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.

Why Did I Receive A Letter From REM Division of Notification?

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So you filed for bankruptcy protection under Chapter 7, 11 or 13 and now you are receiving all this information/marketing material in the mail. One of the letters could be from REM Division of Notification. If you do not have much time right now just throw the letter away, burn it, shred it or return it to the sender and stop reading now. REM Division of Notification DOES NOT have any to do with the United States Bankruptcy Court or have anything to do with your actual bankruptcy case. They are just trying to pry some money out of your hand for now good or apparent reason.

Filing Bankruptcy Is A Public Record

Yes, the bankruptcy filing is a public record. Like all legal matters bankruptcy records are open to the public. You need a Public Access to Court Electronic Records account and login. After you create a PACER account it will cost $0.10 a page to review the documents. So companies like REM Division of Notification pay $0.10 a page to obtain your information and send marketing material to you. There is nothing wrong with that until you read the letters that come in the mail. I have yet to read a marketing letter that is not misleading or confusing to our clients. Sage Financial sends marketing material to bankruptcy filers to complete the second required course for around $50.00. While it is true a second course is required to receive a discharge of eligible debts when filing bankruptcy. The company we recommend to our clients only charges $7.95 for the second required course. Every now and then we have a client get fooled by Sage Financial and use them for the second course and they waste $40+. On a side note, Google also finds the bankruptcy filing information because the meeting of creditors hearings are posted as a PDF on the bankruptcy court’s website.

REM Division Of Notification’s Letter Is Misleading

First, REM Division of Notification has nothing to do with the government or the United States Bankruptcy Court. The letter in the top left-hand corner says “Bankruptcy Notification Division” as if the letter is an official communication from the bankruptcy court. The second misleading statement is in the first sentence. The letter says “Your Bankruptcy has been filed by the Court System and the information needed to access your records is printed above.” No, that is false and misleading again. Your bankruptcy attorney has records of your bankruptcy petition and all you should need to do is call them for a copy of the filed documents. The REM Division of Notification letter actually does not provide any information to access records. Next the letters says, “Please keep this letter because during your bankruptcy there will be 3 stages you will go through in order to complete the process. Many times the data centers are very slow in or with sending you the information you need so we will keep you informed and supply you with any available court information you may request using our web site during your proceedings.” What data centers? Once a bankruptcy case is filed certain documents are served directly by the court and the court is NOT slow in providing service. There are deadlines for everything, so it is actually not possible for notices to not be sent timely.

You Should Be Receiving The Information You Need From Your Bankruptcy Lawyer

Hopefully you used good judgment and retained a bankruptcy lawyer to prepare and file your bankruptcy petition. If so, then that lawyer should be providing you with all the information you need from start to finish. That is part of what you are paying the lawyer for. So what does REM Division of Notification actually do? Who knows? It appears they will provide you will the filed documents from your bankruptcy case for a fee. These are the same documents you should get from your attorney for free or can obtain directly from the bankruptcy court yourself for $0.10 a page. REM Division of Notification probably only has a normal PACER account just like me, pay $0.10 a page for documents, then fool people into using their service and charge people something far over $0.10 a page so they make a lot of money.

Ask Your Bankruptcy Attorney

If you filed for bankruptcy protection and have questions about the documents you are receiving in the mail ask your bankruptcy attorney to explain them to you. Before calling your bankruptcy attorney scan and email the letter or fax the letter to your attorney first. It is difficult to explain a document or answer questions if we cannot read the actual letter the questions are about. So please forward the document first, then call and ask questions.

How Can I Try to Dismiss a Chapter 13 Case if I am a Creditor?

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If you are owed money and just received a notice of meeting of creditors and deadlines in the mail time is of the essence. Once a bankruptcy case is filed it sets in motion a number of deadlines that are extremely important to creditors. If you are a creditor then mostly likely you may have an interest is trying to get the Chapter 13 bankruptcy case dismissed in its entirety to prevent the discharge of the debt owed to you. So how can a chapter 13 case be dismissed prior to approval or confirmation of the Chapter 13 Plan?

Review the Filed Petition and Attend the Meeting of Creditors

Once the case is filed there is a limited amount of time to review the bankruptcy petition and chapter 13 plan. The meeting of the creditors is scheduled about 30 days after the case is filed. In most jurisdictions objections to approval or confirmation of the chapter 13 plan must be filed on or before the first scheduled meeting of the creditors. Depending upon the type of debt you are owed (secured, priority or general unsecured) the plan will provide how the different types of debts will be treated in the plan. If you have a secured claim or priority claim then generally the plan should provide for full payment over the life of the plan. If you have a general unsecured claim then you will receive a percentage of what you are owed. In the majority of Chapter 13 cases general unsecured creditors receive less than 10% of their claim or less. If the debtor is not treating your claim properly or is not committing all of their monthly disposable income to the chapter 13 plan your bankruptcy attorney may have grounds to file an objection to confirmation or approval of the chapter 13 plan on your behalf.

Objection to Confirmation of the Chapter 13 Plan

The most basic procedure to try and dismiss a chapter 13 case is to object to the confirmation of the chapter 13 plan. To object to the plan you need to have the proper grounds though. Section 1325 of the Bankruptcy Code provides the requirements to confirm a chapter 13 plan. If the proposed plan does not meet the requirements of Section 1325 you can object to approval of the plan. If the plan does not treat your claim properly under state law or the bankruptcy code you may object to confirmation of the plan. Generally the bankruptcy filer’s bankruptcy lawyers will try and work out the problem so that you will withdraw the objection to confirmation of the plan. If no solution can be agreed upon then a confirmation hearing will have to take place for the judge assigned to the case to decide who is right and whether the chapter 13 plan can be confirmed over the objection. If the court agrees and sustains your objection to confirmation of the chapter 13 plan, then the court may allow the debtor to amend the plan again. Eventually the court will seek dismissal of the chapter 13 case if a confirmable plan cannot be submitted within a reasonable amount of time.

Seek Dismissal Pursuant to Section 1307 of the Bankruptcy Code

If the chapter 13 case is just dragging on and on with little to no progress, then a party-in-interest, creditor or trustee may file a motion with the court to request a hearing and dismissal for unreasonable delay. A recent Ninth Circuit Bankruptcy Appellate Panel case discussed this process and procedure. The case, In re Debra Sue Phillips, BAP No. NV-14-1359-JuKuD, the debtor, Debra Sue Phillips, appeals the bankruptcy court’s dismissal of her chapter 13 case pursuant to Section 1307(c) of the Bankruptcy Code.

Section 1307(c) provides that a bankruptcy court may either dismiss or convert a chapter 13 case for cause, whichever is in the best interest of creditors.

– Section 1307(c)(1) provides dismissal or conversion for unreasonable delay that is prejudicial to creditors. In reality the Chapter 13 Trustee’s office will seek dismissal under 1307(c)(1) if the case is dragging on without confirming a chapter 13 plan. § 1307(c)(1). “A debtor’s unjustified failure to expeditiously accomplish any task required either to propose or confirm a chapter 13 plan may constitute cause for dismissal under § 1307(c)(1).” Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904, 915 (9th Cir. BAP 2011)
– Section 1307(c)(2) provides for dismissal or conversion for nonpayment of any fees and charges required under chapter 123 of title 28.
– Section 1307(c)(3) provides for dismissal or conversion for failure to file a plan tmely under section 1321 of this title. Rule 3015 provides that a plan is untimely unless it is filed within fourteen days of the petition date. Subsequent plans required by the court are also subject to § 1307(c)(3). Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. at 916.
– Section 1307(c)(4) provides dismissal or conversion for failure to commence making timely payments under section 1326 of this title.
– Section 1307(c)(5) provides for dismissal or conversion upon the denial of confirmation of a plan under Section 1325 of this title and denial of a request made for additional time for filing another plan or modification of a plan.
– Section 1307(c)(6) provides for dismissal or conversion upon a material default by the debtor with respect to a term of a confirmed plan.

If the court finds there is sufficient cause and proper additional grounds then the court must choose conversion to chapter 7 or dismissal of the case entirely. Okay, well, what is cause then? Cause is not specifically defined in the Bankruptcy Code in Section 101 (Definitions). In the Phillips case Section 1307(c)(5) was the section cited to request dismissal. Under Section 1307(c)(5) the first element for there to be cause is denial of confirmation of the Chapter 13 plan and denial of leave to amend and file a new plan. Nelson v. Meyer (In re Nelson), 343 B.R. 671, 674-75 (9th Cir. BAP 2006) In the Phillips case at the time of the hearing on the motion to dismiss the Phillip’s bankruptcy attorneys did not have a current plan on file and the court had denied confirmation of the prior seven proposed chapter 13 plans. The court in Phillips also gave Phillips ten weeks to file an eighth amended plan for consideration, but Phillips did not file an eighth amended chapter 13 plan. The bankruptcy court found cause under Sections 1307(c)(1) and (c)(3) to dismiss the case.

The court must also consider the best interests of creditors when deciding whether to dismiss or convert a case to Chapter 7. In the Phillips case neither the trustee’s motion or the debtor requested or considered conversion to Chapter 7. Accordingly, the 9th Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court’s granting of the trustee’s motion to dismiss the case.

Ninth Circuit Bankruptcy Appellate Panel Affirms Decision That Tuition Credits Are Not Excepted From Discharge

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On July 15, 2014, I wrote an article about tuition credits and a case of first impression since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) in the Ninth Circuit Bankruptcy Court for the Northern District of California regarding whether tuition credits are excepted from discharge or not discharged. On March 27, 2015, the Ninth Circuit Bankruptcy Appellate Panel affirmed bankruptcy court’s ruling that tuition credits are not excepted from discharge, BAP No. NC-14-1336-PaJuTa, and not excepted from discharge pursuant to Section 523(a)(8)(A)(ii). Ms. Christoff received tuition credits from a for-profit education company named Institute of Imaginal Studies dba Meridian University prior to filing for bankruptcy protection. This is a blow to the for-profit educator sector and a little consolation prize for students with tuition credits. Other for-profit colleges have come under fire recently for their lending practices and the job prospects of their students. At least a student with a tuition credit can discharge that part of their debt when filing for bankruptcy protection.

Procedural History

The debtor, Tarra Nichole Christoff, filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code on April 19, 2013, in the Northern District of California, Bankruptcy Case No. 13-10808-DM-7. As part of her petition Ms. Christoff listed a general unsecured debt of around $11,000 owed to Meridian. Meridian proceeded to file an adversary proceeding (lawsuit within the main bankruptcy case) to determine whether the tuition credits and resulting loan from Meridian to Ms. Christoff was excepted from discharge pursuant to Bankruptcy Code Section 523(a)(8)(A)(ii).

Section 523(a)(8)(A)(ii) of the Bankruptcy Code provides:
(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
(A)
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend;

After Meridian filed a motion for summary judgment in the adversary proceeding the Bankruptcy Court denied the motion for summary judgment and entered a judgment in favor of Ms. Christoff. The Honorable Dennis Montali starts the memorandum of decision: “In addressing the issue court must consider two powerful competing principles: the need to give the honest debtor a fresh start and the seemingly endless desire of Congress to except more and more student loans from discharge absent undue hardship.” Meridian’s bankruptcy lawyers argued that Ms. Christoff received a loan from Meridian and the loan proceeds went directly to Meridian and Ms. Christoff then received the education. Ms. Christoff’s bankruptcy attorneys argued she never received any funds from Meridian or anyone else. The Honorable Judge Dennis Montali in the adversary proceeding held that no funds were received even though the transaction between Meridian and the Ms. Christoff resulted in loans for repayment of tuition credits to Meridian. Therefore, the tuition creditors are not excepted from discharge. The decision in the adversary case was immediately appealed to the Ninth Circuit Bankruptcy Appellate Panel for review.

Ninth Circuit Bankruptcy Appellant Panel Affirmation of the Bankruptcy Court’s Ruling

Ms. Christoff, the debtor, was awarded $6,000 in financial aid to pay for some of her tuition. She signed a promissory note. She did not actually receive any funds from Meridian though. Instead, what she received was a tuition credit. The terms of the note required her to pay back the funds at $350 per month after she finishes her coursework or she withdraws from Meridian along with 9% interest to be compounded monthly. She received another $5,000 in tuition credit the following year after signing a promissory note with the same terms. She withdrew from Meridian after completing all her coursework and clinical hours but before she completed her dissertation.
In interpreting the funds received requirement in Section 528(a)(8)(A)(ii), the Ninth Circuit Bankruptcy Appellate Panel agreed with the bankruptcy court and held Meridian simply agreed to be paid the tuition later and it did not receive any funds from a third party financing source. The key here is the language in Section 528(a)(8)(A)(ii) that grants exception to discharge for “an obligation to repay funds received.” That means funds received by the plain language of the Bankruptcy Code. The long stand principle is that exceptions to discharge should be confined to those plainly expressed. Hawkins v. Franchise Tax Bd. of Cal., 769 F.3d 662, 666 (9th Cir. 2014) The plain language of this prong of the statute (Section 523(a)(8)) requires that a debtor receive actual funds in order to obtain a nondischargeable educational benefit.” Cazenovia Coll. v. Renshaw (In re Renshaw), 229 B.R. 552, 555 n.5 (2d Cir. BAP 1999), aff’d, 222 F.3d 82 (2d Cir. 2000)) Again, no funds were received so Section 528(a)(8)(A)(ii) did not except from discharge the tuition credits Ms. Christoff received.

Can My Social Security Benefits Be Garnished or Levied From My Bank Account?

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The short answer is yes it is possible, but rare depending upon the circumstances. Your social security benefits are general exempted from garnishment and levy by normal creditors and possibly the state you live in. In California, the State of California does not levy on your social security benefits. Your creditors also cannot garnish your social security benefits or levy on your bank account that contains your social security benefits. A creditor can still sue you and obtain a judgment to enforce against you, but how will they enforce the judgment is the question.

The Internal Revenue Service Will and Can Absolutely Levy on Your Social Security Benefits

Please see 26 U.S.C. Section 6334(c) regarding property exempt from levy and the IRS’s ability to enforce unpaid taxes. Section 6334(c) provides reference to Section 207 of the Social Security Act. Section 207 provides: (a) The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law. (b) No other provision of law, enacted before, on, or after the date of the enactment of this section, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section. (c) Nothing in this section shall be construed to prohibit withholding taxes from any benefit under this title, if such withholding is done pursuant to a request made in accordance with section 3402(p)(1) of the Internal Revenue Code of 1986 by the person entitled to such benefit or such person’s representative payee.

Section 3402(p)(1) more or less treats social security payments as payment made by an employer as wages, which can be garnished and levied on in a bank account. The path to garnishment or ability to levy by the Internal Revenue Services is a twisted one, but nonetheless, the IRS can garnish social security benefits and levy upon social security benefits held in a bank account under certain circumstances.

If Your Only Income is Social Security Benefits You are Generally Considered Judgment Proof

If you owe a debt that is unsecured, that means there is no collateral securing the repayment of the debt, a creditor will have to sue you in state court and obtain a judgment to force repayment of the debt incurred. If your only income is social security benefits and you do not own real property, a house or raw land, then the options to enforce the judgment are very limited. Thus, the term judgment proof is described for this situation. A creditor can obtain a judgment against you, but how can the judgment be enforced? If you seek the counsel of a bankruptcy attorney regarding your debts be sure to let them know your only income is from social security. This should come out during a standard consultation but you never know. Make sure they know.

Some People That are Judgment Proof Still Choose to File Bankruptcy and Discharge Their Eligible Debts

If you are behind on your payments to unsecured creditors you know that the phone calls start relatively quickly after missing a payment and the letters demanding payment start relatively quickly too. Every now and then we have a client come in with income that is only social security. We inform them that they are for the most part judgment proof as described above. Some choose to file bankruptcy and discharge their eligible unsecured debts and others do not. For most they just want to move on with life and not worry about debts hanging out there to worry about. Everyone is different though. It is truly up to you what you believe is right for you. Filing for bankruptcy protection should stop the harassing phone calls and letters in the mail. As soon as the bankruptcy case is filed the automatic stay becomes effective stopping any and all collection activity. Once you receive a discharge in your case your creditors are barred from attempting to collect on a discharge debt incurred prior to the date the bankruptcy case was filed. Every now and then a creditor attempts to collect a debt after discharge and they can be held in contempt of court and sanctioned for this impermissible behavior.

Can I Be Held Liable For Unpaid Sales Tax in California If I Am A Silent Partner?

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In California the State Board of Equalization collects sales tax from businesses and partnerships. But what if you are a silent partner that invested funds to start a business but do not participate in the day to day operation of the business? Why should you be personally liable for unpaid sales tax when you had nothing to do with not paying the sales tax to the BOE if and when the business unfortunately fails? Under California law and the Revised Uniform Partnership Act all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.” Cal. Corp. Code § 16306(a).

This issue was recently discussed and analyzed in a Ninth Circuit Bankruptcy Appellate Panel opinion, In re: Earnest Leal and Maria Leal; BAP No. CC-06-1207-MoDK. The debtors, Earnest and Maria Leal were silent partners in a retail shoe store. The Leal’s did not participate in the actually running of the shoe store and had no responsibility for collecting and paying sales tax. Their business partners, the Stanleys, actual ran the store and were responsible for the day to day operation of the shoe store. The lease for the shoe store was signed by both the Stanleys and Leals. Maria Leal and Ms. Stanley signed a Business License Tax Application that was filed with the City of Rancho Mirage. Retail is a tough business and apparently the Stanleys had to close the shoe store.

So, how does this land in bankruptcy court and the Ninth Circuit Bankruptcy Appellate Panel? Mr. and Mrs. Leal filed for bankruptcy under Chapter 7 of the Bankruptcy Code and did not list any debt owed to the Board of Equalization. Some of the creditors of the failed shoe store did see collection from Mr. and Mrs. Leal. There was at least one default judgment entered against Mrs. Leal and the Leals’ bankruptcy petition included debts resulting from the failed shoe store. Mr. and Mrs. Leal received their discharge and their Chapter 7 case was closed. Sometime after they received their discharge the Board of Equalization began collection activity against Mr. and Mrs. Leal for $20,000 in unpaid sales tax owed from the shoe store. The Leals’ bankruptcy attorney reopened their Chapter 7 case and filed a motion to determine the validity of the alleged sales tax debts and tax liens against the Leals. The bankruptcy court found that the Leals’ were not responsible for the sales taxes given they did not willfully fail to pay them and had no supervision over the business.

The resulting appeal provides the following analysis of the relevant California law regarding partnerships and liability for sales tax payments. Does California Revenue and Tax Code Section 6829 shield debtors from joint and several liability for unpaid sales tax? Section 6829 provides in relevant part: “upon termination, dissolution, or abandonment of a partnership . . . any officer, member, manager, partner, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation, partnership, limited liability partnership, or limited liability company in complying with any requirement of this part, shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if the officer, member, manager, or other person willfully fails to pay or to cause to be paid any taxes due from the corporation, partnership, limited liability partnership, or limited liability company pursuant to this part.

The Leals’ bankruptcy attorney argues that the Leals cannot be personally liable for any unpaid taxes and interest given they were not charged with the responsibility of filing returns or payment of the taxes. They are just silent partners in the failed shoe store business. The Ninth Circuit Bankruptcy Appellate panel disagreed with the original bankruptcy court and held that Cal. Rev. & Tax Code section 6829 does not protect Debtors from any liability they may have as general partners under Cal. Corp. Code section 16306(a). So silent partners in California beware. Just because you are not part of the day to day operations of a partnership you invested in you can be liable for unpaid sales taxes if they are not paid timely.