Should I Try Some Sort of Debt Consolidation?


No. Hell no. Absolutely no. Just spend some time on the Federal Trade Commission website and read all of their warnings. It is more than likely just a scam. You have no idea who you are doing business with and when they rip you off you are not going to sue them in the state they are doing business in. You are going to call me to file bankruptcy for you and have wasted anywhere from $1,000 – $6,000 of your hard earned money. That is what we see, as bankruptcy attorneys, time and time again. Here are four simple rules of thumb to avoid ever getting scammed by a debt relief company of any kind.

1. Do not do business with any company you hear about on the radio or has a television commercial regarding debt relief;
2. Do not do business with any company that is not doing business in your general area; that means never ever do business with a debt relief company that is from another state;
3. Do not do business over a website with a company that does not even list what state they are doing business in;
4. Do not do business with a debt relief company that will not put in writing when you will be 100% debt free; and if you are not 100% debt free they will give you all of your money back.

Fortunately the Federal Trade Commission continually fights for your rights and shuts down these fraudulent debt and mortgage relief companies. The FTC recently shut down some companies from Florida that ripped off people in need of debt relief for millions of dollars. Go to: the stipulated judgment. The FTC charged PSC Administrative, LLC f/k/a Payday Support Center, LLC, Coastal Acquisitions, LLC d/b/a Infinity Client Solutions, Infinity Collect, LLC, Jared Irby, an individual, and Richard Hughes, an individual with violation of the Telemarketing and Consumer Fraud and Abuse Prevention Act; 15 U.S.C. Section 6101. The defendants in this case, instead of admitting fault, entered into a stipulated settlement agreement with the FTC. The agreement provided the defendants are permanently restrained and enjoined from advertising, marketing, promoting, offering for sale, or selling, or assisting others in the advertising, marketing, promoting, offering for sale, or selling, of any secured or unsecured debt relief product or service. The laws regarding debt consolidation just be to be more stringent.

California State Attorney General

Student Loan Debt Consolidation Scams

Telemarketing Fraud

Your Credit Rating

Coping With Debt

Based upon my real world experience and a bankruptcy attorney involved in thousands of bankruptcy cases I do not agree with everything in this list. But it is sure better than getting ripped off.

Advertising and 2016

Every time I hear a commercial on the radio or a commercial on the television about debt relief it makes me sick. The station airing the station is making money off of airing the criminals commercial and the criminal advertising their fraudulent services makes money because advertising like that unfortunately works. If you have never been told this before here we go: “The worst attorneys and businesses have to advertise their services over and over again to get new clients.” They do not build a real business based upon the goodwill of their past clients. There are none to be found. So these criminals have to spend thousands of dollars a month to get new people to rip off to stay in business and make money. Sadly it works. Every now and again there becomes a critical mass of ripped off people and the bad reviews on the internet and possible prosecution from the angels at the Federal Trade Commission or the Consumer Financial Protection Bureau shut down the criminals forever. Many times unfortunately, before the heat gets too hot, the criminals just change the company name and contact information to keep the ball rolling. It is just horrible.

What We Do For People In Need of Debt Relief

Not every case is easy for different reasons. At least all we have to do IS BE HONEST WITH OUR CLIENTS AND HOW BANKRUPTCY CAN HELP THEM TO OBTAIN A DISCHARGE OF THEIR DEBTS OR REORGANIZATION OF THE DEBTS BASED UPON THE LAW, THE BANKRUPTCY CODE. How wonderful is that? Some debts are dischargeable. Some are not. Some debts can be reorganized to make the terms of repayment more favorable for our clients. It all depends upon your income, expenses, assets and debts. All you have to do is be truthful and honest about your income, expenses, assets and debts and you are entitled under the law to have debt relief. It is wonderful. Debt consolidation is completely unregulated and is the wild, wild west. There is little recourse when you are fooled out of your hard earned money.

Can A Chapter 13 Trustee Make My Employer Pay My Chapter 13 Plan Payment?


The answer is an absolute yes. How that is accomplished is a different story though. But yes, a Chapter 13 Trustee after confirmation of your Chapter 13 Plan can make your employer pay the monthly Chapter 13 Plan payment directly to them each month. The key part is that this could happen after confirmation or approval of your Chapter 13 Plan of reorganization. Most of the time the bankruptcy filer makes the plan payment directly to the Chapter 13 Trustee by money order, cashier’s check and now in some jurisdictions or directly from their checking account through the system. The Chapter 13 Plan payment has to be paid in some form of certified funds. The point of this article is about how a Chapter 13 Trustee can make your employer pay the monthly Chapter 13 Plan payment though. If you do not want this to be an issue, then never ever miss or pay your Chapter 13 Plan payment late. The trustee is not trying to make sure you are successful in reorganizing your debts by timely paying the chapter 13 plan payment you agreed to pay each month and the Court confirmed or approved by Court order.

Where Does The Bankruptcy Code Allow This?

I think Bankruptcy Code Section 1325(c) is a little known and less talked about provision of the Bankruptcy Code. As a bankruptcy attorney we focus more on the requirements for confirmation listed in Section 1325(a) and Section 1325(b). Section 1325(c) provides: “After confirmation of a plan, the court may order any entity from whom the debtor receives income to pay all or any part of such income to the trustee.” That is all it says. There are no notice provisions. No other guidelines for how the court or standing chapter 13 trustee may administer Section 1325(c) of the Bankruptcy Code. It merely says the trustee may after confirmation of the plan make any entity from whom the debtor receives income to pay all or any part of such income to the trustee. Section 101(15) of the Bankruptcy Code defines “entity” as including a person, estate, trust, governmental unit, and United States trustee. Section 1325(c) specifically says “entity.” So it would seem that a bankruptcy filer’s employer may not be an entity as defined by the Bankruptcy Code and no other language exists in Section 1325(c) that specifically says employer. This is how the is interpreted or how parties add things to the law to obtain a result they believe is correct. Is the bankruptcy filer’s employer part of the definition of a “person?” Well, the Bankruptcy Code also defines the term “person.” Section 101(41) defines a “person” includes an individual, partnership, and corporation, but does not include governmental unit with some exceptions. Section 1325(c) could and should have both person and entity in the language, but it does not.

So again, how can a Chapter 13 Trustee make the bankruptcy filer’s employer pay the monthly Chapter 13 Plan payment of reorganization? It truly seems that Section 1325(c) applies to all third parties the bankruptcy filer receives monthly income from and income not received on a monthly basis. Most people filing for bankruptcy protection under Chapter 13 do not receive income from a trust, an estate or government unit. It seems Section 1325(c) is for obtaining funds the debtor may or may not receive after confirmation of a chapter 13 plan of reorganization.

What Is The Proper Procedure To Force An Employer To Pay A Chapter 13 Plan Payment?

As mentioned before there is no procedure that I am aware of that is directly on point to let us know. I will also mention that the practice of forcing an employer to pay a monthly Chapter 13 Plan payment is rare. I will provide my opinion of what the proper procedure to force an employer (“entity” or “person”) to pay a monthly chapter 13 plan payment is later. It is just my opinion though. It seems to me at a minimum a chapter 13 debtor and their bankruptcy attorney should be given notice and an opportunity to be heard on the matter before the debtor’s employer is contacted or just receives an order in the mail to pay a certain amount to the chapter 13 trustee. The issue here is privacy and confidentiality given the bankruptcy filer’s employer usually never actually finds out their employee filed for bankruptcy protection at all. There is really no reason for an employer to ever get notice of the bankruptcy filing since the employee usually does not owe their employer any money. This is almost always the case, so an employer does not get notice of the case. Why would they? There should be a motion filed, a hearing scheduled or any opportunity to object to the requested relief, and proper notice of the requested relief served on the bankruptcy filer and their attorney before any order is served on the bankruptcy filer’s employer or an “entity” as defined under Section 101(15), Section 101(41) and Section 1325(c). Bankruptcy filings are unfortunately a public record. For someone to access bankruptcy records they must have a PACER account and pay $0.10 a page for this public right.

What Has Happened In The Real World To Force Employers To Make Chapter 13 Plan Payments?

I have rarely heard of heard of Section 1325(c) being used to force an employer to pay the monthly Chapter 13 Plan payment directly to the Chapter 13 Trustee each month. It is very rare. In the case I have heard of this process was initiated by a Chapter 13 Trustee only after the bankruptcy filer failed to timely pay the monthly Chapter 13 Plan payment voluntarily as they agreed to do each month. Let me say this again. The bankruptcy filer had every opportunity to pay the monthly Chapter 13 Plan payment in the Chapter 13 Plan they proposed that was confirmed/approved by the Court for their benefit to reorganize their debts. Failure to make plan payments happens though. Even though someone seeks relief from the Bankruptcy Code under Chapter 13 for whatever reason they fail to meet their obligation to pay the monthly Chapter 13 Plan payment each month. In this case the Chapter 13 Trustee merely uploaded an order for the Bankruptcy Court to sign, the Bankruptcy Court signed the order and then the order was served on the bankruptcy filer’s employer. No notice. No hearing. That was it. It would seem this procedure is deficient, but at the same time the reorganization of the bankruptcy filer’s debts are what the bankruptcy filer wanted and obtaining the monthly Chapter 13 Plan payment each month directly from their employer ensures the desired relief is obtained. Once the wages are in the bankruptcy filer’s hands they may or may not spend the money as directed and may or may not actually be able to pay the monthly Chapter 13 Plan payment if an emergency expense comes up like healthcare expenses or a new set of tires to get to work.

The moral to the story is if you file a Chapter 13 bankruptcy reorganization case just pay the monthly plan payment according to the terms of the Chapter 13 plan you propose and subsequently have confirmed by the Bankruptcy Court and you will not have any problems. If you fail to make the monthly Chapter 13 Plan payments the Chapter 13 Trustee administering your case could have your employer pay the Chapter 13 Plan payments directly from your pay check each month whether you like it or not.

Ninth Circuit Court of Appeals Upholds In re Hatton Test Regarding Definition of Return in Martin Smith Appeal


The issue in these cases is the effect of the Internal Revenue Service or other taxing authorities filing a Substitute Filed Return (“SFR”) and then the taxpayer voluntarily files their own tax return after that. Does the subsequent honest, accurate and voluntary filed tax return by the tax payer satisfy the definition of a “return” under the Bankruptcy Code and Section 523(a)(1)(B)(i)? A SFR is filed by a taxing authority (Internal Revenue Service or Franchise Tax Board) when a taxpayer fails to timely file their tax return on their own. A SFR is created and filed by the taxing authority. If a taxpayer has a SFR for a tax year and owes taxes for that year, and then files for bankruptcy protection the taxes owed for the SFR year, if normally dischargeable, are exempt from discharge (not discharged) given any debt for a tax with respect to which a return was not filed is nondischargeable pursuant to § 523(a)(1)(B)(i). But this is the bankruptcy world and not the real world. The Bankruptcy Code changes creditors rights to try and treat all parties fairly when the debtor has limited resources or no resources to pay their debts as the come due or at all.

Like many laws Congress passes certain terms that are extremely important are not defined within the law. I wish this was not so common and the undefined terms regularly are extremely important to interpreting the law. The Bankruptcy Code is no different. A “return” was not defined sufficiently and still is not even though Congress in the 2005 BAPCPA reforms amended Section 523(a) to include [For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements)]. Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.] So the argument is a return filed after the SFR is a tax return that satisfies the requirements of applicable nonbankrutpcy law and the taxes for that year should therefore be dischargable.

As background, and you probably know this, any time a return is filed a form is used like 1040EZ or 1040a. So after a SFR is filed by a taxing authority the person that did not file their return uses the pre-printed form provide by the taxing authority. So for bankruptcy purposes and after the 2005 BAPCPA amended Section 523(a) to include for purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law the use of a preprinted form provided by the taxing authority meets this requirement. It apparently does not.

In the Martin Smith v. United States Internal Revenue Service case Mr. Smith and his Bankruptcy Attorneys attacked the fourth prong of the Hatton test and tried to argue Mr. Smith’s voluntary filed tax return filed after the SFR is a “return,” therefore the underlying taxes owed are dischargeable and not governed by § 523(a)(1)(B)(i). While the original bankruptcy court agreed, unfortunately the District Court and now the Ninth Circuit Court of Appeals disagreed.

In Hatton in 2000, pre-2005 BACPA, the Ninth Circuit Court of Appeals developed a four prong analysis as to what a “return” is pursuant to § 523(a)(1)(B)(i) and the Bankruptcy Code. See In re Hatton, 220 F.3d 1070 (9th Cir. 2000) The test for a “return” under Hatton is: (1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law. The 9th Circuit Court of Appeals noted that a number of sister circuits have agreed with the Hatton case. See In re Ciotti, 638 F.3d 276,280 (4th Cir. 2011); In re Justice, 817 F.3d 738, 740–41 (11th Cir.2016) The Ninth Circuit Court of Appeals also noted that the Tax Court has not wavered. See Estate of Sanders v. Comm’r of Internal Revenue, 144 T.C. 63 (2015) Wait, Congress changed Section 523 and added: for purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). So is this non-hanging parentheses language why there was no analysis of the Section 523 language change in 2005? Was Mr. Smith’s late filed return not in compliance with applicable filing requirements?

From my perspective a SFR does not meet the Hatton test. The taxing authority more or less makes up the numbers based upon what they have and not real world numbers. So while requirements 1-3 are met in the Hatton test, again we are left with prong 4. Does a SFR represent an honest and reasonable attempt to satisfy the requirements of the tax law? Subjectively yes. The Internal Revenue Service takes 1099’s or other documents provided by employers and does its best to put together a return on behalf of the tax payer who does not timely file their return. At the same time the tax payer subjectively believes when they do file their return after a SFR is filed they also make an honest and reasonable attempt to satisfy the requirements of the tax law. It would seem both parties are making a an honest and reasonable attempt to satisfy the requirements of the tax law. The courts have analyzed this issue objectively though.

Mr. Martin’s Bankruptcy Attorneys argued that the Smith facts were different then the Hatton facts and therefore distinguishable and I have to agree. I have not read all of the pleadings, but Mr. Martin filed his 2001 tax return seven years after it was due. Mr. Smith reported a higher income than the IRS used in their SFR which increased his tax liability. One issue that is not up for argument is whether the increased tax liability above the amount due on the SFR is dischargeable. The increased tax liability evidenced by Mr. Smith’s actual late filed return is dischargeable. So the late filed return is a partially recognized “return” under the Bankruptcy Code then? Just not the entire return? In Smith, Mr. Smith unfortunately falls prey to the holding in Hatton that belated acceptance of responsibility was not an honest and reasonable attempt to comply with the tax code. I have to disagree with this analysis in Smith. Not only did Mr. Smith file a return, but he honestly listed his income and deductions so that his tax liability increased and subjectively made an honest and reasonable attempt to satisfy the requirements of the tax law. So what if it was seven years after the actual taxes were due. Where is there any temporal requirement in the Hatton test or the new language in Section 523(a) resulting from the 2005 BAPCPA? The Hatton test is not even the law, but another appellate case and a created test prior to the statutory change in Section 523(a) to help define the term “return.” Statutory interpretation/construction requires a court take the plain meaning of the words used within their context. The court must focus on the language of the statute. Must give each word its ordinary meaning unless the statute or the context requires otherwise, and must interpret not only the individual words, but also the provision as a whole along with related provisions. See Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004); Friedman v. P+P, LLC (In re Friedman), 466 B.R. 471, 479 (9th Cir. BAP 2012); Foxgord v. Hischemoeller, 820 F.2d 1030, 1032 (9th Cir. 1987) The court must interpret not only the individual words, but also the provision as a whole along with related provisions. United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988) Where is the analysis of how Mr. Smith’s accurate, honest, reasonable, partially relied on and tax liability increasing return does not meet the requirements of applicable nonbankruptcy law (including applicable filing requirements)? The Hatton case was decided in 2000 and before the 2005 BACPA which became effective in 2005.

Unlike Mr. Smith, Hatton merely met with the IRS and capitulated into an installment agreement with the IRS without making any affirmative action to honestly and reasonably comply with the tax code. Mr. Smith clearly did honestly and reasonably not only make the effort, but did comply with the tax code and then filed a return that met the requirements of applicable nonbankruptcy law (including applicable filing requirements) by increasing his tax liability. Mr. Smith should have been rewarded for filing his tax return upon seeking bankruptcy protection under the Bankruptcy Code. An honest debtor deserves a discharge under the Bankruptcy Code. I believe this and believe the holding in the Smith case sends the wrong incentive and message to debtors and their attorneys.

So, somehow the Internal Revenue Service is allowed recognize the validity of a late filed return regarding the increased taxes owed while at the same time arguing the late filed return is not actually a “return” for purposes of §523(a)(1)(B)(i) as the late filed return does not meet the requirements of applicable nonbankruptcy law. I suppose the only reason to file a return after a SFR is to decrease the alleged tax liability in the SFR, but the return is still not a “return” for bankruptcy purposes. The Hatton case and now Smith decision more or less provide a penalty for not voluntarily filing a tax return within a certain amount of time. Well, then what is a reasonable time frame in which the fourth prong of the Hatton Test can be satisfied? One year? Two years or days after the SFR is filed? Some arbitrary time limit after the SFR is filed that if you are a day over you cannot discharge the taxes when filing bankruptcy? I still want to know how a return filed after a SFR does not satisfy the requirements of applicable nonbankruptcy law (including applicable filing requirements). I am going to have to dig deeper into these two cases……….

The Oral Arguments Before the Ninth Circuit Court of Appeals

Wow, what a pressure cooker. After listening to the oral arguments before the three judge panel I still believe the decision here is wrong as the law and Bankruptcy Code are written. It is about interpretation though and past decisions. The Ninth Circuit Court of Appeals just could not get over that the debtor filed the 1040 tax return so late after the IRS had given him so many chances to file his own return. The debtor in this case did not actually file his own return until after the IRS spent the time to file the Substitute Filed Return. I will assume the application of the Hatton test was the correct choice even with the addition to Section 523(a) of a definition of a “return” under the Bankruptcy Code. So we are stuck with the IRS and Ninth Circuit Court of Appeals somehow telling us the tax return filed by a debtor after a Substitute Filed Return is a “return” as to the amount the debtor filed return increases the assessed taxes from what the Substitute File Return assessed, but that same “return” is not a “return” as to the previously assessed taxes owed from the Substitute Filed Return. The Smith case did not nothing to explain how a portion of a “return” can be an honest and reasonable attempt to satisfy the requirements of the tax law and part of a “return” not be at the same time.

The Smith case really just ignores the issue of what the definition of what a “return” is under the Bankruptcy Code or what an honest and reasonable attempt to satisfy the requirements of the tax law (including applicable filing requirements). The Court just took the IRS position that since the IRS filed the SFR then a debtor in this case, Martin Smith, under the circumstances in his case could never subsequently file a return and have the portion of the taxes owed according to the SFR discharged in a bankruptcy case. Mr. Smith just waited far too long to file his “return” that by every measure was complete and accurate. In theory there can still be a set of facts in which a court can determine a return filed by the debtor after a SFR is in fact a “return” and discharge all of the taxes assessed for that year. This case was just not it. What is troubling is the Hatton case represented a debtor that made no good faith effort to file a “return” unlike in the Smith case. Mr. Hatton filed a late return in which he provided true and accurate information resulting in his tax obligation given his tax liability increased from the Substitute Filed Return the taxing authority created. That is by definition a honest and reasonable attempt to satisfy the requirements of the tax law (including applicable filing requirements). What does “including applicable filing requirements” even mean? We still do not know. It would have been nice for the Smith case to have gone this direction and helped to define how to apply the actual words of the Section 523(a) of the Bankruptcy Code.

So, the moral of the story really is to timely and honestly file your tax returns and not let a taxing authority file a return on your behalf. Do not ignore the letters a taxing authority sends in the mail to file your returns and this will never be a problem.

If You Are Having A Problem With Your Home Loan Payment Call a Bankruptcy Attorney


One of the most frustrating parts of my job is over and over again talking to people that file Chapter 13 bankruptcy cases to stop a foreclosure or eviction without proper legal advice from an actual bankruptcy attorney. By the time they speak to me there is usually too much water under the bridge for me to get involved and actually obtain them relief under the Bankruptcy Code they are entitled to. I say entitled to because the Bankruptcy Code is the law. You just have to follow it and get relief. Most skeleton Chapter 13 bankruptcy petitions should never have been filed to begin with.

Five Steps To Help Prevent Getting Scammed

These five steps cannot guarantee you will not get scammed, but they will limit your risk to getting scammed, losing your house and paying too much for the services provided to you.

1. Never ever wait until the last minute to start getting information; the problem did not come up overnight, so the solution will not come overnight either….
2. Make sure the person helping you signs the documents filed with the court; not you;
3. Only do business with someone that is local in your area and not hundreds of miles away;
4. Only do business with someone you have actually met in person and they have an office you can walk into if you want;
5. Google the phone number, fax number, email address, name of person or business name you are dealing with … basically Google each and every bit of identifying information you are given . . . most likely someone has already complained about them and Google will find it for you.

The Automatic Stay is a Jewel to be Coveted, Not Abused

The automatic stay is the backbone of the bankruptcy process and is the single most important and precious jewel to be coveted, not abused. Section 362 of the Bankruptcy Code provides the very lengthy law of how the automatic stay is implemented. A general description is the automatic stay stops almost all collection activity by creditors to give the bankruptcy filer breathing room to figure things out and reorganize or discharge their debts according to the Bankruptcy Code. That includes lawsuits, repossession, foreclosure, wage garnishment, levies, phone calls, letter and on and on. The automatic stay is the most powerful tool for a Bankruptcy Attorney to help people or businesses in financial distress. There are many limits in the automatic stay and for purposes of this article I will focus on the people filing their own cases with advice from the wrong people. What I find is multiple bankruptcy petitions filed by people trying to save a house more often than not. The first petition filed for relief they receive an unlimited automatic stay. There are no timing restrictions as long as the case remains open and not dismissed. This is what everyone should want, the bankruptcy case, whether Chapter 13, Chapter 7 or some other chapter of the Bankruptcy Code, to progress properly and the bankruptcy filer is not in jeopardy of the automatic stay not being in place. The single best way to ensure this is retaining an experienced bankruptcy attorney to file your case. If your home is in jeopardy do not trust a realtor or some other non-bankruptcy professional to help you.

Danger of Multiple Bankruptcy Filings

What I see over and over again with bankruptcy filers getting bad information is there case is just dismissed for not filing the proper documents in the beginning or not timely filing the proper documents after the case is filed. What the unscrupulous realtor, attorney or company will do is tell you or give you the basic forms to file a skeleton bankruptcy petition to obtain the automatic stay. That includes the voluntary petition, statement of social security number, creditor matrix and most likely an application to pay the $310 court filing fee in payments. The really horrible people will not even tell you about the application to pay the court filing fee in payments and make you waste the entire $310 even though they know the case will just be dismissed. They know the case will be dismissed because the forms described above are all they are going to help you with. That is it. You will have 14 days from when the court enters an order for you to file the rest of the documents to actually complete the petition. So the bankruptcy filer is now representing themselves and has only filed the basic forms to get the case started and does not know what to do next…… The bankruptcy filer will have paid whatever the unscrupulous person charge, usually well over a thousand dollars or more, plus the court filing fee of $310 and the Chapter 13 bankruptcy case is dismissed usually within three weeks.

If your first case is dismissed for some reason and you file a second case within a year you only get a 30 days automatic stay unless the stay is extended within that 30 days. There is no guarantee the court will extend the automatic stay and if a creditor objects to the extension it is even less likely the automatic stay will be extended. The third case filed within a year gets absolutely no automatic stay unless the automatic stay is imposed. Again, there is no guarantee the court will impose the automatic stay.

Required Credit Counseling Course Completion Prior to Filing a Bankruptcy Case

Another trap that realtors and unscrupulous people do not tell the bankruptcy filer is that they must complete the credit counseling course prior to filing for bankruptcy. The credit counseling only takes a few hours to complete and should cost less than $10.00 to complete. Skeleton Chapter 13 bankruptcy petition after skeleton bankruptcy petition is filed without the bankruptcy filer completing the credit counseling course prior to the filing of the case. I am a Bankruptcy Attorney that has either filed or been involved in literally thousands of bankruptcy cases and I only know of one or two circumstances in which the court allowed someone to take the credit counseling course after the bankruptcy case was filed or waived the requirement entirely. Since 2005 BACPA changes to the Bankruptcy Code, Section 109(h)(1) requires the completion of credit counseling within the 180-day period prior to the filing of the petition. Section 109(h)(3) provides a temporary exemption from that requirement if the bankruptcy filer submits a certification that: (i) describes exigent circumstances that merit a waiver of the requirements of [section 109(h)(1)]; (ii) states that the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in [section 109(h)(1)] during the 7-day period beginning on the date on which the debtor made that request; and (iii) is satisfactory to the court. Section 109(h)(4) provides a total waiver if the Court determined, upon notice and hearing, that the debtor is unable to complete the credit counseling requirement due to incapacity, disability, or active military duty in a military combat zone. If you have in jeopardy of losing your home just complete the credit counseling course before filing the bankruptcy case and do not play around with attempting have the court give you more time or waive the requirement. It is just not worth it.

Do Not Fall For the Mortgage Litigation Scam

The mortgage litigation scam is only a ploy for criminals to get around the laws making it a criminal act to take money upfront to do a loan modification and a ploy to get around only charging you $150 as a bankruptcy petition preparer. I keep writing about this and it keeps happening. I do not know what the solution is. I try and educate people to enforce their rights and apparently they do not take my advice. Or there are just more and more of these unscrupulous people replacing the ones that go away. If you missed mortgage payments and owe thousands and thousands of dollars because you did not make the mortgage payments rarely are there issues for you to litigate. Especially if you are a consumer and this is regarding your home. We keep finding people in the Bay Area doing business with businesses in Southern California to litigate mortgage issues that appear to be purely scams. If you are litigating a mortgage problem that is legitimate you should not be directed to file a skeleton bankruptcy petition that you sign and file yourself. That makes no sense. When an attorney takes your money to do something they are supposed to sign and file the documents on your behalf because they are representing you and take on the liability for their work. That is how it is supposed to work. Also, why do business with someone that is hundreds of miles away that will most likely never give you your money back when you figure out it was a scam? Are you going to sue them for the $1,000 – $4,000 you gave them already? I seriously doubt it and I have yet to see it.

Was The Chapter 13 Petition and Plan Filed in Good Faith?


In a Chapter 13 reorganization case there are a number of requirements that a Chapter 13 Plan must meet to be confirmed or approved by the bankruptcy court. Section 1325, Confirmation of Plan, of the Bankruptcy Code provides the requirements that must be met. Section 1325(a)(3) and 1325(a)(7) provide the bankruptcy petition and chapter 13 plan must be proposed in good faith. This issue has been framed as a petition or plan is in bad faith. What you are trying to prove though is lack of “good faith.” Prove that the petition or plan were not filed in good faith. The word bad faith does not appear anywhere. The term “good faith” is not defined by the Bankruptcy Code so case law is all we have to go on.

Good Faith Pursuant to Section 1325 of the Bankruptcy Code

Again, the debtor will argue the petition and plan were filed in good faith. Lack of good faith can be shown by considering: (1) whether the debtor misrepresented facts in his/her petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed his/her chapter 13 petition or plan in an inequitable manner; (2) the debtor’s history of filings and dismissals; (3) whether the debtor only intended to defeat state court litigation; and (4) whether egregious behavior is present. See Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1224 (9th Cir. 1999) (internal quotation marks and citations omitted); see also Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1132 (9th Cir. 2013).

Mendez, Appellant v. Harwood, Appellee

In a recent decision by the Ninth Circuit Bankruptcy Appellate Panel the issue of good faith based upon an objection to confirmation filed by judgment creditor Ronald Mendez. According the court records, Mr. Mendez was a former client of the bankruptcy filer Sterling V. Harwood. Mr. Mendez paid Mr. Harwood a total of $18,000. At some point Mr. Mendez was dissatisfied with Mr. Harwood’s services and requested his money back. Mr. Harwood refused and from prison Mr. Mendez sued Mr. Harwood in Santa Clara Superior Court for breach of contract and fraud. Mr. Harwood did not respond to the lawsuit and a default judgment was entered against him for approximately $26,000. After five months Harwood tried to have the default judgment vacated for improper service of the summons and complaint. The Superior Court of California ruled Harwood’s motion to vacate the default judgment was not timely and that personal service of Harwood was proper. The default judgment stood.

Harwood’s Chapter 13 Bankruptcy Cases

Mr. Harwood filed a skeleton Chapter 13 bankruptcy petition to stop garnishment of his wages to satisfy the state court judgment of Mr. Mendez. A skeleton petition describes the filing of the basic documents to start a Chapter 13 bankruptcy case. The rest of the petition must be filed within 14 days or the case will be dismissed. There are almost no successful Chapter 13 reorganizations without the assistance of bankruptcy lawyers. Mr. Harwood’s first case was dismissed.

Harwood’s Second Chapter 13 Bankruptcy Filing

This first case was dismissed for failing to complete the credit counseling course or complete the bankruptcy petition. After retaining a bankruptcy attorney Mr. Harwood filed a second Chapter 13 bankruptcy case. To be fair Mr. Harwood has plenty of reasons to reorganize his debts. In addition to the Mendez judgment for $29,000, Mr. Harwood was behind on this mortgage payments and needs to obtain a loan modification to keep the his home, he is also behind on his property taxes, he has another judgment entered against him in San Mateo Superior Court totaling $5,837.90 owed to another attorney, Donald S. Tasto, Esq. Attorney Tasto unfortunately passed away while Mr. Harwood’s second bankruptcy filing was pending. Mr. Harwood also has $112,219.87 in general unsecured debts. Mr. Harwood listed his income from employment as a professor as $3,336 a month and business income of $25,362 a month in Schedule I (total monthly gross income after deductions is $26,452.84) and monthly expenses of $26,286 in Schedule J. With a gross income of over $26,000 a month there is only $166 to make the Chapter 13 Plan payment. Most of Mr. Harwood’s expenses are business related. Mr. Harwood’s wife does not work or have income.

The first filed Chapter 13 Plan proposed to pay $165 a month for 60 months. The only debt being paid through the Chapter 13 Plan are attorneys’ fees of $7,400 and the trustee fee to administer the plan. No actual creditors received any distribution through the first chapter 13 plan filed. There is authority to support an argument that filing a Chapter 13 Plan that pays nothing to creditors was not filed in good faith. This is a litigated issue though. An argument is how can someone reorganize their debts when they are not paying any of their debts back? What debts are reorganized? A Chapter 13 plan that pays nothing to creditors is more or less a Chapter 7 then, a complete discharge of eligible general unsecured debts. So the argument goes the actual reason a Chapter 13 plan like this is filed must be for some improper purpose or unfair manipulation of the Bankruptcy Code.

The First Amended Chapter 13 Plan proposed to pay $165 for 24 months then $365 for the remaining 36 months of the 60 month plan. Total plan payments would equal approximately $17,100 over the life of the plan. Mr. Harwood’s attorneys also increased their attorney fees to $8,800 or about half of the proposed plan payments. The second filed Chapter 13 Plan also proposed to reject an advertising contract with a radio station, avoid the judgment lien of deceased attorney Donald Tasto, Esq., and provide language about seeking modification of their first mortgage on his primary residence. Mr. Mendez objected to confirmation of this plan arguing it was not filed in good faith.

The Third Amended Chapter 13 Plan filed by Mr. Harwood proposed to reduce the plan payments to $165 for 24 months then $360 for the remaining 36 months. The Second Amended Chapter 13 Plan also included the following special provisions: “By April 30th of each year during the pendency of the case, the debtor shall provide the Trustee with a copy of all Federal income tax returns required to be filed; or, if an extension has been obtained, a copy of the extension and the tax return within ten (10) days of filing the return but no later than ten (10) days after the expiration of the extension date The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of his law office in Vietnam and outlines the average monthly income and expenses for the business. The debtor shall file a declaration on January fifteenth and July fifteenth of each calendar year, beginning July 15, 2014, which states what the status is of the malpractice case against his spouse’s former bankruptcy attorney.”

Mr. Mendez’s Argument For Lack of Good Faith

Mr. Mendez argues the petition was not filed in good faith given Harwood misrepresented the nature of the debt owed to Mr. Mendez. Harwoods’s Amended Schedule F describes Mr. Mendez’s judgment claim as: “Incurred: 2013 Consideration: Alleged breach of contract Debtor disputes any liability to this individual. A default was taken based on improper service.” Mr. Mendez argues that the Santa Clara Superior Court ruled that service was proper and there is no alleged debt, Mr. Mendez obtained a valid judgment against Mr. Harwood. Whether true of not the description of the nature of a debt is a minor issue in the big scheme of things and does not really change the treatment of Mr. Mendez’s claim under the Bankruptcy Code. Minor discrepancies in the petition will not rise to the level of not having good faith. While the description of the claim owed to Mr. Mendez in Schedule F is arguably not correct, the bankruptcy court found that the description was adequate under the circumstances and the description is not evidence of trying to mislead the court or manipulate the Bankruptcy Code.

Mr. Mendez next argues the first filed case and Chapter 13 Plan were not filed in good faith given it was filed for the stated purpose of avoiding wage garnishment and frustrate the enforcement of the state court judgment of Mr. Mendez. This argument is not a good one absent some additional facts. A very high percentage of bankruptcy cases filed involve some sort of state court lawsuit. Filing bankruptcy to stop a wage garnishment, bank levy or foreclosure of a home is perfectly normal. If the state court case was at the eve of trial or some other additional circumstance this argument could work.

The bankruptcy court agreed and held that Mr. Harwood was well within his rights to file for bankruptcy protection under Chapter 13.

Mr. Mendez next argues that Mr. Harwood is seeking to discharge in Chapter 13 his judgment that would not be discharged in Chapter 7 and therefore Mr. Harwood has unclean hands. This is a tough argument given that Mr. Mendez’s judgment for fraud against Mr. Harwood is arguably not dischargeable in both Chapter 7 and Chapter 13 if proven pursuant to Section 523(a) of the Bankruptcy Code. The exceptions to discharge set forth in §523(a)(2), (4) and (6) of the Bankruptcy Code are not self-executing. See Mohsen v. Wu (In re Mohsen), 2010 WL 6259979 at *6 (9th Cir. BAP Dec. 21, 2010). Rather, § 523(c)(1) provides, with exceptions not applicable here, that a creditor must request and receive a judgment that the debt owed is not dischargeable. To have certain types of debts deemed not discharged pursuant to Sections 523(a)(2),(4) and (6) an adversary lawsuit must be filed and a judgment received. Then the debt can be enforced again under state law.

9th Circuit BAP Agrees With Bankruptcy Court

Mr. Mendez lost the appeal given the Ninth Circuit Bankruptcy Appellate Panel could not find error in the bankruptcy courts overruling of Mr. Mendez’s objection to confirmation of Harwood’s Chapter 13 Plan. Based upon these facts anyway the petition and plan were found to be filed in good faith.