About: Kathleen Michon

Recent Posts by Kathleen Michon

Can the Bankruptcy Court Take Away Your Social Media Accounts?

all-sm-icons-onlyIf they are business accounts, then yes. A Texas bankruptcy court recently ruled that social media accounts (like Twitter and Facebook) used to promote a business are part of that business’s bankruptcy estate, and the bankruptcy court can order the owner to turn over the passwords. Personal social media accounts, on the other hand, are not part of a business’s bankruptcy estate, said the judge. Of course, determining whether a social media account is personal or instead belongs to a business is the ten thousand dollar question. Especially when a business is small and controlled by one or a few owners, that determination can be tricky.

In the Texas case, Jeremy Alcede , the founder and majority owner of Tactical Firearm, filed a Chapter 11 bankruptcy on behalf of his gun shop. As part of the reorganization, a new owner took control of the business. The court ordered Alcede to cede control of all property belonging to Tactical Firearm, including Alcede’s Twitter and Facebook account passwords. In a move that garnered even more attention, Alcede refused to turn over the passwords, opting instead to head off to federal jail.

Alcede argued that the social media accounts where personal, since he created the accounts and administered them. Over the years, the Twitter and Facebook pages, along with the billboard outside the store, became somewhat famous for Alcede’s rants against Obama and gun control advocates. The judge, however, pointed to other factors indicating that the accounts belonged to the business: Both accounts referred to Tactical Firearms and contained links to the business website, both accounts were used to promote Tactical Firearms and increase sales, the Facebook account was set up as a page (generally used by businesses) instead of a profile (generally used by individuals), and the Twitter account’s profile contained a description of Tactical Firearm.


Victory for Chapter 13 Bankruptcy Filers Who Convert to Chapter 7

VictoryIn a victory for bankruptcy filers, yesterday, the U.S. Supreme Court resolved a split among the Courts of Appeal in Harris v. Viegelahn, 575 U.S. __ (2015). The ruling affects people who file for Chapter 13 bankruptcy and then, before completing the Chapter 13 plan, convert the case to a Chapter 7 bankruptcy. The Supreme Court said that if the bankruptcy trustee has plan funds on the date of conversion that he or she has not yet distributed to creditors, the money belongs to the debtor.  (Learn more about converting a Chapter 13 case to a 7.)

The Facts in the Harris Case

Mr. Harris filed for Chapter 13 bankruptcy. The court confirmed his plan and he began making $530 payments to the trustee, Mr. Viegelahn.  Mr. Viegelahn distributed those payments as follows: A chunk to Chase Manhattan Bank (Mr. Harris’ mortgage servicer) to repay Mr. Harris’ mortgage arrears and the rest to Mr. Harris’ other creditors. (Learn how the Chapter 13 repayment plan works.)

Mr. Harris fell behind in his regular mortgage payments (which he made outside of his bankruptcy) and lost his home in foreclosure.  Mr. Harris continued to make his $530 monthly payments to the trustee. A year later, Mr. Harris converted his case to a Chapter 7 bankruptcy. At that time, Mr. Viegelahn had about $5,500 in undistributed funds – he had stopped paying Chase after the foreclosure, but hadn’t distributed that money to other creditors.

Ten days after Mr. Harris converted his case to Chapter 7, Mr. Viegelahn distributed the $5,000 to Mr. Harris’ creditors. Mr. Harris cried foul, and sued to get the $5,500 back.

The Split Among the Courts of Appeal

Prior to the Harris v. Viegelahn opinion, courts handled the above situation in one of two ways.

Debtor gets the money. Some courts ruled that when a debtor converts from Chapter 13 to 7, any funds that the trustee holds and has not yet distributed, belong to the debtor.

Trustee gets the money. Other courts (including the 5th Circuit where the Harris case arose) ruled that any funds the trustee holds belong to the trustee and the creditors. The trustee, therefore, can use the money to repay creditors and his or her own commission.

The U.S. Supreme Court’s Decision

The Supreme Court sided with the first group of courts, ruling that any undistributed funds on the date of conversion to Chapter 7 belong to the debtor. This is good news for Mr. Harris and other people who convert their Chapter 13 cases to Chapter 7.

In reaching its decision, the Court relied on the following:

The Chapter 7 bankruptcy estate does not include post-petition earnings. When a debtor converts a Chapter 13 bankruptcy case to a Chapter 7, the Chapter 7 bankruptcy estate (the money and property that now are under the control of the bankruptcy court) consists of the property and assets the debtor had as of the date of the original Chapter 13 filing. In Chapter 7, money earned or property acquired (with a few exceptions) after filing the bankruptcy, belong to the debtor.  (In contrast, in Chapter 13, money and property acquired during the plan period belong to the bankruptcy estate.)

The money that the trustee held consisted of Harris’ post-petition wages (money Harris  earned after filing the Chapter 13), which were not part of the Chapter 7 bankruptcy estate and therefore not subject to the control of the bankruptcy court.

The Chapter 13 trustee had no authority to distribute the funds. Once the Chapter 13 bankruptcy is over and the plan defunct, the bankruptcy trustee no longer has authority to distribute funds.

The trustee can take steps to prevent this from happening. The trustee and creditors can prevent this scenario from happening by seeking to have plan payments distributed on a regular basis. If the trustee had done this in the Harris case, he wouldn’t have had $5,000 in undistributed plan funds sitting around on the date of conversion.


Should I Vacate a Money Judgment, Settle the Judgment, or File for Bankruptcy?

Leon Bayer PhotoASK LEON 

Bankruptcy  expert  Leon Bayer answers  real-life questions.

Dear Leon, 

I have a credit card judgment against me for $20,000. I am trying to improve my credit and am wondering what to do. Should I try to vacate the judgment, settle with the judgment creditor, or file for Chapter 7 bankruptcy? 

Here are the facts. I did default on payments for the credit card that is the subject of the judgment.  However, I can prove that the judgment creditor did not properly serve me with the lawsuit. I also have lots of other old credit card debt, but the statute of limitations for suing has passed on those and they will fall off my credit report in a year. 

I spoke to Lawyer #1 who will charge me $2,000 to represent me in a motion to vacate the judgment based on the fact that I was never properly served with the lawsuit. He feels I have a good case for that to be granted.  

I spoke to the lawyer for the judgment creditor. The creditor will take $8,000 as a full settlement of the judgment. I have enough money to do that, but then the judgment (even though paid off) will remain on my credit record for many years to come. I’d like to avoid that. 

I spoke to Lawyer #2 who will charge me $2,000 to represent me in Chapter 7 bankruptcy. The bankruptcy will damage my credit, but save me $6,000. 

What’s the best course of action to improve my credit?  Vacate the judgment? Settle the judgment? File for Chapter 7 bankruptcy?  

Yours truly, 


Dear Alfred,

Your best course of action might be to settle the judgment for $8,000 and get the judgment creditor to agree to try to vacate the judgment as part of the settlement (perhaps by kicking in a little more money). If you just vacate the judgment, you’ll eventually be back in the same boat you are in now – owing a judgment. And if you file for bankruptcy, that will remain on your credit report for ten years.

Below are details on each of these options.

Vacating the Judgment

Winning a motion to vacate the judgment doesn’t mean you’ve won the underlying lawsuit. It just means that you now have an opportunity to answer the lawsuit and fight it in court. But if you owe the money that is the subject of the lawsuit, it’s reasonable to assume that you will eventually lose the case and have a judgment entered against you. On top of that, you’ll be out an additional $2,000 for the fees you paid your lawyer. For this reason, vacating the judgment is probably not a good strategy.

Settling the Judgment

I agree with your credit concerns about settling the judgment for $8,000. The judgment will stay on your credit report for ten years. Even if your credit report shows that you paid it, the damage is done. (Learn how long negative information will remain on your credit report.)

Filing for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is cheaper than settling, since you’ll pay just $2,000 to your lawyer rather than $8,000 to the judgment creditor. However, bankruptcy, like a judgment, will stay on your credit report for ten years.

How long ago was the judgment entered against you?  If it was entered some time ago, then it will fall off your report sooner than will a bankruptcy. (For example, if the judgment was entered five years ago, it’ll come off your report in five years. If you file for bankruptcy today, it’ll come off your report in ten years.)  If that’s the case, the bankruptcy will damage your credit for a longer period of time than will the judgment.

A Fourth Option: Get the Creditor to Vacate the Judgment as Part of the Settlement

Here’s another idea to try. Tell the plaintiff’s lawyer that you’ll settle the judgment for $8,000 but that as part of this settlement the creditor must:

  • make a good faith effort to vacate the judgment, and
  • if successful, dismiss the lawsuit.

If it all works out, the debt will be resolved and you won’t have a judgment on your credit report.

The creditor’s lawyer will be reluctant to agree, because this route will require extra work. So be ready to sweeten the deal and make it worth the lawyer’s time. Offer more money, say $1,000, to cover the creditor’s expenses incurred in making the motion to vacate the judgment and dismissing the lawsuit. If successful, the extra money you pay will be a drop in the bucket compared to the benefit you’ll get for your improved credit report.

Other Considerations When Settling a Debt

Here are a few other things to think about when settling the judgment.

Bon voyage on your quest for good credit!

– Leon

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

Find Leon on Google+

Jointly Owned Homes in Bankruptcy: What Happens?

housedividedA house divided against itself cannot stand.  

— Abraham Lincoln (assassinated 150 years ago yesterday)


Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon, 

My sister and I are joint owners of a home left to us by our parents. I live in the home and pay for the taxes and upkeep. There is no mortgage. My sister recently filed for Chapter 7 bankruptcy.  She and I are barely on speaking terms. 

Here’s the problem. I got a letter from the bankruptcy trustee telling me that if I want to keep the home, I have to buy my sister’s share of the home. If I don’t, the trustee will sell the house. The home is worth $200,000, and I don’t have $100,000 to fork over to the trustee. 

Can the trustee do this?  

Yours truly, 


Dear Jim,

Most likely the bankruptcy trustee will be able to sell your home if you can’t come up with the money. But once the home is sold, the trustee will turn over half of the proceeds to you.

(I am assuming that your parents did not create a legally binding directive permitting you to remain on the property. If they did, you should immediately get a lawyer to respond to the trustee.)

What Happens to Property in Bankruptcy

Your sister’s Chapter 7 bankruptcy filing automatically created a bankruptcy estate composed of all her assets. A bankruptcy trustee was appointed to administer the assets in her case. Like everyone filing for bankruptcy, she can keep certain property if it is “exempt.” However, homes in which you don’t live are usually not exempt. (Learn more about how Chapter 7 bankruptcy works and why the trustee sells property.)

If an item of property is not exempt, the trustee can sell it and use the proceeds to repay creditors. Even though your sister owns only half of the property, the equity in her half is a nice chunk of money that could go to her creditors.

When Can a Trustee Sell Co-Owned Property?

A trustee can sell a piece of property even if the debtor (your sister) doesn’t own the whole thing. But in order to do so, the trustee must meet the following criteria:

  • It’s not practical to divide up the property. A large tract of land might be subdivided to sell just the debtor’s share, but a single house and lot can’t be sawed in half to do that.
  • Selling the debtor’s undivided interest would bring in less money than selling the entire parcel. In your situation, it is unlikely that anyone else would buy your sister’s half of the property for what it is really worth, because the buyer would still have to deal with you.
  • The benefit to the bankruptcy estate from a sale of the entire property outweighs the detriment that will be faced by the other owners.
  • The property is not used for the production of energy.

In your situation, it’s extremely likely that the trustee will be able to sell the home. But keep in mind, once the trustee does so, he or she will have to give you half of the proceeds from the sale. So, if the sale nets $200,000, you will get $100,000 and the bankruptcy estate will get the other $100,000 (which will then be used to pay your sister’s creditors).

Coming Up With Money for the Home

If you have decent credit and you can afford to make payments on a $100,000 mortgage, consider getting a home loan and using the money to buy your sister’s share from the bankruptcy estate. In that way, you’ll become a 100% owner of the home.


Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer. 

Find Leon on Google+


Fed Agency Slaps Debt Collector Hired by Prosecutors

comic book noise cartoon symbolThe federal Consumer Financial Protection Bureau (CFPB) recently settled a lawsuit it filed against National Corrective Group (NCG), a debt collection agency that was working under contract for various district attorneys’ offices in California, Maryland, Colorado, Nevada, Illinois, Indiana, Iowa, and Pennsylvania.  The settlement put a stop to the abusive practices NCG was using against people in bad check writing diversion programs.

What??? Why Are District Attorney Offices Hiring Debt Collectors?

In many states, if you are charged with writing a bad check (bouncing a check) the prosecutor can refer you to a diversion program instead of pursuing prosecution.  If you comply with the terms of the program within a certain time period, you won’t be prosecuted. Most diversion programs require the defendant to repay the creditor, pay limited fees, and participate in an education class.

For example, under California law, the diversion program requires that the defendant:

  • repay the creditor
  • pay certain fees (which are limited in amount by law),
  • and participate in a check writing financial management class. Cal. Penal Code §§ 1001.60 to 1001.67.

The law allows prosecutorial offices to contract with private companies to run these diversion programs.

Enter NCG, a company that some state district attorney offices contracted with to run their diversion programs.

Lies, Threats, and Exorbitant Fees

You would think that law enforcement offices would want to do business with companies that follow the law. Unfortunately, that doesn’t seem to be the case.

According to the lawsuit that the CFPB filed, NCG:

  • pretended it was a law enforcement agency
  • threatened people with arrest and possible imprisonment if they didn’t participate in the diversion program, and
  • charged hundreds of dollars of excess fees.

Allegedly, NCG kicked back a small portion of the fees it collected to the district attorneys’ offices.

Letters Sent Using District Attorney Letterhead and Seal

The CFPB also alleged that the various district attorney offices allowed NCG to use their letterhead and sometimes their seal. The CFPB’s suit, however, did say that NCG sent out the letters without getting approval from the district attorney offices.

That’s both good and bad news: It’s good to know that the district attorneys didn’t authorize the threatening and deceptive letters. But why didn’t the offices have a better handle on what their contractors were doing?

The CFPB Slap

In the CFPB settlement, NCG agreed to not use district attorney letterhead or signatures, pretend to be a law enforcement agency, or use deception or threats in their letters. The CFPB will be watching (there’s a compliance piece to the settlement order) – so this is good news for people wanting to take advantage of the bad check writing diversion programs. (You can read the settlement order here.)

NCG will also pay a penalty of $50,000.  Needless to say, that’s not much of a financial disincentive.

 Civil Class Action in the Works

But NCG is not completely off the hook. According to the San Francisco Chronicle, in December 2014, a civil lawsuit was filed in San Francisco against the California arm of the company – CorrectiveSolutions.  The lawsuit seeks to recover millions of dollars that CorrectiveSolutions allegedly mischarged for fees. The plaintiffs’ attorneys are seeking class action status.

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