Arizona Bankruptcy Lawyer Blog

It is important for a person with serious debt problems to understand that the choice to file for bankruptcy and the choice of bankruptcy chapter are personal. The choice to avoid bankruptcy and try to deal with debt directly is as well.

Except in the simplest of matters, that personal decision should only be made with the guidance of an experienced bankruptcy attorney.

The question is when should these decisions be made, after a short meeting with the attorney or after a thorough analysis is complete?

I think that many debtors are under the impression that a simple one hour consultation with an attorney (or often non attorney) is enough to allow them to make these decisions.

In fact, many calls to my office start with something like, "I spoke to an attorney (friend, paralegal etc.) and I am ready to file a chapter 7 bankruptcy". My initial thought is usually, "how are you so sure"?

At most, a short consultation can provide the debtor with the sense that bankruptcy may end up their only option in the long run. It may also provide some detailed information about how bankruptcy works and what problems may be encountered by the debtor.

However, the planning involved to prepare and file a well done bankruptcy case, the final decision as to which chapter makes the most sense, and the verification that there is not some better non bankruptcy alternative, cannot be made without a thorough review of hundreds of facts, timing issues, potential changes and other issues.

This analysis is often made more complicated by the inability of the debtor to provide complete information at the initial consultation and during the analysis process, changes in the debtor's situation, changes in the law, etc. etc.

I suggest that my clients, even in "simpler situations" hold off on their decision making until I have put together a case from "stem to stearn", and spent a few hours with them at an analysis meeting. This way the "stones" are all turned over, before decision making is done.

I find that this creates less surprise and a well planned case.

You should wait as well for your attorney to finalize his or her analysis before setting your heart on a solution. Even if you are sure that you are a chapter 7 candidate.

The "small business" is suffering in today's economic climate. Many have debts that are insurmountable. The "owner" has personally guaranteed the debt and is facing bankruptcy. The question then becomes whether the business entity should file for chapter 7 as well?

Maryland Bankruptcy Attorney Brett Weiss has short list of reasons why he thinks a corporation or LLC will end up using a chapter 7 bankruptcy. His article can be found here.

The three in short form are as follows:

1. The attorney who suggests using a chapter 7 bankruptcy for the LLC or Corporation simply doesn't understand that a bankruptcy discharge is not available for the entity.

2. If tax debt would be paid first from assets that a chapter 7 trustee would "gather" thereby preventing personal tax debt in the future.

3. For purposes of "fairly" distributing assets in an attempt to reduce the chance that a creditor will continue collection activity against the entity.

The process of determining who or what should file for bankruptcy is rarely simple. If you are associated with an LLC or Corporation with significant debt, contact an experienced bankruptcy attorney.

Selling your home “short”… What does this mean and why would you want to consider it?

When homeowners sell a home “short”, they are asking the lender to agree to the sale even though they will not be paid the total amount of the mortgage.

The common Scenario:

Home purchased in 2006 for $480,000.00. The first mortgage amount is $370,000 and a second for $85,000.00. The house is now worth $320,000.00. A buyer exists who wants to purchase the home for about $320,000.00. If the lenders that hold the first and second mortgages agree to the sale, they will be paid less than they are owed.

In theory, this sounds great for the homeowner. He or she can avoid the foreclosure stigma and all its hassles and move on with life more quickly.

The question is then, why would the seller who is considering a bankruptcy, want to be careful about doing it?

1. From a debt liability standpoint, it may be unnecessary.

In the scenario above, both the first and second mortgage holders will lose money. Normally, they could sue the homeowner for the deficiency balance either after a foreclosure sale or after a short sale anyway.

However, Arizona state law prohibits the collection of the deficiency balance on a residence in most instances, especially where the loans are “purchase money” and a foreclosure would be “non judicial”. Further, the lenders may agree in writing, not to sue on the deficiency.
If they don’t waive that right, or if it is otherwise collectible, then bankruptcy may be the best way to deal with it. Especially, if bankruptcy was going to be used anyway, to deal with all issues at once.

So, if the sole purpose of the short sale is to avoid a deficiency based collection action, be careful.

2. It may damage credit.

If you don’t pay or breach the contract, the lender will report it to the credit bureaus. Some say that the effect on the report is as bad as or worse than foreclosure or bankruptcy.

Continue reading "Arizona Short Sale - If bankruptcy is in your future, be careful" »

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" »

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.

Every so often, I read a letter or receive a call from an attorney or creditor after the filing of a client's bankruptcy, that attempts to explain to me the need for my client to file a motion with the local court to obtain a ruling as to whether the automatic stay applies to a collection case against the debtor.

Doing so is unnecessary. (although providing notice to the local court and other parties may be in order to ensure they are aware of the filing).

The filing of the bankruptcy petition alone invokes the bankruptcy code's automatic stay and it applies to collection activity in and out of court. (See 11 U.S.C. Section 362 of the bankruptcy code).

The "stay" provision takes effect the moment the case is filed and the debtor and his or her property is under the protection of the bankruptcy court itself with a few minor exceptions.

If you are in a bankruptcy case, and a creditor is continuing it's collection activity with knowledge that you have filed, it has probably violated federal law.

Talk to your bankruptcy attorney or a bankruptcy attorney experienced with automatic stay litigation in bankruptcy, if you are having this problem.

A bankruptcy filing becomes a public record. This means that anyone can see what you have disclosed to the court.

Most of my clients seem to understand this when speaking to me initially.

What they don't always understand, is that everything about your present financial life and many things about your past financial life, must be disclosed to the Court under the penalty of perjury.

You cannot exclude certain assets or debts from this disclosure requirement.

If you owe your cousin 2500.00 for the work he did on your home, and he considers himself to be a creditor of yours, you must disclose to the court that he is a creditor and propose to treat him the same as other creditors in a similar position.

If you re paid your cousin the money within a certain period of time prior to filing, you must disclose it.

If you owe child support or are owed child support you must disclose it.

The trade off for the loss of privacy and perhaps for some, the shame of filing, is the "Fresh Start" or the removal of the obligation to pay on most debts.

The decision to make that trade, rests with the debtor.

Yes. Income tax debt can be wiped away in bankruptcy.

The catch? The following requirements:

Basic Requirements:

1. The taxes must have become due more then three years prior to the bk filing. This means that you should count forward 3 years from the date the return was actually due. (Think April 16th plus 3)

2. The original return must have been filed more than 2 years before the bankruptcy. 2003 return filed June of 2007? The two year date would end up in June of 2009. What constitutes an "original return" can be a complicated issue so if the IRS filed a "substitute" return before you filed your own return, make sure and tell this to your lawyer.

3. The IRS must have "assessed" the tax more than 240 days before the actual filing of the bankruptcy. Assessment means that they entered it in their system as due and owing.

4. No fraudulent tax return. This will kill the dischargeability.

5. No effort to evade the tax. This may as well.

Many of my clients have serious tax debt as a result of late filed returns. Despite other options (offer in compromise) bankruptcy often ends up being the best option overall.

Even if the tax debt is considered dischargeable one big caveat remains. The IRS lien.

The IRS will typically record a tax lien with the County in which you or your property "resides". If the property has value, the lien remains "attached" to it after the bk (chapter 7) or during the bk (chapter 13). In a chapter 7, the lien still has value after the case is over.

In a chapter 13, the value of the lien must be paid through the plan.

Often, the result in both cases is that the underlying tax debt is gone, but the lien is worth as much as the IRS was owed to begin with.

If you are getting ready to file for bankruptcy and have tax debt, make sure and have your attorney review the lien(s) and compare them to your asset values to avoid a surprise.

I am not very funny. My sense of humor is dry, and according to my wife and kids, can't really be described as a "sense of humor" at all.

I dream on occasion that I am a comedian, and everyone is laughing hysterically at my jokes. Great dreams.

I do like funny things though, and I find many situations to be quite humorous. I also "chuckle" quite well.

What made me think of this?

On occasion I will meet with a potential client who causes me to chuckle...but a different kind of chuckle, an "uncomfortable" one.

When does this happen? Whenever a potential client tells me of an asset with value and then immediately recants or talks about "hiding" it.

An example (fictional of course):

Me: Do you own any thing else of value?

Potential Client: A watch

Me: Is it a nice watch? Does it talk or something?

Potential Client: Yeah...a "Breitling"

Me: So.. not a timex?

Potential Client: Oh No....."Breitling" you know...aviator watch. GQ magazine spreads.

Me: So worth maybe a few thousand on the street?

Potential Client: Maybe

Me: Probably need to get the value. If it's important to you, you may want to consider using chapter 13 bankruptcy to protect it.

Potential Client: Protect?.....(thinking for a second) Oh you mean the non exempt asset thing. But aren't I entitled to a watch in a chapter 7?

Me: Yes, up to a certain value.

Potential Client: What if I say to the Court....or I mean what if it isn't mine? You know what I mean right?

Me: (After uncomfortable chuckle done quite well).....no.

Potential Client: My neighbor says he filed a chapter 7 bankruptcy and no one asked him about his Rolex or his baby grand piano?

Me: One of the worst things you can do when asking a Court of Law to move your debts into the trash can of history, is to be less than honest about your assets.

Potential Client: Why?

Me: (After another uncomfortable chuckle) Jail time.

Potential client: About the piano.....

Being silly to try and make a point is fun. Going to jail because of a lie isn't.

I have noticed an increased determination on the part of the U.S. Trustee's office and the Court system in general to root out the dishonest bankruptcy filers.

If you are considering bankruptcy, and have assets with value that may not be exempt in bankruptcy, call an experienced bankruptcy attorney to see if there may be a way to honestly protect the asset despite filing.

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.

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.

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.

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.

Statistics from the U.S. Bankruptcy Court of Arizona show that there was a substantial jump in filings between 07 and 08. Statewide total filings were 10,570 in 2007 and 19,147 in 2008.

It is widely believed that filing numbers will continue to increase at least for the next few years.

While many of these filings are the result of consumer overspending, a number are also the result of failed businesses, lost jobs, tax debts, rental properties that have lost value and unexpected medical expenses.

Small business is the backbone of our economy. There are literally millions of small businesses in the United States and at any given time, a large percentage of them are failing.

Many Arizonans with small businesses have contacted me when faced with serious business related debt to ask whether a creditor(s) can sue them personally for debts incurred to create and maintain the business.

A small business owner's personal liability usually is determined by whether the debt has been personally guaranteed. I.E. did the business owner borrow the money in his or her own name, or did they personally promise to pay if the business couldn't. If so, a lawsuit and collection can follow.

The related question is whether the "structure" of the business provides any protection for the small business owner?

Sole Proprietorship - The most common business structure

If you are what is commonly known as a "sole proprietor", the business is you and you are the business. You have probably personally signed off on every loan, credit card debt, lease etc. If so, you can be sued personally and your personal assets are up for grabs.

General Partnership - provides no protection

Partners in this type of structure are personally liable for the debts of the partnership, all of it. Worse yet, ANY one partner can tie the entire partnership to a loan. If you are a partner in a general partnership in Arizona and the whole project goes "south", you may be in trouble and not even know how much.

Corporate entities and Limited Liability Companies

These types of entities protect your personal assets and income from the business creditors not personal creditors as described above. By statute, the shareholder or member of the LLC has limited personal liability.

I find that most small business owners who have organized the business as an LLC or Corporate entity, have also provided the various creditors, landlords etc. a personal guarantee in order to borrow the money or obtain the lease. If you have done this, then the business creditor can go after those assets and your income after suing you and obtaining a judgement.

So, if you are a sole proprietor, a general partner or have otherwise personally guaranteed debt or lost the protection of your corporate/llc umbrella, what do can you do to deal with the debt?

1. Debt Negotiation

Most creditors will consider reducing the amount they are paid and forgiving the rest. Even business creditors. I find that negotiating serious business debt doesn't work well unless the "debtor" has some present asset or cash with which to negotiate. There are other negatives as well. You can read about the pros and cons of negotiating debt in more detail by reading this entry, debt negotiation - pros and cons.

2. Bankruptcy

Any individual that owes debt as a result of a personal guarantee, general partnership debt, etc can file bankruptcy (Chapter 7, 13 and even 11 if necessary) in order to protect their exempt assets and future income.

The business as a separate entity may or may not need to file a bankruptcy. Corporation, LLCs and partnerships are legal entities and can only file a chapter 7 to liquidate and close shop or chapter 11 to "reorganize". No chapter 13 bankruptcy is available, and no "discharge" of the debt is available to the corporate entity.

Reorganizing under chapter 11 will only make sense if the business may become viable as a result. Chapter 7 liquidation may only be necessary for the corporate entity if a creditor is about to take a business asset that could be used to pay a personal priority debt, bankruptcy trustee involvement makes sense to help in winding down the business within the protective arms of the bankruptcy code, or if the bankruptcy filing would cause creditors to "close the file" and leave officers and shareholders alone.

If personal bankruptcy is the option, then typically the choice will be between a chapter 7 and a chapter 13.

In a chapter 7 bankruptcy the non exempt assets, or assets not protected by state law from collection by creditors are taken by the bankruptcy trustee, liquidated and paid out to creditors in varying priorities. Most debt is then wiped away.

In a chapter 13 bankruptcy, a payment plan is proposed. That plan calls for you to pay part or all, (usually a small part) to your creditors in monthly installments for a three to five year period. Typically, most non exempt assets are protected for liquidation as a result. Most other debt is then wiped away.

If the majority of your debt as a result of the failed business is "priority" debt, then the benefit of bankruptcy may be significantly reduced.

It is true. Debt can be"negotiated" allowing a debtor to pay less than what is owed to a creditor.

However, and contrary to what may be on it's way to popular opinion, there is no Federal or Arizona state law that forces a non tax related creditor to take less than what they are owed outside of the bankruptcy context.

Unfortunately, the belief that this may be true is being trumpeted by certain debt negotiation "professionals" on radio and TV.

This "pitch", as well as other "claims", may sound very appealing at first listen. To the honest debtor, with a sincere desire to pay back debt, these claims may sound like a godsend.

The key phrase to remember however is, "if it sounds to good to be true, it usually is".

For those with serious credit card, medical bill, or business related debt who are trying to avoid bankruptcy or who have been told they don't qualify for a chapter 7 and are trying to compare chapter 13 to negotiating debt, I am providing the following shortlist of debt negotiation pros and cons.

Debt Negotiation Pros

1. Debt is reduced - If you are able to negotiate successfully with the creditor, the amount you pay will be less than the amount you originally owe.

2. Budget - Putting together the funds to make reasonable offers to settle may require that you live on stricter budget than you may be used to. Good practice for avoiding debt in the future.

3. Simpler - Compared to filing a bankruptcy, saving money and settling with a creditor could be much simpler.

Debt Negotiation Cons

1. Creditor Calls

If you begin to make payments monthly to a "debt settlement professional" you will likely continue to get collection calls. There is no legal method that prevents an original creditor from contacting a debtor except the automatic stay relief of a bankruptcy petition in Arizona.

Just because someone promises that the original creditors won't call, doesn't mean they won't. Third party collectors are controlled by the Federal Fair Debt Collection Practices Act and can be stopped, by writing a short letter asking them to. You don't need to hire someone to do that.

2. Credit Report

Most debtors do not have the funds handy to settle the debt with. This means that they must stop paying creditors in order to save the money necessary to settle and to convince the creditor that they are a "hardship" case that should be considered for settlement. While the money is being saved, the credit score is dropping. Don't let anyone tell you otherwise.

3. Forgiven debt is taxable

Unless you fall under the IRS "insolvency" exception, you will have to treat the forgiven portion of the debt as income on your tax return. (Bankruptcy is the other exception).

4. No guarantee

If someone guarantees you a result, run...fast.

Continue reading "Avoiding Bankruptcy in Arizona and Negotiating the Debt - Pros and Cons" »

If you have credit card, medical bill debt, or other unsecured personal loans that are so large you can't pay them off in a reasonable amount of time, you will likely end up using one of the following options to deal with it.

1. Borrow your way out

In the recent past, most with serious unsecured debts would turn to their home in the form of a home equity line or second mortgage. This was a quick fix that usually provided a lower monthly payment to service the same amount of debt. The obvious problem now? Loans are more difficult to come by.

The other problem? The new lender will require that the home be pledged as security for the loan. Once that happens, the debt is here to stay. The borrower will eventually pay in full or lose the home. These loans are almost always of the higher rate and higher cost variety as well.

2. Non Bankruptcy Payment Plan - Consumer Credit Counseling

Many credit providers will work out a payment plan with you either directly or through a "credit counselor". These counselors or agencies gather your income and budget information, help you get organized, and propose a new payment arrangement to each creditor. The proposal typically consists of a reduction in the interest rate and a lower monthly payment. Problems do exist, especially where the debt is so high that no "payment plan" will ever catch you up.

For those with serious debt, the debt usually never goes away, the credit report continues to reflect late payments, and at some point a collector gets involved again.

If you are going to engage a credit counselor, make sure that 1. They are reputable 2. They are not doing something for you that you couldn't do yourself and 3. That the proposed plan is "doable" and will pay off the debt in full in a reasonable amount of time.

3. "Negotiate" your debt

Many unsecured credit card lenders will reduce the principal balance and accept a sum smaller then they are owed to "settle" the account. "A bird in the hand" as they say.

Once you have fallen behind on the debt, the creditor or collector has a "formula" that tells them how much they will accept to settle the account at any given time. If you are a bankruptcy candidate or if they believe that for some other reason they may end up getting less than they would like, they may adjust the amount downward.

The willingness on the part of these credit card companies has led to the growth of a horde of so called "professional" debt negotiators. You hear the ads on TV, Radio and if you listen to enough cable news, you start to hear them in your head.

Most of these companies include in their "pitches" things that aren't necessarily true. Things that lead you to believe that these credit card companies must allow you to settle your debt or that they have some secret that allows them to settle your debt for less than anyone else.

The truth however is a little different as follows:

A. You can probably do on your own what most "debt negotiation professionals" are able to do for you.

In order to have a shot at convincing the lender to settle for less than the standard, I find that you need to be a good candidate for bankruptcy and the creditor must believe that to be true, and you need to have the cash in your hand when you make the settlement offer.

If these two things aren't true, you are simply relying on the "good graces" of the creditor to determine the amount of settlement. That is all a "debt negotiation professional" does i.e. rely on good graces and a slick marketing campaign.

B. If you begin to make payments monthly to the "debt settlement professional" you will likely continue to get collection calls and you may even be sued before you come up with the funds to settle all the debts.

Monthly payments to the "debt negotation professional" does not stop the clock from ticking, nor does it stop the creditors litigation timeline. There is no secret word that the "professional" uses to magically stop the collection. Many people with serious debt learn this the hard way.

C. "Debt Settlement Professionals" are very expensive and you are vastly overpaying for what you get.

In essence, you are paying the company to set up an accounting system to collect and track your money. When they are paid the estimated amount for their fee and the estimated amount needed to settle, they make some phone calls. If you are sued in the meantime, they "earned their fee" for magically keeping the debt collector from suing you until then.

I have reviewed dozens of the contracts they use, and know that most people taken in by these operators pay a "set up" fee, a monthly fee and a percentage of either the total debt or the amount saved. For a debtor with $100,000 in credit card debt who settles the debt for 50%, or $50,000, the overall fee is usually $12,000 to $20,000.

Before you consider paying these types of fees, contact your local bankruptcy attorney. Ask him or her to put together a bankruptcy case if you are a good candidate for bankruptcy. Then ask them to use it and your funds as leverage to negotiate with your creditors on an hourly basis.

You will pay far less and likely get a much better result. One governed by Arizona State Ethics Rules for Attorneys.

D. Forgiven debt is taxable

Unless you fall under the "insolvency" exception, you will have to treat the forgiven portion of the debt as income on your tax return. Bankruptcy is the other exception.

E. While you are waiting to save the money to settle your credit score is being destroyed

Most creditors don't seem to be interested in settling unless you are late on your payments. Most people who engage the "professional debt negotiator" stop making payments and never start again. The plan falls apart, they still have the debt and the 10 months of late pays on the report. Thanks.

4. File for Bankruptcy

Filing for bankruptcy is usually the most comprehensive and effective method for dealing with serious debt. Bankruptcy can do the following:

A. Stops Debt Collection by virtue of the federally mandated "automatic stay"
B. Provides a means to save a home from foreclosure
C. Provides a means to save your car from repossession
D. Provides a potential means to reduce secured debt amounts
E. Discharges or wipes away most if not all of your consumer debt

Chapter 13 bankruptcy, allows you to pay what you can "afford" over a set amount of time to your creditors.

In almost every instance the amount paid in the chapter 13 is far less then a debt settlement negotiation will require you to pay.

There are downsides. Bankruptcy carries a stigma. It has become a bit more difficult to qualify to file, the workload to file has increased, it is a matter of public record and stays on the credit report for 10 years.

My clients go through a rigorous analysis process to determine which of the options described above is the best.

I am an attorney in Mesa Arizona who enjoys writing about debt issues and representing local small businesses and individuals who are having serious tax, business related or consumer debt problems.

Most of my clients have serious income tax, payroll tax, failed business, medical or credit card debt and are facing IRS levy, lawsuits and sleepless nights.

I am able to help by personally and thoroughly reviewing their financial history, educating them about their best options to deal with the debt, and then helping them do so via Chapter 13 bankruptcy, which is the firm's focus, chapter 7 bankruptcy, dealing with the IRS/Creditor directly, or a combination of bankruptcy and direct representation.

For most, there will be a solution if there is the will to cooperate.

My desire is that for those Arizonans with serious debt problems, this blog will be a place to visit as they learn about the law and their options.

I encourage readers to use the search bar, read my take on a question, or shoot me a question to get an answer potentially written about on the blog.

Once you have learned all you can, you can email or call me to talk further about your options.

If you are in trouble, I can help you find a solution.

Michael S. Anderson J.D.

Typical Chapter 13 Bankruptcy Case Examples