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.

Tuition Credits are Not a Student Loan and Dischargeable When Filing Bankruptcy

By Ryan C. Wood

You have probably heard over and over that student loans are not dischargeable in bankruptcy unless you can prove that repaying the student loans constitutes an undue hardship for you. That is still the case. 11 U.S.C. 523(8) excepts from discharge (A)(i) an education benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an education benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in §221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual. This means if your student loans fall into any of the above categories the debt is not dischargeable in your bankruptcy case and you will still owe the funds after your case is closed unless you can prove undue hardship by filing an adversary proceeding.

Although the statute above may seem daunting there may be hope. In a recent case, In re: Christoff, Bankruptcy Case No. 13-10808DM, Northern District of California (2014), the court held that the debts held by Ms. Christoff were never received by her and therefore are not excepted from discharge by 11 U.S.C. §523(a)(8) and were discharged in her Chapter 7 bankruptcy case. In this case, Ms. Christoff attended the Institute of Imaginal Studies dba Meridian University (“Meridian”). She 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. She filed for Chapter 7 bankruptcy protection in August 2013 and Meridian filed an adversary proceeding to determine that the amount owed to Meridian was nondischargeable under 11 U.S.C. §523(a)(8) as a student loan.

The court in this case thoroughly examined student loan cases throughout the Ninth Circuit and other circuits. What is important to bankruptcy lawyers is what differentiates this current case with all other student loan cases is the fact that Ms. Christoff never received the funds from Meridian nor did Meridian receive funds from any other source. Ms. Christoff received a “credit” towards her education to be paid back at a later time. Both parties agreed that Meridian was not a governmental unit so they did not fit into §523(8)(A)(i). They also agreed that Meridian did not fit into §523(8)(B). Therefore the only avenue to except the debt from discharge is §523(8)(A)(ii). The entire case hinged on whether the funds were received as an education benefit, scholarship or stipend. The court determined that since there were no funds received in Ms. Christoff’s case, the debt did not fit into §523(8)(A)(ii) either and therefore the debt was dischargeable in her bankruptcy case.

What is interesting to note in this case as well is the fact that the court looked to one case, In re Oliver, 499 B.R. 617 (Bankr. S.D. Ind. 2013) where a university withheld a student’s transcript because she did not pay the tuition or related fees. The Oliver court indicated that to be excepted from discharge, the debt must still be a loan. Therefore if you did not borrow money to pay the tuition (i.e: you pay for it yourself without borrowing money from a governmental entity, private student loan company, from the school itself, or from any other third party) the debt does not fit into any of the above exceptions to discharge and is therefore dischargeable in a bankruptcy. This court completely agreed with the Oliver court in their analysis and conclusion. Meridian’s bankruptcy attorney appealed this case on the same day the decision came out so we may or may not have the same result later on. We will follow continue to monitor this case and will report on the outcome of the appeal.

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.