San Jose Bankruptcy & Fair Debt Collection Practices Act Lawyer Blog

Despite the fact that more than 1 million people file bankruptcy in the U.S. each year, there still seems to be a lot of confusion about bankruptcy. So, I took a moment to answer some common bankruptcy questions.

Of course, the information below is not intended to be specific legal advice. when considering bankruptcy you should meet with a qualified bankruptcy attorney. For more information look at www.e-bankruptcy.com, or call San Jose bankruptcy attorney Ronald Wilcox, at 408-296-0400.

What kind of bills can I wipe out in bankruptcy?
Generally, if you go through bankruptcy, your goal is to wipe out your unsecured debts. Your unsecured debts are typically major credit cards, medical bills, or any other money you may owe someone that is not secured.

Can I keep my house and my car?
Many people filing bankruptcy can keep their homes, their cars, and all of their property (we have helped many people in San Jose protect their property).

Can I get rid of taxes in bankruptcy?
You may have heard that you cannot wipe out taxes in bankruptcy. THAT IS NOT ALWAYS TRUE! Under certain conditions you may be able to wipe out taxes in bankruptcy.

How long does it take and who will be told?
Typically, you can expect your case to take three to four months from the day you file your papers (known as the bankruptcy petition) 'till the day your debt is discharged. For the most part, notices will only be sent to those you owe money.

When will those ruthless bill collectors stop calling?
In most cases, the day you file your bankruptcy, a restraining order goes into effect against your creditors. This restraining order is called the automatic stay. Generally, the automatic stay prohibits any attempt by a creditor to try to collect a debt which you had before you filed your bankruptcy.

Do I have to go to court?
You will need to attend a short hearing which, in San Jose, is about 4-6 weeks after you file.

Do I have to talk to a judge?
Your bankruptcy hearing is typically run by a trustee, not a judge. That means you can be more relaxed since things are less formal. In fact most trustees sit at a table with you,
rather than those intimidating court rooms you have seen on T.V.

What will happen at my hearing?
At your hearing the trustee, and any creditors who show up, get the chance to ask you questions regarding your petition. However, these days creditors rarely show up.

When will I know when my debts are discharged
Approximately 60 days after your hearing, the court will mail discharge notices to you, your attorney, and all of your creditors. The discharge notice will say that your dischargeable debts have been discharged.

What if I have used my credit cards just before bankruptcy?
If you intentionally run up your credit cards in the hopes of wiping them out in bankruptcy, you have committed fraud. However, if you made purchases for reasonable living expenses it may not be fraud.

Can I go to jail if I can't pay my bills?
Typically, you won't go to jail because you are unable to pay your bills (although you should talk with an attorney if you owe child support debts).

What affect will bankruptcy have on my credit?
Bankruptcy may appear on a credit report for up to 10 years. But, that doesn't mean you can't obtain new credit during that time.

Can I rebuild my credit after bankruptcy?
Yes. You may have heard about people who have filed bankruptcy two or three times. Maybe they are the best proof that people can actually get credit after bankruptcy. If they weren't able to get credit after their first bankruptcy, they would not have had to file bankruptcy again!

What is a Chapter 13 reorganization?
A chapter 13 is a type of bankruptcy where you reorganize your finances and repay some, or all, of your debts over time.

What Court Will My Case Be Filed In?
For the U.S. Bankruptcy Court near you in California, see the links below:
U.S. Bankruptcy Court Northern District of California
U.S. Bankruptcy Court Eastern District of California
U.S. Bankruptcy Court Central District of California
U.S. Bankruptcy Court Southern District of California

Bankruptcy Fees Increase

The Northern District of California, U.S. Bankruptcy Court (which has courthouses in San Jose, San Francisco and Oakland), has announced that bankruptcy filing fees will increase on November 1, 2011.

• Chapter 7 bankruptcy filing fees will increase from $299 to $306.
• Chapter 13 bankruptcy filing fees will increase from $274 to $281.
• Chapter 11 filing fees will increase from $1,039 to $1,046.

The bankruptcy filing fees are only increasing by $7, but it's an increase nonetheless.

Other fees, such as filing an Adversary Complaint, Motions regarding the Automatic Stay, and others, will also be increasing by differing amounts.

Bankruptcy Filing Fees are Separate From Attorney's Fees

The above fees are paid to the court clerk. They are always in addition to any attorney's fees for representation in a case. Most attorneys will give you a FREE consultation to first see if bankruptcy can help you.

Adjustments for costs of living, etc., are not unusual in the bankruptcy world. On January 1, 2010 the homestead exemptions rose to $75,000 for those who are single, and $100,000 for those who are married (that's the law that lets you protect equity in your home, i.e., if the equity in your home is $100,000 or less, you can protect it and creditors cannot take it away).

Most people filing bankruptcy in San Jose can typically protect all of their property, including their house, since California's exemptions laws are favorable to consumers. There are many different exemptions that help people protect their property when filing bankruptcy. While the federal bankruptcy code provides a list of exemptions, these exemptions are not available in California. California law requires you to use the exemptions found in California state law -- not the U.S. bankruptcy code.

One exemption scheme in California allows a "wild card" exemption. That lets you protect anything you own up to a certain amount (currently more than $23,000). However, whether or not you are trying to protect equity in a house affects your wild card exemption. To put it simply, most people filing bankruptcy in San Jose can protect their house, car, personal property, paycheck and retirement accounts. A qualified bankruptcy attorney can help you figure out what bankruptcy exemptions apply to your particular circumstances.

Note: California's exemption amounts are no longer updated in the statutes themselves. California Code of Civil Procedure section 740.150 deputized the California judicial council to update the exemption amounts every three years. (The last revision was in 2010; the next will be 2013.) The current exemption amounts for personal property can be found on the California Judicial Council Website. http://www.courtinfo.ca.gov/forms/documents/exemptions.pdf

How to Get the Value of Your Home
Zillow.com is a helpful tool that shows home values in your neighborhood. Just click on the link to Zillow.com and enter your street address to get an estimate of the value of your house, and all others in your neighborhood. Zillow.com also shows a listing of the average home value in your zip code. (Note: Does not serve all areas, and valuations are imperfect estimates only.). However, Zillow.com does provide estimates of home values in San Jose, California.

Michael Lewis, author of "Moneyball" and "Liar's Poker," has a lengthy article in the November issue of Vanity Fair magazine about how dire California's public finances are.

Lewis also talks about how the City of San Jose is on the verge of bankruptcy. He goes into detail about how San Jose mayor Chuck Reed and Vallejo Fire Chief, Paige Meyer, are trying to avert catastrophes in their respective cities.

One of the experts interviewed for the article says that people want more services, they just don't want to pay for them. Another perspective is that those providing such services (those working in the prison systems, police officers, fire fighter's, etc.) have been unrealistic in their demands for salary and benefits.

The article goes into great depth about what happened in California, but if you want just a summary, here it is:

• In 2011, California will spend $32 billion on employee pay and benefits. In 2010 California spent $6 billion on prisons and another $4.7 billion on higher education. Over the past 30 years the state's share of the budget for the University of California has fallen from 30% to 11%. In 1976 a Cal student paid $776 a year in tuition, and in 2011 now pays $13,218.

• The head parole psychiatrist for the California prison system was the state's highest paid public employee; being paid $838,706 in 2010.

• Lewis claims San Jose is nearly bankrupt, despite its AAA bond rating from Moody's. He fears the $245 million San Jose has to pay out in pensions and health-care for retired city workers "are more than half" the yearly budget and eventually, they consume the entire budget.

• San Jose's budget turns on the pay of its public-safety workers: the police and fire fighters now make up 75% of discretionary spending. Lewis writes that over the past decade the City of San Jose repeatedly caved to the demands of its public-safety unions. As result of higher pay and benefits, San Jose has now been forced to lay off thousands of city workers, closed libraries three days a week, and cancel plans to open a new community center.

• In Vallejo 80% of the city's budget was wrapped up in the pay and benefits of public-safety workers. Since Vallejo's bankruptcy the police and fire departments have been cut in half.

• From 2006-2010 Vallejo saw its real-estate values fall 66 percent. Vallejo then declared bankruptcy in 2008.

• Vallejo has a population of 112,000, and the Fire Department receive13,000 fire calls per year. That's 8.7 fire calls per person. Or 37 fire calls each day. There are 67 firefighters in Vallejo's fire department. So thats 194 calls per firefighter. Fortunately, they aren't all fires.

• In Vallejo all the traffic lights are set to blink; there are no more cops to police the streets.

The bottom line was a housing-price collapse in California lead to a decline in property tax revenues. Lewis offers an explanation of how this all snowballed:

"From 2002 to 2008, the states had piled up debts right alongside their citizens': their level of indebtedness, as a group, had almost doubled, and state spending had grown by two- thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion. In response, perhaps, the pension money that they had set aside was invested in ever riskier assets. In 1980 only 23 percent of state pension money had been invested in the stock market; by 2008 the number had risen to 60 percent. To top it off, these pension funds were pretty much all assuming they could earn 8 percent on the money they had to invest, at a time when the Federal Reserve was promising to keep interest rates at zero. Toss in underfunded health-care plans, a reduction in federal dollars available to the states, and the depression in tax revenues caused by a soft economy, and you were looking at multi-trillion-dollar holes that could be dealt with in only one of two ways: massive cutbacks in public services or a default--or both."

The observations are interesting, but there are some oversights. In 2011, the "average Californian" made $48,000 a year, but is carrying $78,000 in debt; that's a negative of a whopping $30,000! Lewis attributes this to people living beyond their means. Lewis relied on data from the Federal Reserve, but he failed to mention that much of that debt is mortgage debt, which until the recent financial crisis was considered "good debt", since homes are considered an appreciating asset. Also, owning a home in California is a lot more expensive than in the rest of the U.S. Whether or not San Jose if forced to follow Vallejo into bankruptcy, there are a lot of lessons to be learned from the last boom and bust!

Opal V. Bate filed a debt collection harassment lawsuit against Wells Fargo. His lawsuit alleged that Wells Fargo violated debt collection laws by:

• continuing to communicate with him despite that fact the bank knew he was being represented by legal counsel,
• making collection phone calls to him before 8.a.m. and after 9 p.m., and
• by repeatedly contacting him in a harassing manner

A federal judge refused to dismiss the lawsuit against Wells Fargo. Bate v. Wells Fargo, 2011 Bankr. LEXIS 2293 (M.D. FL 2011).

Wells Fargo argued that Florida collection laws were trumped by federal law; the National Banking Act, to be more specific. The judge ruled that the National Banking Act did not trump, or pre-empt, the State of Florida's collection laws.

The Federal Court Judge explained the history of debt collection laws in the United States, stating:

"Following World War II there was an explosion of consumer credit in the United States. With an increase in debts, consumers were faced with the problem of how to pay their debts, and creditors were faced with the problem of how to collect their money. This led to a corresponding problem of an increase in third-party debt collectors representing numerous types of creditors: "hospitals, general retailers, credit unions, colleges, department stores, utilities, banks, commercial or wholesale accounts, medical
clinics, and newspapers." The techniques used by creditors and third-party debt collectors
ranged from friendly coercion to blatant harassment"...Debtors who were abused by outrageous debt collection practices were left to common-law tort remedies."

However, the common law tort remedies most states had were often not adequate to address such a unique problem. Thus, the federal court said, "Due to the increase in debt collection abuses and the inadequacy of the common-law tort remedies, in the late 60's and early 70's, the states recognized the need for consumer protection legislation in the area of debt collection. Most states enacted consumer protection laws aimed at debt collection practices. In Florida the FCCPA was enacted in 1972 to address these very concerns."

But, even the collections laws enacted by the states were not always effective, especially when collectors made contact with consumers over state lines. So, the U.S. Congress also saw the need to pass a federal law that regulated debt collectors. In 1978 Congress passed the Fair Debt Collection Practices Act ("FDCPA") in 1978."

While the federal Fair Debt Collection Practices Act regulated collection agencies, and not original creditors like Wells Fargo, several states, like Florida, California, Texas, Illiniois, Massachusetts and West Virginia, have state laws very similar to the federal FDCPA. Thus, creditors collecting in those states must abide by collection laws or risk being sued if they abuse, harass or deceive a consumer.

Certain states, like California have state laws that regulate creditors and debt collectors, and incorporate the federal law above. See California Civil Code 1788 et seq., California Civil Code 1788.17, Alkan v. Citimortgage, 336 F. Supp. 2d 1061 (N.D. Cal. 2004), and Gonzales v. Arrow, (9th Cir., September 23, 2011).

Thus, creditors, like Wells Fargo, attempting to collect debts here in California must abide by these laws (the California Fair Debt Collection Practices Act) and cease communicating with consumers once they know the consumers are represented by a lawyer. These laws also say a creditor cannot make repeated and continuous calls in an attempt to collect a debt, or call a consumer at a time known to be inconvenient.

Numerous Consumers Have Alleged They Were Abused or Mislead by Wells Fargo

This is not the first time Wells Fargo has been sued for unlawful collection practices. Wells Fargo has been sued multiple times for unlawful collection practices: For a list of some of the California cases see below:

• Marseglia v. Wells Fargo, Case #7-2010-00051655-CU-PO-NC, April 12, 2010 (San Diego Superior Court, California),
• Vanags v. Wells Fargo, May 7, 2009 (San Diego Superior Court, California),
• Ibarra v. Wells Fargo, Case #08-cv-01966-WQH-RBB, October 24, 2008 (S.D. Cal), Serrano v. v. Wells Fargo Auto Finance, Case # 09-00118008, January 12, 2009 (Orange County Superior Court, California),
• Sokolik v. Wells Fargo, Case #63710, June 11, 2010 (Tehama Superior Court, California),
• Rathbun v. Wells Fargo, Case #CLJ 494554, April 29, 2010, (San Mateo Superior Court, California),
• Adams v. Wells Fargo, 08-CECL-08302, August 4, 2008 (Fresno Superior Court, California),
• Baker v. Wells Fargo, Case# 37-2010- 00066030, February 10, 2011 (San Diego Superior Court, California),
• Ballard v. Wells Fargo, Case #149451, February 8, 2010 (Butte County Superior Court, California),
• Barnett v. Wells Fargo, Case# 166285, May 28, 2009 (Shasta County Superior Court, California),
• Cole v. Wells Fargo, August 5, 2010 (San Francisco Superior Court, California),
• Devlin v. Wells Fargo Bank, (Contra Costa County Superior Court, California),
• Gil v. Wells Fargo, Case# L10-01074, February 2, 2010 (Los Angeles Superior Court, Califonria),
• Gwaltney v. Wells Fargo, 09-cv-6272, September 14, 2009 (Amador Superior Court, California),
• Mage v. Wells Fargo, Case# 09-00860, February 26, 2009 (Los Angeles County Superior Court, California),
• Masterton v. Wells Fargo Auto, Case# BC 422200, September 29, 2009 (Los Angeles Superior Court, California),
• Meeks v. Wells Fargo, 09K-11048, June 3, 2009 (Los Angeles Superior Court, California),
• Rathbun v. Wells Fargo, CLJ 494554, April 29, 2010 (San Mateo Superior Court, California),
• Babida v. Wells Fargo, 110-cv-184728 (Santa Clara Superior Court, California).

A recent study found that bankruptcy filings are up among college graduates and those earning $60,000 a year or more. Also, it seems bankruptcy filings are also up for married people.

The study shows that the economic recession has caused financial stress which is spreading to those who may have more of an education, who earn more money, and even dual income families. The study, done by the Institute for Financial Literacy (a nonprofit organization that promotes effective financial education and counseling), collected responses from 50,000 individuals that filed bankruptcy in the past five years. Each of these people sought credit counseling (which is now required under the new bankruptcy law- typically bankruptcy attorneys help their clients obtain this).

The study found that those holding a bachelor's degree accounted for 13.58% of filings last year. That number is up from 11.2% in 2006- a significant 21% increase. Those holding high school degrees still accounted for the largest percentage of filers, being 36.27%, but their proportion as to all people filing bankruptcy fell by 8.6%. Those most at risk for a bankruptcy filing were individuals who attended college but did not complete a degree, the study said. They accounted for 28.7% of filings last year. This may be because these individuals are saddled with student loans, but don't have the rewards of an actual college degree.

Those earning $60,000 or more accounted for 9.2% of all filings last years, that is up from 5.5% in 2006, which is a 67% increase! Those earning less than $20,000 per year accounted for nearly 40% of all bankruptcy filings.

The study found that the number of bankruptcy filers who were married jumped above 60% in the past five years, from 57.2% in 2006. That out paces the 50.3% of U.S. adults that are married, according to the U.S. Census Bureau.

In California bankruptcy filings increased by 25% from 2009 to 2010. In San Jose bankruptcy filings increased 16%, with more than 13,000 people and businesses seeking bankruptcy protection.

Specifically there were 13,366 new cases filed in San Jose, 7,844 of which were Chapter 7 filings, and 5,376 people filing chapter 13 bankruptcy (a reorganization plan that allows people to repay part of their debt over time). The rest of the cases were Chapter 11 bankruptcies (usually for companies) and Chapter 12 bankruptcies (for family famers).

Ironically it looks like the passage of the new bankruptcy law (the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act) did not stop the increase in people needing to file bankruptcy.

Looking back at statistics and a comparison of bankruptcy filings under Chapter 7, Chapter 13 and Chapter 11 for the United States Bankruptcy Court Northern District of California (which includes San Jose, San Francisco and Oakland), shows bankruptcies rose sharply from 2007-2008.

In 2007 there were a total of 127,359 bankruptcy cases filed in the Northern District of California. The number of bankruptcies then rose each month and each quarter. In the 2nd quarter of 2007 there was a 16% increase in bankruptcy filings, the 3rd quarter of 2007 increased 7% more and then the 4th quarter of 2007 increased another 14%, for a total of 21,758 filings for the last three months of 2007. Then in 2008 there was an even larger increase in bankruptcy cases filed. The 1st Quarter increased 18% from the last quarter of 2007, the 2nd quarter of 2008 increased 26%, the 3rd quarter of 2008 increased 14% and the 4th quarter increased by 3% for a total of 38,011 filings for the last three months of 2008.

As the statistics show, bankruptcy filings increased by approximately 70% from 2007 to 2008. The number of home foreclosures and adjusting mortgages contributed significantly to the increase in bankruptcy cases, as did layoffs and the "Great Recession."

It has been widely publicized that Citibank debt collectors caused the death of a man in Indonesia. The man killed, Irzen Octa, who had racked up a $5,700 debt on his platinum credit card to Citibank, was found dead on the bank's premises after being interrogated by third party debt collectors hired by Citibank to deal with long overdue debts.

Octa's widow said she first discovered that her husband had money problems when five men showed up uninvited at their Tangerang home one night in October and said they had come to get money. Unable to collect, they slept on a terrace outside the front door.

In the following months, debt collectors kept calling him. At the same time his debts kept rising because of hefty interest. In the end, his debt to Citibank was more than $11,000, including finance charges, but the bank said it was willing to settle for much less. He owed others money, too, and told his family members that they might have to sell their house.

Apparently, Octa left home at 6 a.m. to drop his daughter off at school and then headed over to Citibank to settle the debt. He told his wife, "Wish me luck." In the afternoon, a friend of Octa's went looking for him at Citibank and found him sprawled out on the floor with his nose bleeding and bruises on his head and abdomen.

There are conflicting reports on the circumstances of his death, as multiple autopsy reports have shown different results. The Washington Post has reported Citibank claims its "conducted its own private investigation and found no signs of physical violence."

Despite this uncertainty, the nation's government banned Citibank from adding any new credit card clients for two years, and banning Citibank from adding any new customers to its premium wealth service for one year. Due to the torture, false imprisonment and abusive collection tactics in relation to Mr. Irzen's death, 5 people, including 2 Citigroup employees have been charged. Apparently, someone posted a Youtube video showing the debt collectors being arrested!

Additionally, Citibank will not be allowed to use external debt collectors for three years in Indonesia. Apparently, the problem stems from collection agents that were outsourced as opposed to in-house. This is a huge setback for Citibank in what is Southeast Asia's biggest economy. Thus, Citi said last week it is hiring 1,400 debt collection staff in Indonesia, who were previously outsourced.

The nation's central bank is taking these measures as an effort to protect customers and the credibility of the banking industry, and went as far as telling Citibank to suspend executives involved. It has also said that if any crimes are found it will revoke Citibank's operating license.

Citi has said it is cooperating fully with police to determine if the collection agency staff had followed its code of conduct on debt collection and that it did not believe physical harm was done to the client.

Citibank, having been a big loser in the collapse of the U.S. housing market, has pushed hard since the 2008 financial meltdown to boost profits overseas, particularly in booming Asia.

California Law Prohibits Debt Collectors From Harassing Consumers

Certain states, like California have state laws that regulate creditors and debt collectors, and incorporate the federal law above. See California Civil Code 1788 et seq., California Civil Code 1788.17, Alkan v. Citimortgage, 336 F. Supp. 2d 1061 (N.D. Cal. 2004), and Gonzales v. Arrow (9th Cir., September, 2011).

Thus, creditors, like Citibank, attempting to collect debts here in California must abide by these laws (the California Fair Debt Collection Practices Act) and cease communicating with consumers once they know the consumers are represented by a lawyer.