Michael Primus – Law Offices of Michael J. Primus

You do not automatically lose your home if you file bankruptcy

January 2, 2023 by Michael Primus

In talking to people about bankruptcy, I have seen time and again the same erroneous assumptions. One common misconception is that people filing bankruptcy automatically lose their home. Many people assume the judge will strip them of their possessions and their dignity, presumable as a punishment. This notion does not exist in the law but stubbornly persists in society. To rectify this misunderstanding, I will first say the purpose of bankruptcy is to offer a fresh start to people in a financial hardship. The law acknowledges that food, shelter and transportation are necessities of life, and provides limited protection for these assets so people can go forward in life after bankruptcy. But wait, maybe you’ve heard of people that filed bankruptcy and lost their home? Alas, there are threats to homeownership.

The single largest threat to the family home is not bankruptcy, it’s foreclosure. Another misconception is to equate foreclosure and bankruptcy. Foreclosure is the procedure for a lender to take a person’s home if the mortgage payments are not paid; foreclosure is not an issue if the mortgage payments are current. Bankruptcy can forgive credit card debts, payday loans, personal loans, lawsuits and much more. Bankruptcy is also a powerful tool to stop foreclosure and give the homeowner an opportunity to make payment arrangements. Usually when mortgage payments are six to twelve months behind the lender will initiate foreclosure. The California foreclosure laws require notices and waiting periods before a lender can actually sell a home to collect the money owed. Filing bankruptcy can give homeowners a last chance to save their home from foreclosure.

Another threat to the family home is filing chapter 7 (sometimes called straight bankruptcy) if you are “land rich” in the eyes of the law. A person is land rich when the equity in their principal residence exceeds the protection provided by the homestead laws. Filing chapter 7 when a person is land rich can result in the home being sold by the bankruptcy trustee. In 2023, the California homestead laws allow a person to protect realizable equity in their principal residence of $678,000 in most Bay Area counties.

Note: realizable equity is the amount you would receive after paying all mortgages, commissions and costs of sale.

In summary, the bankruptcy system will not take your home as a punishment. On the contrary, one of the goals of the law is to protect the family home. If your home is in foreclosure, or if you have substantial equity in your home, you should speak to an attorney and carefully review your options before filing bankruptcy.

At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free consultation. We have offices in Walnut Creek, Antioch, and Hercules.

Can I File Bankruptcy Again?

October 29, 2022 by Michael Primus

Can I file Bankruptcy Again? Many people assume they can only file bankruptcy once in their lives, other people assume they need to wait until their bankruptcy comes off their credit report before they can file again. The truth is the bankruptcy laws are more flexible than most people think. This article is limited to cases where debts were forgiven in a past bankruptcy.

Chapter 7 After Chapter 7

If a person has filed a chapter 7 and received a discharge (debts forgiven) then section 727(a)(8) of the Bankruptcy Code provides that another chapter 7 within 8 years will not forgive debts.

Chapter 13 After Chapter 7

If a person has filed a chapter 7 and received a discharge (debts forgiven) then section 1328(f) of the Bankruptcy Code provides that a chapter 13 filed within 4 years of the chapter 7 will not forgive debts.

Chapter 13 After Chapter 13

If a person has filed and completed a chapter 13, section 1328(f) of the Bankruptcy Code provides a chapter 13 filed within 2 years of the filing of the prior case will not forgive debts. However, if the original chapter 13 was dismissed (did not complete plan, debts reinstated) then a person can file another chapter 13 almost immediately but must get a court order pursuant to Bankruptcy Code section 362(c)(3) to be protected from creditors. This type of court order generally requires a brief explanation of why the first case failed.

Chapter 7 After Chapter 13

If a person has completed a chapter 13 and received a discharge then section 727(a)(9) provides that a chapter 7 filed within 6 years of the filing of chapter 13 will not forgive debts.

Call now for a free consultation. Offices in Walnut Creek, Antioch and Hercules.

Law Offices of Michael Primus

Biblical Thoughts On Bankruptcy

May 28, 2022 by Michael Primus

Biblical Thoughts On Bankruptcy – The concept of bankruptcy is troubling for most people. The Bible offers guidance to both borrowers and lenders. There are four principles to consider.

First, the Bible teaches that people should perform on any agreement including paying debts. This is part of the general principle of the ninth commandment:

“You shall not bear false witness against your neighbor.” (Exodus 20:16)

Similarly, there’s Numbers 30:2 that says:

“If a man makes a vow to the Lord, or swears an oath to bind himself by some agreement, he shall not break his word; he shall do according to all that proceeds out of his mouth.” (Numbers 30:2)

Second, lenders are instructed that interest should not be charged on a loan to the poor. The Lord also forbade the lender from keeping things necessary for living even when the borrower offered such as security:

“If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall NOT charge him interest. If you ever take your neighbor’s garment as a pledge (security for payment of a debt), you SHALL return it to him before the sun goes down. For that is his only covering, it is his garment for his skin. What will he sleep in? And it will be that when he cries to Me, I will hear, for I am gracious (and, by implication, the lender is not).” (Exodus 22:25-27)

Third, in two parables Jesus used the illustration of forgiveness of a financial debt to teach about God’s forgiveness and the requirement that mankind forgive (see Matthew 18:21-35 and Luke 7:36-50). “And when they had nothing with which to repay, he freely forgave them both” (Luke 7:42).

Fourth, interestingly our modern bankruptcy laws resemble Biblical law as it relates to forgiveness of debt. U.S. Bankruptcy law allows for the forgiveness of most debts every 8 years through chapter 7. Biblical law released debts every 7 years.

“At the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD’s release” (Deuteronomy 15:1-2).

Conclusion, people should pay their debts if possible, however the Bible clearly contemplates release of debts and forgiveness for people unable to pay. Modernly that release is found in the bankruptcy laws. Additionally the Bible, like some modern laws, prohibits predatory lending including loans designed to make the borrower a slave to the lender.

Call now for a free consultation. Offices in Walnut Creek, Antioch and Hercules.

Law Office of Michael Primus

Does my spouse need to file bankruptcy with me?

February 18, 2022 by Michael Primus

Many people wonder if they can file bankruptcy without including their spouse. The answer is yes. Every individual has the right to bankruptcy so long as he or she can demonstrate financial hardship. A married couple can file bankruptcy together, which is called a joint bankruptcy, but they are not required to. Bankruptcy will only forgive debts for the person who files. If most of the debts are held jointly, a bankruptcy by one spouse would be of little benefit because the other spouse would remain liable. If, however, most of the debts are in the name of one spouse, there may be no point in having the other spouse join in the bankruptcy. Often I am asked, “Can’t bill collectors come after both of us if we’re married?” That’s a good question. The legal theory in California is that both spouses can be liable for debts incurred during marriage, but there are so many exceptions to that rule that consumer creditors rarely seek to collect from a spouse that did not sign the contract. For credit reporting purposes, a bankruptcy will only show on the reports of the person who files. Lastly, a caveat, if a married person files bankruptcy alone, that person must disclose his spouse’s income and assets.

Chapter 7 Bankruptcy – Necessities of Life or Exemptions – Updated for 2023

October 12, 2021 by Michael Primus

Exemptions. Funny word, right? Exemptions in bankruptcy are assets considered by the law to be necessities of life. Exempt assets are things you keep when you file chapter 7 bankruptcy whereas non-exempt assets can be taken and sold for the benefit of your creditors. Most people considering chapter 7 bankruptcy in Contra Costa County have some general idea about what the system will allow them to keep. The trouble is, most people are wrong! Many people assume they will not be allowed to keep a car. Others assume the judge will come to their house to inventory their clothes. The law is clear, people just need to know their rights. To begin, chapter 7 is the most common type of bankruptcy and is also the strictest. The exemption laws in California give people filing chapter 7 bankruptcy two options:

Option One – Wildcard or 703 Exemptions

These exemptions are generally selected for people who do not own a home, or for homeowners with little or no equity in their home. These exemptions are commonly referred to as the “703” Exemptions, a term derived from the number of the Code section in the California Code of Civil Procedure in which they are enumerated (C.C.P. §703.140). It is also commonly referred to as the “Wildcard” Exemption, getting its name from the fact that §703.140(b)(5) allows for the protection of miscellaneous personal property as discussed below.

Miscellaneous Personal Property (“Wildcard”) – Up to $33,650 (amount as of Jan 1, 2023) in any property owned. If you do not own a home or have no equity in your home, then the Wildcard exemption will protect up to $33,650 worth of your assets. Importantly, the Wildcard exemption may be combined with the other categorized exemptions below, such as the vehicle exemption, for example, in order to protect a car worth far more than the vehicle exemption would otherwise allow.
Household Goods and Furnishings (for example clothing, furniture, appliances, books, instruments, sporting goods, etc.) – are protected.
Jewelry – Up to $1,900 is protected.
Motor Vehicle(s) – Up to a total of $7,500 for one or more vehicles. As noted above, if the value of your vehicle exceeds this amount, or you have multiple vehicles, generally you can use some portion of the Wildcard exemption to protect the remaining value of the vehicles. Also note, with a vehicle that is not paid for, only the equity in the vehicle, if any, must be exempted.
Public Benefits – Benefits offered by the government such as Unemployment, Social Security, Disability, Public Welfare, and Veteran’s benefits are exempt.
Life Insurance with a Cash Surrender Value (often called “whole life” or “Universal Life”) – Up to $17,075 in cash value. Cash value is defined as the amount that can be redeemed while the owner or the insured is alive. Conversely, the death benefit is a much higher amount payable only on death. Bankruptcy and exemptions are unrelated to death benefit amounts.
Tools of the Trade (implements, professional books, tools, other things used for your occupation) – Up to $9,525.
Retirement Accounts – These are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b). Self-employment retirement plans like Keogh plans, SEP IRAs and the like are subject to special rules.

Option Two – Homestead or 704 Exemptions

These exemptions are commonly known as the “Homestead Exemption” because the majority of people using these exemptions do so to protect the equity in their home.

Homestead – Covers equity in a primary residence of up to $678,000 in most cases.
Motor Vehicle – Up to $7,500 in one or more vehicles.
Jewelry, Heirlooms, and Art – Up to $9,525 combined value for all items.
Tools of the Trade – Assets used in a person’s (or their spouse’s) trade, business, or profession – Up to $9.525, unless both spouses are engaged in business, then $19,050. Note, however, that a commercial motor vehicle is limited to $4,850; or $9,700 for married couples.
Life Insurance with a Cash Surrender Value (for example “whole life” or “Universal life”) – Up to $15,250 or $30.500 if a husband and wife file bankruptcy together.
Public Benefits – Benefits including Unemployment, Social Security, Disability, Welfare, and Veteran’s benefits are exempt with no monetary limit.
Retirement Accounts – Are exempt in their entirety so long as the retirement is an IRA or an employer sponsored plan like a union pension, 401(k), or 403(b). Self-employment retirement plans like Keogh plans, SEP IRAs and the like are subject to special rules.

The exemption laws are complicated and this is a general description.

At the Law Office of Michael Primus, we have helped hundreds of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa County and have debt problems, contact us for a free consultation. Offices in Walnut Creek, Antioch and Hercules

Receive a 1099 for a forgiven debt? Fight back!

January 14, 2021 by Michael Primus

Tax form business financial concept: macro view of individual return tax form and blue metal ballpoint pen

This time of year I routinely get inquiries about forgiven debts and the dreaded form 1099. As a general proposition, the tax laws create an obligation to pay tax whenever the taxpayer’s finances improve. For example, a paycheck improves my financial position and creates an obligation to pay tax on that income. With a paycheck the taxes are taken out directly and remitted by my employer. With that in mind, if I owed $30,000 but was able to resolve the debt by paying $5,000 I would have improved my financial position and might assume I would owe tax on the $25,000. Whether I owe the tax depends on my circumstances. A couple examples of forgiven debt provide context before I delve into the rule and its exceptions. Debts can be forgiven in several ways, the most common being settlements and bankruptcy. In a settlement the lender agrees to accept a sum of money to resolve a debt. Generally the amount will be in the range of thirty to sixty cents on the dollar of the balance owed. That means a $5,000 debt might be settled for $1,500 to $3,000. Upon payment the borrower will have no further obligation to the lender. Settlements are common when the original debt was for a credit card or personal loan. Bankruptcy can allow a person to pay little or nothing and have no further obligation to the lender. The bankruptcy system refers to forgiven debts as having been discharged. Regardless of the terminology, the point is the money is no longer owed. That may seem like the end of the story but later the borrower may get a 1099. Form 1099 reflects cancellation of debt by the lender, it does not create a taxable event. In fact, very few people should pay the tax. Unfortunately many people prepare their own tax returns and mistakenly pay the tax. The IRS cheerfully accepts the money! The rule making cancelled debt taxable has two major exclusions discussed below.

The debt was forgiven in bankruptcy. This requires filing bankruptcy and obtaining a discharge from the bankruptcy court.
You were insolvent when the debt was forgiven. This does not require a bankruptcy. It means your debts exceeded the value of your assets at the time the debt was forgiven. The IRS rarely challenges a claim of insolvency.

Either of these exclusions will render the forgiven money non-taxable, you do not need both. All you need to do is attach IRS form 982 to your tax return to clarify why the income reflected in the 1099 is nontaxable. The exceptions are also discussed in IRS form 982 and IRS publication 4681 which can be found on the IRS website at www.irs.gov.

You do not automatically lose your home if you file bankruptcy