Debt collectors have noticed and decried the growing understanding of debtors about their rights to fair debt collection. Federal law in the form of the Fair Debt Collection Practices Act regulates the conduct of third party collectors. Those protections apply everywhere and more and more attorneys are learning how to assert those rights on behalf of their clients.
Californians have an expanded set of rights as debtors under the Rosenthal Fair Debt Collection Act: this law applies the rights created in the federal FDCPA to the original creditor as well as the third party collector.

One of the most useful aspect of the California statute for many of my clients is the right it creates to be left alone: the right to be free of collection calls and letters. There are a couple of limited exceptions, but overall, it empowers the debtor to escape incessant collection efforts.

If you need freedom from debt collectors, write them invoking your right not to be contacted with reference to the Rosenthal Act, date it; sign it; keep a copy, and send it off. Two things may happen: the creditor obeys the law and you get peace at home; or they violate the law, and you have a right to sue for the violation, including the right to collect your attorneys fees to do so. Won’t the role reversal of debtor becoming creditor really make the collectors mad?

The newly enacted prohibition on stripping down car loans in Chapter 13 bankruptcy to the value of the car may not cover as many transactions as drafters thought. When the bankruptcy bill was working its way through Congress prior to 2005, the car lenders persuaded Congress to protect them from having their claim in a bankruptcy measured by the value of the car that is the collateral.

You see, new cars lose a lot of value when they are driven off the lot, and lose value more rapidly for the first several years of the loan than the payments on the loan reduce the loan balance. If bankruptcy is filed during those years, there may be several thousand dollars difference between what is owed on the car and what that car is worth.

So the amendment prohibited stripping down car loans on cars purchased within 910 days of the bankruptcy filing where the lien on the car is a “purchase money security interest.” That term has a meaning outside of bankruptcy, describing a lien that secured a loan to buy the collateral. But what if the loan bought a bunch of other stuff too?

Bankruptcy lawyers have started analyzing all the things that the “car loan” bought: there is GAP insurance (protecting only the lender from the gap between the car’s value and the debt); there’s the unpaid loan balance on a trade in; there are various kinds of warranties, etc. All of these other things muddy the waters as to whether the lien in question is a “purchase money security interest” under state law.

As cases work there way through the courts, we will see how bankruptcy judges and appellate court judges apply longstanding non bankruptcy legal terms to this provision of the gloriously ill-drafted Bankruptcy “Reform” Act.

Chip Parker today added to the discussion of the decision to file bankruptcy with a post including consideration of the future consequences of filing bankruptcy.

Chip listed possible adverse employment issues and rental housing as areas that might be impacted by a bankruptcy filing.

In my view, these possibilities need to be weighed against the equally real consequences of not solving a debt problem. For most considering bankruptcy, their credit record is already blotched; a bankruptcy filing is not going to be the first adverse entry on their credit report. Bankruptcy might be the first step to improved financial health.

I find myself fighting the fear clients have of the ” bankruptcy unknown”, closing their eyes to the precariousness of their current situation as though doing nothing is a worthy choice.

Wish I had a buck for every time a client has told me, “Yes, I signed it, but I didn’t read it”. This is usually delivered as though the signature had no meaning if it wasn’t coupled with reading. Unfortunately, it isn’t so.

Why does the Bankruptcy Code require the debtor to sign the documents filed to initiate the case? First, the signature serves to identify the person who is taking this action. Signatures are unique, or nearly so. The signature then allows us to determine that the person who signed is the same person as the one whose name is on the schedules. [ Some areas of the country actually have a problem with cases filed in the name of a person, without the person's knowledge or involvement.]
More significantly, the signature of the debtor serves to authenticate the information in the bankruptcy schedules. It is the debtor’s shorthand way of saying “the contents of this document are true”.

This becomes important in bankruptcy cases if there is a claim that the debtor misstated or omitted something. The signature, right below the declaration that the document is signed under penalty of perjury, commits the debtor to that version of the facts.

This is not to say that innocent errors cannot be corrected once the schedules are filed; schedules are amended all the time, usually without challenge. The lack of challenge however, is generally related to the magnitude of the change presented in the amended schedule: try telling the court you “forgot” about the two carat diamond ring or the power boat, and you may have credibility problems.

My experience is that most omissions in the schedules come about because the debtor doesn’t take the time to both read, and think, about the question asked and the answer proposed by counsel. Carelessness about the completeness of the schedules at best increases the cost of a bankruptcy proceeding; at worst, puts the discharge at risk.
Bankruptcy is a serious step, which should return a significant benefit to the debtor. It is worth the time to read before you sign.

The usual question for a bankruptcy attorney is “can I keep the (fill in the blank)”. Whether it’s a house, or a car, or a computer, clients want to know if filing bankruptcy will strip them of their “stuff” bought on time. Frequently the answer is that they can keep the asset as far as the bankruptcy system is concerned.

Whether they should keep the property is another question that I want to raise. Jed Berliner suggests that homeowners with recent adjustable rate mortgages may have no equity to preserve and would be better off letting the house go.

I would expand the analysis: if the choice is to pay $900/month to keep the current car on which you owe more than it’s now worth, what is point in keeping it? I wish for my clients a truly fresh start with living expenses they can afford. Paying more than something is worth clouds that fresh start.
It’s tough to surrender your purchases, but having filed bankruptcy should bring more clarity to financial considerations.
Paying more than the house or the car is worth may not be the wisest choice.