GENERAL TAX APPROACH - Frequently Asked Questions (FAQ)


TAX DEBT - Frequently Asked Questions (FAQ)



CALIFORNIA SALES TAX DEBT -  Frequently Asked Questions (FAQ)



BANKRUPTCY WARNING - & INFO Frequently Asked Questions (FAQ)


Potential Action Items I Can Help You With:

(1) Attorney Client Privileged Tax Representation

(2) Accounting /Accountant's Numerical Account Analysis

(3) Tax Services for Amendment & Correction

 (4)Tax Planning

(5) Help with your Tax Problems

(6) Providing IRS help

(7) Tax Debt & Tax Resolution

(8) Protection from IRS & IRS Harassment

(9) Analyze Assets and Debt Categories

(10) Investigate Government Records

(11) Compute Current Relief Possible

(12) Compute Projected Relief Over Time

(13) Action and/or Future Re-evaluation Plan

(14) Evaluation of Criminal Tax Potential Problems

(15) Evaluation of "Offer in Compromise" versus "Discharge Potential" for purposes of eliminating tax debt


Tax Problems & Debt General Checklist:

I. Is there a potential criminal problem?

A. Many people are so horrified by this question that answer with disdain: "Of course NOT", "are you crazy?," "I AM NOT A CRIMINAL" . The truth is that anyone in government can pick up a phone and begin to attract attention to any citizen's difficulty, and characterize it as a potential criminal problem. When the criminal suggestion arises, it is sometimes too late to take certain actions that might assuage the suggestion. In talking with me I will ask questions about what was done, who did it, and what communications and actions were taken with the taxing authority. Both federal and state (if applicable) have their own criminal tax statutes.

B. Short Checklist of Interaction Process with IRS

1.    Have you acted promptly from the very beginning to resolve the issue in an open way?  Early statement of position, even if aggressively pursued is much less likely to be perceived as evasion.

2.    Have you paid anything toward the tax in controversy?  In a recent case, a taxpayer had numerous conversations with IRS, but never submitted any payment.  At trial, the defense tried to introduce evidence that "they were working with IRS on a daily basis".  The trial judge probably felt that the taxpayers were giving the IRS "mere lip service" and ruled that prejudice in admitting evidence of close contact between taxpayer and IRS outweighed any real relevence / truthful portrayal, and excluded the evidence.  It might be that if the taxpayer had made a series of small payments, the likelihood of exclusion of that evidence would have been greatly diminished.

3.    Have you complied with IRS requests for information and records?  There is a provision that can convert IRS unreasonable position into a damage award for the taxpayer, providing that the taxpayer has cooperated and complied with IRS demands for information.  In addition, compliance with IRS requests will also put any taxpayer into a positive light, lessen the likelihood that IRS will continue to press an untenable position, and the lessen the chances of a Criminal Investigation Divison Referral.

4.    Have you checked your IRS account, including 1099's W2's and promptly objected to any erroneous submissions to IRS?

5.    Does anyone else have access to your records?  Identity theft is a major source of fraud and you might be the victim.  A fraudster might use your record information to both report an erroneous deduction payment and to change your address of record with the IRS to prevent your being notified about the reported income resulting from the fraudulent deduction.

6.    How many people know the specifics of fraudulent tax actions that have been performed, and to what extent can they be discovered and called to testify in a federal tax evasion case?  In extreme cases, taxpayers have been known to brag about their tax evasion & tax fraud activity on facebook.

7.    How vulnerable is the taxpayer to Indirect methods of proof and evidence, including:
       (a)    The NET WORTH method as applied to the taxpayer's assets;
       (b)    The BANK DEPOSITS method that is used to track income and business profitability; and
       (c)    The EXPENDITURES method which can indicate whether the taxpayer is spending more than the taxpayer's income.

8.    Spousal implications for tax evasion can be serious.  The continuum ranges at one end of the spectrum where the spouse is totally in the dark and where the criminal spouse hid both the money and the activity from an innocent / ignorant spouse to the other end of the spectrum where the non-acting spouse knew of the evasion, shared in the lifestyle made possible by the evasion and formed a conspiratorial partnership with the evader to aid and abet the evader and possibly to cover up the crime.

9.    Deductions not taken or reported is a newly added mitigation factor in sentencing added to the guidelines as part of  2T1.1(c)(1) as providing some reduction in "tax loss" for legitimate deductions not taken as part of the evasion scheme.  The added limitation that such deduction related reduction in tax loss should not be reduced to the extent that the deduction item relates to payments to  3rd parties"in a manner that encouraged or facilitated a separate violation of  law, such as "under the table payments" or "expenses to obstruct justice." The limitation is an arguable judgement call, and no exhaustive list of the mechanisms that could or should be characterized as limiting the reduction in the deduction or reduction in the tax loss has been reliably formulated.

10.  Taxpayers should also avoid a "Klein Conspiracy" (UNITED STATES v. KLEIN, 247 F.2d 908 (2d Cir. 1957) which was a judicially expanded doctrine operating off of 18 U.S.C. � 371 which goes beyond traditional fraud (taking through deceit), but goes beyond this standard to include �acts of concealment of income� that constituted an effort to interfere with the government�s tax collection program. What this means is that any conspiratorial act that tends to lower the probability of detection of evason, or which resists government discovery of the fact of evasion, can easily form a completed crime, even if the government lacks the evidence to successfully convict upon the underlying evasion crime.

11.   As in point 10 above, there can be no conspiracy where a single taxpayer acts alone.  Even a spouse, friend or someone distal from the main activity can provide the second person needed to complete a conspiratorial act. Tax return preparation and filing are thus activities best confined to sole persons that single file.

12.   Chances of mail and wire fraud, either directly related to activities of the evasion or related to peripheral charges can be reduced by not using internet/telephone/mails etc. in a taxpayer's communications and transmissions.  Weaning from these types of communications will cause the taxpayer to be more cognizant of the import of each communication.  Conversely, if the only transmissions that are delivered directly and without the use of  internet/telephone/mails etc., it could help to identify a common scheme or plan or inference that the only transmission in person were the fraudulent ones, thus raising a presumption that fraud is intended when internet/telephone/mails etc. are avoided.

13.   Consider the danger of ancillary fraudulent activity and its possibility of being charged along with the crime of evasion.  Separate charges can be piled on to the extent making it onerous to defend a federal district court case.  Crimes that are ancillary to tax evasion include: money laundering, failure to keep records, conspiracy (mentioned earlier), mail fraud, wire fraud, false/fraudulent claims, aiding and abetting, bankruptcy fraud, and perjury, to name a limited few.

14.  Take to account the running of the statute of limitations (longest is 6 years for criminal tax matters), and that periods of absence as a fugitive from justice as defined at 18 U.S.C. �3290 tolls this statute.


C. Short Checklist of Fraudulent actions before discovery.

1.    Underreporting income is far worse than attempting to take excessive deductions. Failure to report income is more severe as an evasion activity than taking excessive deductions because deductions better enable the government to challenge the taxpayers position.

2.    Creation of false business expenses & invoices, if discovered, is perhaps the most powerful evidence of fraud. First, it shows additional effort to evade, much beyond simple omission. Second, it can draw additional jail time for "sophisticated means" under the sentencing guidelines that will result in a longer sentence.

3.    Use of false identity of others (with or without their knowledge) to further the evasion. This includes 1099's to taxpayers to enable deduction, especially where it is known that the putative 1099 payee was not in a position to be alerted about the payment. An example may include the listing of a taxpayer that just relocated to another state or country, especially where the postal forwarding order has expired, so that the taxpayer will not receive early and actual notice of adjustments to the victim's income. Identity theft can bring a mandatory 2 year sentencing enhancement upon conviction. Multiple counts will result in more than a 2 year enhancement.

4.    Other deliberate acts include false social security number(s), false claiming of dependency deductions, keeping more than one set of accounting statements, use of tax evasion software to generate reduced income accounting statements, destruction of records especially after records have been seen by others, hiding assets in bank accounts and particularly bank accounts created to enhance non-discoverability, and making false, under oath, representations to IRS and in particular detailed schedules associated with an application for an Offers-In-Compromise.

II. If there has been a serious error on a tax return in the past, will it be possible to contact IRS to rectify it before it is first discovered by IRS?

A. IRS has for years operated under a "first contact rule" where IRS will generally refrain from referring a case for criminal prosecution where IRS is contacted first.  This generally includes:

1. Coming forward to rectify a filing error.

2. Coming forward to file after a long period of successive failures to file.

III. Are you willing to prepare an excessive level of proof  to justify your position?

A. IRS typically backs down in the face of overwhelming proof of a justified position.  Conversely, where the taxpayer supplies scant information, especially unwillingly, it merely encourages further IRS inquisition.  Supplying more-than-ample pro-taxpayer evidence early is more likely to resolve the dispute in the taxpayer's favor.

B. The taxpayer may find that the IRS inquiry comes at a time where there is an uneven and perhaps incomplete record.  Tossing a disorganized record at the IRS encourages a more likely finding of inconsistency and encourages more and deeper investigation.  The completeness of the record and summary supplied to IRS is important.  Half-hearted attempts to throw records at IRS in the hopes that their investigation will be satiated are fruitless.   Time and effort should be spent to help insure that IRS will find the record adequate and persuasive.


IV. What is a lateral audit based upon being a client of the a particular preparer?

(A) As has been stated by the Office of Professional Responsibility, one type of audit is tax preparer based, in that where a particular problem is found with a preparer's method, the IRS knows it is highly likely that that preparer's other clients have the same type of problem.  Where the problem is not a de minimis error resulting in only a few dollars, the IRS is finding it advantageous to audit other clients of the preparer to look for the same problem.

(B) Where a Taxpayer is sold a bill of goods by the preparer, that client has a much higher likelihood of being audited because the Taxpayer is then not a single taxpayer with random odds of being selected for audit, but instead the Taxpayer is a member of a large group that will have concomitantly large odds of having the error or penalty discovered and result in a nearly 100% probability of audit based only upon that Taxpayer's having had a return prepared by an aggressive preparer.

(C) This factor should indicate to a Taxpayer that it is better to do his or her own taxes rather than have them processed by a preparer, and including this and other reasons:
(a) There will be no "preparer commonality" to trigger an audit simply because of the preparer chosen by Taxpayer.

(b) The loss of privilege in disclosure to a preparer puts the taxpayer at higher risk of having that preparer testify against the taxpayer for ANY reason.

(c) Tax preparers are subject to more tax preparer penalties than ever before and high volume tax preparers are not likely to take an aggressive position because (1) the liability from having a dragnet cast over their clients and a magnified look at them by the Office of Professional Responsibility, and (2) it is certain that preparers want to avoid preparer penalties at all costs.

(d) Criminal potential for any tax filing is reduced when you eliminate one-half of any potential two-party conspiracy under 18 U.S.C. 371.  If your tax preparer is going to prison, you can bet that the preparer is cooperating and that means blowing the whilstle on the taxpayer (and maybe embellishing the illegality of your conversation with the preparer "more than just a little").


V. If you have not done so already, read the statutes in the Disclaimer Page.


General Tax Approach

1. Why have a TAX DEBT TROUBLE - FAQ?
2. How do people get into trouble owing money to the IRS?
3. What can government do to a taxpayer when it believes that it is owed tax?
4. What can be done to �fix� the trouble and return to normalcy?

1. Why have a TAX DEBT TROUBLE - FAQ?

A large volume is written about tax debt and the tax system, but when you are trying to run your life and this GIANT DISRUPTION hits, the panic and short time line prevents a normal taxpayer�s ability to explore the literature. Conversely, a FAQ list of questions is expected to be big and so I will attempt to branch into other FAQ lists to cover the topic.

2. How do people get into trouble owing money to the IRS?

(a) Some citizens have not filed taxes in years.  Sometimes it starts by a combination of simply delaying the filing of federal taxes (26 U.S.C.), combined with moving, a life change or other circumstance combined with having fallen off the IRS consciousness grid. After 2 or 3 years of hearing nothing from the IRS, its tempting to simply keep going.

(b) Some citizens erroneously believe that failure to pay tax and failure to file are integral. Where a citizen has no money to pay the tax, it is very common to simply start delaying and then ending up not filing taxes. This is because some taxpayers equate not paying with not filing. These citizens combine the erroneous belief that its just as bad not to file as it is not to pay, and thus begin the habit / choice of cessation of filing returns.

(c) Some file their taxes on time but through circumstances beyond control can�t pay. Once the penalties and interest begin to roll the amount owing can double in just a few years. Meanwhile, the IRS makes efforts to collect, including levying bank accounts, garnishing wages and making life very difficult.

(d) Some citizens were unfortunate enough to pick tax fraudster to do their taxes. Citizens often never ask if what may be too good to be true is really not true. The lure of a few hundred or a few thousand dollars in refunds may have to be repaid in trip licate in the 1 or 2 years it takes for the IRS to catch up. Catching up sometimes involves statistical treatments on return data, a correlation with other audited tax returns, or a confession from a repentant preparer, perhaps on his way to jail.
(e) Some citizens were the victim of the crimes of others.  This can include identity thieves, payroll services who fail to remit payroll money to the government, sales tax fraudsters, investment schemers, confidence scammers, blackmail thieves, spousal sabotage, and criminal business partners. The closer the privity relationship, the more difficult it is to escape being victimized by others. Unraveling injustice before the tax authority is separate from whole justice and often the only possible partial remedy the victim might have.
(f) Some citizens can easily run afoul of rules and statutes relating to foreign interactions.  After 911, the government started clamping down on foreign transactions (F-BAR). Along with Al Qaeda, the IRS has made it harder on foreign investors, immigrants who have an overseas financial connection, U.S. citizens who inherit from overseas, and U.S. citizens and residents who may have had offshore assets for many years. As the IRS has attempted to go from �zero to 60� in its attempt to bring reporting into the ambit of perfunctory tax filing experience, not everyone has kept up. This has resulted in inadvertent noncompliance issues, significant penalties, interference with ability to discharge these types of penalty under bankruptcy (
penalty or regular tax? -- Lately this seems to be tilting toward nondischargeability despite the criminal-like clear and convincing evidence standard), and potential criminal liability for FBAR violations.

3. What can government do to a taxpayer when it believes that it is owed tax?
(a) Government can
levy bank accounts.  Taxpayers can wake up to find their bank accounts drained. This is especially dangerous for taxpayers who are self insured against sickness.
(b) Government can
garnish (levy on) wages of both the taxpayer and spouse. Taxpayers can find themselves working to receive pennies on the dollars they earn after their paychecks are garnished.
(c) Government can
lien taxpayer�s assets.  In addition to the general, automatic lien which accompanies an assessed tax, Taxpayers can find their assets, especially real property, liened and unable to sell them without government getting paid first.

(d) Government can interfere with taxpayer�s business.  Sole proprietor�s businesses can be taken in the same manner as the taxpayer�s personal assets. Physical levy and sale of a business is a possibility. For a taxpayer�s business entity, and in recent months, the IRS has stepped up its allegations of �alter ego� to reach assets of related entities.

4. What can be done to �fix� the trouble and return to normalcy?

(a) Consider which position to take which will help the taxpayer meet their goals. Each taxpayer is different. Some are more willing to compromise and others will fight all the way to the Supreme Court.
(b) Consider submitting all tax returns both to start the statutes of limitation running.  In addition, and especially where returns were not previously filed, taxpayers are not given credit for any deductions and the filing of tax returns for all year not filed gives a first introduction of deductions and may severely reduce amounts owing.
(c) Presenting the taxpayer�s situation early and accurately where warranted. Somet imes cooperation is called for and other times it is not. Analyzing the problem fully may be the best start on deciding upon whether to fight or explain.

(d) Give due consideration to the line between criminal and civil liability. If establishing tax payer is a victim runs the risk of admitting to a previous involvement in a crime, it may affect the decision to settle / pay the tax.
(e) Government will settle tax debt but only after complete disclosure of assets & earnings.  Offer-in-Compromise application gives government a detailed road map into a taxpayers finances, assets & bank accounts. Where a taxpayer has sufficient assets, the government is reluctant to settle for less than the full amount.
(f) Consider that some actions toll
bankruptcy "discharge of tax debt" threshold periods. Offer-in-Compromise, appeals, & collection due process hearings toll bankruptcy discharge threshold periods and that an analysis should include computation of the results obtainable this year and in future years.
(g) Consider the effect of ALL assets, and ALL liabilities along with tax liability. In many cases it makes no point to consider bankruptcy when there is very little non-tax debt and where there are significant assets that would be liquidated to satisfy taxes in any event.
(h) Consider bankruptcy
dischargeable years as possibly subject to greater discount. IRS must generally always have a motivation to provide any discount, and this can provide some discount unless the IRS is certain that a bankruptcy would not be possible because of too many assets to be lost.
(i) Consider progression of time in an integrated plan.  Some taxpayers may be near the end of the
IRS collection statute, while others may have tax liabilities that may be bankruptcy dischargeable in subsequent years. Current distress caused by all creditors should be evaluated. Where control can be exerted over any payments, control the allocation of payments to the years most advantageous to the taxpayer, and to creditors in terms of importance and need; and considering the possibility that some transfers can be reversed in bankruptcy if made within 90 days. (j) If an IRS payment plan (installment agreement) is considered, scrutinize it realistically. Setting up and failing in maintaining a payment plan can produce adverse government action, as the IRS will believe that you are just messing about and are applying for payment plans to prevent ever having to pay. If IRS perceives that you are entering into plans only to stave off paying, IRS collection efforts may increase.  In some cases a self controlled unilateral payment play may have some benefits. (k) Consider lien subordination where sale of liened asset is desired. If the sale of a liened asset can be used to pay off some taxes, the IRS will allow taxpayers to apply to have IRS subordinate or move down the priority of the IRS lien to facilitate sale of the real property asset.(l) Consider arrangements to pay.  For wage earners and homeowners, an �official� IRS payment plan may be required. Self employed individuals or others who are less in risk of government collection action may consider setting up a self-repayment plan, preferably with payments as level as possible. A consistent record of payment may be one of the best indicia of lack of intent to evade tax. (m) Consider that any action taken federally will be communicated to the state.  Taxpayers are required to notify the state and the state will be notified quickly in any event. Depending upon whether the state tax amounts owing are larger or smaller than federal, it may be desirable to pay the state off first. (n) Hire a tax professional familiar with the bankruptcy rules to give a complete picture. Although it would be psychologically relaxing to dump the problem off to your tax professional, the tax debtor should remain closely involved with decisions on how to attack and fix their own tax debt problems. Tax debt trouble is one of the most severe problems to be faced in life and following the path to repair will provide insight as to how to avoid such tax debt problems in future.



Aside from the obvious expedient of full payment, there are three main ways to eliminate a tax debt. The first is to establish, at the earliest possible moment, that the taxpayer does not owe the tax. The other two alternatives involve debt relief through inability to pay. One of the two alternatives is to establish to the IRS satisfaction that there is an inability to pay and a low likelihood of ability to pay in future, known as an Offer-in-Compromise. The second of he latter two alternatives is a filing in bankruptcy court that may also under some circumstances involve a late determination that the taxpayer does not owe the tax.

I. Is there a potential criminal problem?

A. Many people are so horrified by this question that answer with disdain: "Of course NOT", "are you crazy?," "I AM NOT A CRIMINAL" . The truth is that anyone in government can pick up a phone and begin to attract attention to any citizen's problem, and characterize it as a potential criminal problem. When the criminal suggestion arises, it is sometimes too late to take certain actions that might assuage the suggestion. In talking with me I will ask questions about what was done, who did it, and what communications and actions were taken with the taxing authority. Both federal and state (if applicable) have their own criminal tax statutes. Later entries to this FAQ outline will include checklists and factors.

B. On the federal side, many signatures are administratively needed in order to start a criminal tax evasion prosecution. My best understanding of the likelihood of a tax prosecution is a "utility frontier" that is a total combination of amount owing plus a celebrity factor as a threshold limit. A celebrity might be prosecuted for $40,000 owing and evaded, while a private citizen might be prosecuted for less then $1,000,000 owing and evaded. You can never count on these characterizations, as an overriding internal factor dealing with the certainty of evidence can't be discovered until after the prosecution is over.

C. Action taken to rid a taxpayer of tax debt require requests and submissions to be under oath.  Any lack of complete honesty in the request will bring the taxpayer at perhaps the closest point in their life to criminal suspicion.  That's why its important to only consider taking action where the action is honest, open and above reproach.
See Also: Tax Evasion Cases 9th Cir.

II. Do you have few enough and right type of assets to meaningfully benefit from the provisions of Title 26 or Title 11?

A. Fewer Assets and the right type of assets can enable you to be successful in an Offer-in-Compromise (Title 26) or Bankruptcy (Title 11) case intended to get rid of tax debt. (Please note the required notice under Title 11 U.S.C. � 528 whenever the word "Bankruptcy" appears: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code". [whenever I am actually hired to do this])*** Both Title 26 and Title 11 have various forms of relief.

B. Generally the more assets a taxpayer has, a greater percentage of those assets will be used to pay the tax bill. Planning can affect the degree of this outcome, but the general principal embodied in the generality is also generally inescapable.

III. Differing scope / configuration of relief as to Title 26 or Title 11?

A. Title 26 remedies tend to isolate only on tax debt and generally leave a taxpayer's other debts untouched. Offer-in-Compromise will generally leave a taxpayers other debts unaffected. Conversely, Title 11 operates to relieve other debts at the time when tax debt is being discharged.

B. Title 11 can cause far-ranging effects on credit score, security clearances, hiring for sensitive positions and can result in loss of employment (example: securities brokers).

IV. Title 26 and Title 11's effect on each other.

A. Title 26 remedies can:
1. Toll the title 26 tax collection statute via:
a. Offer-in-Compromise
b. Appeal
c. Action to Quash summons
d. Collection Due Process Hearing
e. Tax Court filing and trial
2. Toll the title 11 tax dischargeability statutes.

B. Title 11 remedies can:
1. Toll the title 26 tax collection statute
2. Delay tax realization via lowering of basis
3. Toll further availability of title 11 further remedies
4. Potentially Provide a late no-advance-pay tax-court-like forum for tax liability

V. Balancing IRS tolling periods.  Take to account tolling from:
- the 90 day letter
- Petition for Tax Court + 60 days
- Appeals
- Collection Due Process Hearing application + appeals
- Other actions that prevent (even by their own rules) IRS collection

VI. What are your future prospects?

A. As an example, what if you were expecting an inheritance in 3 months? If the inheritance is enough to take care of your tax and non-tax debt, you may want to do nothing. If it will not be enough, then when it occurs you may have momentary discretionary control of it and may be able to exert that control over how the money is disposed of. Your ability to have ANY discretion may be determined by the duration and depth of the debt problem (and especially how you must act and be treated if in the midst of actions under Titles 11 and 26) . Conversely, what if you were expecting an inheritance in 2 years? The timing and likelihood of the inheritance will likely determine whether you seek to take action under Titles 11 and 26 at all.

B. If the inability to pay the tax debt was a temporary state of affairs, the problem may be gone once the temporary state of affairs has diminished. However, no matter how much a taxpayer expects the problem to be temporary, it is always good to plan for a scenario where the problem may not be temporary.

C. Events which occur (and there can be many -- not just inheritance) while you are pursuing action under Titles 11 and 26 can affect the outcome. Probability prognostication is a poor tool to decide which action to take and the timing of which action to take, but it may be the best tool you have.

VII. What are the special goals and objectives you are trying to accomplish?

A. Sometimes this question comes down to a point where a decision to either take action or fail to take action is dominated by the special goal or an important circumstance. Sometimes hard choices have to be made, and I help in sorting those out into some form of organization to hopefully make it clearer what needs to be done.

B. In other cases, the question can be answered by evaluation and monitoring of the taxpayers' total circumstance over time. At each point in time, the circumstances /change. This occurs both through new circumstances and through the aging of the old circumstances over time. Sometimes a set of evaluations over time can enable the taxpayer to monitor the alternatives and to take advantage of the best alternative at an advantageous time. Passage of time ages tax debt for a given tax year and may move it from a non-dischargeable status to a dischargeable status. Time can cause a diminution of assets.

VIII. Trying to find out what really occurred

A. In the Title 26 system, sometimes the IRS makes mistakes. A proposed assessment of taxes may not have been sent to the correct address, or a filed tax return may have gotten lost. Finding out what went on at IRS may be difficult, & require an expenditure of time and money. When action under either and both of Title 26 and Title 11 is taken before a complete examination is done, it may be too late to un-do it when you later find out how much less severe the problem might have been had you known of an IRS mis-step (especially if it causes them to start the process over from scratch).

B. In the Title 11 system, the papers you file with the government reflects what is known at the time of filing and tends to "freeze-frame" many attributes as they were on the day of filing. The focus then, should be on non-governmental records, such as identifying and locating creditors? Moreover, benefit can be had from determining a much larger pool of potential creditors by sifting through your lifetime of contacts and transactions to build this list. Why? Because YOU don't know where next week's creditor (who just discovered a reason for your liability to them) will appear. There are many cases of contractors that seek Title 11 relief today, only to find out that the building they worked on 10 years ago develops a problem 2 years from now and that the building client was not included in the list of creditors. If they were not on the list of creditors, that debt was not discharged. (The point is that if you are going to "go-through" the pain of bankruptcy, why not exorcize ALL THE CREDITORS from your life?)

IX. If you have not done so already, read the statutes in the Disclaimer, above.



1. How is California Sales Tax different than most sales taxes elsewhere?

(Assume an 8% sales tax for ease of calculation.)

(a) California has a reimbursement system where most sale events include:

-A first step in which a $100 sale triggers a tax on the seller of $8

-A reimbursement step in which the buyer "reimburses" seller $8 sales tax

-Result is that seller keeps $100 and Board of Equalization gets $8.

(b) Main effect of reimbursement is the CA Sales Tax is not a trust-fund tax:

-Non-trust-fund taxes are dischargeable in bankruptcy

-Reimbursement can cause personal liability under Rev&Tax Code �6829

(c) Non reimbursement Operation Example for a buyer $108 purchase:

-A first step in which a $108 sale triggers a tax on the seller of $8.64

-Result is that seller keeps $99.36 and Board of Equalization gets $8.64

-Result: Seller loses $ 0.64, but avoids operation of Rev&Tax Code �6829

2. How does Revenue & Tax Code �6829 work?

(a) Bestows Personal liability of corporate officer for sales taxes upon the termination, dissolution, or abandonment of the business of an entity.

(b) But "only if the board can establish that the entity had included sales tax reimbursement in the selling price of tangible personal property sold.

3. What can I do to reduce my personal liability for sales tax?

(a) A seller/importer can move product to an out-of-state distributor for final sale.

(b) Avoid being sole proprietor having personal liability for sales in California.

(c) As per 1(c), for an entity, avoid sales tax reimbursement.

(d) As per the teaching in "In the Matter of the Petition for Redetermination under the Sales and Use Tax Law of HOSMER CHANDLER McKOON" (linked on PATENTAX.COM/links page):

(i) a taxpayer may file personal sales tax returns each quarter IN THAT TAXPAYER'S OWN NAME for which the entity for which the taxpayer is responsible, in order to start a 3 year statute of limitations running.

(ii) McKoon holding emphasized that under �6829, the fact that sales tax returns were filed for the entity only satisfies the entity's 3 year statute of limitations. The statute of limitations does not inure to individuals responsible under �6829 based upon filings that the entity made.

(iii) The risk in this technique is that it draws attention to a human, and that might draw attention to an affiliated entity. If the entity is keeping up with its sales tax returns and payments for at least three years before the entity starts to run into trouble, it may enable the individual person filing the zero level sales tax returns some probabilistic protection, based upon when the entity stops business.

(e) From studying the Ilko (discussed later) & McKoon cases (both linked on PATENTAX.COM/links page) the timing elements are important. Only the dissolution, termination or abandonment of business will trigger 6829.

However, the timing of BOE actually "discovering" the cessation of business, and possibly making a more rapid and reliably predictive under �6829 can be disastrously inconvenient if not controlled. Under McKoon, if the individual's 3 year statute has not yet run, business can be continued so that �6829 will not be triggered until the individual's 3 year limitation statute has run. (Business owner controls the timing on cessation of business)

4. What about using bankruptcy if the taxpayer failed to file $0 returns?

For bankruptcy, the fact and timing of assessment is critical. Because the debt is a tax debt, the time periods for tax are generally applicable, namely the 3 year, 2 year and 240 days from assessment periods.  �6829 assessments are made upon individuals that never had an obligation to file a sales tax return because it is a derivative liability.  In the Wirick case it was established that a human taxpayer cannot rely upon the actions of the entity in starting his own statute of limitations.  However, Ilko, citing the reasoning of Wirick and at the second paragraph after the paragraph citing Wirick, states: "Debtor was not required to file a return". This would seem to eliminate the limitation of �523(a)(1)(B).

 However, nothing definitive has been written on this, & at least two commentators believe that the safest course is to make sure that a potential debtor files personal sales tax returns and waits two years to make sure that BOE does not oppose the discharge based upon �523(a)(1)(B).

5. What about the Statutes of Limitation and the Criminal Problem?

(a) Rev & Tax Code �6487 sets the civil statutes of limitation at "about" 3 years if a return is filed or 8 years if no return is filed.
(b) Rev & Tax Code �7154 (General Sales & Use Tax) criminal statute of limitation = Later of 5 years after commission of crime or 2 years after discovery (Misdemeanor under 7153)(Felony under 7153.5. if the amount of unreported tax liability aggregates twenty-five thousand dollars ($25,000) or more in any 12-consecutive-month period. (c) The presence of the criminal statute complicates matters. First, which act in the multi-year fact set marks the "commission" of a crime? Were any steps taken to hide discoverability? Any potential "bad actor" facts & acts can potentially cause the criminal statute to loom far beyond the term of the civil limitations period. This factor may be the major motivation for BOE to resist compromise as to sales tax. (d)  Differential Tolling.  The civil statutes and criminal statutes have "tolling" or "extention events" that are different.  Civil tax statutes typically toll when there is some impediment to collection, either within the agency or federally.  Criminal tax statutes typically toll whenever the potential defendants are not present within the state.  So, its not just a matter of simply adding up days, months and years since the event, but also in considering "when to stop counting and skip to a point in time when you start counting again".  This is what tolling is all about.

6. ***If you have not done so already, read the statutes in the Disclaimer


BANKRUPTCY WARNING AND INFORMATION LIST (FAQ)  (Still working on the Question/Outline portion of the FAQ)
The following is for information only and is not to be relied upon in any specific case.

I formulated this list to reveal as many bankruptcy considerations as possible so that readers could learn as much as possible. I'm tired of seeing all of the FAQ's that "sell" the benefits of bankruptcy, as well as reading cases of people "sweet-talked" into filing without knowing the many aspects. I also know that, as in tax, many people simply don't want to think about the details because they can't tolerate contemplation of their problems and deliberately or subconsciously psychologically avert their thoughts from the details. I often term it "laundry syndrome" where people simply desire an improved state in future and want to "drop off" their laundry in an uninvolved way and return to find it clean and pristine. The best results of any process, however, require a high degree of thought and detailed interaction by the person with the problem because only they know the problem in enough detail to help their advisor to do an effective job.

This warning & FAQ was formulated as a checklist to require clients to face up to a level of knowledge and to elicit details that might otherwise be glossed over. In addition, and because this FAQ was converted from a disclosure list it was drafted from a viewpoint first to include a number of required duties which spring from the 2005 BAPCPA act, including the definitions of 11 USC 101(12A) of assisted person as one whose debts are primarily consumer debts and for whom the value of nonexempt assets are less than $150,000. BAPCPA requires that an assisted person receive a clear and conspicuous written notice which includes the notice under 342(b)(1) of different chapters and generally how they are different, as well as warnings on honesty, with the notice to be received within 3 days after first offering advice under 11 USC 527. BAPCPA imposes restriction on debt relief agencies under 11 USC 526, and further requirements on debt relief agencies under 11 USC 528. Second, this warning impresses upon a prospective debtor many risks and considerations that must be taken to account before filing a bankruptcy petition, and which should be contemplated and considered by any debtor.

1. Items to be gathered:
Tax returns (past 6 years to paint a picture) and IRS transcript
Background report
Credit reports (experian, equifax, etc)
Pre-filing credit counseling certificate (ex:, ~ $10)
Pay stubs / proof of Income

2. If a Debtor wants to know how they appear from the outside, how they might appear to a bankruptcy trustee, a self-background check can be performed inexpensively. See:






3. Urgent filings should not be performed because the best advantage can be gained with the judges by having all paper work well thought out and carefully considered, including planning for bankruptcy timing and exploration, of timing and tolling problems, all performed with active involvement of the debtor. Debtors should be keen to show a whole, consistent file that will draw as few objections as possible. Debtors should realize that effectiveness in the bankruptcy process depends upon the attorney's and the debtor's reputation with the judges. It is important to eliminate and minimize a record of dismissals from partial filings, especially where case failure was due to documents that debtors failed to supply. (Put another way, if the decision to file to save a house was unimportant enough to put it off, ignore it, avoid it, maybe there is a strong underlying reason not to do it).

4. The current Chapter 7 Government filing fee is $335, and that this does not include any fees that might be paid to an attorney.

5. Where tax debt is involved, and to be more certain before taking bankruptcy action, a FOIA request to government may be the only way to determine the timing of actions within IRS and that the timing and details of action within the IRS may strongly affect and in some cases un-do and re-set government actions, and that return of FOIA results can take several months and involve additional cost.

6. A Bankruptcy filing provides exposure to a bankruptcy court system where creditors may object to a discharge of your debt to that creditor, or may in some cases object to your complete discharge as to all creditors. An action within the bankruptcy court procedures is known as an ADVERSARY PROCEEDING and is separate and apart from the bankruptcy filing itself, and also separate and apart from the bankruptcy services of filing. ADVERSARY PROCEEDINGS are similar to complete lawsuits, but are done in bankruptcy court, and they have an attorney cost structure requiring from about $5000 to $15,000 in attorney fees on average. If and when an adversary proceeding occurs, it may be possible to waive discharge as to the creditor pressing the ADVERSARY PROCEEDING. Advantages in doing so may include:
(a) saving court costs associated with the ADVERSARY PROCEEDING, (b) containing a potential "no discharge" threat, & (c) potential enablement of your case to proceed to discharge as to the other creditors.

7.  If the post-filing financial management course is not taken and if the certificate is not provided to the bankruptcy court, discharge will be denied and the bankruptcy filing may likely be dismissed.

8. Prior Bankruptcies that were dismissed may not show up in either a pacer search nor an IRS transcript. Debtor must preferably produce any records on prior bankruptcies to avoid a dangerous trap of being unable to get out of a chapter 7 bankruptcy filing.

9. Grantor trusts owned by debtors are not separate and apart from Debtors estate and must be listed along with other assets of Grantor / Debtor.

10. Even California "spendthrift trusts" can be invaded to the extent of 25% of the trust assets, to benefit Debtor's creditors.

11. Conveyances into irrevocable trusts may typically not complete without:

(A) conveyance

(B) change of ownership report (Form BOE-502-A, ASSR-70, OWN-70) (which can be
found online at:

(C) Declaration of Documentary Transfer Tax (which can be found online at:, and

(D) recordation.

12. An individual taxpayer's pension plan account is excluded rather than exempted from his bankruptcy estate. Accordingly, courts have concluded that:

(A) IRS's tax lien continued to attach post-bankruptcy discharge and that IRS could levy on the pension. (Gross, (CA 9 2/25/2014) 113 AFTR 2d � 2014-529 The Court of Appeals for the Ninth Circuit) (IRS Lien Rules as to excluded assets)

(B) In a recent Supreme court case, inherited IRAs, were held not to be excluded from the bankruptcy estate, and any inherited IRA is to be considered the same as cash for planning purposes.

(C) Generally, if a person liable for a tax does not pay after notice and demand, a lien arises in favor of the U.S. on all of the person's property and rights to property. (Code Sec. 6321) The lien must be recorded by the filing of a notice of federal tax lien (NFTL) to be valid against certain persons. (Code Sec. 6323)

(D) the bankruptcy estate includes all of the debtor's prepetition property and rights to property except property excluded from the estate under 11 USC 541. 11 USC 541(c)(2), as interpreted in Patterson v. Shumate, (S Ct 1992) 504 U.S. 753, permits a debtor to exclude an interest in an ERISA-qualified pension plan from his bankruptcy estate.

13. A debtor must tell the truth about where Debtor has lived and for how long, and should not attempt to get a better judge by making up a new address as the case may be stricken. Even a false address within the central district can cause a case to be stricken (Debtors have been known to try and escape their Riverside district residency)

14. There are about 19 different bankruptcy judges in the Central District of California and each of the judges has their own disposition, their own opinion on different aspects of bankruptcy law, AND Debtor understands that their case may end up with a different result based upon which judge is assigned to Debtor's case.

15. It can be helpful to hire a bankruptcy attorney to spend time with you and answer questions and without my performing a bankruptcy filing. This may be important where you want to ask confidential questions and receive frank answers. Why? You waive attorney-client privilege for any attorney that files your bankruptcy. You understand that after being told certain facts, that IF the attorney that was told those facts files a bankruptcy petition that ALL PRIVILEGE between attorney and client are lost, meaning that a judge can call the attorney to TESTIFY AGAINST THE DEBTOR!! (see my outline for Loss of Privilege based upon making a government filing (tax and bankruptcy).

16. If you hire a bankruptcy attorney to file your bankruptcy knowing that there will be no attorney-client privilege between yourself and the attorney, you will need to be honest about your situation because there is nothing to hide, but at the same time circumspect in what you say. (If you tell your bankruptcy attorney that you are filing because of some terrible / illegal act that is not otherwise relevant to the bankruptcy filing {because you want a shoulder to cry on} consider that you have announced the embarrassing fact to the world. You need to tell your bankruptcy attorney everything relevant to filing your bankruptcy, but not unrelated stuff.

17. As by an inverse example, an attorney that has handled affairs of a particular client for say 10 years SHOULD NOT file for bankruptcy for that long-time client. All of that client's secrets, confidences and facts surrounding his deals and financial affairs for that 10 years, will be lost upon the bankruptcy filing by his long-time attorney. When the law mandates privilege loss (in this case upon making a government filing) the only way to combat the effect is by compartmentalization. The debtor is sent to a new attorney, not previously known to the client.  The prior attorney can help the debtor organize and prepare for the relationship with the new attorney, but it is important that the new bankruptcy attorney not form a knowledge sharing relationship (in either direction) with the long-time attorney.

18. In addition, if the long-time attorney renders "services in contemplation of or in connection with the case", all of the transactions between the debtor and the debtor's attorney may be called into question by the Bankruptcy court. Case:

John F. ARENS v. Al BOUGHTON, Trustee (In Re: Daisy M. Prudhomme) (5th Cir 1995) The Bankruptcy Code requires a debtor's attorney to report to the court compensation paid or agreed to be paid for services rendered "in contemplation of or in connection with the case, if such payment or agreement was made after one year before the date of the filing of the petition." 11 U.S.C. 329(a).

19. A good example of multiple (bankruptcy and non-bankruptcy) employment disaster is seen in the case: In re Monument Auto Detail, Inc. (226 BR 219, 33 Bankr. 419 Bankr. Appellate Panel 9th Circuit, 1998). Recent cases also illustrate that a bankruptcy attorney hired to file a bankruptcy should do only that function. Although it is possible for attorneys to have multiple representation, the loss of privilege and the jealous control that the Bankruptcy Courts exercise is a good reason for isolating the bankruptcy role from all others. Personally speaking, I would not file bankruptcy for a former patent or tax controversy client.

20. Debtor should also understand that generally there is no attorney-client privilege for any aspect of a voluntary filing with the United States Government, such as tax returns and bankruptcy filings, and Debtor should also understand that upon the filing of a bankruptcy petition any attorney-client privilege had previous to the filing of the bankruptcy petition will become property & right of, and waivable by the Bankruptcy Trustee. Debtor understands that the loss and usurpation of the attorney-client privilege by the trustee, as well as criminal penalties for bankruptcy fraud, can combine to severely restrict any ability for the debtor to benefit from lack of honesty (1) with attorney actually hired to file the bankruptcy petition & (2)with the court in verifying representations in the bankruptcy petition and schedules. IN FACT, dishonesty can place the Debtor in jeopardy of loss of life, liberty and property should such misrepresentations be made.

21. Many attorneys attempt to do pre-filing payment plans in contemplation of filing. This can be a problem where the timing of the filing is important. Requiring all papers from the debtor to be ready before filing, and before the attorney-client relationship begins can be good where the debtor delays in getting the needed papers for submission don't create an impression that the debtor is "under the care of" the attorney. Even better is a series of agreements with one agreement for each task or set of tasks performed by the attorney, especially with some method to agree that the task is complete.

22. Requiring the debtor to have all documents ready, the retainer amounts ready and to execute the bankruptcy papers shortly after executing the attorney-client agreement hiring the attorney can be advantageous. In this manner, the debtor knows that there is nor movement forward until and unless there is a present ability to file. Perhaps this method will benefit the filing from a better ability to file a wholistically balanced case and to avoid expensive dismissals where filing might otherwise take place before the required information is available.

23. For many debtors, the automatic stay is an important advantage to filing bankruptcy.  However, there are many instances where a stay will not operate to stop various actions
A. Criminal Case

B. Family law marital dissolution and child support

C. Paternity cases

D. Domestic support action from non-estate property.

E. Government Police power in non-monetary action cases.

F. Property Tax Liens

G. Many Other instances.

24. A motion for damages for stay violations are different from a bankruptcy case core filing and can form a case within a case (much like an adversary proceeding). The emphasis of the law in this area is the cessation of the violation of the stay and not a mechanism for enriching the debtor. The proof required is that the violator knew about the stay and took deliberate action that resulted in the violation.

25. Knowledge of prior bankruptcy filings are extremely important. If Debtor has filed a prior bankruptcy but has forgotten about it, or if it was filed under another name, it might now show up in the records. Further, as to tax debt, if the debtor had filed a bankruptcy during the running of the 3-year period and/or the 240-day period, (or 2 year period under Putnam) but neglected to include the taxing entity in the schedules, the fact of the bankruptcy may not appear on a tax transcript, but it may still have a tolling effect if later discovered. Debtor's past bankruptcy filings must be known with certainty and often the debtor is the best source of information on past filings. (See: Putnam v. Internal Revenue Serv. (In re Putnam) (Bankr. E.D.N.C., 2014) IN RE: TODD PERRY PUTNAM , DEBTOR TODD PERRY PUTNAM Plaintiff v. INTERNAL REVENUE SERVICE Defendant. CASE NO. 10 - 09651 - 8 - SWH ADVERSARY PROCEEDING NO. 12 - 00273 - 8 - SWH UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA RALEIGH DIVISION SIGNED: January 14, 2014. 5 rules for tax discharge. U.S. District Court (E.D.N.C. Affirmed September 24, 2014) CASE NO. 5:14-CV-118-D

26. Any marriage of the debtor that occurs in a chapter 7 before filing can cause a change in the scope of the automatic stay, especially in a community property jurisdiction.

27. If marriage occurs during a chapter 13 plan, the spouse's earning capacity will likely increase (especially in a community property jurisdiction) and the debtor's expenses may be lessened (especially in a community property jurisdiction) and thus marriage may trigger the need to amend the plan so that the DEBTOR WILL HAVE HIGHER PAYMENTS AND BE REQUIRED TO PAY MORE INTO THE PLAN. It is better not to disturb a chapter 13 plan during its existence and IT IS BETTER NOT TO CHANGE MARITAL STATUS DURING THE CHAPTER 13 PLAN.

28. Debtor is / will be advised by an assisting bankruptcy practitioner and under the bankruptcy rules the not to incur more debt for any purpose (11 USC 526).

29. Debtor is advised that the benefits and risks of filing for bankruptcy can vary widely among individuals and their configuration of assets and liabilities and that the optimum mix of benefits over liabilities may not be capable of being known even after a lengthy analysis of Debtor's situation not to incur more debt for any purpose (11 USC 526).

30. Debtor should understand bankruptcy alternatives & which chapter to file. For each chapter creditors have the right to file "claims" which identify the amount of money owed and the documents supporting the claim. The can also object to a debtor's plan proposal, and in some situations file a written request (motion) for an order allowing the creditor to take back a residence, automobile, or other property.

31. CHAPTER 7 - Generally chapter 7 refers to a "liquidation" bankruptcy and can be used by an individual to obtain a discharge of many debts without making payments in the future. It may also be used by a business that wishes to liquidate its business assets under the protection of the bankruptcy court. A trustee is appointed to take control of certain asserts of the debtor and to sell or distribute these assets for the benefit of creditors. A trustee can also recover certain assets that have already been distributed and bring those assets back into the bankruptcy estate.

32. CHAPTER 11 - Generally Chapter 11 is often called the "reorganization chapter," and it allows a corporation, partnership, or individual to reorganize property and debts without liquidating all assets. The basic goal is for a debtor to retain control of property and present a "Plan of Reorganization" for repaying creditors. If the creditors accept the Plan of Reorganization, and the court approves the plan, a debtor is able to reorganize personal, financial, or business affairs. A trustee may be appointed if a motion is filed with the court and the court agrees that a trustee is needed to manage the affairs of the debtor.

33. CHAPTER 13 -- Generally chapter 13 refers to reorganization of debts by an individual who has regular income and debts that are below certain statutory limits. A Chapter 13 debtor proposes a "Chapter 13 Plan" which proposes a repayment schedule. The plan essential identifies details for the debtor to retain control of property, keeping up with current debts, and repay at least some of the past due debts. A trustee is appointed to monitor activity in the case and report to the court on whether or not the debtor is meeting obligations. If a debtor is not meeting obligations, the trustee or a creditor can ask the court to dismiss the bankruptcy case. If a debtor's income rises, the trustee or a creditor can ask the court to increase the amounts paid to creditors.

34. There are rules for setting up retainer agreements and limitations on payment from the bankrupt estate. In a chapter 7, practically everything the debtor owns passes into the chapter 7 bankruptcy estate, and the creditors of the debtor pre-filing are set. The filing of the bankruptcy is a pre-petition service. The filing attorney, as to services relating the filing of the bankruptcy is a pre-petition, pre-paid services provider and must not become a pre-petition creditor.  THEREFORE, a restriction on lawyers in chapter 7 practice is that the earned fees have to be paid and earned pre-petition. It is generally illegal for an attorney on a chapter 7 case to receive money post-petition relating to pre-petition activities (preparing the schedules and filing the case). The reasons for this rule are found in the following cases:

Brenda F. Hines v. Robert L. Gordon (IN RE HINES)198 B.R. 769 (BAP 9th Cir. 1996). An attorney cannot avoid the effect of sections 362 and 524 of the Code by taking a postdated check, and any action to take post petition from a chapter 7 estate for preserving the estate is prohibited as a violation of the automatic stay. 348(d) of the Bankruptcy Code, which reads: A claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112, 1208, or 1307 of this title, other than a claim specified in section 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition.

John F. ARENS v. Al BOUGHTON, Trustee (In Re: Daisy M. Prudhomme) (5th Cir 1995) The Bankruptcy Code requires a debtor's attorney to report to the court compensation paid or agreed to be paid for services rendered "in contemplation of or in connection with" the case, "if such payment or agreement was made after one year before the date of the filing of the petition." 11
U.S.C. 329(a).

Chapter 7 attorneys must charge the full fee up front. In LAMIE v. UNITED STATES TRUSTEE 540 U.S. 526 (2004) attorneys qualified as 327 professional persons, that is, in a Chapter 7 context, are those employed by the trustee and approved by the court. In Chapter 7, the trustees can engage attorneys, including debtors' counsel, and allow courts to award them fees. "In the majority of cases, the debtor's counsel will accept an individual or a joint consumer chapter 7 case only after being paid a retainer that covers the `standard fee' and the cost of filing the petition".

35. Compensation for debtors' attorneys in Chapter 12 and 13 bankruptcies, for example, is not much disturbed by 330 as a whole (limiting attorneys that maintain the estate to be hired by the trustee). See, e. g., 11 U. S. C. 330(a)(4)(B) ("In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney").

36. It is understood that the bulk of the bankruptcy rules, prohibitions, ability to harm the debtor, the ability to create forfeiture for the debtor, are based upon conditions as they existed at the bankruptcy filing date. As such, adjusting the time of filing by delaying to a later time, if done intelligently, can significantly impact the bankruptcy process to the advantage of the debtor. This is sometimes part of "pre-bankruptcy planning."

37. Chapter 7 & Means Test: The means test is for consumer debtors; if more than 50% of your debt is business, you need not take the means test. Debt of taxes owed is business debt, even if you are not in business.

38. Explanation of Exempt v. Nonexempt property. An Exemption amount is an amount, that may, depending upon the category, be cash or asset value, that cannot normally be taken by a non-government creditor. The exemptions generally do not apply to federal government creditors ability to reach assets through liens. Exemptions protect your property in Chapter 7 bankruptcy and help advantage the calculation of monthly payments in a Chapter 13 bankruptcy.

39. In order to claims a state's exemptions you must reside in that state for two years prior to the bankruptcy filing date. If this two year residency rule is not met, a place of predominant residence in a 180 day period before the 2-year period applies will be used.

40. Where the debtor is eligible for California exemptions, California's two state systems (1) block the use of the federal bankruptcy exemptions and (2) provide for two generally mutually statutory choices of exemption systems which a debtor may elect. One provides more protection for home equity and the other provides a greater amount of a wild card exemption. These two systems generally are:
(a) C.C.P. 703.140 & following
(b) C.C.P. 704.010 & following

41. Generally, debtors with substantial home equity prefer C.C.P. 704.010 & following, while debtors who have no real estate, but significant cash prefer C.C.P. 703.140 & following. Both systems should be considered by the debtor.

42. California does not allow married couples to double their exemptions, but because California is a community property state, an advantage may be obtained by having only one spouse file for bankruptcy. The inability to double exemptions and the ability to protect community assets may militate toward single spouse bankruptcy filing.

43. Debtors should beware of the dollar amount of exemptions they find on the internet. The ultimate authority for some exemptions in California is the Judicial Council of California. The updated rule is listed at . It is important that seekers not rely upon the above two statutes (C.C.P. 703.140 & following & (b) C.C.P.  704.010 & following) as they appear in the California official statutes as they do not appear to be updated as often as would be liked. There are other exemptions not listed in the above document, including homestead and others, and including some other non-dollar based exemptions.

44. The trustee's role generally is to protect the interests of creditors, but subject to the limitations of the bankruptcy rules. The trustee is generally not the debtor's friend and should be viewed as somewhat of an adversary. If a debtor lies to a trustee or hides property from a trustee, the outcome can range from denial of discharge to criminal prosecution & felony prison.

45. The automatic stay is an advantage to the bankrupt debtor, but note that (a) creditors often do small things to violate the stay, (b) creditors can formally seek relief from the automatic stay, and (c) the debtor should act to spread the information about the stay to increase the knowledge of the debtor's creditors.

46. What to Expect From Creditors' Meetings: Unless you have creditors to whom you owe significant money, or simply an angry creditor, or both; it may be that the first meeting of creditors is simply between you and the trustee. If you have hidden assets, the trustee is likely to question you about facts that will probe into any areas which might provoke a response that will uncover hidden assets. Performing a self background check may help in refreshing a debtor's memory as to the extent of debtor's assets, as well as reassuring the trustee where the background check matches the schedules. Two comprehensive lists can be found here:

47. It is strongly advisable that a debtor should NOT FAIL TO ATTEND YOUR FIRST SCHEDULED MEETING OF CREDITORS. Any attempt to re-schedule is typically viewed as a suspicious circumstance by the U.S. Trustees, and they will very likely run a more severe background check on debtors that re-schedule.

48. Warning on loss of Control in a Chapter 7 filing regarding real estate: (1) The Jacobsen 9th circuit case in combination with the In re Golden case means that the protected nature of the homestead proceeds will likely lose their exempt character beyond 6 months after the homestead real estate sale, either pre-petition or post petition. This is because all that the trustee need do is keep the case open for 6 months after the sale and assuming that no replacement home in California can be found, the proceeds will no longer be exempt and the trustee can take the sales proceeds and apply it for the benefit of creditors. It may be advisable to complete any sale of the homestead residence at least 6 months before filing for bankruptcy.

49. Loss of Control in a Chapter 7 filing regarding real estate: (2) The homestead exemptions in California for real estate ( $75,000 for a single person, $100,000 for a married or head of household person, or $175,000 for:
(a) a 65 year old person, or
(b) mentally disabled person, or
(c) 55 year old single person with income of less than $25,000 or (d) a married couple with income of less than $35,000) are quite small as compared to the cost of even modest California replacement real estate. It is the difficulty of finding nearby replacement property within the magnitude of the proceeds, AND the limitations of being under an active bankruptcy (court's permission needed) that can inhibit the ability to protect exemption proceeds from sale of a homestead. Therefore in view of the (1) loss of control in the prior paragraph and (2) the intrinsic difficult of completing the replacement property transaction described in this paragraph, it is STRONGLY urged that any owned real estate that is proposed to be sold should be sold such that the completion date of the sale be accomplished as far in advance of the bankruptcy filing date as possible, preferably no less than a year (and preferably several years) if fraudulent transfer might become an issue.

50. Loss of Control in a Chapter 7 filing regarding real estate: (3) Since late 2013 there have been rising values in real estate, such that there is an increased probability that the trustee will seek to sell a bankrupt's house from underneath them as equity in excess of the sum of the exemption and the mortgage begins to become apparent. This factor may not be strictly the foregoing mathematical relationship as there may be carve-outs in the form of a guaranteed payment of $5000 or $10,000 from the bank and in favor of the trustee even where equity in excess of exemption and the mortgage is zero. (See: In re KVN CORPORATION, INC., BAP No. NC-13-1318-JuKuD Bk. No. 13-10477 (LINDA S. GREEN, Chapter 7 Trustee, Appellant.) Carve Outs are Permitted Combining the factor in this paragraph with the Jacobson factor may indicate that a trustee may force a sale both to get a carve-out, AND THEN to wait and see if the exemption proceeds are re-invested withing the six month time period before they lose their exempt status. The bottom line is that a bankrupt should never feel comfortable filing for chapter 7 unless the mortgage is very significantly underwater.

51. Although there is some homestead protection under bankruptcy filing conditions, it is best to file a homestead declaration with the county recorder as soon as possible to give the homestead priority over judicial liens AND to protect the proceeds in a VOLUNTARY sale for six months.
C.C.P. 704.800 requires that under conditions of a forced sale of a homestead, that it should receive a bid in excess of the homestead exemption and all liens on the property in order to be sold. However the proof of the priority of the homestead requires a showing that the homestead laimant resided on the property at the time that a judicial lien attached. The filing of a homestead declaration can be used as proof of the time of residence and has other advantages.
Note, however, that neither the automatic exemption nor the declared homestead apply to a property mortgage or any other voluntary lien secured by real property.

52. It is understood that there are non-bankruptcy solutions to debt problems, such as (1) assignment for the benefit of creditors, (2) negotiating a work-out of your debt, and (3) an Offer-In-Compromise for IRS debts.

53. It is also understood and warned about the criminally incriminating effect relating to filing a false bankruptcy or a false offer-In-Compromise for IRS debts.

54. Under the recent Putnam case, tolling of the 2-year period as to the timing of previously filed taxes may also apply, and that IRS has evidenced an intent to follow this case.

55. Lately, and perhaps to "get around" recent California procedural rules on refinancing, some lenders are "freezing" the loan modification applications on the not-so-proper grounds of "pending bankruptcy", and perhaps despite the granting of a local motion "Debtor's Application for Order Confirming that Loan Modification Discussion Will Not Violate Stay". Therefore, you should understand that the bankruptcy can be used against you if you attempt to negotiate or ask for anything from a real estate lender.

56. Problems you may have with 3rd parties: Credit Reporting Agencies. No debtor who goes through a bankruptcy escapes problems with credit reporting agencies. Debtors will find that they may be slow to bring back your credit, that they may report inaccurately, they may continue reporting an item as still owing even though it is discharged in bankruptcy. Debtors should be prepared for these types of problems to occur, and understand that it will require Debtor contact to request that it be corrected or changed. Dealing with third parties and what they will and will not do is not part of the district court bankruptcy process. Once a bankruptcy is filed, all of your assets are controlled by the trustee. Under most guidelines, bankruptcy attorney responsibilities are generally required to be focussed upon the proceedings in the bankruptcy court. Matters outside the bankruptcy court can be dealt with directly by the debtor.

57. Another reason that you should not have a bankruptcy attorney perform matters directly related to the bankruptcy filing is the loss of privilege that occurs upon bankruptcy filing. This means that anyone that the bankruptcy attorney contacts that is peripherally related to the filing may be forced by a later court to expose facts, reasoning and logic the debtor may not want exposed. (See: )

58. Where a debtor owns real property subject to a mortgage interest, the bankruptcy attorney should not become involved due to the risk that any part of the attorney's service are considered to be pre-payment for handling a mortgage "loan modification" task. It seems that the periphery which drew an abuse conclusion has resulted in laws (California and some other states) to the effect that ANY money paid to have anyone work on a task that effects the mortgage can constitute a crime and can result in disbarment. Given this sizeable effect, as well as the loss of privilege, bankruptcy attorneys would do well to stay out of any dealings with debtor's bank issues other than advising them of the stay (which the debtor should be doing in any event). (See: )

59. The Southern district of California has a Chapter 7 rights and responsibilities agreement (also known as a RARA) that sets attorney responsibilities at:
(a). Meet with the debtor to review the debtor's assets, liabilities, income and expenses.
(b) Analyze the debtor's financial situation, and render advice to the debtor in determining whether to file a petition in bankruptcy.
(c) Describe the purpose, benefits, and costs of the Chapters the debtor may file, counsel the debtor regarding the advisability of filing either a Chapter 7, 11 or 13 case, and answer the debtor's questions.
(d) Advise the debtor of the requirement to attend the Section 341(a) Meeting of Creditors, and instruct the debtor as to the date, time and place of the meeting.
(e) Advise the debtor of the necessity of maintaining liability, collision and comprehensive insurance on vehicles securing loans or leases.
(f) Timely prepare, file and serve, as required, the debtor's petition, schedules, Statement of Financial Affairs, and any necessary amendments to Schedule C.
(g) Provide documents pursuant to the Trustee Guidelines and any other information requested by the Chapter 7 Trustee or the Office of the United States Trustee.
(h) Provide an executed copy of the Rights and Responsibilities of Chapter 7 Debtors and their Attorneys to the debtor.
(i) Appear and represent the debtor at the Section 341(a) Meeting of Creditors, and any continued meeting, except as further set out in Section II.
(j) File the Certificate of Debtor Education if completed by the debtor and provided to the attorney before the case is closed.
(k) Attorney shall have a continuing obligation to assist the debtor by returning telephone calls,
answering questions and reviewing and sending correspondence.
(l) Respond to and defend objections to claim(s) of exemption arising from attorney error(s) in Schedule C.
Note that the Central District has no such RARA.

60. The Southern District Chapter 7 rights and responsibilities agreement (RARA) sets out a list of services which are beyond the services to be performed in the scope of a chapter 7 (and for which, and you agree, that it is preferable to have a post-petition attorney-client fee agreement):
(a). Representation at any continued meeting of creditors due to client's failure to appear or failure to provide required documents or acceptable identification;
(b). Amendments, except that no fee shall be charged for any amendment to Schedule C that may be required as a result of attorney error;
(c). Opposing Motions for Relief from Stay;
(d). Reaffirmation Agreements and hearings on Reaffirmation Agreements;
(e). Redemption Motions and hearings on Redemption Motions;
(f). Preparing, filing, or objecting to Proof of Claims, when appropriate, and if applicable;
(g). Representation in a Motion to Dismiss or Convert debtor's case;
(h). Motions to Reinstate or Extend the Automatic Stay;
(i). Negotiations with Chapter 7 Trustee in aid of resolving nonexempt asset, turnover or asset administration issues.
Note that the Central District has no such RARA.

61. The Southern District of California Chapter 7 rights and responsibilities agreements (RARA) sets out a list of services which REQUIRE a post-petition attorney-client fee agreement:
(a). Defense of Complaint to Determine Non-Dischargeability of a Debt or filing Complaint to Determine Dischargeability of Debt;
(b). Defense of a Complaint objecting to discharge;
(c). Objections to Claim of Exemption, except where an objection arises due to an error on Schedule C;
(d). Sheriff levy releases;
(e). Section 522(f) Lien Avoidance Motions;
(f). Opposing a request for, or appearing at a 2004 examination;
(g). All other Motions or Applications in the case, including to Buy, Sell, or Refinance Real or other Property;
(h). Motions or other proceedings to enforce the automatic stay or discharge injunction;
(i). Filing or responding to an appeal;
(j). An audit of the debtor's case conducted by a contract auditor pursuant to 28 U.S.C. Section 586(f).
Note that the Central District has no such RARA.

62. The Southern District of California Chapter 7 rights and responsibilities agreement (RARA) sets out a list of responsibilities of the debtor:
(a). Fully disclose everything you own, lease, or otherwise believe you have a right or interest in prior to filing the case;
(b). List everyone to whom you owe money, including your friends, relatives or someone you want to repay after the bankruptcy is filed;
(c). Provide accurate and complete financial information;
(d). Provide all requested information and documentation in a timely manner, in accordance with the Chapter 7 Trustee Guidelines;
(e). Cooperate and communicate with your [bankruptcy] attorney;
(f). Discuss the objectives of the case with your attorney before you file;
(g). Keep the attorney updated with any changes in contact information, including email address;
(h). Keep the attorney updated on any and all collection activities by any creditor, including lawsuits, judgments, garnishments, levies and executions on debtor's property;
(i). Keep the attorney updated on any changes in the household income and expenses;
(j). Timely file all statutorily required tax returns;
(k). Inform the attorney if there are any pending lawsuits or rights to pursue any lawsuits;
(l). Appear at the Section 341(a) Meeting of Creditors, and any continued Meeting of Creditors;
(m). Bring proof of social security number and government issued photo identification to the Section 341(a) Meeting of Creditors;
(n). Provide date-of-filing bank statements to the attorney no later than 7 days after filing of your case;
(o). Pay all required fees prior to the filing of the case;
(p). Promptly pay all required fees in the event post filing fees are incurred;
(q). Debtor must not direct, compel or demand their attorney to take a legal position or oppose a motion in violation of any Ethical Rule, any Rule of Professional Conduct, or Federal Rule that is not well grounded in fact or law.

63. Status as married or divorced is CRITICAL to the rights and process of bankruptcy, and especially in a community property state. Where couples are not married and live together as married, but are not, the assumption of community property protection will be shattered. Likewise, when couples divorce and get back together, but do not re-marry, the assumption of community property protection will be shattered. Status as married or not married is virtually impossible to verify as a couple may have been married in Switzerland and later divorced in Nepal. THE EXACT TRUTHFUL DETAILS OF ALL MARRIAGE AND DIVORCE MUST BE PROVIDED. Your attorney and the bankruptcy courts rely upon your correct status. Not providing accurate information on your marital status could severely damage a debtor's bankruptcy planning and render useless a bankruptcy attorney's bankruptcy analysis. An attacking creditor who discovers a variance from what is set forth in the bankruptcy petition can defeat the goals of a debtor's bankruptcy.

64. Small institutional utility creditors such as power, water, cable, telephone and more have the right to shut off service and require expensive re-application along with a punitive additional deposit if they are creditors at the time of filing of the bankruptcy petition. It is up to the debtor(s) to pay all utilities for several months in advance so that such utilities will not be creditors at the time of filing of the bankruptcy petition. If they are not creditors at the time of the bankruptcy filing, they will not be on the list of creditors to be notified of the bankruptcy. Perhaps this action will reduce disruptive and costly effects to the debtor.

65. Some banks are notorious for "freezing" their accounts upon notification of the filing of bankruptcy, possibly on the pretext of maintaining the account for the bankruptcy case trustee. It is suggested that if a new bank account can be opened with a $0 starting balance, it will have no standing as an asset, and it can await having its deposits until just after the bankruptcy filing. In addition to paying utilities in advance to avoid disturbance of accounts, closing accounts and restarting accounts immediately after filing the bankruptcy petition can give the debtor a more unfettered right to the funds already owned by the debtor.

66. A bank may administratively "freeze" your accounts. Bankruptcy code 553(a) states that setoff rights are preserved, and although there may not be an identifiable "official setoff", banks use the "uncertainty" of the arrival of checks, or "the setoff it has in your account maintenance fee charge, or check fees, and many more. Citizens Bank of Maryland v. Strumpf (94-1340), 516 U.S. 16 (1995). State right of setoff is respected under 553(a).

67. Bank and Cash Funds. Especially as to the possibility that a bank account may be frozen, it may be helpful to keep some assets as cash money for both personal emergencies such as sufficient for an emergency room visit or for business emergencies in order to keep the business operating. In the past, you may have gotten so used to using a credit card for everything, both business and personal, that you might continue to refrain from having a personal amount of cash for emergencies. The keeping and tracking of the emergency fun may well help with the process of keeping a keener attention toward cash flow. And what about a broken leg just after a bankruptcy filing? Cash may be the only way to get emergency service.

68. Bank Funds. A recent case (In Shapiro v. Henson (9th Cir. January 9, 2014)) indicates that the debtor may be held liable for the balance in a bank account at the time of filing, even where the debtor considers the balance to be reduced by checks written and not yet cleared. In a 9th circuit it was a case of first impression it was established that the bankruptcy trustee's turnover power is NOT restricted to recovering bankruptcy estate property (or its value) ONLY from entities having CURRENT possession, custody, or control of such property at the time the motion for turnover is filed. In Shapiro debtor had $6,955.19 in her checking account. She wrote a number of checks, including one check to her bankruptcy attorney such that her account would have only had, say $2000.00 in it at the time of filing. In fact, on the day of filing, the debtor had $6,955.19, and this was money far in excess of her exemptions which the trustee demanded. The result was that none of the checks she wrote were proper, the money paid to her bankruptcy attorney was required to be returned, and the $6,955.19 (less a mere $800 exemption) was available to be paid to her creditors and NOT to the persons to whom she wrote checks.
Now that this is firmly established 9th circuit law:

(A) debtors have a second incentive to drain their bank accounts at least a week or two before filing bankruptcy, namely to keep an absolute control of their cash on hand and to insure that
anyone who is to be paid is actually paid BEFORE the bankruptcy petition is filed, as well as

(B) the need recited above, to close the account BEFORE the bankruptcy petition is filed to keep it from being frozen for offset or other purposes, &
(C) and to open a new one the day after which will provide some statistically certain evidence of the amount of cash held at the day of bankruptcy filing.

Finally, Shapiro v. Henson stands for the proposition that leaving money in a checking account amounts to a loss of control over that money upon the filing of a bankruptcy case.

69. Removal of bank account funds also reduces the chance of cross linking a loan account with a car loan account, for example. It has been experienced that some credit unions have cross collateralization accounts and require payoff of an unsecured loan account before an automobile pink slip will be surrendered. This becomes an issue in the "ride through" option where the debtor keeps up payments on the vehicle, then pays it off, but where the pink slip will be withheld until another non-automobile account is paid off. Debtors should check their banks or credit unions for cross collateralization and move your personal loan accounts to an institution different from your automobile account so that you will not face this issue.

70. There will be people who will refuse to do business with a bankrupt debtor / debtor having a discharge. There are other people who believe that someone who has just had a discharge makes for a good credit risk because they cannot have their debts discharged again for some time.

71. Debtors should also understand that having TOO MUCH TAX WITHHOLDING and which RESULTS IN A TAX REFUND of more than $5 or $10 is foolish for the following reasons:
(a) bankruptcy trustee may be entitled to take the refunds either prorated in a chapter 7 or as they yearly occur in a chapter 13 throughout the plan;
(b) a withholding level greater than needed to meet the tax in any given year is a form of at-risk savings account where the government account holder bank pays no interest or other benefit to the taxpayer and
(c) the tax withholding money withheld that is above and beyond that necessary to pay the taxes each year is at-risk to be taken by other entities (IRS, BOE, FTB, EDD & many other federal agencies) that can levy on the withheld money.

72. The general rule of 541(a)(5) imposing a 180-day limit outside of which excludes property from the bankrupt estate does not apply to chapter 13 cases where the inheritance occurs before the chapter 13 case is closed, dismissed or converted. This is the holding of Dale v. Maney (In re Dale) (9th Cir BAP 2014)( AZ 13 1251 DpaKu) and debtor verifies that debtor understands that any actual inheritance during a chapter 13 case becomes property of the bankrupt estate and will be subject to being used to pay creditors .

73. Debtor should have no foreign bank accounts for which an annual FBAR (Federal Bank Account Regulations) report is required. If debtor has such a foreign bank account, Debtor should warrant that debtor has filed the appropriate FBAR reports form 114 annually for the past 7 years by June 30 of each year for bank accounts in the prior tax years. Debtor should understand that if debtor has an FBAR problem, that the filing of a bankruptcy petition will likely trigger a federal criminal investigation, and that debtor should consult a tax attorney about the risks of making catch-up FBAR filings and perhaps make a better informed decision about whether or not to file bankruptcy. This should be done well in advance of the time when the decision to file bankruptcy is made. Since FBAR borders so heavily on the criminal side of problems, the debtor should get advice from a tax attorney that will not file the debtor's bankruptcy petition.

74. Debtor should have no signatory authority over any bank account other than the ones that the debtor ACTIVELY MAINTAINS for debtor's own accounts. Thus, debtor has no signatory authority over bank accounts which are not the property of debtor. Examples of signatory authority for accounts of others includes, but is not limited to:
(1) debtor signatory authority, alone or with others, over a decedent's estate;
(2) debtor signatory authority, alone or with others, over a trust;
(3) debtor signatory authority, alone or with others, over a retirement plan account;
(4) debtor signatory authority, alone or with others, over a club or charity organization;
(5) many other different examples.

75. Debtor should not believe that any space on the bankruptcy petition that is left blank or not addressed should be thought of as an "option not to answer". It may be of help to debtor to complete every blank with some true indication and perhaps completed blanks as "Not applicable etc," and marked N/A or similar.

76. Debtor should understand that the sanctions that the bankruptcy court can impose for misbehavior and lack of cooperation (which lack of cooperation may include an improper
assertion of attorney-client privilege, 4th & 5th amendment privileges, another bases for noncooperation). Sanctions may include and are not limited to:
(a) Monetary Fines;
(b) Dismissal of the Bankruptcy case in chief;
(c) Directed verdicts in any adversary proceedings;
(d) Civil and Criminal Contempt of court;
(e) Denial of Discharge; and
(f) Refusal to dismiss the case, or close the case, or refusal to reopen a closed case.

77. Debtor should understand that for the most part, the filing of a bankruptcy petition is, in effect, a waiver of the right against self-incrimination. 4th & 5th amendment privileges will likely belong to the Bankruptcy Estate, and the Bankruptcy Estate is controlled by the Bankruptcy Trustee. Further, the need to make substantial disclosures (voluntarily or as ordered by the court) in bankruptcy regarding the debtor's affairs, assets and liabilities WILL conflict with constitutional rights against self-incrimination. The attorney has no standing to raise the Fifth Amendment privilege on the client's behalf. [Fisher v. United States (1976) 425 US 391, 398, 96 S.Ct. 1569, 1574-1575; see In re Hunt(BC ND TX 1992) 153 BR 445, 452; The Fifth Amendment's prohibition against testimonial compulsion from the client; does not apply in a Bankruptcy case, and the attorney in a Bankruptcy case can be made to testify against a Debtor.

78. It is Debtor's responsibility to fully communicate the fact of the bankruptcy filing to everyone from whom the Debtor desires to respect and comply with the bankruptcy automatic stay. Debtor should further understand that an isolated, inadvertent or accidental violation of the automatic stay will likely not meet success in action before the bankruptcy court, and may not be worth the time and effort for a single violation where there is no real damages. Debtor should also understand that actions in violation of the automatic stay which are deliberate, violations which occur on more than one occasion, and that create more than de minimis discomfort for the debtor are the types of violations for which the court may likely award attorney fees for bringing and prosecuting a stay violation action. This means that monies paid to attorney by debtor to prosecute a violation of the automatic stay are at risk of not being awarded to Debtor unless the bankruptcy court so rules. Further, the court is likely to rule that a single, harmless violation of the stay will not be compensated.

79. The filing of a bankruptcy petition, as well as prior filings of bankruptcy petitions can drastically effect statutes of limitation regarding other rights of debtor, such as a subsequent bankruptcy filing, as well as the tax collection statute, and others.

80. The filing of various tax actions, including appeals, due process hearing requests, tax court petitions, appeals from tax court, appeals from circuit court, and more, can affect the ability to discharge taxes in bankruptcy.

81. Debtor should realize that the if the Internal Revenue Service has filed a Substitute For Return (SFR) in any year in which the Debtor was late filing a tax return, then taxes imposed to the extent of the magnitude of such SFR filing and assessment will be nondischargeable for such year(s). It is understood that this is extremely damaging since most SFR filings do not include a deduction / cost of income production component and thus artificially raise the magnitude under which monetary amounts may not be discharged. Debtor should also understand that due to record keeping errors and the possibility of such errors an SFR filing may not show up on the account transcripts and the only way to maximize knowledge regarding an SFR is to do a Freedom of Information Act request which may require weeks to get a response.

82. Credit Score. Credit score is controlled and assigned to debtors by a third party company. It is generally understood that: (1) Bankruptcy will damage, lower, and denigrate your "score", (2) once the score is damaged, lowered, and denigrated it tends to rise slowly over time but there is no guarantee that you will be able to have an effect on it because it is controlled by companies and forces beyond the debtors control and beyond the bankruptcy attorney's control, (3) debtors are often preyed upon by companies offering "fix your credit" cards that may charge greater than 50% of the credit they are extending.

83. "assisted person"' means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $186,825 (as of November 2, 2014) and that the magnitude of this amount will increase with inflation.

84. Debt forgiven in bankruptcy creates a duty to reduce tax basis in assets that remain with the Debtor (if there are any), and is most applicable to real property assets. This is the tax authority's way of triggering a corresponding tax increase later on when the property is sold or given away (but a stepped-up basis on death rules can still apply to potentially cause the reduction in basis to
have no effect).

85. Conversion (or attempted conversion) of a case from a case under one chapter to another can be blocked under some circumstances. If conversion is possible, it generally does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.

86. Debtors should list ALL CLAIMS (and potential claims) and all prior debts(and potential prior debts) in their bankruptcy regardless of the age of the debt, whether the debt is to a close friend or family, or how old the debt is. A claim is a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. In other words, any obligation that you owe to anyone, whether you know how much money it involves or not, should cause you to list that person, entity, company, in the bankruptcy petition and schedules, as having a claim.

87. Further, although debtors may consider it to be a "bother" to rack your brain and look years into the past for old debt, loans, and any and ALL dealings with clients and customers, it would seem that if you were going to go through the painful bankruptcy process that you should let it work to cleanse all past and potential past dischargeable debts. In other cases there have been unknown debts that were discovered later, which would have been part of the debtor's discharge where the debt was listed on the schedules, and in the bankruptcy. In one example, a contractor had performed work on many construction jobs over many years. The contractor did not list all of his past clients on the basis that there could have been "unknown" defects in his work. A few years after the contractor's bankruptcy and final discharge, one of his former clients discovered a defect in a construction job and filed a lawsuit against the contractor for hundreds of thousands of dollars. The simple expedient of listing former clients on the basis of potential undiscovered defects would have barred this former client from bringing a lawsuit.

88. EXAMPLES OF PAST IMPORTANT CLAIMS: Even if you are not a contractor, what if you are an insurance agent? Did you list your former insureds? What if you are a real estate broker? Did you list your former represented buyers and sellers? What if you are a plumber?  Did you list the homeowners and commercial companies with whom you did business? What about former girlfriends and boyfriends? Former neighbors for whom you house-sat or kids you used to baby-sit; banks where you used to work; clubs in which you were a member or officer.  If you are going to file bankruptcy anyway, you need to think of it as an insurance policy where you are insured not based upon a class of actions, but based upon a class of potential litigants.  DIG DEEP to think about everyone in your entire lifetime with whom you have had ANY dealings that might be actionable. It would be nice to check one single box and have it cover everyone in your life, but it doesn't work that way; it requires everyone to have their one chance to object by learning about the bankruptcy case. If they take no action after notification, they will usually be barred from bringing a later action after you receive a discharge.

89. In regard to the debtor's need to dig deep and list all potential claims, it is understood that tax and bankruptcy are unpleasant topics and painful processes. Debtor MUST overcome the psychological tendency to "dis" the debtor's involvement in the process. The better prepared the debtor is, the less likely will there be a surprise. When the debtor pays an attorney to help them and then fails to consider all possibilities, all former creditors and former POTENTIAL CREDITORS, the debtor fails to use the discharge to its full benefit. The debtor is paying for a whole bankruptcy; why would the debtor leave potential festering debts not subject to the discharge.

90. ``Consumer debt'' means debt incurred by an individual primarily for a personal, family, or household purpose, and that the means test is for debts which are more than 50% "consumer debt". Tax Debt is considered to be non-consumer debt. Thus, if >50% of your owings are due to tax debt, the means test may not apply.

91. An approved list of credit counseling agency providers for the Central District of California may be found at by selecting "California". Where it is reasonably likely that the debtor will file bankruptcy within 6 months, the debtor should take a credit counseling course and obtain the certificate and get that part of the process out of the way. Some of what might be learned in the debt counseling course may affect the debtor's decision to file bankruptcy.

92. Lien strip MUST have an appraisal prepared. Appraisals can range in cost from a few hundred dollars to over ten thousand dollars. The high end appraisals compare the three approaches of (1) cost approach (the buyer will not pay more for a property than the buyer would pay to purchase an equivalent property, (2) sales comparison approach (comparison of a properties characteristics with characteristics of similar properties recently sold in similar transactions -- typically in the same area), and (3) income approach (financial valuation including cash flows -- typically beginning at the rental value with and without improvements). The chances of an appraisal being either rejected, held inferior to an opposing party's appraisal, or held to be insufficient will depend upon the extent to which all three approaches are fully explored.

93. Detailed information as to where the debtor resides and how long the debtor has resided at locations for the past several years is critical to:
(I) establishing whether debtor can file for bankruptcy in the Central District of California, or some other district, (in-district filing requires that the debtor has lived within the federal judicial
district for the majority of the 180 days just prior to filing the bankruptcy case), and
(II) the set of property exemptions available to debtor. California exemptions are typically available if:
(a) Debtor has resided in California continuously for the past 730 days before the projected petition date, or,
(b) if (a) cannot be established then the debtor must have has resided in California for the majority of the 180 days just prior to such past 730 day period in which the debtor was not continuously a California resident.

94. Waiver of debtor's filing fee is possible where (1) Debtor has income of less than 150% of the currently established federal poverty level & (2) the debtor is unable to pay by installment agreement. (In 2014, the Annual Net Income for a debtor of given household size in any of the contiguous 48 states is/was:
Family of 1 $17,505
Family of 2 $23,595
Family of 3 $29,685
Family of 4 $35,775
Family of 5 $41,865
Family of 6 $47,955
Family of 7 $54,045
Family of 8 $60,135 (Add $6090 for each additional family member)

95. There is a "Next Friend" procedure for minor or incompetent debtors that requires the designated "next friend" to meet with bankruptcy counsel, sign retainer agreement (preferably both the bankrupt and next friend) and petition documents and to also attend the 341(a) meetings. FRBP 1004.1.

96. If the debtor is not incompetent, COURT APPROVAL is required even under a power of attorney.

97. A bankruptcy attorney may not sign the bankruptcy application for the debtor.

98. Partnerships can file a chapter 7, 11, or 12; a joint venture is a partnership. Dissolved partnerships are eligible. Partnership dissolution chapter 11's are not allowed. See: In re C-TC 9th Ave. Partnership (2nd Cir 1997)113 F3d 1304, 1307-1309; Rutter 5:63

99. FRAUDULENT TRANSFER is the transfer of debtor property in exchange for less than adequate value in compensation. Any transfer done with fraudulent intent has a possibility of being un-done under either state law or under bankruptcy statutes and rules.

100. It is understood that filing for a bankruptcy for an entity is likely to trigger investigations by the trustee into the share holders and a mandated search for fraudulent transfers, such that if the relationship between the entity and the owners is not 100% squeaky clean and above reproach, it could even reach a point where, depending upon the facts, it reaches criminal charges on the owners of the entity. This is why bankruptcy for entities is not favored.

101. Partnerships: It is understood that for a partnership bankruptcy, CA general partners must ALL join. However an individual bankrupt partner normally loses the right to participate in partnership management. A. Partner can file involuntary case against partnership. A filed bankruptcy is a dissolution bankruptcy unless surviving partners all agree upon another form.

102. The ipso facto clause can be triggered by state law or partnership provision or a contract.

103. In California a dissolved corporation can (a) still wind up; (b) still prosecute and defend actions; (c) still dispose of and convey property; (d) collect and divide assets 5:95 & Cal Corporations Code 2010; 17354a (file to liquidate only).

104. Bankruptcy filing is not possible for corps having FEDERAL RECEIVERSHIPS.

105. In California, an LLC is treated the same as a corporation for dissolution only. Do not confuse the "disregarded status for U.S. tax"purposes as disregarded for separate purpose as to bankruptcy. In California, an LLC is treated similarly as a corporation for dissolution only.

106. �108(a) extends the statute of limitations for offensive plaintiff actions against others WHICH HAVE NOT EXPIRED BY THE PETITION DATE, by the later of the expiration or two years after the bankruptcy petition filing date.

107. Bankruptcy court opinions must be appealed from within 10 calendar days of entry of decision, and it is debtor's responsibility to come to an arrangement with defense counsel to handle such appeal.

108. Statement of Intentions as to Property: When an individual debtor fails to file a timely statement of intention regarding collateral securing a creditor's claim and the trustee fails to seek a ruling that the collateral is of "consequential value" to the estate, the automatic stay terminates not only as to personal property scheduled as securing the creditor's claim, but as to all personal property securing the claim. Samson v. Western Capital Partners, LLC (In re Blixseth), 684 F.3d 865 (2012).

109. Causes of action relating to FCRA (Fair Credit Reporting Act) are beyond the scope of normal bankruptcy representation and I am not responsible for any aspect of erroneous credit reporting that your creditors make and am not responsible for responding to same. Beware "Repair your Credit" types of businesses.

110. However, note should be taken of a recent case: Crawford v. LVNV Funding, No. 12389, (11th Cir. July 10, 2014). Last month's 11th Circuit Court of Appeals decision that allowed a Fair Debt Collection Practices Act (FDCPA) claim to be made against a bankruptcy proof of claim filed on out-of-statute (stale) debt will get a rehearing if a petition filed by LVNV Funding, LLC is granted. At least one commentator believes that the substantive hearing of an FDCPA based cause of action might violate Stern v. Marshall.

111. The absolute need for a credit counseling certificate in some bankruptcy courts is considered to be a jurisdictional issue and you agree that your bankruptcy case will not be filed until supply a current credit counseling certificate dated within 6 months of the date of issuance of the bankruptcy filing.

112. DUAL REPRESENTATION of related debtors in bankruptcy is forbidden and that disinterested persons affiliated with a bankruptcy must have not had a relationship with the debtor for at least two years (11 USC sec. 101(14)(B)).

113. Debtors must list and include income from ANY SOURCE that is being used to pay your personal debts. This includes gifts, taking of property properly or improperly, loans and lines of credit and any source no matter how unrelated you consider it to be.

114. Property of the bankruptcy estate includes ALL property, even property subject to an exemption.

115. A good faith filing, or abusive filing may be determined independently of whether or not the means test shows a presumption of abuse or not.

116. Distribution of assets and priorities by which creditors are paid will not be controllable under bankruptcy procedure will likely not be done in accordance with the way in which Debtor would have liked to have controlled Debtor's distribution of payments. Debtor understands that where prior payments may have been made that do not comport with that bankruptcy distribution of assets and priorities by which creditors are paid, that a preference action may be brought by the trustee to "undo" the payment or asset transfer from Debtor to a creditor and subsequent re-distribution of the payment on Debtor's behalf to another creditor.

117. Plan confirmation may be denied if there is a variance between what is reported on the schedules versus the true state of Debtor's assets.

118. Use, sale or lease of property may be avoided or modified in bankruptcy, and that executory contracts (contracts in which there is discretionary action on both sides of the contract) and unexpired leases may be reaffirmed or rejected.

119. Lien avoidance, fraudulent transfers and preference actions may occur within the umbrella of a bankruptcy case filing, but are separate lawsuits having major cost. In some cases there may be a waiver of discharge as to some debts as a way to avoid the litigation and cost of defending some of these types of actions.

120. The automatic stay may be inadvertently violated and that actions to recover damages for violations of the automatic stay have a low chance of success where only one incident of inadvertency occurs; but that these actions have a much higher chance of success where the same entity violates the stay multiple times. As a result, the debtor should agree to keep a log of the time, date, & persons involved and details of ALL stay violations in order to help assist in the evaluation of whether a stay violator, stay litigation and adequate protection.

121. The goal and purpose of the Bankruptcy Trustee is to distribute, according to bankruptcy priority, monies of the Debtor which are non-exempt and that the Bankruptcy Trustee has an incentive of a statutory commission which is earned when assets are distributed to creditors based upon proofs of claim. Debtor should also understand that the Bankruptcy Trustee will act through the appointment and fees of professional persons, and costs will be ultimately be charged against the chapter 7 estate.

122. A bankruptcy case may be removal to another court, remanded, and that the bankruptcy judge may practice abstention of certain matters (tax determinations under 505 for example) under Title 11 and 28 so that a full determination of all matters may not be available in one bankruptcy court. Debtor should also understand that in addition to abstention, discretion may be exercised by the bankruptcy judge so that orders may or may not be final, and thus appeals to District Court can be delayed, and that even where orders are final, appeals and appellate procedure beyond the District Court level may take years, assuming that Debtor has the resources, time and patience to pursue such appeals.

123. Debtors should understand and be warned against Bankruptcy Crimes, such as those governed by Title 18 U.S.C. Sections 151-155, 1961, 2516, 3057, 3284, and 6001, but has also been warned that federal prosecutions are likely to include other elements of federal criminal fraud, tax evasion, identity theft and much more, to possibly create a criminal mixture of charges that can be overwhelming and almost impossible to survive without conviction. Rule 2004 examinations and other forms of discovery are powerful tools employed by the Bankruptcy Trustee to discover fraud and criminal activity, which will be passed on to government prosecutors.

124. Debtor has been reminded about how tenuous dealings with the Bankruptcy Trustee can be, and that abandonment of assets from the bankruptcy estate is something that may be good if it occurs in the right way; but that pushing a Bankruptcy Trustee to abandon can cause the raising of issues and of drawing the spotlight upon the debtor (which is usually something to be avoided).

125. Debtors will have hopefully been advised regarding 108 and the non-barred causes of action that the Debtor holds at the time of filing of the Bankruptcy Petition, and that the time is extended to the later of (1) the end of such period occurring on or after the commencement of the (bankruptcy) case; or (2) Two Years after the order for relief (generally the commencement of the bankruptcy case). This can also be important in the need to list assets and causes of action in the bankruptcy petition and schedules.

126. One of the more powerful bankruptcy incentives regards the assumption and assignment of leases and the cap on lease damages that the bankruptcy code provides.

127. The accuracy of a complete listing of creditors can be helped by providing a credit report, but that (1) the identity of the creditors, & (2) the complete addresses of the creditors is the responsibility of the debtor. As stated earlier it is important for the Debtor to explore their own past in order to correctly identify ALL creditors. Both accuracy and depth of past history must be provided. An improper or incorrect address may result in the discharge not applying to a particular creditor.

128. Debtor is responsible check & verify the accuracy of the addresses of the list of creditors.  A credit report is a secondary, or backup source of information that may help the creditor REMEMBER whether or not: (1) debts are old, (2) may have changed hands, (3) creditors or debtors have moved, (4) the debt exists, & (5) may help with recollection of details.

129. Debtors need to get involved in re-configuring the entities present in Debtors' life, including the banks with whom Debtor deals, the car companies, credit card companies and much more. Shifting from the old and into the new should be done as completely as possible, as a new configuration may be easier to keep organized.

130. In addition to being a mechanism for un-doing transactions, debtors should be aware that Fraudulent Conveyance is criminally prohibited under California Penal Code 531 (Party to fraudulent conveyance, a misdemeanor) and under California Penal Code 155(Selling or concealing property by defendant or judgement creditor, a felony). Conspiracy to participate in a fraudulent conveyance is a crime, even if the transfer is not ultimately made (People v. Gilbert 1938; 26 CA2d 1, 5, 78, P2d 770, 773). Debtor understands that the defense of a crime would necessarily have to be handed by another attorney (where the debtor uses avails himself of a bankruptcy attorney) as the possibility of a charged conspiracy would create a conflict of interest.

131. Debtor may also be aware of the federal criminal statute violations associated with bankruptcy, as follows (with finds determined via 18 USC 3571) : General Bankruptcy-Related Criminal Penalties:
(A) Concealment of assets; false oath & claims, Bribery: fine up to $250,000, prison: 5 Years; [18 USC 152]: [D felony]
(B) Embezzlement against the bankruptcy estate: fine up to $250,000, prison: 5 Years; [18 USC 153]:[D felony]
(C) Knowing purchases from Estate, Refusing inspection of Accounts: fine up to $5,000, prison: None; Forfeiture of Office [18 USC 154]:[Infraction]
(D) Fee Fixing under Title 11 & Receiverships: fine up to $100,000, prison: 1 Year; [18 USC 155]: [A Misdemeanor]
(E) Knowing disregard of a Bankruptcy Law or Rule: fine up to $100,000, prison: 1 Year; [18 USC 156]:[A Misdemeanor]
(F) Bankruptcy Fraud: fine up to $250,000, prison: 5 Years; [18 USC 157]:[D felony]
(G) Perjury. fine up to $250,000, prison: 5 Years;[18 USC 1621]: [D felony]
(H) Conspiracy. fine up to $250,000, prison: 5 Years; [18 USC 371]:[D felony]
(I) Wire Fraud (Frauds & Swindles (C) and/or Affects a Financial Institution (D). Fine is $250,000(C) and/ or $1,000,000(B) and prison 20 years (C) and/or 30 years (B) [18 USC 1341]:[C and/or B felonies]
(J) Wire Fraud (Wire Frauds (C) and/or Affects a Financial Institution (D). Fine is $250,000(C) and/ or $1,000,000(B) and prison 20 years (C) and/or 30 years (B) [18 USC 1343]:[C and/or B felonies]
(K) Bank Fraud Fine is $1,000,000 and prison 30 years [18 USC 1344]:[B felony]

132. Debtors should be aware that where the Bankruptcy code is silent the parties' rights are governed by nonbankruptcy law (including applicable state law), and that any state law that constitutes an obstacle to the accomplishment of the full purposes and objectives of the Bankruptcy Code is preempted but only to the extent it is inconsistent with the essential goals and purposes of federal bankruptcy law. Otherwise, "federal law and state law, when not in conflict with each other will mutually coexist.

133. Debtor is responsible to have made more than reasonable inquiry into the accuracy of the petition and has studied it carefully before signing it.

134. Debtor should be aware that they should provide their attorneys a full and honest disclosure and that every portion of Debtor's disclosure is consistent with all other portions of the disclosure and with the truth. Debtor should also understand that any discovery by Attorney after the bankruptcy has been filed that the bankruptcy is being used to perpetrate a fraud will require Attorney to withdraw from any representation, and that such withdrawal will likely draw attention of the trustee and bankruptcy courts and put them on notice to investigate why such withdrawal occurred.

135. Debtor should also understand that there is no discretion in determining whether a debt is sufficiently significant to include in the bankruptcy schedules and assure that the schedules are complete and include even contingent debts accrued throughout debtor's life. Debtor should further understand that creditors or causes of actions of those who are dependent minors must also be listed. (Minor's name, address and relationship of an adult person pursuant to rule 1007(m)re 7004(b)(2)).

136. Debtor should also understand that the brevity of time spent in reviewing the petition and schedules will not excuse debtor's failure to comply with duties to check and verify each and every entry in the petition (including petition, schedules and statements) before debtor signs it.

137. Debtor should understand that debt reaffirmation is almost always harmful to debtor and that most attorneys strongly suggest that in every case reaffirmation is to be avoided. Many attorneys and advisors obtain an understanding with assisted debtors that the attorney advisors will not approve reaffirmation requests as a matter of course.

138. Tenant security deposits held by landlords are property of the debtor's bankruptcy estate after bankruptcy filing, but are subject to a landlord's possessory lien. Generally, a landlord security deposit is collateral to insure future payment, and the landlord is thus a secured creditor to the extent of the security deposit.

139. Debtor should understand that even a reaffirmation that has been approved by the bankruptcy judge can fail, that is, the papers can be signed and returned to the creditor according to bankruptcy procedure & rules, but that creditors have been known to ignore reaffirmations and to repossess the collateral anyway.

140. Debtors should understand the advantages of agreeing to research any and all claims made by creditors and to identify and filter debts for "legitimacy" and "staleness". (Stale debts are those that are so old that they are beyond the statute of limitations and should not actively pursued by creditors. Debtor understands that unless the debtor can identify old debts, typically older than 4 years in California as measured from the last time that a payment was made or when the debtor made a further promise to pay or other action, that these debts will likely be paid in an asset bankruptcy to the detriment of non-stale or properly presented claims.

141. The statute of limitations for SBA loans is typically 6 years and may be measured from the shorter of (1) the time of the last partial loan payment, or (2) verbal acknowledgment of the debt. This standard for staleness for SBA (and possibly other government loans) is very difficult to overcome.

142. A good rule for bankruptcy attorneys and debtors to adopt is that a debtor may use the Attorney's name once debtor becomes a client of attorney BUT ONLY if debtor agrees that attorney take no action related to such usage. Debtor is also warned that ascribing untruths or bluffing statements to third parties regarding the identity of your present (or former) attorney, what any attorney plans to do (or not do) on your behalf can be dangerous and/or fraudulent. Further, it can cause you to lose valuable rights if others rely upon an attorney action implied by the debtor.

143. Debtor may want to provide attorney with 50-100 pre-addressed and stamped envelopes at the minimum first class postage in order to save attorney time and to facilitate a higher level of communication from the attorney to the debtor.

144. Debtor preparation for the 341(a) early meeting of creditors is important and it can be advantageous for debtor agrees to drive together with the bankruptcy attorney to the 341(a) meeting in order to: (1) make certain that both the debtor and attorney show up for the 341(a) meeting without fail; & (2) enable the attorney to go-over last minute concerns with the debtor in a more efficient manner.

145. Please note the required notice under Title 11 U.S.C. 528 whenever the word "Bankruptcy" appears: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code". [whenever I am actually hired to do this])*** Both Title 26 and Title 11 have various forms of relief.  If you have not done so already, read the statutes in the Disclaimer.


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