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Individuals considering bankruptcy are often concerned about losing their retirement savings accounts. In most situations, unless you voluntarily choose to use the funds to satisfy debt obligations, filing for bankruptcy will not have an effect on your individual retirement savings. In a Chapter 13 bankruptcy, a debtor's assets are reorganized instead of liquidated and the bankruptcy plan is funded by the debtor's wages. During a Chapter 7 bankruptcy, retirement accounts are normally exempt or not considered part of the bankruptcy estate.

11 U.S.C. 522(d)12, passed in 2005, allows up to $1,095,000 in retirement funds exempted from taxation to be retained by each spouse when a debtor files for bankruptcy. This means retirement accounts established under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code cannot be liquidated through bankruptcy without your consent. Additionally, 11 U.S.C. 522(d)10(E) protects retirement payments used to support a debtor or the debtor's dependents from being considered by a bankruptcy court. Certain retirement plans governed by Title 1 of the ERISA statute and state regulated health insurance plans are also exempt from consideration by a bankruptcy court.

If a debtor cannot exercise dominion and control over a retirement account, it will be removed from the bankruptcy estate. This means if the person filing for bankruptcy cannot access the account except at specific life events such as retirement, termination, or death, it will not be considered by a bankruptcy court. On the other hand, if the debtor has total control over a self-funded account that is not subject to one of the federal exemptions discussed above, the account will usually be considered a part of the bankruptcy estate. It is important to note that states such as California provide additional protections for an individual's retirement account which extend beyond those established by Congress.

Generally, an individual's retirement fund will be protected in almost every individual bankruptcy proceeding. If your employer files for bankruptcy, however, your retirement account might be at risk of terminating. How an employee's retirement fund is affected will depend on the type of bankruptcy a company chooses to file. If an employer files for Chapter 11 reorganization, retirement plans may continue to exist throughout the process. If instead a business files for Chapter 7 liquidation, both retirement and health plans will generally end immediately.

Even when an employer liquidates its assets and ceases to exist, a worker's pension benefits will generally be protected from business creditors. The ERISA statute requires that all retirement funds promised by an employer be held in a trust account separate from the company's business assets. Additionally, if an employer's retirement or pension plan is terminated, an employee is immediately 100 percent vested in the plan. Some defined benefit plans are also insured by the United States government through the Pension Benefit Guaranty Corporation. A skilled California bankruptcy lawyer can further explain the protections that apply to retirement accounts during bankruptcy proceedings.

Continue reading "Retirement Accounts Are Generally Protected During Bankruptcy" »

An effective employee manual is an essential tool for any business or corporation that employs workers. It is a valuable way for businesses to communicate a company's expectations to its employees. A well written employee manual will outline company procedures, policies, and expectations. A poorly written manual can create both legal and personnel headaches for your business.

The following policies are important for any employer to consider when writing or revising an employee manual:

• Each employee manual should include a disclaimer which states that the publication is not an employment contract. This can protect a business from terminated workers filing breach of contract claims against the business.

• An employee manual should successfully communicate company objectives and the organization's mission statement. By doing so, the manual can foster each employee's understanding of business goals and provide them with an enhanced sense of purpose.

• An effective employee manual will state your business has a zero tolerance policy for any kind of discrimination or harassment. The manual should also explain how to identify and report harassment. A company's employee manual should also specifically prohibit discrimination based upon sexual orientation.

• Employee leave and termination policies should always be addressed in an employee manual. Any leave eligibility differences or restrictions based on job functions or employee status should also be addressed. A well written manual will also remind employees that any discrimination based on disability will not be tolerated, and also discuss the Family Medical Leave Act.

• An employee handbook should define worker misconduct and discuss the company's disciplinary process. A disciplinary policy should be flexible and include a disclaimer which states misconduct is not limited to behaviors specifically outlined in the manual.

• A well written employee manual will describe the process for raising workplace issues and filing a formal complaint or grievance. This is important because it shows workers the company will take employee concerns seriously.

• Because no one should feel threatened at work, each employee manual should provide workers with guidance regarding how to address and respond to workplace violence and other conflicts. An employee handbook should also include a zero tolerance policy for workplace bullying.

• Finally, as the use of social media such like Facebook and Twitter becomes more common, it is essential for businesses to address employee use or misuse of social networking websites. An employee handbook should discuss what sort of workplace-related communications are inappropriate and remind workers that disseminating confidential or proprietary information is prohibited. A social media policy should also address disparaging or harassing the company or fellow employees.

Continue reading "Employee Manual Guidance for California Businesses" »

A new California law provides companies with the option to legally organize as a benefit corporation. The benefit corporation law, which took effect on January 1st, 2012, allows companies to utilize a new organizational structure which goes beyond that of traditional corporate and nonprofit formations. The new corporate category allows a company to place environmental or social policies within the corporate charter. It also expands the fiduciary duties of board members and company executives beyond the traditional role of creating a profit for shareholders. In effect, the law limits a shareholder's ability to sue based on social and environmental policies which may impact the value of his or her stock.

Since the law took effect, more than a dozen companies like Patagonia have already filed the necessary paperwork to become a benefit corporation. In California, the board of directors and executives of a corporation generally have a fiduciary duty to place the interests of shareholders above any other company interests and policies. As a benefit corporation, a company may take into account the interests of its employees and community in addition to profitability.

In order to convert the corporate structure of a company to a benefit corporation, two-thirds of shareholders must approve the change. Returning to a traditional corporate structure requires similar shareholder approval. California is the seventh state in the nation to provide a benefit corporation option to companies.

A corporation is a business entity that is afforded many of the same legal rights as an individual. A corporation may be made up of a single individual or a group of people. Although a variety of corporate structures exist in the United States, the three most common include closely held corporations, C corporations, and S corporations. Each corporation is subject to the laws of the state in which it was incorporated regardless of where its business takes place. If a company chooses to issue stock, it will generally be governed by its shareholders either directly or through a board. In a traditional corporation, a board of directors has a duty to govern the company in a way that serves the best interest of its shareholders.

One of the chief benefits of incorporating a business is it can limit an individual's liability to corporate assets. This is especially important for those engaged in highly litigated fields and trades. Contact an experienced business lawyer today to learn more about the benefits of incorporating your business.

Continue reading "New California Law Allows Benefit Corporation Status" »

According to an analysis recently performed by Professor Ronald Mann of Columbia Law School for the National Bankruptcy Research Center, the number of Americans who filed for bankruptcy protection fell by about 12 percent last year. Approximately 1.35 million people in the U.S. filed for bankruptcy in 2011. In 2010, that number was 1.5 million, or one out of every 150 people. Additionally, Chapter 7 filings declined by 17 percent and Chapter 13 filings were down 25 percent. The decline was the first drop in the number of U.S. bankruptcy filings since 2006.

However, California did not fare as well as the rest of the nation. One in every 120 Californians filed for bankruptcy protection in 2011. California had the fifth-highest statewide bankruptcy rate in the nation. The state with the highest bankruptcy rate was Nevada. Even after a 20 percent decline in filings from 2010, one in 88 Nevada residents filed for bankruptcy protection in 2011. Two California counties, San Bernardino and Riverside, were among the top five urban counties for highest bankruptcy rates nationwide. The remaining three counties are home to the cities of Memphis, Tennessee, Atlanta, Georgia, and Las Vegas, Nevada.

Unlike 2010 when regional variations existed, the decreases in bankruptcy filing rates in 2011 were spread out across the nation as a whole. Only the State of Delaware experienced an increase in personal bankruptcy filings last year. Professor Mann was careful to warn against reading too much into the 2011 bankruptcy rate decline. Because bankruptcy filing rates increased during the last two months of 2011, he believes bankruptcy filings may again be on the rise in 2012.

An individual, or debtor, who seeks to regain control of their finances through bankruptcy will generally file for Chapter 7 or Chapter 13 protection. In a Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated at the direction of a bankruptcy court in order to satisfy creditor claims. Any remaining claims are then discharged and the debtor is no longer personally liable for the debt. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires a bankruptcy court to determine whether an individual consumer debtor qualifies for relief under Chapter 7. If the debtor's income is too high, he or she may not be eligible for Chapter 7 relief.

A Chapter 13 bankruptcy focuses on reorganization and is designed for an individual debtor who has a regular source of income. A debtor must make regular payments according to a bankruptcy plan and is protected from garnishments, lawsuits, and other creditor actions. After the plan is completed, any remaining debts are discharged. This type of bankruptcy is more common among homeowners. The bankruptcy process is complex. If you are struggling financially, it is a good idea to contact an experienced bankruptcy attorney to discuss your options.

Continue reading "Personal Bankruptcy Filings Fell Nationwide, Still High in California" »

When a husband and wife face a relatively simple divorce (e.g., no children and little assets or liabilities) they can agree to be financially liable for debts that each person incurred (i.e., the legal terms for obtained) on his/her own. So, neither person is jointly liable for any of the other person's debt. For example, if the husband stops payments on his credit card bill, the credit card company may not seek payments from his former wife since she was not on her former husband's account. In this situation, if either of the formerly-married persons made the decision to file for bankruptcy, the divorce does not have an impact on bankruptcy procedure. If either or both of them qualified for chapter 7, they could do so and not be concerned about their prior divorce.

Another situation that may come up in divorce and bankruptcy situation is when the couple have joint debts (i.e., they are both financially liable for a specific debt). For example, they are joint account holders of credit cards, or under the Family Purpose Doctrine, they are jointly responsible for a debt. In some states, this type of scenario may come up when a former spouse incurs medical fees during marriage, which is generally treated as a joint or shared debt. So, her husband is legally responsible for those debts as well if the wife goes through medical procedures and cannot make payments.

Generally, it is not abnormal for a divorcing couple to find out they are financially liable for a debt and they are mandated to hold each other harmless from liability on that debt. In such circumstances, the court does not change the rights of the creditor. Stated otherwise, if both husband and wife are liable for a debt (i.e., it is a joint debt) and the court enters an order making only one of them responsible for that debt and to "hold harmless" the other former spouse, the following situation may occur:

If the husband fails to make payment to the creditor, the creditor has the legal right to contact the husband's former wife for payment. The creditor can also file a lawsuit against the wife in order to collect the debt. The wife may have no remedy or recourse against the creditor; however, she does have recourse against her former husband. Stated otherwise, she can request the judge to hold the former husband in contempt, due to his failure to follow the court's order to hold her harmless regarding the specific debt.

The option of which type of bankruptcy to file is fairly important in this situation. Please note that chapter 7 bankruptcy does not discharge or wipe out debts that are incurred in the course of a divorce or separation agreement. In other words, if the former husband files for bankruptcy relief under chapter 7, any debts that he was responsible for in his divorce will not be discharged. But under chapter 13, a person who owes a large amount of debt that he/she was responsible for in their divorce, can deal with such debts through a repayment plan.

In this scenario, if the former husband files bankruptcy under chapter 13 and lists his former wife as a creditor and co-debtor, and if he complies with his confirmed repayment plan, then at the conclusion of the repayment plan he will not be responsible for "divorce debt." Also, the court which was administering the divorce should not find the former husband in contempt, as long as the specific debt constitutes property settlement and is not child support or alimony.

This situation may apply to either of the spouses, i.e., the former husband or wife. If either person is liable for the debts of the other, stemming from their divorce settlement, a chapter 13 bankruptcy allows them to discharge that debt. However, a chapter 7 bankruptcy does not, and it permits the court to hold the non-paying spouse in contempt.

Please remember that debts regarding a domestic support obligation, such as child support or alimony, will not be discharged in chapter 7 or chapter 13. These types of debts can be repaid via chapter 13 bankruptcy. For more information on this topic, please contact Salar Atrizadeh, Esq. or visit the law firm's website at www.atrizadeh.com.

Last year, the California State Legislature made various efforts to regulate commercial transactions on the Internet. These efforts provide interesting questions and concerns regarding practical and constitutional limits on a state's capability to legislate or regulate transactions on the world-wide-web (i.e., the Internet) due to its intrinsic interstate character.

One important consideration is the Dormant Commerce Clause, which stems from Article I, section 8, clause 3 of the federal Constitution. This doctrine implies that Congress only has the power to regulate interstate commerce and that the states do not have such power. Its application to the regulation of activities on the Internet is not quite developed and includes a series of judicially-created analyses. So far, the United States Supreme Court (which is the nation's highest court) has not issued any definitive rulings. In addition, we do not have authoritative decisions by federal courts regarding the capability of the states to control online privacy and data security, tax online sales, or regulate online gambling.

As mentioned in this article, the legislators in this state passed or proposed laws that would develop our state's regulatory power over transactions on the Internet which relate to the following topics: (i) privacy and data security; (ii) taxation of retail sales over the Internet; and (ii) online gambling.

California's legislation (i.e., enactment of laws) may be different from federal legislation efforts which could cause the United States Supreme Court to repeal or strike down the law. SB 761, which is "Do Not Track" bill, posits that legislation would violate the Dormant Commerce Clause since it would cause regulation of an out-of-state activity and would subject online businesses to inconsistent state regulation. As such, a state's efforts to tax online retail activity are limited by current federal laws (e.g., court decisions and/or statutes) preventing the states from taxing sales of businesses which do not have a geographic presence in the specific state. A state's power to control or regulate online gambling is still uncertain, especially because of the absence of clear federal law on the subject. Thus far, one state supreme court has upheld a state's right to ban online gambling over a Dormant Commerce Clause challenge.

The future of state regulation of Internet activity depends on various developments. For example, it depends on the standard of scrutiny which courts apply to state regulation of the Internet. Second, it depends on the arrival of new technology which can help website operators to distinguish users from different states. Third, it depends on the viewpoint of Congress towards online transactions and whether it is willing to subject activities exclusively to federal regulation or to grant states the power to regulate these type of activities.

The following is a list of new and pending legislation in California:

I. Privacy and Data Security

1. S.B. 24 (Data Security Breach Notice)
2. S.B. 445 (Library Records
3. S.B. 602 (Reader Privacy )
4. S.B. 761
a. Do Not Track
b. Un-passed

II. Taxation -- A.B. 28 ("Amazon" tax)

III. Gambling

1. S.J.R. 14 (opt out of federal regulation)
2. S.B. 40 & 45
a. State framework
b. Did not pass