Arizona Bankruptcy Lawyer Blog

Debts owed to payday lenders can be wiped away in bankruptcy.

The real issue is not the fact that they are. It is that once the consumer reaches a point that a very high interest payday loan is necessary, there is usually a serious income and budget problem. A problem that if it hasn't already done so, will lead to other debt, repossessed car(s) and even foreclosure.

If you feel like a payday loan may become necessary, do everything you can to avoid it. Payday loans and credit cards, for that matter, should only be used in emergency situations.

If it is too late and you are in over your head, talk to an experienced bankruptcy attorney.

Congress continues to ponder a change to the bankruptcy code that would allow bankruptcy Judges to treat mortgages the way that car loans (older than 2.5 years) are currently treated in a chapter 13 bankruptcy.

If you have read some other entries on this blog, you understand that in Chapter 13, a plan is proposed that allows you to make a payment toward your unsecured debt that you theoretically can afford on a monthly basis.

The remainder of the debt is then discharged or wiped away. Many chapter 13 filers end up paying a small fraction of the overall unsecured debt as a result.

In that same chapter 13 proposal, 2.5. year old automobile secured claims are "stripped down" or "bifurcated" into two debts, one secured, one unsecured. The secured loan is crammed down to the value of the collateral, and the rest is transformed into an unsecured debt and treated as stated above.

First Mortgages are not treated this way. Second mortgages if wholly unsecured may stripped away and treated as an unsecured debt.

Now, if a home is worth $250,000.00 and the first mortgage amount is $350,000.00, the bankruptcy filer must continue to service the full $350,000.00 mortgage in installments just as they were prior to the bankruptcy in order to keep the property.

The change to the bankruptcy code that Congress is considering. would possibly treat this first mortgage somewhat like the 2.5 year old car loan.

Of course nothing is as simple as it seems.

It is likely that the change will contain roadblocks that will prevent many chapter 13 bankruptcy filers with upside down homes, to take advantage of it.

The bill may have unintended consequences as well. It could cause the cost of mortgage loans to rise for everyone else. This is an ongoing and interesting debate.

A fairly recent article about the amendment can be found here.

For Arizonans, who are upside down in their primary residence and who are also otherwise bankruptcy candidates, you can't do it now, but you may be able to in the near future. Keep an eye on the legislation.

If you are in Arizona and want to speak to me about your debt situation, please call 480 507 5985, and I will talk to you for free over the phone.

According to an Article posted February 3, 2009 at Bloomberg.com, personal bankruptcy filings climbed by 34% in January of 2009.

The American Bankruptcy Institute expects 1.4 million consumer bankruptcies to be filed this year up from 1.06 million in 2008.

Considering the numbers, Arizona Bankruptcy filings will likely grow close to the number of filings in 2005. Those considering bankruptcy right now in Arizona are not alone.

If you are considering bankruptcy, be aware that bankruptcy is not typically a simple process. The law, when considered in relation to an individual's set of facts, can create a myriad of pitfalls and options.

It is only with the help of an experienced bankruptcy attorney that these potential issues can be spotted and fully discussed.

If you are considering bankruptcy, I encourage you to read the articles in this blog, and then call to speak Michael S. Anderson at 480-507-5985 for free over the phone about your situation.

Chapter 13 Bankruptcy can be a useful legal tool for those in serious financial trouble. It allows the filer to do a number of things that he or she can't do in a chapter 7 bankruptcy. A number of it's potential benefits are listed elsewhere in the blog.

Despite all the good things you can find about chapter 13 bankruptcy, it does have it's shortcomings.

An important one?...it doesn't "discharge" or wipe away every type of debt.

All non-dischargeable debts are designated as such for public policy reasons, so if you have problem with one of them, call your congressional representative.

The following is the short list of the most common types, along with my comments, just for fun.

1. Unlisted Debt - Every debt needs to be disclosed in both a chapter 13 and chapter 7

2. Debts for death or personal injury caused during the driving of a car, "vessel", or aircraft, while intoxicated - Remember..."designated driver".

3. Debts for Spousal Maintenance or Child Support - Debts related to the property settlement agreement may be discharged in a chapter 13.

4. Certain Tax Debt - certain taxes are dischargeable. Surprise! Surprise!

5. Criminal Restitution or Fines Related to the Conviction of a Crime. This makes sense.

6. Student Loan Debt - Unless the Debtor qualifies for a "harship" exception...Good Luck.

7. Debts related to embezzlement or larceny - I don't have anything for this one.

8. Debt related to property damage as a result of "willful or malicious" conduct

9. Debts incurred during the plan that weren't included - It may be possible to pay a post filing debt through the plan.

10. Debts that are owed to a creditor who didn't get a notice of the Bankruptcy filing -

A chapter 13 trustee is the person that the United States Trustee (U.S. Department of Justice) appoints in each state/district to do the following:

1. Review the Chapter 13 Filer's proposed Chapter 13 Plan to ensure that it satisfies the requirements for a chapter 13 plan.

2. Collect payments from the Filer.

3. Distribute payment to the creditors as contained in a confirmed chapter 13 plan.

4. Administer the plan until the case is closed.

In Arizona, the Chapter 13 Trustee takes a very active role in making sure that the Filer is complying with the requirements of the Bankruptcy Code. This makes the requirement that the Filer cooperate with the Trustee in providing information even more important.

If you are in Arizona and have questions about Chapter 13 Bankruptcy and the role the Chapter 13 Trustee plays in the confirmation and success of a chapter 13 plan, contact Michael S. Anderson at 480-507-5985.

According to a recent USA today article, home foreclosures rose nationwide by 81% from 2007 and 225% from 2006.

Total repossessions were 850,000 up from 404,000 in 2007.

Arizona's numbers were among the leaders.

The question is whether proposed government fixes, including a proposed mortgage modification in bankruptcy bill, will stem the problem short term.

It appears that the market will have to reach a level that attracts buyers and money back into the system. This means more short term foreclosure activity.

For many it may be possible to modify the loan now, or use a chapter 13 to catch up the arrears and save the home from a foreclosure filing.