Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

What Happens To My Mechanic’s Liens When I File For Bankruptcy?

By Ryan C. Wood

Picture this: a homeowner wants to improve his or her property and hires contractors to do the work on the home. After the contractors complete the project, financial disaster strikes the homeowner and he or she is unable to pay the contractors or any of his or her other creditors. What happens if he or she files for bankruptcy and there is a mechanic’s lien on the property? How is the mechanic’s lien treated in bankruptcy?

Before we look at how the mechanic’s lien is treated in bankruptcy, we need to look at how mechanic’s liens work in general. If a contractor in California performs work or provides goods for the construction of a piece of property they can record a lien against the property if they are not paid timely. In California, a contractor has to serve a 20-day preliminary notice to a property owner in order to file a mechanic’s lien. Failure to provide a 20-day preliminary notice means the contractor may lose the rights to file a mechanic’s lien entirely. Once the project is completed the homeowner has to record a notice of completion within 10 days of the completion of the project. The homeowner has to serve the notice of completion to all the contractors that provided the homeowner with a 20-day notice within 10 days of the recording of the notice of completion. Once the notice of completion is served, a general contractor has 60 days to record a mechanic’s lien against the homeowner. The mechanic’s lien needs to be recorded in order to be considered “perfected.” A subcontractor or supplier has 30 days to record a mechanic’s lien. If the homeowner never recorded a notice of completion then a mechanic’s lien can be recorded against the homeowner within 90 days. Once a mechanic’s lien is recorded against the homeowner’s property the contractor has 90 days to either enforce the lien by filing a lawsuit or foreclosing on the property. Failure to do so will result in a mechanic’s lien being considered stale and unenforceable.

So let’s go back to the scenario in the beginning. If the homeowner files for bankruptcy before the contractor’s time is up to perfect the lien, is the contractor now out of luck due to the automatic stay that comes into play when a homeowner files for bankruptcy? The answer is no. 11 U.S.C. §362(b)(3) allows the contractor to perfect the lien even after the bankruptcy case is filed. This is because the perfecting of the lien relates back to a pre-bankruptcy event and this is permissible under 11 U.S.C. §546(b). Once the contractor perfects the lien, he still needs to enforce the lien. In order to enforce the lien, the contractor will need to file a motion to lift the automatic stay in bankruptcy court so the contractor can enforce the lien. The contractor may only enforce the lien once the judge grants the motion to lift the automatic stay. If the contractor misses this crucial step and just tries to enforce the lien without the bankruptcy court giving them permission to do so, the contractor will be in violation of the automatic stay and may be sanctioned by the bankruptcy court. If the contractor does not perfect the mechanic’s lien they will be considered a general unsecured non-priority creditor in the bankruptcy case and may be out of luck on receiving any payment if it is a no-asset Chapter 7 case.

The treatment of a mechanic’s lien is subject to state law so please refer to your particular state’s mechanic’s lien laws to determine what type of notice (if any) is required, when a mechanic’s lien can be recorded and what are the limitations of the liens.

Will Receiving Disability Affect My Bankruptcy Case?

By Ryan C. Wood

There are many reasons why people may need to file for bankruptcy. One of the reasons people may need to file for bankruptcy is their inability to work due to a disability, either from the workplace or their own personal health issues. Workplace injuries are unexpected and may wreck havoc on many aspects of your life including your finances. Disabilities due to your personal health issues are also a huge contributor to people’s financial woes. It is not surprising that people suffering from a disability may need to file for bankruptcy. Will receiving disability payments, either from a private insurance company or from public benefits such as state disability or Social Security Disability affect your bankruptcy case?

Receiving Disability Payments

If you are receiving disability payments or received a lump sum disability payment the payments need to be protected in your bankruptcy estate. Make sure you communicate to your bankruptcy lawyer you are receiving disability. Luckily your disability payments received are protected in California, whether they are from a private or public entity. California exemptions protect disability payments in full so you do not have to worry about losing those payments if they are sitting in a bank account. It may be in your best interest to use separate bank accounts for disability payments so you do not have any commingling issues. Commingling your disability payments with other sources of income may result in you having a difficult time proving what funds came from what source. Tracing the source of the disability payments should be easy and simple.

Disability and If You Own Real Estate

If you are disabled you have the right to the highest exemption value if you have equity in your home. Yes, receiving disability will affect your bankruptcy. Real estate values are increase in most parts of California. After the last several years of depressed home values people in certain parts of California are seeing increases in their home values again. That is great news if you are in the process of selling your home, but what if you have no intention of selling your home and you need to file for bankruptcy? As a bankruptcy attorney I have seen many people that are stuck in a situation where they need to file for bankruptcy but have a lot of equity in their home.

When you file for bankruptcy all of your assets are included in the bankruptcy estate. Each state has exemptions to protect your assets. Exemptions allow people filing for bankruptcy to keep a lot of their assets and obtain the fresh start they are looking for. If you have more assets than what can be protected that is where you run into problems. If you file a Chapter 7 bankruptcy case, any unexempt assets are liquidated and the proceeds are given to your creditors in exchange for a discharge of your debts. In a Chapter 13 bankruptcy case, you need to pay the amount of the unexempt asset into a Chapter 13 plan. You are essentially buying back your unexempt assets.

What can these people do then if they have equity in their home? If they file for Chapter 7 bankruptcy protection the trustee may liquidate their homes to satisfy creditors. If they file for Chapter 13 bankruptcy protection they need to pay the amount that is not exempted in their Chapter 13 bankruptcy plan but they may not have the funds to do so because they are on limited disability income.

If you live in California, you own real estate that has a lot of equity and are receiving disability you can use the $175,000 homestead exemption if you are physically or mentally disabled and as a result of that disability you cannot engage in substantial gainful employment. See California Code of Civil Procedure Section 704.730(a)(3)(B). If a creditor objects to the use of the homestead exemption that party has the burden of proving the exemption was not accurately used. If the creditor can provide evidence that contradicts the use of the exemption, the burden will then be on you to provide proof that indicates the use of the exemption was proper. There is a rebuttable presumption that a person receiving disability insurance payments under Title II or supplemental security income payments under Title XVI of the Social Security Act satisfies the requirements to receive the homestead exemption. The determination of whether you qualify for the exemption (have a mental or physical disability and cannot engage in substantial gainful employment) may be different in each case.

What constitutes “substantial gainful employment”? In one California case, In re Rostler, 169 B.R. 408 (Bankr. C.D. Cal. 1994), the court held that to satisfy this element, the person filing for bankruptcy must have been 1) unable to perform meaningful mental or physical work-related activity 2) in a competitive or self-employed position that 3) normally results in pay or profit. The fact that you can get “any work” or part-time work may not rise to the level of substantial gainful employment.

There are a number of types of income that must be documented when filing for bankruptcy protection. Disability insurance or payments are no difference. So, will receiving disability payments effect my bankruptcy case is easily answered, the answer is yes, and in most instances in a positive way.

Should My Religion Stop Me From Filing Bankruptcy?

By Ryan C. Wood

Throughout my years as a bankruptcy attorney one comment I hear a lot from my clients has been, “I really need help because I am drowning in debt but I am deeply religious and feel like I am letting God down if I get rid of my debts through bankruptcy.” First of all, filing for bankruptcy is a personal choice that each individual needs to make and have peace with the decision regardless of what anyone says. Religion does play a role in feeling guilty or that filing for bankruptcy is wrong for many people. They are conflicted between the need to put food on the table versus being able to hold their heads up high as Christians (or other religious affiliations) and pay money they do not have to creditors. Some people are made to believe they are bad people if they file for bankruptcy. The truth is no one whether religious or not believes they will someday file for bankruptcy protection. Bad things happen to everyone whether am millionaire or penniare. Filing for bankruptcy is legal, it is following the law and has been part of modern society for thousands of years.

Who are the people that are making people feel like they cannot file bankruptcy and be religious at the same time? It is themselves, creditors and society as a whole. The creditors are the ones that insinuate to people to that they must be bad people or they must not be religious if they do not pay back the debt they owe. The creditors harass, verbally and mentally abuse people when they call to try to collect money. The creditors say things like “What kind of person are you? You must not care what God thinks about you trying to avoid paying the debts you owe.” These people are made to feel ashamed and less of a person if they do not have the funds to pay back the debts. Before you start feeling this way about yourself you should consider other factors other than how these debt collectors are trying to make you feel. Creditor harassment and breaking the law to attempt to collect a debt is nothing new to bankruptcy attorneys. Think about how the debt collectors are acting and the things they are saying. Is that the moral compass you should compare yourself to? You should think about the fact that the amount these creditors are saying you now owe them is significantly higher than what you actually borrowed to begin with. The creditors are tacking on late payments, penalties, insanely high interest rate and fees for transferring the debt to collection agencies. You may only borrow $2,000 from a creditor and you now owe $10,000 or more. Is that something God would want? The Bible frowns upon usury. Our state laws used to limit the amount of interest that could be charged for credit card debts. Not anymore. In fact, lending money with interest, especially to the poor is condemned in the Bible (Exodus; Leviticus; and Deuteronomy). What would God think about creditors charging higher than 29.99% interest on credit cards and over 1,000% on some pay day loans?

People already believe that God is merciful and forgiving. Why would a merciful and forgiving God want you to pay creditors at the expense of your family? In Deuteronomy, people are granted a release of their debts every 7 years. It is called the Lord’s release. The Bible teaches us about forgiveness. If you are able to repay your financial burdens, then of course you should do so. However if the debts are too much for you to pay back you are shown mercy. That is very similar to how bankruptcy works as well. Your bankruptcy lawyers will file a Chapter 7 bankruptcy and obtain a discharge of your debts every 8 years. Most people keep all of their assets when filing bankruptcy in California because of California’s generous exemptions, so you are not left empty handed after filing bankruptcy. If you have some disposable income each month then you can pay back some of the debts, you are expected to do so in a Chapter 13. The bottom line is that you should not feel ashamed or feel like you are less religious because you cannot pay back your debts. We all deserve a second chance to do better and ask for forgiveness.

Bankruptcy Filing Fees are Increasing June 1, 2014 in the Northern and Eastern District Bankruptcy Courts

By Ryan C. Wood

If you are thinking about filing for bankruptcy protection from your creditors you should be aware that the bankruptcy filing fees are increasing effective June 1, 2014. Here is a list of increased fees that may affect you:

Chapter 7 bankruptcy filing fee will increase from $306 to $335     NOW $338
Chapter 9 bankruptcy filing fee will increase from $1,213 to $1,717  NOW $1738
Chapter 11 bankruptcy filing fee will increase from $1,213 to $1,717  NOW $1738
Chapter 11 bankruptcy filing fee will increase from $1,046 to $1,550
Chapter 12 bankruptcy filing fee will increase from $246 to $275
Chapter 13 bankruptcy filing fee will increase from $281 to $310     NOW $313
Chapter 15 bankruptcy filing fee will increase from $1,213 to $1,717    NOW $1738
Adversary Proceeding filing fee will increase from $293 to $350.

If you want to bifurcate your bankruptcy case (meaning if you filed the petition with another person and you now want to split up the case) the fees have increased as well. The filing fees are essentially the same as above. For example, to bifurcate or split a Chapter 7 case the filing fee will be $335. To bifurcate or split a Chapter 13 case the fee will be $310. You will be essentially paying double to split a case (once when the case was filed and once when you bifurcate or split the case).

This may not be an exhaustive list of all the increased fees. There may be other increased fees that may affect you. You should contact your bankruptcy attorney or check the court’s website if you want to see what other fees have changed. The fee schedule is applicable to the Northern and Eastern Districts of California. Other jurisdictions may change their bankruptcy filing fees as well. You should check your jurisdiction’s website to verify if the fees have changed.

The last time the court increased the bankruptcy filing fees was back in December 2013. The fees have increased again after 18 months. If you retained the services of a bankruptcy lawyer previously, but your bankruptcy case is not filed yet, you should ensure your case is filed by the end of May to avoid the increased bankruptcy filing fees in the Northern and Eastern District Bankruptcy Courts.

If you can not file until after June 1, 2014, do not be surprised that you now have to pay more to file your bankruptcy case. If your retained a lawyer but have not filed your case by the end of this May your bankruptcy lawyer may be asking you for additional fees to cover the increased bankruptcy cost. They are not arbitrarily asking you for more money but since your bankruptcy attorney will not have to pay more to file your bankruptcy case they may need to recoup the funds from you. If you want to avoid the fees then make sure your case is ready to file and provide the attorneys with all your paperwork, complete the credit counseling course, and review and sign your petition prior to the end of May. This way you will know for sure that you will not be responsible for additional bankruptcy court filing fees unless you want to bifurcate or split your bankruptcy case in the future.

If you already retained an attorney but have not completed all the steps necessary to have your bankruptcy case filed yet now is the time to finalize everything to get your case filed before the fee increase. You need to be sure you made all the payments to your attorney, take the credit counseling course and obtain a certificate of completion, review and sign your petition to ensure it is filed before June 1, 2014 to avoid paying the increased filing fee amount. If you are filing your bankruptcy case without an attorney you should be sure to file your bankruptcy case by May 30, 2014 to avoid paying the increased filing fee amount as well.

Improper Estate Planning Leads to Sale of Properties in Bankruptcy

By Ryan C. Wood

If you have properties you are trying protect either for estate planning purposes or for purposes of filing bankruptcy the most important lesson is to plan properly. It is always best to obtain the advice of an experienced professional like an estate planning attorney or a bankruptcy attorney to ensure you do not lose the very property you are trying to protect.

One family learned this lesson the hard way. In Oklahoma, Mr. and Mrs. Gragg transferred title to their three properties to themselves and their two daughters (Angela Harrison and Melody Lavender) via quitclaim deeds so that each of them had a 25% interest in the properties as joint tenants with the right to survivorship. They did this for estate planning purposes. Only two of the properties were at issue in this case. Both of the properties were paid in full. Neither of their daughters had made any payments towards to the house and the Graggs received all the rent and paid the corresponding taxes and used the deductions on their tax returns. Ms. Harrison filed for Chapter 7 bankruptcy protection. (In re Angela Michelle Edmound Harrison, Case No. 11-13580). Ms. Harrison listed her 25% interest in the properties in the petition schedules with footnotes indicating that her and her sister were added to the title of the properties for their parent’s estate planning purposes only. Harrison claimed she did not have any ownership or control over the properties. The total market value for both of the properties in question is approximately $170,000 to $180,000. The total creditor claims filed in the case was approximately $35,000. The Chapter 7 trustee in the case moved the court to sell the two properties for the benefit of Ms. Harrison’s creditors even though there were three other people on title to the properties that did not file bankruptcy. The trustee proposed to sell the both properties because the properties could not be properly partitioned and sold. The trustee is proposing to sell both properties, give the Graggs and Ms. Lavendar their 75% of the proceeds and pay Ms. Harrison’s creditors in the bankruptcy case with Ms. Harrison’s 25% of the proceeds. The Graggs objected to this sale and argued that Ms. Harrison did not have any recognizable interest in the property and the trustee did not have the right to sell the properties.

The judge in this case concluded that Oklahoma law controls and under Oklahoma law, a quitclaim deed is sufficient to provide notice of the claim to title in the property. If the deed itself does not convey what the original parties intended to convey, the law allows the parties to show what the original intent was. Whether that intent should be binding on an innocent third party buyer is the big question in this case. Once a bankruptcy petition is filed the trustee steps into the shoes of a bona fide purchaser of the property. Based upon the deeds themselves, nothing provides notice to the bona fide purchaser that the deed was only for estate planning purposes. The deeds only show that each party receives 25% interest in the properties as joint tenants with the right of survivorship. Nothing puts the bona fide purchaser on notice that the actual circumstances are different than what is listed on the deed. The Graggs also argued that since they paid for all expenses and taxes related to the property their daughters only hold bare legal title and that Ms. Hamilton’s interest is subject to a resulting trust in favor of the Graggs. The trustee does not dispute this. The court indicated that even if there was a resulting trust Oklahoma law mandated that express or implied trusts do not defeat the title of a bona fide purchaser of real property.

The Graggs lost their properties in bankruptcy even though they did not file bankruptcy themselves. One issue not discussed in the case is that the Graggs could have purchased the bankruptcy estate’s interest in the two properties instead of both properties being sold. As long as the bankruptcy estate receives the same value as if the properties were sold. It is unclear whether Harrison’s bankruptcy attorneys attempted this or if it was even financially possible for the Graggs to do. Even though the Graggs received the full value of their interest in the properties minus Ms. Harrison’s 25% share the Graggs no longer have the rental properties and lost a chunk of their income stream. This is all because they used the wrong estate planning tool. If they had an attorney draw up a revocable living trust naming their daughters as beneficiaries and including a spendthrift provision in their trust the scenario could have played out differently.