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" »

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?" »

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.

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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If you file for bankruptcy, all collection activity by creditors must stop with a few exceptions. The part of the law governs this is called the "automatic stay".

So if a creditor is trying to collect from your or sue you based on a credit card, medical, breach of contract or other debt, they must stop all activity against you once you file.

They can't file a lawsuit, continue in a lawsuit, record a lien, report the debt to the credit reporting agency or seize property without permission from the court.

What happens if the creditor does continue with collection activity after notice of the bankruptcy has been received? They have likely violated the automatic stay rule and can be sued by the debtor. They may also have to pay damages and attorney fees.

I always suggest that if a creditor who is barred from collection by virtue of the bankruptcy filing continues to contact one of my clients, that the client or our office provide the creditor one more "notice" of the bankruptcy prior to suing. This notice usually goes out by phone and/or via a certified letter.

Most creditors "get the picture" and discontinue the contact.

Unfortunately, some continue. A lawsuit is then appropriate and often even necessary.

There are exceptions to the list of creditors who are completely barred from collection activity which will be discussed in further posts.

If you are in a bankruptcy and a creditor continues to contact you even after you are sure they know about the bankruptcy, you will want to speak to your attorney about whether a lawsuit is a good idea.