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.

Are Unemployment Insurance Taxes Dischargeable in Bankruptcy?

By Ryan C. Wood

If you own or used to own a business or corporation and you are considered the person responsible for paying the unemployment insurance taxes, one question you may have is whether the unemployment insurance taxes are dischargeable in bankruptcy? This is definitely a concern for business owners that have failing businesses and do not have the resources to pay back the unemployment insurance taxes. Please speak with a bankruptcy lawyer in your jurisdiction before making hard choices. The Ninth Circuit Bankruptcy Appellate Panel (BAP) addressed this issue in State of California Employment Development Department v. Hansen, 470 B.R. 535 (April 2012).

The 9th Circuit BAP in the Hansen case ruled that unemployment insurance taxes were indeed dischargeable in bankruptcy despite the California Employment Development Department (EDD)’s claims. In the Hansen case the EDD claimed that unemployment insurance taxes were considered a priority tax under 11 U.S.C. §507(a)(8)(C), a tax required to be collected or withheld and for which the debtor is liable in whatever capacity, and therefore considered nondischargeable under 11 U.S.C. §523(a)(1)(A). The Hansens argued that unemployment insurance taxes did not fall under §507(a)(8)(C) because the unemployment insurance tax was not a tax that is required to be collected by the debtor from a third party. The unemployment insurance tax is not withheld from employee’s paychecks. Therefore it is not a tax where it is collected from the employee to be paid by the employer to a government agency. The unemployment insurance tax is only paid by the employer to EDD.

The 9th Circuit BAP resolved this issue by taking a look at the legislative history to see if they could determine what Congress meant when they wrote §507(a)(8)(C). We only look at the legislative history when the law itself is ambiguous. The BAP concluded that legislative history showed that under §507(a)(8)(C) the tax must be collected from a third party. In this case, the employer (Hansen) was directly responsible for paying the unemployment insurance taxes to EDD. Since unemployment insurance taxes do not fall under §507(a)(8)(C) it does not fall under the §523(a)(1)(A) category of a nondischargeable debt and therefore unemployment insurance taxes are dischargeable. §523(a)(1)(A) basically states that it must be considered a tax under §507(a)(8) or §507(a)(3).

One thing bankruptcy lawyers should note is that although unemployment insurance taxes do not fall under the §523(a)(1)(A) category of nondischargeability, it must not fall under any other categories of nondischargeability in §523. One category to note is §523(a)(2) which is essentially obtaining credit based on fraud or misrepresentation. If there was no fraud or misrepresentation involved then your unemployment insurance taxes would most likely be dischargeable.

California Bankruptcy Exemptions Increase as of January 2013

By Ryan C. Wood

As we are now beginning the new year you should be aware of the new laws that may affect you. If you are thinking of meeting with bankruptcy lawyers in California and filing for bankruptcy in 2013 one thing you should know is that some bankruptcy exemptions are higher in California as a result of California Assembly Bill AB-929.  Inevitably the exemptions will increase again after the writing of this article.  This bill was approved by the governor and filed with the Secretary of State on September 27, 2012. This means that more of your property can be protected when you file for bankruptcy. California has two exemption statutes. The first exemption statute has a generous wild card exemption, Section 703.140 of the Code of Civil Procedure, and the second exemption statute has a generous homestead exemption, Section 704.730 of the Code of Civil Procedure. Your bankruptcy attorney cannot use both in a bankruptcy petition. California has opted out of using the federal exemption statutes so those are unavailable for people filing for bankruptcy in California.

Here are some of the changes in the exemption statutes as of January 1, 2013:

Section 703.140 of the Code of Civil Procedure:

• $24,060 in homestead or burial plot ($22,075 previously)
• $25,340 wildcard exemption. This consists of $1,280 plus any unused portion of the $24,060 homestead or burial plot exemption. ($23,250 previously)
• $4,800 in one or more motor vehicles ($3,525 for ONE motor vehicle previously)
• $600 in any single household item ($550 previously)
• $7,175 professional books or tools of trade ($2,200 previously)
• $12,860 dividend or interest under unmatured life insurance contract ($11,800 previously)
• $24,060 personal injury payments ($22,075 previously but this did not include pain and suffering compensation)

Section 704.730 of the Code of Civil Procedure:

Homestead exemptions provided to a homeowner would be one of the following:
1) $75,000 unless you are a person described in (2) or (3) below.
2) $100,000 if you are a member of a family unit where one or more members of the family do not have an interest in the homestead or whose only interest is a community property interest
3) $175,000 ($150,000 previously) if you are:
a. 65 years of age or older
b. physically or mentally disabled and as a result cannot work
c. 55 years or older with gross annual income of not more than $25,000 (single) or $35,000 (married) and there is an attempted involuntary sale ($15,000 if single and $20,000 if married previously)

Additionally, on April 1, 2013, (and every three years thereafter) the Judicial Council is required to submit adjusted homestead exemptions based on the change in the annual California Consumer Price Index to the Legislature. The increases will not be in effect until they are approved by the Legislature. This will tie the homestead exemptions to inflation and the rising cost of home ownership.

How Do I Make My Chapter 13 Plan Payments?

By Ryan C. Wood

You are responsible for making your Chapter 13 plan payments on time every month once your Chapter 13 bankruptcy case is filed. You will receive a notice from the trustee’s office in the mail detailing when the first payment is due and how to make the payment. Most bankruptcy lawyers also send you the same information at the time your case is filed. The Chapter 13 trustee that is assigned to your bankruptcy case will be providing you with information on when and where to make your Chapter 13 plan payments. The trustee can and will file a motion to dismiss your case if you fail to make these monthly payments. Some trustees are more lenient than others when it comes to filing a motion to dismiss for nonpayment. Some trustees will file the motion immediately after a missed payment and some trustees will wait until you are a month or more behind before filing a motion to dismiss for nonpayment. However, you should always be aware of how much you owe and when you have made a payment. You cannot rely on the trustee to tell you that you are late on a payment because that may be too late to save your Chapter 13 bankruptcy case from dismissal.

There are several ways to make a plan payment to your Chapter 13 trustee. One way is to have the plan payments be directly deducted out of your paycheck. This way ensures that your plan payments will always be made on time. However, some people just do not like seeing their paychecks decreased for any reason and like to make the payments themselves. That is fine as well. You can personally mail in the payment to the trustee every month. Most trustees require that you pay with cashier’s check or money order only. They do not want to deal with bounced checks. You should keep copies of all payments that you have made so that if there are any errors in accounting you can provide proof of payment. What happens if you mailed your payment into the trustee but the trustee never received your payment? Unfortunately, having your payment lost in the mail is one of the possibilities and risks of mailing in a payment. If the trustee indicates that he or she never received your payment you can look into canceling the cashier’s check or money order that was not received and obtaining a new one to mail to the trustee immediately. One method of ensuring that you know exactly where your payment is would be to purchase a delivery confirmation or some other way of tracking the mail. However, that may be costly and adds up over time. The choice is entirely up to you. Not all trustees have set up or approved paying by ACH, but a third way of making a payment that is becoming more common is to pay the trustee electronically through your checking account. Most trustees do not take regular “bill pay” from your bank since it is similar to a personal check: it could bounce and would be a headache to resolve and would also result in lots of fees that you would need to pay. The electronic payment would most likely be from a third party vendor approved by the trustee that you would need to go through. There are costs involved but it would probably save you a lot of time and would be convenient so you would need to weigh the convenience factor against the cost.

If you are not able to make a payment because of changed financial circumstances you should contact your bankruptcy lawyer immediately to modify your Chapter 13 plan. Do not wait until it is too late before contacting your attorney. If you do not have an attorney you should modify your plan yourself once you know that there will be changed circumstances such as being on disability, less work hours, or being laid off. There are a lot of different ways in which your financial circumstances could change. If you are planning on filing a Chapter 13 it is highly recommended that you seek the services of an experienced attorney to help you through your Chapter 13 bankruptcy case.

Does My Non-Filing Spouse Need to Provide Pay Stubs in My Bankruptcy Case? Yes You Are Married

By Ryan C. Wood

Just because you need to file for bankruptcy does not mean that your spouse will need to file as well or has to file as well.  There may be many reasons why only one spouse chooses to file for bankruptcy protection. Maybe your spouse does not have any significant debts to warrant filing for bankruptcy, or your spouse has good credit and does not want to have bankruptcy on his or her credit report.  Possibly your spouse does not qualify to receive a bankruptcy discharge due to some circumstance.  Bottom line is your spouse is not required to file for bankruptcy no matter what the reason is. However, just because your spouse is not filing for bankruptcy with you does not mean your spouse does not have any obligations in your bankruptcy case to cooperate and properly disclose their income, expenses and assets (both community and separate property assets.)  Only community assets are part of the bankruptcy estate created upon the filing of the bankruptcy petition though.

You Are Married And That Creates One Community

Many spouses have the mistaken belief that since they are not filing for bankruptcy they should not be involved in the bankruptcy case in any aspect, but that is not true.  As much as you may want to ignore you are legally married you cannot ignore it in a legal proceeding like filing for bankruptcy protection that you are in fact married.  Like it or not California law once you are married forces some presumptions on you as a spouse.  California community property law assumes both you and your spouse have command and control over the community income, expenses and assets.  Both spouses are liable for community debts; that is debts incurred during marriage whether regardless of which spouse entered into or signed the contract.  You are married.  There is only one community.  I know, I know that you have separate bank accounts and do not know how much your spouses earns each but you are married.  It does not matter how you conduct your business in the real world because you are married.  It is no ones business and you are free to you how you so choose.  You are now seeking to discharge your debts by filing for bankruptcy protection and we have certain obligations that must be done correctly.

Your spouse will still need to provide pay stubs for the 6-month period right before your bankruptcy case is filed and cooperate with your bankruptcy attorney. Your spouse’s pay stubs and yours are needed for purposes of calculating your average household income for the 6-month period on the Means Test or Chapter 13 Statement of Monthly Disposable Income. This means if you file your case in December, you will need to provide you and your spouse’s pay stubs from June to November to complete the 6-month period.  Something that I run into time and time again is You need to reassure your spouse that just because he or she is providing pay stubs in your bankruptcy case does not mean that he or she is filing for bankruptcy with you. Your spouse’s credit will not be affected by your bankruptcy filing by providing the necessary pay stubs.

Another requirement is that your bankruptcy lawyer must provide 60 days of pay stubs to the trustee prior to the meeting of creditors. This consists of the 60 day period prior to your bankruptcy filing. Some jurisdictions require the 60 day pay stubs to be filed with the court and some jurisdictions only require the 60 day pay stubs to be provided to your trustee directly. Whether or not your spouse’s pay stubs need to be provided to the trustee will depend on the local rules of your jurisdiction. When in doubt you can always contact your trustee and ask whether your spouse’s pay stubs are required. If you have a bankruptcy attorney, your attorney will be able to answer your questions and your attorney will be able to provide the required documents to the trustee (assuming you provided all the requested documentation to your attorney, of course).

You are married.  You are married.  When I ask you something and you say I do not know or why does that matter my answer will be your married.

Is It Considered Bad Faith if I File a Chapter 13 Bankruptcy Case to Strip My Second Mortgage When I Have No Other Debts?

By Ryan C. Wood

Bankruptcy courts allow you to strip your junior mortgages in a Chapter 13 bankruptcy case if your creditor is holding a claim that has no value.  See In re Zimmer, 313 F.3d 1220 (9th Cir. 2002).  An example is if your house is worth $300,000.  Your first mortgage is $400,000 and your second mortgage is $100,000.  You can strip your second mortgage in a Chapter 13 bankruptcy case in this scenario.  What happens if that is the only reason why you are filing for bankruptcy?  You do not reorganize a car loan and do not have significant credit debts to discharge.  Would it be considered bad faith to file a Chapter 13 case if you do not have any other debts to discharge?  The Ninth Circuit Bankruptcy Appellate Panel answered this question in Meyer v. Lepe (In re: Lepe), Bankruptcy Case Number: 10-60264 (May 9, 2012).

In Meyer v. Lepe, Lepe filed his Chapter 13 bankruptcy case to strip the second mortgage on his house.  He only had $549 worth of unsecured debt in addition to the unsecured debt from his second mortgage.  The Chapter 13 Trustee objected and said that filing a bankruptcy case when the sole purpose is to strip the second mortgage is considered to be lacking in good faith.  The Trustee argued that Lepe was balance sheet solvent and detailed mistakes in Lepe’s bankruptcy petition.  The Bankruptcy Court attributed the mistakes to Lepe’s bankruptcy lawyers inadvertence rather than lack of good faith.  The Ninth Circuit Bankruptcy Appellate Panel disagreed with the Trustee’s arguments and said that one must look to the totality of the circumstances when looking to see if a plan is filed in good faith.  Each case should be looked at on a case-by-case basis.  There are many different factors to look at and not one single factor should be looked at in isolation even if one of the factors indicates bad faith. All of the circumstances need to be looked at as a whole.  The court also indicated that it is not considered bad faith if you are proposing a Chapter 13 plan that is using what is available to you in the Bankruptcy Code.

So even if you are filing for bankruptcy protection to strip a second mortgage and you have no other significant unsecured debts it is possible to have your Chapter 13 bankruptcy plan confirmed.  The courts will look at your case to see if you are sincere in seeking Chapter 13 bankruptcy relief, to see if you lied in your petition about any of your assets or debts, your ability to pay into a Chapter 13 plan based on your income and expenses, and other factors.  If you are seeking to have your second mortgage stripped in a Chapter 13 plan it is advisable to seek the advice of a bankruptcy attorney in your jurisdiction.