Heston & Heston Attorneys At Law

10/19/2020

Good news for homeowners!

Since Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), consumer debtors have had a rough road to travel. But in a sign that times may be changing, and the dire situations often faced by consumers require improvements in their laws, California has taken a step in that direction by overhauling its homestead laws.

Not having been substantially revised for almost 45 years, the existing homestead laws treated consumer debtors differently, depending upon their marital status, health, age, and income, with substantial differences.

A homestead is intended to protect equity. For example, if a home is worth $500,000, but is subject to a mortgage of $350,000, then the equity is the $150,000 of value in excess of the mortgage. A homestead, whether created by a homestead declaration recorded at the office of the County recorder, or arising automatically because a judgment creditor has attempted to force the sale of the home to satisfy a judgment, ensures that homes can’t be sold unless there is equity above and beyond the homestead. In order to be eligible for such protection, the property need only be the intended residence of the debtor.

Under current law, the amount of the homestead is $175,000 for married couples if either spouse is over 65 or disabled and unable to engage in substantial employment; $175,000 if the person is 55 or older with gross income of not more than $25,000 or if married not more than $35,000 and sale is involuntary; $100,000 if debtor or spouse resides in house with at least one member of the family with no ownership interest in the homestead; and $75,000 for all others.

Critics of this 3-tiered system often pointed to the fact that the purpose of the homestead is to protect Californians from the forced sale of their homes by creditors to satisfy debts, and that the distinctions based upon marital status, age and other factors bore little relation to the average cost of home ownership.

That has ended. Effective January 1, 2021, California will have an entirely new system of homestead laws. Recognizing that the cost of homes varies wildly from one part of the vast state to the next, the new laws will set the amount of the homestead as being equal to the median price for the purchase of a home in the prior year, with each county having a different homestead amount. But irrespective of the median price of a home in the county, there will be a statewide “floor” of $300,000 and a “cap” of $600,000.

Thus, in Orange County where the median price of a home in 2018 was $805,380, the homestead will be at $600,000, some $205,380 below median. But in Shasta County, where the median price of a home was $255,000 in 2018, the homestead will still be $300,000 as a result of the minimum floor of $300,000.

No longer will homeowners be “rewarded” for growing old, suffering from health issues that can be a matter of privacy concerns, experiencing low income, or maintaining a marriage or heading household with a dependent. In other words, a home protected by the homestead laws will not lose that protection due to a change in the character or lifestyle of the occupants.

At Heston & Heston, we have supported these changes through lobbying efforts and the good old proven technique of calling and writing our legislators. It is a change that has been long overdue. Further changes to improve the homestead laws are already underway and we will be keeping our clients informed as developments warrant.

Check back from time to time for further updates.

05/07/2020

BANKRUPTCY TREATMENT OF DEBTS RESULTING FROM DIVORCE

It is estimated that 50% of all marriages end in divorce. Studies of what triggers bankruptcy uniformly find that the financial impact of a divorce is one of the most frequent causes, along with loss of employment or substantial medical expenses.

But unlike the types of general unsecured debts that rapidly accumulate when a job is lost or health issues cause piles of debt to suddenly overwhelm a family, many of the debts that result from divorce proceedings are treated quite differently in the bankruptcy process. Deciding whether to seek bankruptcy protection is always a difficult decision to be undertaken with care. When a debtor is confronted with debts that may be largely the result of a divorce, extra consideration should be taken.

While there is a general presumption that debts are dischargeable in bankruptcy, certain debts are not subject to discharge. For example, taxes recently incurred, criminal penalties and fines, and presumptively student loan debts are not dischargeable. But there are exist special rules for debts that result from divorce litigation.

It has long been the rule that obligations for payment of child support or alimony cannot be discharged in bankruptcy. But what about debts incurred that are for or “in the nature” of support? For example, a debt resulting from a promise to make payments for an estranged spouse’s apartment or car? After all, promising to pay the car payment or rent of a spouse directly, rather than pay alimony to be used for those needs, serves the same purpose. For that reason, numerous cases uphold the nondischargeability of such promises that serve the equivalent function of support.

But what about debts owing to third parties or entities that do not substitute for direct support needs. Generally, an order to pay for the legal fees of an estranged spouse because of the disparity of income have been held to also be in the nature of support. In other words, if the spouses have considerably different incomes and therefore unequal access to legal representation, an order for payment of attorney fees in order to “level the playing field” because of the income disparity has been held to be also in the nature of support. This can also include orders to pay for child custody evaluators, minors’ counsel and others where the payment serves to promote the welfare and needs of the children.

Until the mid-1980s, debts not for or in the nature of support arising in divorce litigation were given no special treatment or protection. But for the past 30+ years, an additional category of nondischargeable claims arising from family law litigation have been given protection against discharge. These debts, characterized as “marital debts”, must arise from the divorce litigation or from settlement agreements reached in connection with such litigation. They also must not be for support, which would already make them nondischargeable. In addition, the debts also must be payable to the estranged or former spouse. If payable to others, such as credit card companies or former in-laws, such debts are dischargeable. Like support obligations, these marital debts are non-dischargeable in cases filed under Chapters 7, 11 and 12.

But they can be discharged in a case filed under Chapter 13. Traditionally, the discharge awarded upon the completion of a Chapter 13 plan is somewhat broader than the discharge awarded in other chapters. This is an expression of the view of Congress that those who try to repay all or at least a portion of their debts in Chapter 13 are entitled to greater relief. After all, the Chapter 13 debtor labors to make payments into a plan for a term ranging between 36 and 60 months. Thus, if the confirmed plan based upon the best efforts of the debtor pays only 50% of the general unsecured claims, the Chapter 13 discharge will nonetheless serve to discharge the unpaid remaining balance of those debts, including the marital debt.

When considering what chapter will provide the greatest relief, debtors emerging from contentious and costly family law litigation may want to consider the benefits of proceeding in Chapter 13 if the divorce has resulted in substantial marital debt. Additionally, debtors who have fallen behind in meeting their support obligations may find that Chapter 13 offers protection while formulating a plan to “catch up” with child support or alimony arrearages, which cannot be discharged, but can be paid out over time under the Chapter 13 plan. In such a situation, the debtor need only make the current support payments, while the accumulated arrearages are paid off over time through the plan.

Bankruptcy is an option for those who have encountered unforeseen calamities that have dashed expectations and undercut abilities to stay current with debts. But depending on the nature of the debts, careful consideration needs to be given to choosing the relief that is most appropriate, whether it be a Chapter 7 case or a Chapter 13 case. Such a determination should only be made after consulting with counsel qualified to advise clients concerning the interplay between bankruptcy law and family law.

04/30/2020

A JUDGMENT CREDITOR HAS LEVIED MY BANK ACCOUNT! HOW CAN BANKRUPTCY HELP RETRIEVE THOSE FUNDS?

Frequently, the proverbial straw that breaks the camel’s back is the seizure of needed monies in a checking account. Since no prior notice is given to you in time to move the funds, debtors first learn their checking account has been seized when notice is received from the bank, accompanied by notice that a bank charge has been imposed for complying with the seizure order. What can be done?

A creditor cannot use “self-help” to take money out of your checking account. Bank levies only occur after creditors have obtained judgments for money owed. Unfortunately, most of those judgments are obtained by default, very frequently based upon falsified claims of proper service of the summons and complaint. Over and over, debtors report having never received any of the papers in advance of the seizure of the bank account. But there is a remedy.

Inherent to the bankruptcy process is the notion that starting fresh with a clean slate means starting over with the debtor’s basic needs being met. This includes having funds on hand to pay rent, buy groceries, etc. The funds normally kept in checking accounts get there either by direct employer pay deposit or have been deposited by the debtor to be used for living expenses. In California, such funds are protected in an amount up to 75% of one month since net earnings, or alternatively up to $30,825 of funds if the debtor opts to use the “wildcard” exemption, usually the case where the debtor is not a homeowner and the homestead exemption is not needed.

Where funds in a checking account are levied upon by the sheriff at the request of a creditor holding a judgment, California law requires that the bank freeze the funds for 10 days before turning them over to the sheriff for eventual transmittal to the creditor. If a bankruptcy is filed before the 10 days run out, the monies can be recovered.

A debtor who has learned that his or her banking account has been levied by a judgment creditor must move quickly to file the bankruptcy proceeding, often requiring an emergency petition. Once the bankruptcy is filed, the frozen funds must remain in either the hands of the bank or the sheriff, pending further bankruptcy orders.

A debtor can then file a motion asking for the court to determine that the funds frozen are exempt, i.e. either paid earnings or subject to the wildcard exemption. If exempt, under Section 522(f) of the Bankruptcy Code, the court can then “avoid” the lien of the creditor on the funds levied upon. With the judicial lien avoided, the seized funds are then turned back over to the debtor.

Because of motion to avoid such a lien cannot be filed until the bankruptcy has been filed, but the funds will be potentially turned over to the creditor shortly after the 10-day “freeze” has run out, time is of the essence. If this has happened to you, you should immediately consult qualified bankruptcy counsel to take steps necessary to avoid the loss of money that may be critical to meeting the needs of you and your family.

03/20/2020

At Heston & Heston, we share in the concerns of all Americans in this time of uncertainty. However, Americans have weathered crises in the past, and have emerged even stronger and better able to face the future.

While the health concerns associated with the COVID-19 pandemic take center stage, such crises inevitably carry with them financial consequences. For some Americans, those consequences may be not so great as to trigger financial collapse. But for others, the interruption of income, health care needs, or even failure of a small business can lead to bankruptcy.

The Great Recession of 2009 forced millions of Americans to seek protection under the bankruptcy laws, and unquestionably the current healthcare crisis will do the same. For some, the consequences may not be fully apparent for months to come, while for others whose layoff or job means the loss of all income, the need for protection from creditors may be immediate.

The decision to consult a bankruptcy attorney is never easy. But the current crisis compounds that by adding concerns regarding meeting in person and in an office in which others might be waiting in the reception area. At Heston & Heston, we have recognized these concerns and have immediately implemented a policy of scheduling consultations as teleconferences. Written materials that might normally be provided to the course of the meeting are available for transmittal in PDF format. Our goal is to allow clients in need to have a free "virtual consult" by creating a "virtual office" in which to meet.

Observing the protocols recommended by the CDC to avoid transmission, in person meetings are not currently available. But by use of teleconferences and video links, we are committed to providing answers for those who have growing financial concerns as we work together as a nation to overcome this crisis.

11/25/2019

The Firm is proud to announce that Richard Heston has been appointed as a Lawyer Representative to the Ninth Circuit Judicial Conference. The Ninth Circuit Judicial Conference meets annually pursuant to Section 333 of Title 28 of the United States Code. The court of appeals for each circuit provides by its rules for representation and active participation at such conference by members of the bar of such circuit. The Order of the Judicial Council of the Ninth Circuit sets forth three purposes of the conference:

• To consider the business of the courts in the Ninth Circuit.
• To advise means of improving the administration of justice in the Ninth Circuit.
• To assist in implementing decisions made by competent authority as to the administration of the business of the courts in the Ninth Circuit.

Richard will serve a 3-year term beginning in January 2020. His duties will include attending conferences throughout the Ninth Circuit, with scheduled conferences in Rancho Palos Verdes, Tucson, and Portland. This appointment presents a unique opportunity to have meaningful input with the judiciary to propose improvements in the day-to-day practice of law in the bankruptcy courts.

07/30/2019

On July 25th Richard Heston participated in the Hill Day at Home Webinar sponsored by the National Association of Consumer Bankruptcy Attorneys (NACBA), directed at efforts to encourage representatives in Congress to support the recently introduced bipartisan legislation in the Senate (S. 1414) and House (H.R. 2648), the Student Borrower Bankruptcy Protection Act of 2019 introduced respectively by Senator Dick Durbin and Congress members Jerrold Nadler and John Katko, to restore the bankruptcy discharge for student loan debt.

In hearings before Congress, NACBA’s Vice President, Ed Boltz testified that “Growing evidence indicates that student loan debts not only severely restrict borrowers’ futures, but also are choking economic productivity. These minimal efforts show the inadequacy of piecemeal, non-comprehensive changes that stop short of restoring the general dischargeability of student loans in bankruptcy.”

NACBA supports an approach that offers student loan debtors the opportunity to "earn" their way to a discharge, unlike the universal forgiveness approach being touted by several presidential candidates that would simply waive repayment obligations of student loan borrowers, whether they be recent grads toiling away at low-income or minimum wage jobs, or highly paid financial analysts and securities brokers on Wall Street. NACBA believes that those who seek a discharge based on need should demonstrate that need through the filtering process unique to the Bankruptcy Code's goal of offering deserving debtors a "fresh start".

07/23/2019

What is the student debt bomb? - Defuse the Student Debt Bomb

It's time to offer light at the end of the tunnel for America's future - the younger generation struggling with student loan debt. https://www.studentdebtbomb.com/

America’s student loan debt continues to spiral out of control, a ticking time bomb for our nation’s financial future. At the end of 2018, student loan debt hit over $1.5 trillion, tripling in size since 2006. Tuition costs grew exponentially as state and federal funding of higher education dimi...

12/20/2018

Benjamin Heston and Richard Heston may have presented one of the Riverside County Bar Association's first cross-generational seminars when they spoke to members of the Family Law Section on the topic of "Bankruptcy and Family Law Crossover Issues" on December 18, 2018. The program was well received and reportedly drew an exceptionally high turnout of attorneys from both fields of practice who sought to learn more about the pitfalls lurking in the uncertain crossover of these two practice areas.