IS THERE A RIGHT TIMING TO FILE CHAPTER 7? 楊清泉律師事務所

What is timing? In life, as we all know, there’s such a thing called timing. Like the timing is right. Or, the timing is wrong. If the timing is right, then good consequences flow from the decision made. If the timing is wrong, then bad consequences flow from the decision made. Let’s say you just crossed the pedestrian lane and right after your foot lands on the sidewalk, a car comes speeding through and misses hitting you by a hairline. We would say that your timing is right because if you had just slowed down a bit, then your timing would have been wrong. Your timing is right because you safely crossed the pedestrian lane a split second before the car comes speeding through, so you’re perfectly well and healthy. If your timing were wrong, then you would have been hit by the speeding car and would probably be dead. Or, let’s say in Kobe’s case, his first year death anniversary just passed a couple of days ago, he waited until the fog cleared before getting on the helicopter, then his timing would have been right. But he got on the helicopter when the fog was thick, so his timing was wrong. Bad consequences when you got the timing wrong.

Or, you’re over 65 and waiting for the vaccine that they say you have priority for. Sure you have priority but can you actually get an appointment to get vaccinated? Try getting the appointment. I tried for two weeks. I couldn’t get one. Now we’re waiting for the pharmacies to have them. Maybe we’ll get them next month. But while we’re waiting to get vaccinated, we get infected. Then we have wrong timing. Good timing is to get the vaccine now so we don’t get infected, right? In the meantime, just mask up and keep isolated as much as possible. 

If you’re afraid of getting an adverse reaction like dying from the vaccine, I suggest you say 3 hail Marys and one Psalm 91 when you get vaccinated. That will give you divine protection from adverse reaction. 

Filing bankruptcy also has such a thing as good and bad timing. It’s not true that the faster you file your case the better. Sure in some cases a fast filing makes sense. For example, creditor has just obtained a judgment against you for $500K. You own a house with $10K of nonexempt equity. It would make sense to do a fast Chapter 7 filing to prevent the creditor from getting a judgment lien against your house. But not all cases are the same.

In a recent case, client who is married owes credit card debt of $10K. Her husband owes $80K of credit card debt. They were married in 2014. A year after they married, the bought a house using a down payment of $300K. Wife owned the $300K as her own money before they got married. However, when they bought the house, they purchased the house as community property. Just hold this thought here for a moment. The $300K down payment came from the wife as her own sole and exclusive property. So this means that they should have bought this house as wife’s sole and separate property since the entire down payment came from her sole and separate property. What is sole and separate property? This is money owned by the person as her or his own property before they married. Let’s say you already have a million dollars saved up before you married your spouse. That one million dollars remains your own money even after you get married, unless of course, you decide to gift some of that to your spouse during marriage. 

So what happened in this case was that wife had in effect gifted husband with a community property share on the $300K down payment and gifted him a community property interest in the house. I asked her why she did this. She said because of love and affection for her husband. Therefore, there is no question that she gifted husband with the community property in the house.

They decide to sell their community property house in December of 2017 and use the proceeds to buy another house. This time, the house is only in the name of wife, as her sole and separate property. In addition, husband does a quitclaim of his community property share to his wife. So, this is a good thing for wife because the second house is now her sole and separate property. 

Now the question is can the husband file a Chapter 7 to get rid of his $80K of credit cards? There are some threatened lawsuits. Lawyer letters demanding payment or else face a lawsuit for collection. 

Of course husband can file for Chapter 7, but can he file Chapter 7 right now? See, this is a timing problem. If the timing is wrong, then there will be bad consequences. Let’s say husband files his Chapter 7 today. Well, lots of bad things can happen to the house. Why? Because in Chapter 7, the trustee has the power to sell the house if he can legally access it. In this case, they bought the second house in late 2017, about 3 years ago. Even if this house is only in the name of the wife as her sole and separate property, and even if husband quit claims his share of the community property to her, this transfer of community property to wife only happened 3 years ago. Fraudulent transfers are subject to claw back within 4 years after the transfer date. This means the trustee can argue that the transfer by husband to wife in 2017 was fraudulent because he can still question it as a fraudulent transfer because 4 years have not yet passed. 

If husband waits another year to file his Chapter 7, then the trustee arguably would lose the right to question the fact that the house is the sole and separate property of wife because 4 years have lapsed since the transfer. 

Of course, even now on the third year, if husband decides to file his Chapter 7, he would still have a fighting chance against Chapter 7 trustee who tries to force the sale of the house by arguing that the same love and affection that caused his wife to give him a community property interest in the first house is his cause for giving back his community property interest to his wife in the purchase of the second house. How would the judge look at this argument? Who knows? But if husband waits another year to file his Chapter 7 case, then the odds are very good that most trustees and most judges would consider that a valid and legitimate transfer, after all, it’s been 4 years and the statute of limitations to question the transfer has lapsed.

If you have too much debt and need relief, please set an appointment to see me. I will analyze your case personally. 

DISCLAIMER: NONE OF THE FOREGOING IS CONSIDERED LEGAL ADVICE. EACH CASE IS DIFFERENT.

“ HE WILL KEEP YOU SAFE FROM ALL HIDDEN DANGERS AND FROM ALL DEADLY DISEASES…” PSALM 91.  Written by Moses a very long time ago.

Lawrence B. Yang is a graduate of Georgetown University with a Master’s Degree in Law and specializes in Bankruptcy, Business, Real Estate and Civil Litigation.  He speaks English, Mandarin and Fujian and has successfully represented thousands of clients in California, including companies overseas.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.