Category: Bankruptcy

Well, I am terrible about boasting my own achievements – except maybe to my husband – but that is what we joined up with fellow bankruptcy attorney Kaveh Mostafavi for… he seems to be quite adept at making me look simply brilliant.¬† So, since this does deal with an important legal issue in the context of Chapter 13 Bankruptcy – please check out his summary of my recent win for one of our clients here: The OTHER Mostafavi, Marco & Wimmer Bankruptcy Blog


Enjoy the read and visit or to learn more about Kaveh ūüôā


I hope that your new year is off to a good start. Today’s blog post is about the importance of the timing when filing your for bankruptcy protection, especially when it comes to your taxes.

If your petition is filed before you receive and spend your 2010 tax refund, the trustee will use 100% of the refund to pay your creditors, as there is no law protecting the tax refund. Since, this is typically not the preferred outcome, the better way to time your filing is to wait with the filing of your bankruptcy petition until after you have filed your tax return, received your tax refund, and spent the tax refund on exempt items, then file the petition. Furthermore, since a lot of our clients are worried about how to come up with the fees and costs to even afford the filing, being smart and protecting your tax refund by receiving it first, usually helps alleviate this worry as well.

When filing in 2011, your 2010 is not the only tax year you need to worry about. This is because regardless of when you file, your creditors ‚Äď through the trustee ‚Äď are entitled to the pre-filing portion of your 2011 tax return. For example, if you file on August 31, 2011, the creditors will receive approximately 8/12ths of your 2011 tax refund, even though you won’t even receive that until 2012. For a $1,200 refund, that would mean $800 goes to your creditors. Therefore, filing early in the year allows you to protect most ‚Äď and sometimes even all of your 2011 tax refund.

Therefore, typically the best time to file for protection under the bankruptcy laws is immediately after receiving your tax refund, as early as possible in the new year. We encourage you to contact us as soon as possible and set a timeline for filing in the next couple of months, so that hopefully next year, you won’t even have to worry about it anymore.

CALL OR EMAIL TODAY! Steve and I are ready to assist you in getting your fresh start, and putting a permanent end to harassing creditor calls!

This discharge entered by the court in a bankruptcy case is the golden rod of every bankruptcy Рthe thing every debtor needs and/or wants in order to get their life back on track and enjoy their fresh start.  The discharge order is the court order that tells your creditors that they are prohibited by federal law from ever attempting to collect discharged debt from you again.  Getting a discharge is different from having the case dismissed Рin fact Рhaving the case dismissed is actually a bad thing.  It means that you did not get your discharge, and it may affect the automatic stay in a future filing.  So, to recap my point up to here: Dismissal is bad Рdischarge is good.  It is NOT however, the end all-be all of your case.

See, Congress actually had a little bit of foresight when the figured out this system:  They realized that the discharge is the order that protects the debtor, and they realized that the asset administration of the case can take quite some time. Under normal circumstances it would neither be fair, nor good for the debtor to have to wait for the trustee to finish up the case administration before a discharge is entered.

If you remember your Chapter 7 basics, a Chapter 7 bankruptcy is a ‘liquidation bankruptcy’ and it is the trustee’s job to review your schedules and statements to determine whether you have any assets that are not protected by law that he has to liquidate in order to pay your creditors.¬† Well, you can imagine that while that may be easy-breezy for most Chapter 7 debtors – it can take quite some time for others, and the same rules apply to all.¬† Furthermore, as part of the asset administration in your case, the trustee can keep the case open to wait for your tax return to be filed.

This is why there are two tracks and here they are:

  1. Discharge Track: If you fulfill all requirements to be eligible for a discharge (in short: pre-filing counseling, eligible for Chapter 7, post-filing counseling, attendance of 341 Meeting of Creditors) then the court will enter your discharge approximately 90 days after your creditors meeting has been concluded.
  2. Case Administration Track: Your trustee can make a determination that there are not assets in your case and file a “Report of No Distribution.”¬† If so, your case will be closed by the court shortly after the discharge has been entered.¬† However, if the trustee does not file this report, and he is working on liquidating your assets, or working on figuring out whether there are any assets, then you case will likely stay open for a little while longer after the discharge has been entered.¬† He may even ask you for some additional information during that time, and it is your duty to cooperate with the trustee.

The main things to keep in mind during case administration process are (a) the trustee has the power to ask the court to revoke your discharge if you are not cooperating with him; and (b) don’t forget the big picture:¬† Yes it may be temporarily painful to give up most or all of your tax refund, or to pay for the privilege of keeping a non-protected asset – but that is usually a small price to pay when compared to the tens or hundreds of thousands of $$$ you are discharging.

In summary, once your discharge is entered the main hurdles have been met, and the main goal has been reached, but your case is not yet closed.¬† The court will enter a separate case closed order at a later time and only then is your case truly and unequivocally “done.”

“Reaffirmation” is one of those words that is used quite frequently in the bankruptcy context, though often the debtor filing for bankruptcy protection does not fully understand the implications of a Reaffirmation, and in my humble opinion, that is not good enough.

When you sign a reaffirmation agreement, you Рas the debtor in the case Рagree that one of your debts does NOT get discharged by virtue of your bankruptcy.  Basically, you will still be on the hook for the full amount owed, even after your bankruptcy has been concluded, and if you default on your payments, the bank has every right to sue you, or make any other (legal) effort to collect the debt from you.

Why, you ask, would anyone want¬†to do¬†THAT…. especially since the point of every bankruptcy is a “fresh start” – to be debt free again. ¬†The most common debts that get reaffirmed are those debts that are secured by a vehicle. ¬†In the 9th Circuit (the federal Circuit in which Arizona is located), a debtor cannot keep a vehicle that he or she owes money on if the debt is not reaffirmed. ¬†So, essentially, the choice becomes ‘keep your car and reaffirm the debt’ or surrender the vehicle.

Now, of course, you may think, “no brainer – I need my car – therefore I will reaffirm my debt.”¬† While this is often the initial reaction, it is not a good idea just to jump into a reaffirmation, simply because you think you need YOUR car.¬†

Here are some additional considerations to keep in mind:

  1. Is the car worth more than what you owe on the loan?
  2. Can you realistically afford your monthly payments?
  3. There are no other alternatives.

If the answer is “no” to any of these questions, then you really need to put some thought into the decision to reaffirm your debt.¬† Reaffirming a debt has serious consequences.¬† With a little planning, and some good counsel by your attorney, you would be surprised how many alternatives you have, without getting stuck with a huge car loan in the long run.

In a staggering amount of cases that come across my desk, the bank issues a Notice of Trustee’s Sale that tells the homeowner the exact date and time their house is to be sold at auction – only to then postpone the sale.¬† Whether the reason for the postponement is a bankruptcy that was filed, a loan modification that is furiously trying to be worked out, or a short sale offer that peaked the bank’s interest, the result is inevitably the same:¬† Confusion, stress and worry on the part of the homeowner plagued with the most pressing questions of them all “When do I have to be out of my house?”

Of course, the best – least stressing solution – for the homeowner and his or her family is usually to find a new home well before the sale date that was originally scheduled.¬† Then you don’t have to worry about what happens if the sale doesn’t take place, and how long do I have to get out.¬† In reality, this doesn’t always work out that way, and in some cases, where the bank just simply is dragging its feet, it is almost better for the homeowner to stay in their home – rent free – while they can, and save up the often much needed funds for the move.

The unfortunate fact is, once the Notice of Trustee’s Sale has been posted, and assuming it wasn’t cancelled (and typically the banks do NOT cancel their notice of sale in a scenario as this one), the bank does NOT have to give you any additional notice of the sale.¬† This is true even if the original sale date has passed and the homeowner is in a kind of limbo.¬† The bank has the right to foreclose on your house – read: sell it at auction¬†– pretty much whenever they please, after the original notice period has passed.

The implications of this are plentiful.¬† The first, and most important one is to remember that the ‘foreclosure department’ of your bank probably doesn’t even know the ‘short sale/loan modification department’ exists, nevermind ever communicates with them.¬† The result of this red tape nightmare is, of course:¬† You may me plugging along and looking hopeful for your loan modification to go through, and next thing you know you get served with an eviction notice because your house was sold to an investor last week.¬†

In a bankruptcy scenario, once the automatic stay has been lifted, and assuming the bank has issued their Notice of Trustee’s Sale prior to filing, the bank can move forward with their sale at their leisure.¬† The most frustrating part for me, as a bankruptcy attorney, is that there is no way for me to give my clients peace of mind by giving them any kind of definite answer with respect to the sale date.¬† All I can do is to advise them to keep calling the bank’s attorneys to find out what date the sale has been set for.¬†

It is hard, when there are no guarantees and no definite answers, but the best thing you as a homeowner can do is to keep on top of all of the information.¬† Don’t rely on what your realtor tells you (and I say this with the greatest deference to the realtors out there – the ones I work with are wonderful professionals who know what they are doing, but the bottom line remains – they do not control the bank’s foreclosure department), don’t even rely on what the bank is telling you, unless it is the bank’s foreclosure department, and certainly don’t believe what your neighbor/coworker/acquaintance/hairdresser tells you.¬† Every case is unique and what happened in your neighbors case will most likely not happen the same way in yours.¬† Probably not even remotely close to it.

The above statement, or some variation thereof, is something that as a bankruptcy attorney I hear a lot.¬† And it is not really a surprise – a lot of people today find that they have a particular problem with one thing (think mortgage), but are really ok as far as everything else is concerned.¬† Of course, every now and then the variation on this statement goes something like “I shop at Kohl’s a lot, so I don’t want to include them in the bankruptcy, just all of the other stuff”.¬†

The misconception lays in the word ‘include’.¬† It is really not an appropriate word to use in the context of bankruptcy.¬† When you file for bankruptcy relief ALL OF YOUR DEBTS must be listed.¬† No ifs, ands or buts about it.¬† Just like all of your assets must be listed.¬† So in the sense of listing your creditors, and notifying them of your filing, everything must be ‘included.’¬†¬†¬†

Here is where it gets complicated, though.¬† Just because a debt is ‘included’ in the sense that it was listed on your petition, does not necessarily mean the debt will be discharged.¬† For example, student loans and certain tax debts are not dischargeable.¬† They have to be listed, and for all intents and purposes they are ‘included’…..BUT, they are not included in the debts that are discharged.¬† Other debts that are ‘included’ but not discharged, are those debts that you reaffirm during your bankruptcy, so you can keep the collateral (usually for a car).¬†

Now, if you have a credit card that has a zero balance, you do not own a debt to that particular creditor and it does not have to be listed on your petition.¬† It is NOT¬† good idea, however, to pay off that Kohl’s card so you don’t have to list it, because eventually Kohls¬†– or whoever – will discover that you filed for bankruptcy relief, and even though you did not owe them any money at the time of your filing, they will likely either raise your APR, lower your balance, or shut down your card altogether.¬†

In short, EVERYTHING is included in your bankruptcy in one way or another.  Talk to your attorney to make sure you understand what this means for you.

Filing for bankruptcy is a very ‘front-loaded’ process for most people – essentially the pre-filing period where all your information is gathered and analyzed by your attorneys is a lot of work (for you and us) and filing your petition itself is simply a couple of mouse-clicks on our end.¬† Now, that your petition has been filed, you know that your creditors’ meeting will be coming up soon, and that’s probably about all you know.¬†

Once your petition is filed, the bankruptcy court will mail out a notice of filing to all of your creditors.  This puts them on notice that you are protected by the federal bankruptcy laws from their efforts to collect, at least until further notice.  Your trustee will also mail something out, but not to your creditors Рhe or she will mail something to YOU. 

In preparation for your creditors meeting, the trustee assigned to your case will send you a letter, some kind of questionnaire and a request for documents.¬† It is your duty, under the bankruptcy code, to respond to the trustee’s requests.¬† If the trustee does not receive your response¬†at least 10 days before your creditors meeting, he can dismiss your case or continue your creditors meeting, thereby delaying your discharge.¬† Most law firms, including Marco | Wimmer¬†PLLC will assist you and guide you in this process, to make sure all t’s are crossed and all i’s are dotted.

The Trustee’s request will be your main project between your filing and your creditors meeting.¬† You may also want to go ahead and complete your financial management course during this time.¬† You don’t have to complete this course before your creditors meeting, but you can.¬† I typically recommend this, because then, once your creditors meeting is done, YOU are done and simply wait for the trustee to recommend your discharge and administer your assets, if there are any.

Anyone who files for bankruptcy relief has to attend a Section 341 Meeting of Creditors (or Creditors Meeting).  This is a requirement under the bankruptcy code, and a debtor will not receive his discharge if he fails to appear at the date and time set for his creditors meeting.  Instead, his case will be dismissed, and the debtor has to re-file and face the consequences associated with that.

Now, the creditors meeting sounds like a pretty scary concept. For one, you have to go to the bankruptcy court for it.¬† Two, it’s called the ‘creditors meeting’!! Your creditors are the reason why you are here in the first place, and many of you have had just about enough of them.¬† All in all, though, ¬†it is not that scary, and 9 out of 10 of my clients walk out of their creditors meeting going “that was it?”.¬†

As I said, the code mandates that a creditors meeting takes place. This process is virtually the same for Chapter 7 debtors as well as Chapter 13 debtors.   The court schedules the date and time of your creditors meeting after your petition has been filed and a trustee has been assigned to your case.  This date can only be changed in extraordinary circumstances, and I typically recommend not changing it, as delaying your creditors meeting inevitably means a delay of your discharge.  The date is approximately 30 days after your petition has been filed.  As your attorney, I get notified via email within about 24 Р48 hours of the exact time and date.  Within a few days after that, the official Notice of Creditors Meeting is sent not only to you, but to all of your creditors as well. 

In Arizona, the appointments are set in half-hour increments, and each half-hour portion of the day is assigned to a number of different cases filed in the same Chapter.  This of course means that (a) your creditors meeting is neither private nor confidential, but (b) all the other folks there are there for the same reason you are: To avail yourself of the relief granted to you by the bankruptcy code. 

While the creditors meeting may take place in the actual court building, it is not held in the court room, and the judge will not be there.  Instead, the trustee assigned to your case runs the show.  On your appointed time, you will enter the room along with your attorney, and all the other debtors assigned for the same time slot. The trustee will call your name and you are then required to provide him with a photo id as well as proof of your social security number (i.e. your social security card).

The trustee then swears you in.¬† The law requires that the trustee asks you a number of questions under oath.¬† This is important, because even if you have to discuss something that may cause your case to hiccup a bit with the trustee, doing so is really the only option that you have: Perjury – or lying under oath – is a crime – and whatever the hiccup, it’s not worth it.¬†¬†The standard questions the trustee asks are always pretty much the same.¬† A few examples include:

  • Have you assisted in the preparation of the petition and schedules filed in your case?
  • Is all the information true and accurate?¬†
  • How long have you lived in Arizona?
  • Have you ever filed for bankruptcy before?

You know, standard stuff – things your attorney can talk to you about before the creditors meeting ever takes place, if only to calm your nerves.¬† Once that portion of the questioning is done, the trustee then has the chance to ask you any other questions he may have about the information contained in your schedules. These questions are typically related to your assets, such as ‘how did you come up with the value for that grandfather clock’ or ‘what is your interest in the XYZ partnership exactly, and what kind of returns are you expecting’.¬† These questions are a little harder to predict, as they are based on your specific case, but a good attorney will know how to issue spot your petition and give you an idea of what kind of questions might be expected, if any.

Now, about the creditors…. it is called a creditors meeting after all.¬† The bottom line on that is they have the right to appear and question you under oath, but they hardly ever do.¬† I have only had one instance of a creditor showing up, and that was coordinate the surrender of my clients vehicle.¬† Now, I am not saying they never show up – it happens and it can happen to you.¬† In the event that it does, just remember to stay calm, TRUTHFULLY answer all of their questions (as you are still under oath) and don’t forget to breathe.¬†

Remember, no matter how scary, stressful or frustrating this feels right now, you will likely be relieved when the meeting is over, and wonder why you were so worried in the first place.

Tis the season for tax refunds.¬† In this season, a number of people find themselves in an odd conundrum.¬† Their debts are eating them alive and they are preparing to file for bankruptcy, but they have a small tax refund from the IRS coming and so they are instructed to “spend it on exempt purposes.”¬†¬† This conundrum does not just apply to tax refunds.¬†¬† In a surprising amount of cases, a person my find himself with more money than he is allowed to have on the date of filing shortly before filing.¬†¬†The tricky part about this is that you are allowed to spend the money, but you are not exactly allowed to do with it as you wish.¬† For example, you can’t (read also: should not) give the money to a family member or friend in repayment of a debt (this would be considered a preferential payment), you should not give it to someone to ‘hold on to’ until your bankruptcy is over (this would be considered a fraudulent transfer, believe it or not), and you most definitely should not use it to purchase something that the trustee will consider a non-exempt asset and so take away from you.

Instead, you should use the money for exempt purposes.¬† This blog post will discuss what ‘exempt purposes’ mean for someone living, and filing for bankruptcy in Arizona. (NOTE: This is exclusively about Arizona exemptions, so if you have never lived in Arizona, and you don’t now, this will be an overview of how it works in Arizona, but it won’t help YOU, as all states have different exemption laws.).

So, what to do with the money, then?  Well, first of, you can pay your current monthly bills (not your creditors, but rather your utilities, mortgage, rent, car-payment, phone bill, whatever it may be).  Do NOT pre-pay anything!  Then, go shopping for groceries and supplies (think toilet paper).  In Arizona, you can have up to 6 months worth of groceries and supplies on the date of filing.  Be sure to keep receipts for everything you buy, and if you go an a grocery shopping spree within a couple of days before filing, be sure to list it on your asset schedule.  You want to be able to show the trustee that you used the money for something you are allowed to have, something that is protected.  Therefore, stay away from buying anything shiny (think jewelry), anything that uses electricity (think big old flat screen), and anything that you could sell again after your bankruptcy is done.

Now, what if you are getting a sizeable refund, more than what you could reasonably spend on groceries and supplies.  Well, there are a few options, the most basic ones are as follows:

  • Pre-pay your mortgage/pay down on your principal:¬† In Arizona you are allowed to have up to $136K of equity ($150K if you have had the house for more than 10 years) in your HOME.
  • Prepay you car payment: As long as the equity in your car is no more than $5K, there is no problem.¬† ONLY do this if you intend on keeping your car.
  • A better alternative, especially if you are currently in a position where making the monthly car payment is a struggle from month to month, is to use the money to purchase a car, free and clear.¬† As long as the car is not worth more than $5K, you get to keep it, no questions asked.¬† This will then allow you to surrender the other, financed vehicle as part of your bankruptcy, and live car-payment free.¬† This can be a huge burden off your back, and in light of the current market, you CAN get a pretty decent car for $5K.¬†

These are some of the most common examples of ‘exempt purposes’.¬† The most important lesson of this blog post is that there is a right way to plan for your bankruptcy, that is recognized and allowed by the law, and then there is a wrong way, and the wrong way can lead to a number of headaches down the road (including but not limited to having the trustee knock on your mom’s door telling her that she has to return the money you just paid her back).¬† If¬† you are contemplating bankruptcy, it is important to speak to an attorney as early in the process as possible, so you can be sure to avoid some of these common mistakes, and put yourself in the best possible starting position after your bankruptcy, without unwittingly defrauding your creditors.

  The discharge, in general, operates as an injunction against any act to collect an obligation of the debtor that existed on or before the date of filing of this case, with some exceptions. The discharge does not enjoin the collection of taxes not less than three years old on the date of filing for which returns have been filed, other taxes of a shorter period, the collection of student loans for which no finding of hardship has been made, or debts as to which the court has made an order of non-dischargeability.

In plain English, it is a court order that prevents all of your creditors from ever attempting to collect the debt you owed before filing Рno one can ever ask you to pay on that debt again, and if they do, they can be sanctioned.  Now, there are some exceptions, as noted above.  The most common ones are most tax debts, and pretty much any student loan debts.  Finally, any debts that you reaffirmed are excepted from the discharge.  Orders of non-dischargeability as mentioned above are fairly rare Рsuch orders typically happen when a creditor can show that you incurred a debt with the intent to discharge the debt. 

In short, the discharge is the key to your fresh start.  It frees you from the burden of debt and allows you to focus on rebuilding your financial future.