Arizona Bankruptcy Lawyer Blog

I am not a bankruptcy advocate. I am a client advocate.

I don't sell bankruptcy as a commodity. Why?

1. There are other options that may better fit the client's situation.
2. The client may have personal reasons for choosing to deal with the debt before relying on bankruptcy.
3. The ethics rules I subscribe to and are required to practice by, demand that I put my client's interest first.
4. Bankruptcy is not always the best option from a financial standpoint. There are those situations where the client will lose more financially in bankruptcy than outside it.

Having said that, I must admit that most of those I meet with, come to the conclusion, after review of their own numbers and how the law works, that bankruptcy makes the most financial sense.

A recent cnn.com article describes a woman with serious credit card debt who has chosen to live on a budget and pay the debt off. No matter her circumstance (she may have more non exempt asset value then debt or simply doesn't qualify well for a bankruptcy from an income and budget standpoint) you have to give her some respect for trying.

If you have serious credit card debt, I am not suggesting that you simply disregard bankruptcy as an option.

I do suggest that you sit down with a sharp pencil and clean paper to look closely at your actual income and budget. If it appears that paying the debt back will be difficult, find an experienced bankruptcy attorney who will personally help you understand your options. Preferably, someone who doesn't "advocate" bankruptcy, just your best interests.

The Ninth Circuit Court of Appeals, has decided the issue of whether a reaffirmation agreement is necessary in bankruptcy in relation to personal property.

Prior to the 2005 changes to the bankruptcy code that resulted in what is now known as "bapcpa", a debtor could "retain and pay" or "ride through" on it's car loan as long as he stayed current on the car payment.

The creditor with the security interest in the car was left without any legal obligation to sue on, should the car be surrendered or repossessed and a deficiency balance existed.

No reaffirmation agreement was typically necessary. (read more about what a reaffirmation agreement is here)

Not signing a reaffirmation agreement was good for the debtor because he obtained the best of both worlds as a result. i.e. Keep the car and make the payment, but not be liable on any deficiency balance should he not be able to afford the car down the road and after surrender.

Many attorneys felt as a result, that advising a client to sign a reaffirmation agreement with the creditor on the car loan inside of the bankruptcy case was malpractice. Especially if the car was upside down, i.e. it was worth much less then what was owed on it.

If the reaffirmation was signed unnecessarily and the debtor lost the car down the road he would then owe what sometimes amounted to a large deficiency balance nullifying some of the "fresh start" benefit gained in the bankruptcy case.

Continue reading " Ride Thru, Reaffirmation Agreements and the Ninth Circuit Court of Appeals " »

If you have serious income tax debt, you have 5 ways to deal with it:

1. Challenge the Assessment

Challenge the amount of the tax by filing correct returns, amending returns, appealing the audit results, litigating the audit results etc.

2. Statute of Limitations Defense

The IRS has a limited period of time to collect debt. If they don't collect within this period, they are out of luck. Many taxpayers are able to use this to their advantage, especially in combination with non collectible status or installment agreement arrangements.

3. Installment Agreement/Non Collectible Status

The IRS must typically allow a taxpayer to set up a monthly payment on what is owed if the taxpayer will comply with a few requirements. The amount paid does not have to be enough to pay the tax debt off within the statute of limitations period. In fact, the amount paid monthly may be nothing. It all depends on the taxpayers ability to pay. This number is based on how much the government will agree that you need to live on, subtracted from your income. Assets are taken into account as well.

These programs are used to pay the debt in full over time, OR to get the taxpayer to the statute period mentioned above. In our office, they are also often used to buy time until the tax debt can be considered "dischargeable" or can be wiped away in bankruptcy.

Continue reading " Tax Motivated Bankruptcy in Arizona " »

In light of a recent and important case from the Ninth Circuit Court regarding "reaffirmation" agreements, it may be a good time to talk about what a reaffirmation agreement is.

Technically, such an agreement in bankruptcy law is made between the debtor or the person who filed the bankruptcy, and the creditor who was owed money prior to the bankruptcy filing. That agreement "waives" the discharge of the debt that would occur at the end of the case if nothing were done.

In english...debtors owe creditors money for things like cars and houses. Those creditors maintain a security interest in the home or car to protect them should the debtor not pay.
If the debtor fails to pay for the home or car, the creditor will repo or foreclose to try and recoup the loss, and then maybe, especially where cars are concerned sue the debtor for any remaining balance owed.

When a bankruptcy is filed by the debtor, that obligation to pay on the particular debt will be discharged or wiped away should the case reach a successful conclusion.

What happens if the debtor gets the discharge of the debt and the creditor with the security interest is not being paid?

The creditor will eventually take the asset that was previously acting as security anyway, but the debtor will be free from ever paying the debt back.

The problem? The debtor doesn't want to lose the asset.

He or she simply wants to pay as they were, and keep the house and the car.

Prior to 2005, most Courts allowed for the debtor to simply continue to make the house and car payment directly to the lender, and NOT sign a reaffirmation agreement in Bankruptcy. Most of the time, the lender simply accepted the payments and continued as if nothing had happened.

BUT something had, because no reaffirmation agreement was signed, the debtor got the best of both worlds. He or she kept the asset, continued making payments on it, but the obligation to pay was gone.

Continue reading " Arizona Bankruptcy - Reaffirmation Agreement, what is it? " »

The typical consumer files a bankruptcy case in order to obtain a "discharge" of overwhelming debt. An unfortunate word that is used to describe what for many is a life changing "event". Why?

When a debt is "discharged", the obligation of the debtor to pay it, no longer exists. The obligation is simply gone...poof. It is government intervention in the realm of private contract relationship at it's "finest", and with some careful planning and preparation, it works like a charm.

Now, having said that, this powerful discharge has it's limits. It isn't perfect.

1. It doesn't deal with every debt. Some debts cannot be "discharged" by statute, like child support, newer income tax debt, spousal maintenance etc.

2. Even though the personal liability may no longer exist as a result of the "discharge", liens recorded against the debtor's property, may survive the bankruptcy unless they are modified or removed.

3. You can't get very many of them too close together. There are time limits that prevent "serial" bankruptcy filings and thus too many discharge "events". The creditor has to have some time to collect the debt between discharge dates.

4. Not everyone needs bankruptcy for purposes of obtaining a discharge. Some need it for other reasons, like saving a home from foreclosure or restructuring the repayment of debt. These people don't care as much about the discharge as others.

For those debts like credit card, repossession related, old income tax and medical bill debt that are typically governed by it, not only are they "gone", the discharge acts as a "permanent injunction" or a court order at the close of the case, against those same creditors. It replaces the "automatic stay".

If the creditor continues, post discharge, to attempt collection, that order is being violated, and can result in "punishment" for the offending creditor. Possibly even "punishment" in the form of money to the debtor.

If you have overwhelming debt, have been losing sleep consistently over it, and see no way to pay it in a reasonable amount of time, you probably need to "aquaint" yourself with the "discharge" provisions of the U.S. Bankruptcy Code.

If you have serious debt, and are considering bankruptcy, you have probably gathered that it will cost some money to find good legal representation.

There is the cost for the attorney, a filing fee, education course fees, and possibly some "due diligence" related expenses as well.

Is it all worth it? Shouldn't you just consider representing yourself to save part of the cost?

What is that saying?....."the more you know, the more you realize how much you don't know? Something like that anyway.

Maybe put another way, "you know just enough to be dangerous". No? ok maybe this...

Bankruptcy law and the law in general, are like an iceberg. On the surface, the iceberg doesn't look that big. It's pretty and white sitting on a sea of glass.

But just about the time you think you can maneuver the boat right up next to it, you realize the larger part of the iceberg is under the surface, and your boat is sunk. Think "Titanic". (You probably were anyway)

I often speak with people who have filed their own bankruptcy case, and come to me to ask for advice about the IRS debt that survived the filing. Many times, some experienced legal advice prior to the filing of the bankruptcy would have resulted in the discharge of the tax debt. The law that governs this advice...is the "ice" under the water.

What would the filer with this large tax debt, be willing to have paid for the advice if he could go back in time? What would the captain of the Titanic have paid for that matter?

Continue reading " Paying an Arizona Bankruptcy Attorney for Help " »

Chapter 7 Bankruptcy is also known as a "straight" or "liquidation" bankruptcy. In a chapter 7, if the debtor qualifies to file based on his or her "inability" to pay debt, non exempt assets will be sold and given to creditors and most remaining debt then will be "wiped" away (discharged).

Chapter 13 Bankruptcy is also known as a "wage earner plan" or personal "reorganization". In a Chapter 13 bankruptcy, the debtor with a "regular" income, is able to keep non exempt assets and pay some portion of the debt over a 3 year to 5 year period. Sometimes the debt paid is a small amount and sometimes it is larger, depending on a number of different factors including the amounts of the debtor's income and budget, types and amounts of debts, and the debtor's non exempt asset value.

Certain debts that cannot be discharged in Chapter 7, can be discharged in Chapter 13.

Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.

Chapter 11 bankruptcy is a reorganization case as well, and is typically only used by a debtor who doesn't qualify for either a chapter 7 or chapter 13 bankruptcy or a business entity.

In Chapter 11, the debtor will typically retain possession of assets and continue to operate the business.

The debtor devises a plan of reorganization which, if accepted by creditors can bind both the debtor and the creditors to its terms. Plans commonly call for repayment out of future profits, or a sale of assets.

Paying for things you need is one of life's little dilemmas. Paying for legal help in Bankruptcy is one of life's larger dilemmas.

A bankruptcy client's common refrain is, "how do I pay for a bankruptcy attorney when I can't pay my bills?"

There are a number of ways to come up with the attorney fee, some are sensible, others are borderline ridiculous. Smashing your 10 year old child's piggy bank just isn't worth it in the long run.

One way to pay for a bankruptcy attorney that is often overlooked, and that will allow the case to be filed before the fee is fully paid, is to use a chapter 13 bankruptcy instead of a chapter 7 bankruptcy.

A few attorneys in Arizona will agree to take a small amount upfront and to then build the remainder of the attorney fee into the plan. It gets paid over time via monthly plan payments and it is interest fee.

I like to do this for cooperative clients, because it allows them the ability to get a case analyzed and filed now instead of later.

The upfront attorney fee can be as low as $350.00 depending on the individual facts of the case and the client's willingness to cooperate. A filing fee must be paid to the Court and a pre petition class must be taken as well prior to filing. The filing fee for a chapter 13 case is $274.00 and the pre petition class is typically $40.00 to $60.00.

If you have steady income, but are low on funds for an attorney, you should consider chapter 13 bankruptcy.

Bankruptcy is a legal proceeding governed by federal law, found in Title 11 of the U.S. Code. Those who are unable to pay their bills can use it, if they qualify, to obtain a "fresh start" or to move forward in life without certain types of debt.

The Bankruptcy formally begins with the filing of a bankruptcy "petition and schedules" with the U.S. Bankruptcy Court. A stay against collection is issued upon the filing i.e. creditors have to cease activity, and the filer must disclose his or her financial life in detail to the court.

Bankruptcy law "trumps" conflicting state law as a result of the Supremacy Clause of the Constitution, except for property exemption issues which vary from state to state.

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