electronic Case Filing (ECF) login may file a proof of claim using ECF. Creditors who don’t have ECF login credentials can electronically file a proof of claim using the Electronic Proof of Claim (ePOC) system.

Deadline for Filing a Proof of Claim.

  1. In a Chapter 7 bankruptcy “asset” case, the deadline for filing a Proof of Claim, commonly known as a “bar date” is stated in the Notice of Chapter 7 Bankruptcy, Meeting of Creditors and Deadlines. In a Chapter 7 “no asset” case, if the trustee files a Notice of Possible Dividends, a notice is sent indicating the deadline by which a claim is due.
  2. In Chapter 9 and Chapter 11 bankruptcy cases, creditors receive a notice stating the deadline by which the claim is due.
  3. In Chapter 13 Bankruptcy cases, the deadline for filing a proof of claim is stated in the Notice of Chapter 13 Bankruptcy, Meeting of Creditors and Deadlines.
  4. In Chapter 12 Bankruptcy Cases, the deadline is indicated on the Notice of Meeting of Creditors.

If a creditor changes the address from the one indicated in the Proof of Claim forms, he/she must file a Notice of Change of Address with the court.

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Small Business Bankruptcy in California

California Bankruptcy Laws for Small Businesses

Bankruptcy cases abound not only in individual circles but also in organizations. The organizations mostly at risk of running into bankruptcy in the US are small and medium-sized startup businesses trying to break even in the market. It is estimated that between the years 2005 and 2019, only one-fifth of startup companies managed to stay afloat past the first year of operation. The number further dwindled as the years progressed, with many running into financial challenges that eventually put them out of service. 

 Startup companies in California can file for bankruptcy through three main approaches depending on the structure they are designed. The main business structures common in the state are sole proprietorships, corporations, and partnerships.

While sole proprietorships include legal extensions to the owner, such a business would not be protected under Chapter 7 bankruptcy. Instead, the business owners will be urged to file for Chapter 13 bankruptcy to protect their property and reorganize their debts.

Owners of Corporations and proprietorships are able to file for either Chapter 7 or Chapter 13 bankruptcy under California laws. This arrangement allows you to secure your property while at the same time formulating a repayment plan. The difference between the two options, however, is that with Chapter 13, the company is allowed to stay in business while repaying its debts, while Chapter 7 bankruptcy will not.

Under Chapter 7 bankruptcy, the company will undergo liquidation to cover debts to creditors. This type of approach is most suitable when the company has limited assets, and when the financial situation is too overwhelming for debt restructuring.

Business reorganization under Chapter 11 bankruptcy is only available for partnerships and corporations. However, California laws recognize sole proprietorships for this plan only if their income levels are too high to qualify for Chapter 13 bankruptcy plan. Nevertheless, the plan allows the business to reorganize its debts under the watch of a court-appointed trustee.

Be it liquidation, business reorganization, or debt restructuring under Chapter 13 bankruptcy; business owners have to be careful and consult widely with their attorneys when considering bankruptcy as an option to deal with their debts. A failure to do so could easily lead the business to lose its assets in case of unseen financial shortcomings.

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How to Create a Creditor’s Matrix

The creditor’s matrix is a complete list of all creditors. Courts have a specific format in which the creditors and their addresses must be listed. The bankruptcy court uses this list to mail everyone involved in the case.

It is the debtor’s responsibility to create and submit a complete creditor’s matrix immediately after filing for Chapter 7 or Chapter 13 bankruptcy. If the debtor fails to submit a complete list, it is his/her responsibility to send notice of the meeting of creditors to the creditors who were not served by the court.

These instructions also apply in Chapter 11 bankruptcy cases with 200 or fewer creditors. If a jointly administered Chapter 11 Case converts to Chapter 7, the debtor’s counsel or Case Trustee must immediately submit a separate matrix for each converting case to the Clerk’s Office.

Format;

  1. The Creditors Matrix must be saved in .txt format before being uploaded to the Case Management/Electronic Case Files (CM/ECF) system.
  2. All entries should conform to the CM/ECF style conventions for names and addresses.
  3. Names and addresses must be in a single, left-justified column. Multiple columns of names and addresses will not be accepted.
  4. The first character of each line must be either alpha (a-z) or numeric (0-9). No special characters or a space may be in the first position.
  5. Each line may contain no more than 40 characters, including spaces.
  6. The name and address of each creditor cannot exceed six (6) lines.
  7. Line one should be the name of the creditor.
  8. Line two should be either the company name or the first line of the address.
  9. Additional lines should be used to complete the address of the creditor, with the city, state, and ZIP code on the last line. There must be a comma placed immediately after the city name. Also, all states must be two-letter abbreviations.
  10. Nine digit ZIP codes must be typed with a hyphen separating the two groups of digits.
  11. Each creditor must be separated by at least one blank line.
  12. Account numbers, case numbers, page numbers, headers and footers should not be included.
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California Bankruptcy and Income Assessments

California Disposable income in Chapter 7 Bankruptcy

Most of the individual bankruptcy cases filed in the US are done under the Chapter 7 plan. The reason why people always find this option more attractive as compared to the Chapter 13 option is that it allows you to keep your property from the action of creditors. Such property could be easily lost if one filed for bankruptcy under Chapter 13, as it demands that one develops a debt repayment plan that would be subject to fewer exemptions.

Though not all the property would be exempt under Chapter 7 option, California Bankruptcy exemption laws are structured in a manner that allows you to retain most of your property.  Thus most people who file for bankruptcy rarely lose anything in California. 

Qualifying for Chapter 7 Bankruptcy protection, though, is a different matter altogether for such California residents.

The state through local authorities would subject any one person wishing to file for Chapter 7 Bankruptcy protection to a variety of qualification assessments, including the means test. This assessment procedure is meant to assess eligibility for protection under the California Bankruptcy laws.

The authorities thus would be sure to test for your ability to fund a Chapter 13 Bankruptcy plan based on your current and past income. The basis for the decision is the median income relevant to the state, which currently stands at $54,787 a year for a single earner and $73,162 for a household of more than one.

Does it mean thus, one may ask, that I would be ineligible for Chapter 7 protection if you earn more than that?

Well, while the California authorities aim to be fair for both parties in the bankruptcy suit, they still instead protect you from undue hardships than favor the creditors.

As such, they will also assess your disposable income to gauge if you are in a position to pay off the debts. Calculations are done based on the sum of unsecured debts. You would, therefore, still be eligible for Chapter 7 protection if your disposable income will not be able to pay off at least 25% of your debts over five years. The court may, however, reexamine the totality of your circumstances before giving a final ruling.

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California Median Income and the Means Test in Bankruptcy

Requirements for Eligibility to Chapter 7 Bankruptcy in Simi Valley

Throughout the U.S, debtors are offered relief from the actions of the creditors primarily through either Chapter 7 or Chapter 13 bankruptcy laws. While the two approaches are designed to protect the individual from the pitfalls of severe financial distress, they differ in the approach to securing your property and valuables. Corporations mostly use the Chapter 13 specifications, while individuals usually aim to file for petitions under Chapter 7 specifications, given the flexibility it accords the debtor with their credits.

Filing Bankruptcy through Chapter 7, though, requires one to pass the means test, designed to assess your capability to repay your debts.

California laws have in place a pre-set median used as the reference for one to pass the means test. If your income thus is higher than the state’s median, the chances are that you will not qualify to file for Bankruptcy under Chapter 7.

According to the California State bankruptcy laws, eligibility for Chapter 7 would mean that the debtor’s current monthly household income is lower than the state’s median income for a similar size household. This income is determined by averaging your income over the past six months before filing for the motion.

The means test is administered when one’s income is above the median income for a similar size household. The purpose of conducting this test is to determine your capability to pay off the debts using your surplus from your income.

One would thus need to present themselves with documentation of your income over the previous six months to pass the first step.  Additionally, one would have to submit the documentation of their household expenditure over the same period to ascertain the level of disposable income available after that. If the state determines that both your household income and the disposable income after expenditures are low enough, you would be allowed to proceed and file for Bankruptcy under Chapter 7.

Exemptions, however, do exist regarding this procedure. Disabled veterans who incurred debts during their time in service are some of the individuals exempted from the means test before filing for Chapter 7 bankruptcy. Individuals with obligations other than consumer debts are also exempted from the means test under the California laws.

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California Student Loan Bankruptcy Laws

California Bankruptcy Laws and Student Loans

Just as individuals and corporations are susceptible to financial constraints that drive them to file for bankruptcy, students too are among the vulnerable individuals in the society affected by these laws.  By design, people take student loans to finance their studies with hopes of repaying them after securing employment. However, unforeseen circumstances sometimes push such individuals to long term financial challenges that leave them vulnerable to creditor actions.

California is one of the States in the US with a lot of student loan issues. The Congress currently has in motion a bill seeking to discharge these types of loans in a bankruptcy case. However, the bill still has modest support from the congressmen, thus its delay in action.

However, the status quo on student loans are dischargeable only if one can prove that the repayment would expose them to severe hardships, based on rulings made in 1998.

Just recently, the federal government under US President Donald Trump sought to help students with their student loans by waiving accrued interests. Though the jury is still out on the legality of such a move by the president’s orders, this incident demonstrates the concern which the federal government has on the plight of students not only in California but in other states as well.

How then can a student benefit from bankruptcy laws in California seeing that discharge of such loans is not legally recognized?

As at present, the best way to initiate a successful bankruptcy suit in California is to prove undue hardships resulting from its servicing.

Under the Ninth Circuit, you would have to ascertain that you will not be able to maintain a minimal standard of living if forced to repay the loan based on your current spending habits, and that you made good faith efforts to repay the loan up to this point. Additionally, you would have to prove that your current financial situation is likely to persist for a significant amount of time after that, making it difficult to service the loans.

It is, however, worth noting that such an assessment by the courts will not only be limited to your payment history, but also on other efforts on your part. Attempts to secure a better paying job, for instance, will be looked into before granting you discharge for student loans under California Laws.

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The Downsides of Filing For Bankruptcy in California 

The Negative Consequences of Filing For Bankruptcy in Simi Valley

Most often people file for bankruptcy to erase their debts and have to begin afresh. However, there are also downsides associated with Chapter 7 of the Bankruptcy Code. Some of these downsides include:

  1. Probability of Losing Your Expensive Property

Bankruptcy can cause you to lose your expensive property. In case you own expensive properties like cars and real estate always check if they fall under one of the property exemptions under Chapter 7 Bankruptcy Law.

  1. All Your Creditors Will be Given an Alert

Once you decide to file for bankruptcy,  the court sends a letter to everyone you owe money to. It is wise to notify them including all the friends and relatives you owe before they receive a letter from the court. People may assist you to start afresh as they will protect you from paying back the debts.

  1. Your Credit Score Decreases

You may have a high credit score before filing for Chapter 7. However, after filing your credit score automatically decreases. This should not worry you since as time progresses your credit score will greatly improve.

  1. Your Student Loans Won’t be Erased

Once you decide to file for bankruptcy, the court sends a letter to everyone you owe money to. It is wise to notify them including all the friends and relatives you owe before they receive a letter from the court. People may assist you to start afresh as they will protect you from paying back the debts.

  1. Filing for Bankruptcy is Expensive

Filing for bankruptcy is very expensive and often times many ask the court to waive the filing fee of $335 or ask them to allow you to pay in installments. There is also the mandatory credit counseling of $50. Hiring an attorney is even more expensive when filing for bankruptcy and many cannot afford it.

Other downsides include;

  1. You have to wait for 8years before you are eligible to file another discharge.
  2. Only some of the tax debts are erased.
  3. You cannot get a mortgage or car loan immediately.
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California Courts Ruling on PG&E’s $23 Billion Bankruptcy Package

PG&E Bankruptcy Proceedings New Development

Bankruptcy cases in California are not limited to personal or individuals only. Corporations operating in the states also periodically come across situations where they have to consider filing for bankruptcy as a means to escape the actions of creditors after their assets. Such cases abound in the state, with varying expectations as to the outcomes.

Sacramento bankruptcy cases for corporate companies differ from individual bankruptcy cases in that the former involves large entities with a host of property to protect. Failure to take immediate action in a company facing significant long term financial challenges could potentially lead to numerous losses not only for the company and its stakeholders but also for the employees in such an organization.

What with the rampant retrenchments and conventional loan defaulting tendencies that are typically observed to accompany financial challenges in private and national organizations.

A prime case of large corporations in the state of California facing bankruptcy in recent times is the Pacific Gas and Electric Company that services more than 16 million California residents over a 70,000 square mile area.

The company is host to more than 23,000 employees who rely on its successful operation for a living at one level or the other.

Financial challenges in such a large organization are thus likely to cause significant ramifications in the economy of the state.

On March 16, 2020, the company won a landmark bankruptcy case allowing it to raise $23 billion to help pay its bills following recurrent wildfires that cause widespread damage to property.

The bankruptcy case was filed after the court awarded victims compensation benefits from the company following extensive fires caused by PG&E’s equipment in 2017 and 2018.

The company was required to raise $40 billion in compensation costs for the victims of the wildfires. Coupled with the economic impacts of the COVID-19 pandemic that has rocked the world over the past few months, the company found itself with no option but to file for bankruptcy under the California State Laws to protect itself from the action of its creditors.

The PG&E Company is just one amongst many large organizations in California that have been forced to consider bankruptcy motions as a means of handling their financial troubles. This case is a classic demonstration to the fact