Chapter 7 Bankruptcy Cake Idiom

Bankruptcy Attorney Asaph Abrams on Protection of Property in Chapter 7 Bankruptcy
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Cakes aren’t just delicious; they often populate popular phrases.

Chattels sell like hot cakes and French royals suggest subbing cakes (brioche) for bread. In the bankruptcy context, we consider the idiom, to have one’s cake and eat it too. It’s a confusing proverb given that having something is synonymous with eating it.  A little history helps; in the sixteenth century,  the idiom read: Wolde you bothe eate your cake, and have your cake? The original verbiage better conveys that after one’s eaten cake, one can’t still have the cake (uneaten on a plate). In bankruptcy, this comes to play in assessing assets (any form of property or interest).

Chapter 7 Bankruptcy is “liquidation–” or so it’s technically dubbed in the Bankruptcy Code.  The Bankruptcy Code doesn’t lack for words, yet apparently space ran out in this case; the rather relevant modifier “possible” was cut.  Chapter 7 bankruptcy is possible liquidation.  In San Diego, it’s extremely rare that any property would be sold in chapter 7 bankruptcy.

California has numerous nifty statutes that exempt (exclude) a good amount of property from liquidation in chapter 7 bankruptcy.  Some 99% of our San Diego chapter 7 bankruptcy clients are covered; your bankruptcy attorney apprises the 1% of any issues in advance; e.g., they may need to turn over a tax refund, yet they’d still eliminate debt for scant cents on the buck (the rare chapter 7 bankruptcy case calling for payment or turnover is called an “asset case”). Bankruptcy means freedom from debt without losing one’s shirt. But reasonable limits apply: there are some expensive threads out there.

Occasionally, your bankruptcy attorney must quote the cake proverb to a potential bankruptcy client. When you stroll through the door to your bankruptcy attorney office, you’ll complete a friendly little bankruptcy questionnaire.  Therein, you’d list, for example, your home value and its mortgage payoff.  It’s happened that the payoff line was left blank.  Your bankruptcy lawyer assumed oversight, but sure enough, the home was paid off.  That’s bad news in bankruptcy.  How so?

Say, septuagenarian Sara seeks to file chapter 7 bankruptcy.  She has $50K in debt… and a $600K house owned free and clear. In her case, the house would be sold in chapter 7 bankruptcy; the debt would be paid in full and then some. The chapter 7 bankruptcy trustee who liquidates the property would collect a surcharge after she paid Sara’s creditors from the sale proceeds.  (Sara would at least receive the balance from the sale after costs.)

To avoid that, Sara might consider Chapter 13 Bankruptcy: an often viable alternative to chapter 7.  In chapter 13 bankruptcy, property’s not sold.  Instead, the debtor commits to a usually-low monthly-payment-plan.  One normally pays a fraction of one’s debt; the unpaid balance is forgiven.  Yet, the payment threshold in chapter 13 bankruptcy may be prohibitively high IF you would otherwise have suffered liquidation in chapter 7. In chapter 13 bankruptcy, you must pay at least the amount creditors would receive from sale proceeds in a hypothetical chapter 7.

Thus, Sara would have to pay more than $50K over the life of her chapter 13 bankruptcy plan (which can’t exceed 60 months).  If she can afford that (about $880/mo.), then good: we’ll do it!  If she clearly can’t afford it… then it may be an awfully brief bankruptcy consultation (though regardless, time’s taken to correctly steer Sara toward an alternative course).  But the not-to-be-client-Sara will have learned something and it cost her nothing.  It cost me something, but your bankruptcy lawyer benefits nonetheless; I get to mutter, wolde you bothe (which is very satisfying) and I get to blog about it. Also, it gets me thinking about cakes and cakes are delicious.

San Diego Bankruptcy Attorney, Asaph Abrams Offering free, no-obligation chapter 7 bankruptcy and chapter 13 bankruptcy consultations in San Diego. Visit us online or call 858-240-6751. E-mail to set an appointment. Also representing Imperial County residents.