Bankruptcy Chapter 11 reorganization is a very powerful tool for the individual debtor.

Chapter 11 is a very powerful tool for the debtor.  Consult with your attorney for more information.

 Advantages of Chapter 11 over Chapter 13.

  •  No Bankruptcy trustee; with court approval the individual debtor remains in complete control of their finances.  The debtor is called “debtor in Possession”
  • No Bankruptcy Debt limits.  Chapter 13 Banktuptcy is limited to person having less than
  1. $360,475.00 in unsecured debt
  2. $1,081,400.00 in secured debts
  • No Bankruptcy requirement to make post-petition mortgage payments (although it recommended)
  • The bankruptcy  individual debtor proposes a plan that is voted on by unsecured debtors.  Mortgage holders do not get a vote.
  • No bankruptcy limit to how long the plan can run; (Chapter 13 is either 36 or 60 months)
  • Many months can pass before the debtor has an approved bankruptcy reorganization plan and has to make payments;

Disadvantages Chapter 11 Bankruptcy over Chapter 13 Bankruptcy;

  • More expensive Bankruptcy court filing fee.
  • More expensive Bankruptcy attorney fees; given that the bankruptcy debtor in possession remains in control there are many first day bankruptcy court motions the attorney must present and argue in bankruptcy court.
  • There are many bankruptcy forms and a seven day US Trustee package that you must submit to the US Trustee (Department of Justice)
  • There are monthly bankruptcy debtor in possession reports due to the court and the United States Trustee
  • There are periodic status conferences with the bankruptcy court.

Chapter 11, entitled Reorganization, ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. The chapter 11 debtor usually has the exclusive right to file a plan of reorganization for the first 120 days after it files the case and must provide creditors with a disclosure statement containing information adequate to enable creditors to evaluate the plan. The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.

Smooth Sailing with proper planning

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Foreclosure help; the California Department of Corporations (DOC) and the California Department of Real Estate (DRE) are providing assistance to financially stressed homeowners in Foreclosure

California Foreclosure Reduction Act provides foreclosure help for California homeowners.  The California Department of Corporations (DOC) and the California Department of Real Estate (DRE) are providing assistance to financially stressed homeowners who are often targeted by predatory mortgage scam artists. The DOC and DRE license and regulate a variety of entities involved with the mortgage process.  Helpful referrals below:

1)      Before hiring anyone to help modify a loan, anyone may contact the DRE at (877) DRE-4LIC.  Their website is

2)      To file a complaint against a mortgage loan modification consultant, you may contact the Attorney General’s Office, Public Inquiry Unit at (800) 952-5225.  Their website is

3)      To verify the license of someone servicing or negotiating terms of your mortgage loan, you may contact the DOC at (866) ASK-CORP.  Their website is

Also, the Foreclosure Reduction Act will be effective starting Jan. 1, 2013.  The Act accomplishes four main goals:

1)      Prohibits “dual tracking” that occurs when a mortgage loan services initiates the foreclosure process on a homeowner who is still negotiating a loan modification;

2)      Provides a homeowner with a single point of contact to assist them throughout the loan modification process;

3)      Requires mortgage services to review competent and reliable evidence to substantiate their right to foreclose; and

4)      Creates a remedy for borrowers to seek legal action against their loan services for material violations of the law.

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The National Mortgage Settlement;

The National Mortgage Settlement; Debt Relief for California Home Owners facing Foreclosure on their Mortgages There is relief from foreclosure in the National Mortgage Settlement In February 2012, 49 state attorneys general and the federal government announced a historic joint state-federal settlement with the country’s five largest mortgage servicers:

This bipartisan settlement will provide as much as $25 billion in:

  • Relief to distressed borrowers in the states who signed on to the settlement; and
  • Direct payments to signing states and the federal government.

It’s the largest consumer financial protection settlement in US history.

The agreement settles state and federal investigations finding that the country’s five largest mortgage servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law.

The settlement provides benefits to borrowers in the signing states whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service.

California Monitor

On March 16, 2012, California Attorney General Kamala Harris appointed Professor Katherine Porter from University of California Irvine School of Law to serve as the California Monitor. The California Monitor assists the California Attorney General in monitoring the implementation of the National Mortgage Settlement.

The California Monitor has her own website.  If you want to know if you are eligible for the services provided in the National Mortgage settlement go to the California Monitor at

If you have any questions about the National Mortgage Settlement, you may want to contact your attorney.


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Foreclosure Process In California

Foreclosure Process

These are the main steps in a nonjudicial foreclosure, which apply to the majority of foreclosures in California.

  1. The lender MUST contact you and anyone else on the mortgage loan to assess your financial situation and explore your options to avoid foreclosure (called a “foreclosure avoidance assessment”). The lender:
  • § Cannot start the foreclosure process until at least 30 days after contacting you to make this assessment; and
  • § Must advise you during that first contact that you have the right to request another meeting about how to avoid foreclosure. That meeting must be scheduled to take place within 14 days.
  • § You can authorize a lawyer, HUD-certified housing counseling agency, or other advisor to talk on your behalf with the lender about ways to avoid foreclosure. You cannot be forced to accept any plan that your representative and the lender come up with during that discussion.
  1. If you and the lender have not worked out a plan to avoid foreclosure, the lender can record a Notice of Default in the county where your home is located, at least 30 days after contacting you for the foreclosure avoidance assessment. This marks the beginning of the formal and public foreclosure process. The lender sends you a copy of this notice by certified mail within 10 business days of recording it. You then have 90 days from the date that the Notice of Default is recorded to “cure” (fix, usually by paying what is owed) the default.§ WARNING: Since the Notice of Default is recorded as a public document, many fraudulent companies and scam artists search the public records to send defaulted borrowers offers to “help” them avoid losing their homes to foreclosure. These fraudulent companies could take your money and then do nothing to help. There are free services available from government and nonprofit organizations to help borrowers. Find help with a foreclosure in your county.
  2. If you do not pay what you owe, a Notice of Sale is recorded (at least 90 days after the Notice of Default is recorded). The Notice of Sale states that the trustee will sell your home at auction in 21 days.

The Notice of Sale must:

  • § Be sent to you by certified mail.
  • § Be published weekly in a newspaper of general circulation in the county where your home is located for 3 consecutive weeks before the sale date.
  • § Be posted on your property, as well as in a public place, usually at your local courthouse.
  • § Have the date, time, and location of the foreclosure sale; the property address; the trustee’s name, address, and phone number; and a statement that the property will be sold at a public auction.
  1. At least 21days after the date when the Notice of Sale is recorded the property can be sold at a public auction. The successful bidder must pay the full amount of the bid immediately with cash or a cashier’s check. The successful bidder gets a trustee’s deed once the sale is complete. The lender usually bids at the auction, in the amount of the balance due plus the foreclosure costs. If no one else bids, your home goes to the lender.

Note: Before the foreclosure process begins, the lender or loan servicer may send you letters (over the course of several months) demanding payment. Those letters are NOT notices of default.

Foreclosure Process Stopping the foreclosure sale

You have up until 5 days before the foreclosure sale to cure the default and stop the process. This is called “reinstatement” of the loan. During the 21-day period after the Notice of Sale is recorded, any person or institution (like a bank) with an interest in your home has the right to redeem the home up until the nonjudicial foreclosure sale/auction. This means that they must pay the entire loan in full.

Foreclosure Process After the foreclosure

Whoever buys your home at the foreclosure sale/auction cannot just change the locks to the home. The new owner must serve you with a 3-day written notice to “quit” (move out) and, if you do NOT move out in the 3 days, go through the formal eviction process in court in order to get possession of the home. That process typically takes several weeks.  Learn more about the eviction process.

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Bankruptcy Debt and Credit Counseling

Bankruptcy Debt and Credit Counseling

Your are required to complete a credit counseling course prior to filing bankruptcy.  There are many approved credit counseling sources available that will provide you with the necessary certificate for a nominal fee, usually between $35-$50.  DO NOT PAY MORE.

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor’s debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

If the debtor’s “current monthly income” (1) is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed. 11 U.S.C. § 707(b)(1).

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

Debt relief is big business.  You hear expensive ads on radio and TV everyday.  Be very cautious, there is a great deal of consumer fraud associated with debt relief. 

Call an attorney before you spend any money.  I provide a free initial consultation, call me before you make any commitments.  805 987 1400  Evening and weekend appointments available.

Email Consultation,  if you can not call during normal business hours you may also ask me a question by email, or arrange a time to call me for additional information.  CLICK HERE FOR EMAIL FORM

 Free Attorney Consultation

 The following notice is required by the United States Supreme Court’s interpretation of 11 U.S.C. 101(12A): The Law Offices of Larry Webb is a Debt Relief Agency as defined by 11 U.S.C. 101(12A) of the Bankruptcy Code.  We help people file for relief under the Bankruptcy code.



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Bankruptcy and Foreclosure STOP THE SALE

Bankruptcy and Foreclosure STOP THE SALE

In California a Secured lenders can foreclose with private trustee sale on a mortgage that is in default.  Trustee sales are the primary vehicle for enforcing installment payment obligations that can be accelerated for collection when there is a default.

What is a foreclosure?

Most people buy a home by borrowing part of the purchase price usually from a bank or a mortgage company.   Other times, a homeowner borrows money against the equity in the property after the home is purchased, and this is called a “home equity loan.” Sometimes people refinance their mortgage loan and combine it with a home equity loan. In all these situations, the lender usually has a lien against the home to secure repayment of the loan. When a buyer fails to make the payments due on the loan (defaults on the loan) the lender can foreclose, which means that the lender can force a sale of the home to pay for the outstanding

Types of foreclosures

In California, lenders can foreclose on deeds of trust or mortgages using a nonjudicial foreclosure process (outside of court) or a judicial foreclosure process (through the courts). The nonjudicial foreclosure process is used most commonly in our state.

  • § Nonjudicial foreclosure is the most common type of foreclosure in California. It is used when there is a power-of-sale clause in the deed of trust that secures the mortgage loan by giving the trustee the authority to sell the home to pay off the loan balance at the request of the lender if the borrower defaults (fails to make payments).

When a lender uses the nonjudicial foreclosure process against a borrower who fails to pay on a mortgage for his or her primary residence, the lender gives up the right to collect a deficiency judgment against the borrower. But most lenders prefer this process anyway because it is much faster and less costly.

  • § Judicial foreclosure involves filing a lawsuit to get a court order to sell the home (foreclose). It is used when there is no power-of-sale clause in the mortgage or deed of trust. Generally, after the court orders the sale of your home, it will be auctioned off to the highest bidder.

Judicial foreclosures are rare in California. A judicial foreclosure allows the lender to get a deficiency judgment against the borrower. BUT the homeowner has the “right of redemption,” which allows him or her to buy the home back from the successful bidder at the auction for 1 year after the sale. The process is longer and more costly than a nonjudicial foreclosure.

 You should consult with a Bankruptcy attorney for more information.

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Bankruptcy Attorney New (11/01/12) Median Income for Chapter 7 Bankruptcy Means Test

Census Bureau Median Family Income By Family Size for Means Testing;

Do you qualify for bankruptcy under Chapter 7?  Bankruptcy Attorney

California 11/01/2012

One person $47,433

Two People $61,752

Three People $66,034

Four People $74,122

Add $7,500 for each individual in excess of 4


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NACBA:   COSTLY DEBT SETTLEMENT SCHEMES PREY ON THE MOST DEBT-BURDENED CONSUMERS STRUGGLING TO RECOVER FROM ECONOMIC DOWNTURN What a Half Million Unwary Consumers Don’t Know:  Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert:  Debt Settlement Programs Seen as “#1 Threat to America’s Most Indebted Consumers.”
WASHINGTON, D.C. – October 17, 2012 – As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA). Available online at, the NACBA consumer alert notes:  “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat:   so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time.  Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”
The private debt-settlement industry remains robust.  More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates.  And there is room for further growth:   One in 8 U.S. households has more than $10,000 in credit card debt.
Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said:   “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn.   These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”
Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.
Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said:    “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months.  I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer.   In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors.  I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money.   I ended up with $25,000 more in debt than I started out with.   Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”
Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said:   “Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them.  The results with each client were the same:  exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts.  When clients informed the debt settlement companies of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as ‘fees.’  Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills.”
Ellen Harnick, senior policy counsel, Center for Responsible Lending, said:   “Debt settlement companies require clients to default on their debts before they will negotiate.  This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors.  Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started.”
In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:
•    There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers.  The Better Business Bureau has designated debt settlement as an “inherently problematic business.”  Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO),  the Federal Trade Commission, 41 state attorneys general,  consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.
•    Debt settlement schemes encourage consumers to default on their debts.  Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments.  Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began:  They are deeper in debt, with their credit scores severely harmed.
•    “Self help” may be the best answer for smaller debt burdens.   If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself.  Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer.  Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability.  Also be prepared to pay income taxes on any of the forgiven debt.
•    Nonprofit credit counseling agencies can help, but must be vetted carefully.  If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt.  But make sure to check it out first: Just because an organization says it’s a “nonprofit” there is no guarantee that its services are free, affordable or even legitimate.  Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make “voluntary” contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at  If a credit counseling organization says it is “government approved,” check them out first.
•   Bankruptcy will be an option for some consumers.  Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can’t repay their debts.  If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions.  There are two primary types of personal bankruptcy:  Chapter 7 and Chapter 13Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession.  In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period.  After you have made all the payments under the plan, you receive a discharge of all or most remaining debts.  For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income.  Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases.  To learn more about bankruptcy and whether it makes sense for you, go to
NACBA urges consumers to steer clear of any companies that:
•    Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.
•    Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee– a percentage of the money you’ve allegedly saved.
•    Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.
•    Suggest that there is only a small likelihood that you will be sued by creditors.  In fact, this is a likely outcome.  Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you.  Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.
•    State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.
Boltz emphasized:  “Many different kinds of services claim to help people with debt problems.  The truth is that no single solution works in all cases.  Bankruptcy is an option that makes sense for some consumers, but it’s not for everyone.  For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it.   What makes sense for each consumer will depend on their individual circumstances.  We encourage everyone to get the facts and do what makes the most sense in their situation.”
The National Association of Consumer Bankruptcy Attorneys ( is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 4,000 members located in all 50 states and Puerto Rico.

You should consult with a Bankruptcy Attorney for more information.


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Bankruptcy revocable trusts are not Asset Protection plans

Question: Does my self-settled revocable trust protect my home from foreclosure?

Answer NO.

This question with slight variation has been asked a lot recently.  It appears that there are commonly held but significant misunderstandings about Revocable Trusts, asset protection  and debt collection.

A revocable trust is only effective as an estate-planning tool for wealth transfer at death.  A revocable trust does not protect assets from the settlor’s creditors.  A person who creates a trust is known as the “Settlor.”  Usually under a revocable trust the Settlor names himself/herself as the Trustee and Beneficiary while the settlor is alive, and heirs are named as successor trustees following the Settlor’s death.

To be effective the trust must be “funded”, i.e. you must populate the trust with property.  Real property is transferred to the trust by recording a Deed, sometimes confusingly called a Trustee’s Deed or a Trust Transfer Deed.  A “deed of trust” is completely different and not at all related to a Trustee’s Deed or Trust Transfer Deed.

In California, a “Deed of Trust” is evidence of a secured note where the property in question is the security.  The trustee under a deed of trust is not a true trustee and is not subject to the general rules governing trusts.  The function of such a trustee is to reconvey the property to the trustor if the loan is repaid or to foreclose nonjudicially, at the beneficiary’s election, if a default occurs.  The beneficiary under a deed of trust is the lender.

As to the trust, a trust is not an entity that can sue or be sued. A trustee has to bring an action under trust law.  If you are the settler of the trust, under California law the property of a revocable trust is liable for creditors of the settler.

If you rely upon a revocable trust to protect your property from foreclosure, you are badly misinformed.  I have often been asked if there is a wrongful foreclosure action when property is held in trust, generally NO.  Wrongful foreclosure is a treacherous area of the law and you need counsel experienced in Estate and Debt Collection law. Seek advice.

Bankruptcy revocable trusts, consult with an attorney for more information.


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Bankruptcy Homestead Exemption Planning

 Bankruptcy Homestead Exemption

Question; Debtor in foreclosure has equity in his residence and has considerable debt to discharge in Bankruptcy.  He can exempt the equity in the residence.  Should he attempt to sell the residence before or after filing for bankruptcy protection?

There is a recent 9th circuit case that discusses the homestead reinvestment question,  Wolfe v Jacobson, BAP 10-1036 dated April 23, 2012.   In Wolfe the debtor sold property after she filed and claimed the homestead.  First, what law applies to the exemption?  The Wolfe court cited the “snapshot” rule as follows:

Under the so-called “snapshot” rule, bankruptcy exemptions are fixed at the time of the bankruptcy petition. See White v. Stump, 266 U.S. 310, 313 (1924). Those exemptions must be determined in accordance with the state law “applicable on the date of filing.” 11 U.S.C. § 522(b)(3)(A). And “it is the entire state law applicable on the filing date that is determinative” of whether an exemption applies. In re Zibman, 268 F.3d 298, 304 (5th Cir. 2001) (emphasis in original). In this case, the entire state law includes a reinvestment requirement for the debtor’s share of the homestead sale proceeds. Cal. Civ. Proc. Code § 704.720(b).

The Wolfe debtor did not reinvest within six months and the exempt sale proceeds became nonexempt.

The Wolfe court also analyzed the scope of the homestead exemption in terms of the exact scope of the rights it confers at the time of the bankruptcy petition.  According to the Wolfe court;

In re Golden, 789 F.2d 698 (9th Cir. 1986), the debtor had filed for bankruptcy after selling his California homestead and had then let the reinvestment period lapse without investing his exempt share of the proceeds. (cite omitted) . The debtor argued the proceeds were nonetheless exempt because they had been exempt when he filed for bankruptcy. (cite omitted) . We rejected that argument and held the debtor had received the proceeds subject to the reinvestment condition.. Those proceeds could thus lose their exempt status once the reinvestment period lapsed.

The question regards the homestead exemption and the timing of the sale of the residence.  Careful reading of the code and cases suggests that if a Debtor files bankruptcy, claims the exemption, receives a discharge and then sells property; the debtor keeps the exemption because the debts have been discharged before the sale.   BUT if the debtor sells the property before the bankruptcy he may lose the exemption if he doesn’t reinvest with the statutory six months.  I also anticipate a battle with the trustee over the sale proceeds if they sell before they file.

Bankruptcy homestead exemption

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