As families and well established businesses pour through my office, I remain thankful that our bankruptcy laws and societal mores provide an economic fresh start for those who have no reasonable hope of repairing their finances

The process of filing bankruptcy is no more traumatic than the participant makes it;  the lead up to admitting you need bankruptcy relief is painful, but the steps to getting a bankruptcy discharge are painless.

We all benefit from freeing energy and money for the future of families;  we can be risk takers as business folks knowing that failure doesn’t have to blight the balance of our lives.

I am also grateful for a field of endeavor where I find continuing challenges:  new laws, nuances of state vs. federal law, and the never ending challenge of helping people in distress.  When so many other lawyers have abandoned the practice, I’m thankful that I find it satisfying and engaging after  32 years at the bar.

Reading the paper about corruption and judicial impotence in other countries, I treasure the fact that our legal system is, by and large, independent, honest, and potent.  We must not forget as a society that judges must be independent interpreters of the law, not the political view of the day.

Count your blessings and share them with others.  We are all in this life together.

As befits a Moran, I got my Irish up at a 341 meeting when the UST’s representative announced that “we don’t allow retirement deductions on Schedule I”.  Huh?  Did she intend to utter fighting words?

First point, as far as I could see, she wasn’t wearing a black robe, so the issue of “allowance” was neither hers nor the UST’s.  Judges decide disputed questions and the UST is no more than a party in interest in a bankruptcy proceeding.

Second point, I’ve always thought that the schedules should reflect the facts.  My client has contributions to her 403(b) retirement plan deducted from her paycheck.  I duly show that on Schedule I, so that as far as possible, Schedule I reflects the current income and deduction situation.  Where does this person come from when she says we don’t “allow” scheduling of deductions?

Third point, if you want to argue that for purposes of the 707(b) analysis, retirement savings may not be an allowable deduction, make that argument, preferably not at the 341 meeting.  Think and speak precisely.

Then, there is the point that, in this case, the Income less Expenses calculation is $3400 underwater.  Is this exercise on the UST’s part a good use of scarce government resources?  Do they think there are $3400 worth of mistakes all of which cut in their favor?  Or is this just a matter of doing something so we justify our budget?  [Personally, I'm waiting to see the UST's professed interest in creditor abuse manifest itself.]

My suspicion is that the attitude of the UST’s office as being almighty slipped into this unfortunate’s choice of words.

On the surface, my initial consult had a tax problem: years of unpaid income taxes.  The salary was on the upper end of what I usually see.

It was only after we talked at length that the story came out:  the client had a mentally ill child and had drained retirement savings to pay for hospitalization for the child.

The client’s health insurance had a low limit on coverage for mental health;  the only way to pay for treatment was to dip into retirement savings, generating a tax obligation.

The bankruptcy schedules will show tax debt.  The underlying story will show that our health care system can be fatal to your economic health.

The amount of equity a California homeowner can protect from judgment creditors and bankruptcy trustees goes up on January 1, 2010.  A married couple will be able to exempt $100,000; a single person, $75,000; and the elderly or disabled, $175,000.

These increases are a welcome nod to the reality of California home prices: the current exemptions are almost insignificant against the cost of a house in California.

The balance of the California exemptions will change on April 1 in the tri annual adjustment for changes in the cost of living.

Remember, too, that debtors get the benefit of the unwritten exemptions.

Banks and credit unions collected nearly $24 billion last year in overdraft fees, the majority of them overdraft fees on debit cards, according to the Center for Responsible Lending.

Once thought to be a convenient and sale alternative to credit cards, debit cards have been transformed to a bank profit center.  Card holders are unwittingly enrolled in “overdraft protection” plans such that the bank honors a debit card transaction that exceeds the available funds, and slaps on fees for the “service”.

I assure clients planning bankruptcy that debit cards provide much the s ame functionality as credit cards.  Instead, it appears that they are subject to the same issuer gouging as the credit cards the client is surrendering.

The Federal Reserve is proposing new rules that require that bank customers opt in to overdraft protection, but places no limit on the amount of the fees or the frequency with which they are assessed.   Legislation introduced in Congress would further address these abuses.  Let’s hope Congress acts.

A recent case out of Kansas, In re Dana Werts, held that each debtor in a Chapter 13 was entitled to debts within the debt ceilings for Chapter 13 eligibility. Judge  Karlin recognized that a joint case is simply two separate cases administered together.

Previously,  courts have treated a joint case as though it were a single person and required that the debts of the couple be combined to look at Section 109 eligibility.

This is a marvelous decision for Californians where hard times and underwater real estate increasingly find married couples with collective debts in excess of the limits.  I have found myself deconsolidating cases filed jointly when it was determined that the total debt rendered the couple ineligible, if you assume that the 109 limits apply to the sum of the debts.

It then raises the question of exemptions:  if a joint case is really two cases, are not the debtors entitled to two sets of exemptions?

My thanks to my friend Doug Jacobs for pointing me to this case.

The automatic stay is the hallmark of bankruptcy, so when the judge lifts the stay to permit a lender to foreclose, we tend to think the curtain has come down on our client as homeowner.  Well, maybe not, or at least, not yet.

In some cases, the road to foreclosure seems to be a wandering path rather than an expressway.  Case in point:  relief from stay was granted in my client’s case on April 15th.  The notice of default, the first step in the statutory foreclosure process, was not recorded until six months later.

Those six months are months the clients lived payment free in the house.  They continue to try to wend their way through the lender’s loan modification process.  Even if they aren’t successful in getting a modification, it will be at least another 4 months before the lender can hold a foreclosure sale.

This is a recent example that reinforces a story I’ve told before, about the client who moved his family out of their large comfortable home as soon as he saw they could not keep it.  They rented a house, and worked on preparing for a bankruptcy filing.  More than a year later, when we were ready to file, the lender had still not taken the first step in foreclosure.  Twelve months the client paid rent, when he could have stayed where he was, at no cost.

If the headline drew you in, like the Geico gecko, you can complain you’ve been duped:  in bankruptcy, you disclose everything. Period.

My colleague David Leibowitz, himself a bankruptcy trustee writes, about things frequently omitted from bankruptcy schedules., and the possible consequences.

In my experience, the problem is not so much an intention to conceal that leads to omissions of assets, it’s failure to take disclosure seriously.  Clients don’t want to read the questionnaire that prompts them for various kinds of assets they might have.  They don’t commit to thinking about how this question might apply to their situation.  Or they assume because an asset has little market value, it’s excluded from the schedules.  You would not believe the number of clients whose completed questionnaires tell me they have no clothes. Yet I’ve never met with a naked client.

The hardest kind of things for laypeople to “see” as assets are those that are just legal rights, or even, possible legal rights:  the worker’s compensation claim, the claim against the landlord, the participation in a class action.  All of those are assets that need to be listed.

Often a trustee will elect not to administer even non exempt assets, because the effort to pursue them is too great compared to the possible return.  But even if the trustee were to administer the claim for the benefit of creditors, the loss to the debtor is usually far less than the value of the discharge of debts that results in bankruptcy.

The good folks at the Collaborative Law gathering yesterday had the same questions that their clients have:  when is the right time to file bankruptcy?  what happens when you file?  what does it  do to (for?) your life?

Collaborative Law, as I understand it, involves couples in a cooperative effort with a shared set of legal, financial, and mental health professionals to navigate a divorce.  My task was to add the bankruptcy arrow to their quiver.

It was energizing to meet a vibrant, engaged group of professionals all trying to make divorce and the accompanying issues more rational, less expensive, more comprehensive.

I sat in a courtroom last week and watched dozens of  Chapter 13 cases get dismissed, often because the debtor had not taken seriously the requirement that all their tax returns be filed within 45 days of the commencement of the case.

Perhaps I shouldn’t be surprised that  folks who didn’t take filing tax returns seriously in the first place continue to blow it off when bankruptcy is filed.  But filing returns is mandatory and dismissal automatic under the provisions of bankruptcy reform.

What debtors need to understand is that bankruptcy is a benefit and to get the benefit, you need to play by the rules on the timeline created by the Bankruptcy Code.