Malcolm Ruthven joined Margarita Guzman, Director of Legal Karma (, in a presentation titled "Dealing with Creditors and Bankruptcy" on Monday, May 4, 2009, at Eastmont Branch Library in Oakland, California. Margarita presented the "Dealing with Creditors" part and Malcolm presented the Bankruptcy part. It was free and open to the public. For the flyer for the event, click here. You'll need to have Adobe Reader on your computer;  to download Adobe Reader, click here.

Tagged on:             

3 thoughts on “Bankruptcy presentation with Legal Karma

  • May 9, 2009 at 5:29 pm

    Tax Refunds and Chapter 7

    An attendee of the presentation requested more discussion of tax refunds and Chapter 7 discharge, so here it is…

    – First, there is no issue of clawback. One person noted the possibility that some of Bernard Madoff’s payments to his investors may get "clawed back" by a bankruptcy trustee. That is because he was allegedly insolvent when he made those payments and therefore the payments could be considered to be preferential payments to certain creditors. That has no bearing on tax refunds.

    – If a debtor files bankruptcy, all the debtor’s assets must be listed and almost all of the assets go under the jurisdiction of the trustee in bankruptcy, including rights to receive things in the future like tax refunds.

    – If a debtor receives a tax refund after filing bankruptcy, the trustee gets that money for possible distribution to creditors. Of course, that’s what you want to avoid.

    – A debtor should delay filing bankruptcy until the tax refund is received and put in a trustee-safe place, like an ERISA-qualified plan or converted to property that can be exempted under the bankruptcy code.

  • May 9, 2009 at 6:17 pm

    Time Between Bankruptcies

    An attendee requested more discussion of the time required between bankruptcies. This is that additional discussion.

    The "8 Year Rule": A person is not eligible to receive a discharge in Chapter 7 if a discharge has been received in a Chapter 7 case filed within 8 years of the filing of the current Chapter 7 petition.

    The "6 Year Rule": A person is not eligible to receive a discharge in Chapter 7 if a discharge has been received in a Chapter 13 case filed within 6 years of the filing of the current Chapter 7 petition – UNLESS –
    – the prior Chapter 13 case paid 100% of all unsecured debts – OR –
    – the prior Chapter 13 case paid 70% of all unsecured debts and it was filed in good faith and performed with best efforts.

    Note 1 – The eight or six year period runs from filing to filing.
    Note 2 – You can file the Chapter 7 petition but can not get a discharge before the eight or six year period has run.
    Note 3 – These situations involve prior bankruptcy filings that result in discharge.

    The "180 Day" Rule: A person may not file for Chapter 7 bankruptcy if, within the preceding 180 days, that person:

    – had a bankruptcy case dismissed for willful failure to abide by a court order or to appear for a hearing – OR
    – voluntarily dismissed a bankruptcy case after the automatic stay was lifted.

    If this 180 day rule might apply to you, then you need to explain the facts to a bankruptcy attorney.

  • May 9, 2009 at 8:36 pm

    Judicial Liens and Bankruptcy

    An attendee requested more discussion of the situation in which a creditor sues a debtor and wins, then gets a lien on the debtor's property (called a judicial or judgment lien), and the debtor is considering bankruptcy. OK, here goes…

    – In general, liens survive bankruptcy. In somewhat more detail, creditors with liens on a debtor's property will be entitled, in or after a bankruptcy proceeding, to receive value equivalent to at least the amount of the debt, or the value of the collateral (the property which the lien is on), whichever is smaller.

    – If the debtor files a bankruptcy, all action to enforce the lien would stop immediately because of the "automatic stay". But that is temporary relief and the creditor still has the rights described above.

    – Remember the discussion of bankruptcy "exemptions", the amounts protected from creditors by the bankruptcy code and state laws. Bankruptcy also provides a way to "avoid" a judicial lien if that lien would "impair an exemption". To "impair an exemption" means that the lien would prevent the debtor in bankruptcy from receiving the benefit of the bankruptcy exemption on that property.

    For example, let's say a debtor owns a house worth $300,000 and owes $200,000 on a mortgage. A creditor sued, got a judgment for $50,000 and then obtained and "perfected" (filed the right papers) a lien for that amount on the house. The debtor is married and both spouses live in the house, giving them a $75,000 homestead bankruptcy exemption in California.

    If the creditor could enforce the lien and have the house sold, the debtor would get $300,000 (value of the house) minus $200,000 (mortgage) minus $50,000 (the lien amount) = $50,000. That's less than the $75,000 exemption so this lien would be considered to impair that exemption. Therefore this lien should be able to be "avoided" in a bankruptcy proceeding. Note that this is a legally-technical area and this example and result are simplified. This is an area for a bankruptcy attorney to carefully examine the specific facts.


Leave a Reply

Your email address will not be published. Required fields are marked *