California’s 90-Day Foreclosure Moratorium Really Isn’t

In February 2009, Governor Arnold Schwarzenegger approved the California Foreclosure Prevention Act. The news media has portrayed the legislation, which takes effect on June 15 2009, as a 90-day moratorium on foreclosures. The reality is much more complicated and could lull home owners into a false sense of security if they in negotiations with a lender for a loan modification.

What the new law really does is expand the time between when a lender can record a Notice of Default to begin the foreclosure process and when the lender may record a Notice of Sale from 90 days to 180 days. The law only protects owner-occupied homes from foreclosure where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008. For loans outside of the specified time period, the time before the lender may give a Notice of Sale remains at 90 days.

The law also allows lenders to avoid the 90-day “moratorium” if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation (“FDIC”). There is no requirement that the lenders negotiate in good faith.

Nearly all residential foreclosures utilize what is commonly referred to as nonjudicial foreclosures, which means that the foreclosure sale can occur without court supervision. If a lender does not comply with California’s foreclosure laws, it will still be up to the homeowner to go to court to prevent or set aside an improper foreclosure. If homeowners wait too long before seeing a qualified attorney, they may be so far behind in their payments that even a Chapter 13 repayment plan in bankruptcy might not be able to save them from foreclosure.

For now, I am advising my clients to act as if they do not have the benefit of an additional 90 days to stop a home foreclosure because there simply is no way to tell when a lender might assert that it has a loan modification program that complies with California law. Once the foreclosure sale takes place, it is very difficult and expensive to go to court to undo the transaction.

If you are in Southern California, please feel free to contact us for a free consultation on your bankruptcy options to possibly help save your home from foreclosure.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

A Creditor Objected to My Discharge…Now What?

When a debtor files for Chapter 7 bankruptcy, the court mails the creditors a document entitled "Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines". One of the deadlines set by the court is when the creditors must take legal action to prevent the debtor from receiving a discharge of some or all of the debts. This objection is accomplished by filing a lawsuit within the bankruptcy case called an adversary proceeding.

Most adversary proceedings that I see are filed by credit card companies alleging that a debtor made purchases or took cash advances without the intention of repaying them. The best way to avoid an adversary proceeding is for the debtor to stop using their credit cards for a minimum of 90 days prior to filing for bankruptcy. Luxury purchases and cash advances in close proximity to the filing date of the bankruptcy might be presumed to be fraudulent, giving the creditor an advantage in the adversary proceeding.

Most credit card companies that regularly threaten to file adversary proceedings are usually looking for "low hanging fruit" (i.e. a quick settlement with the debtor). Perhaps they feel that a debtor will not be able afford more legal fees to defend the new lawsuit or will simply be scared into submission.

In my experience, creditors will often back away very quickly if confronted with a strong defense. In one recent case I handled, Wells Fargo dropped a claim that my client had fraudulently borrowed $10,000 on a credit card less than a month after I had filed an answer to the adversary complaint on behalf of my client. Perhaps it was the fact that the bankruptcy court could have ordered Wells Fargo to pay my client's legal fees if it was found that the lawsuit had been brought without sufficient justification for the fraud allegations.

Don't let a creditor scare you into giving up your rightful discharge. If you are in Southern California and need assistance in defending an adversary proceeding, please feel free to contact us.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Struggling With The Decision to Call a Bankruptcy Attorney

Before joining my husband’s law practice as a bankruptcy paralegal in 2006, I worked at the corporate headquarters for Jack in the Box, Inc. for 11 years in human resources and training, the last year of which was spent as a recruiter for the Quick Stuff division. Interviewing potential job candidates was a very rewarding experience as both the job candidate and I would work through the interview to determine if a job was a good fit for them and for Jack in the Box.

As the senior paralegal in a family-owned bankruptcy law firm now, I am often the client’s first contact in the information gathering process. I view the initial phone call to us as a unique opportunity to show a potential client from the beginning that we care, to talk with them about their situation and to provide general information, in easy to understand terms, of what bankruptcy is and how it works.

Picking up the phone to call a bankruptcy law firm is a big step, especially if someone has been battling stress and depression because of their financial situation, and fear of shame in needing to call. For each person that I talk with and hear this in their voice, my goal is to be a friendly voice that shares information about what bankruptcy is and is not, so that they can begin to explore if bankruptcy is the right solution for their needs.

My experience with client interviews has allowed me to develop my own mental checklist of common client experiences that indicate they have made the right decision by calling us:

• If you are routinely taking cash advances on one credit card to pay the minimum balance on another
• If you can barely afford to pay the minimum balances on your credit cards
• If you are considering using cash advance checks or getting a payday loan to meet basic expenses while trying to pay credit card bills
• If you are looking at credit card offers in the mail, and hoping you can qualify for just a small amount to tide you over
• If you are afraid to pick up the phone or go to the mailbox
• If you lose sleep over not being able to pay your bills
• If financial stress is affecting your health
• If you cannot enjoy daily activities with friends or family because of worry over your finances
• If you find yourself hiding bills from your spouse
• If you live paycheck to paycheck with no available credit and no reserve for any emergency
• If you park your car different places each day to avoid repossession
  

Bankruptcy is not a magic pill that will make all of your troubles go away. However, people who seek us out will hear a friendly voice and an open ear. If you are in Southern California and can identify with the warning signs above, let us help. Please contact us for a free consultation.

About the Author: Lisa F. Starrett has been a bankruptcy paralegal since 2006 and uses her human resources background to connect with clients of the Law Offices of Carl H. Starrett. Mrs. Starrett graduated from the University of San Diego in 1989 with a degree in Political Science and a paralegal certificate from a program approved by the American Bar Association.

5 Signs That It May Be Time to File Bankruptcy

Bankruptcy is intended to help honest debtors get a fresh start, but there is no hard and fast rule on who will benefit the most from filing for bankruptcy. These are some of the warning signs that I look for when advising a potential client that it may time to file for bankruptcy:

1. Struggling to make rent or mortgage payments. When someone is faced with mounting bills, some debtors will play a game I call the Credit Card Shuffle, randomly choosing which minimum payment to make based on how nasty the collection call will be. Some debtors will even pay credit card bills before paying their rent or mortgage rather than face those harassing collection calls. This is simply wrong. Food and shelter should take priority over credit card debt.

2. Stress. Are you losing sleeping or constantly arguing with your spouse because of your debt problems? Money problems are a leading cause of divorce. Bankruptcy is not a cure all, but it can help remove your financial problems as a source of difficulties and stress in your marriage.

3. Health. I have seen far too many clients losing sleep and suffer stress-related health problems because of their financial struggles. A willingness to work multiple jobs or crazy overtime hours may be a sign a good character, but it can lead to burnout, exhaustion and anxiety.

4. Changes in your normal behavior. Are you considering doing something illegal to fix your debt problems or something that could put your health or the health of your family at risk? Have you taken up gambling or drinking? Are you doing things that are “out of character” for you? These may be signs of desperation and it may be time to see an attorney.

5. The Balance Transfer Shuffle. Are you constantly applying for new credit cards to take advantage of low balance transfer rates? This may be a sign that you are in over your head in debt.

If you identify with one of these warning signs, schedule a consultation with a bankruptcy attorney and explore your options. Debtors in Southern California may contact us for a free consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Bankruptcy and Professional Licenses

In a recent article, I discussed the limited protections that debtors have against employment related discrimination set forth in the Bankruptcy Code. In this article, I will discuss the impact that the Bankruptcy Code has on professional licenses.

Section 525(b) of the Bankruptcy code protects present and former debtors and their associates against governmental discrimination, such as the revocation of an employment license. However, section 525 protects only against discrimination "solely because" the person is bankrupt or has been bankrupt.

Debtors with professional licenses are protected to a certain extent by the automatic stay that is immediately triggered upon the filing of a bankruptcy petition. An exception to the automatic stay appears in Section 362(b)(4) of the bankruptcy code "the commencement or continuation of an action or proceedings by the governmental unit to enforce such governmental units' police or regulatory powers." This exception is intended to allow governmental units to sue a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law.

While the general rule is that bankruptcy alone should not impact a professional license, the protection is not absolute. For example, the California Contractors State License Board (“CSLB”) generally could not force a bankrupt contractor to pay money damages to an owner to fix deficient work. However, the CSLB still would have jurisdiction to fine the contractor or take other necessary steps to protect the public.

Bankruptcy is meant to help protect honest debtors in unfortunate circumstances and this same principle applies to any debtor who is a licensed professional such as doctors, attorneys and accountants. Licensed professionals cannot lose their license “solely” due to filing bankruptcy. Nonetheless, incompetent or dishonest professionals may be at risk and will not be protected by the Bankruptcy Code.

If you are in Southern California and want to know how bankruptcy might impact your professional license, please feel free to contact us for a free consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.