Tag Archive: Bankruptcy


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 – through the trustee – 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 – 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!

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 – he 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.

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 – no 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 – such 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.

As I previously discussed, the means test plays a major role in determining whether a person is eligible to file for relief under Chapter 7 – the liquidation bankruptcy.  However, if you are looking at filing a Chapter 13 reorganization bankruptcy for whatever reason, the means test still plays a role in your Chapter 13 bankruptcy.

The means test form used in a Chapter 13 is slightly different than the one used for a Chapter 7, but the same basic rules about determining your income and taking expenses still applies.  There are some more restrictions as to which expenses you can take, but that is what your attorney needs to worry about. 

Now, each jurisdiction uses the means test slightly differently, so if you are looking for file for bankruptcy outside of Arizona, this blog posting will likely not give you the information you need.  I help people get relief under Chapter 13 bankruptcy in Arizona only, and cannot speak to systems outside of this state.

Basically my goal when doing the means test for your Chapter 13 is to minimize your disposable income.  In Arizona, we determine your plan payment based on your Schedules I and J. Basically we take your current monthly income, minus your current monthly expenses and see what is left over.  However, there is a provision in the bankruptcy code that says, essentially, that the plan cannot be confirmed unless your unsecured creditors get at least as much as your means test shows you have left over at the end of the month.  Depending on your circumstances, that can be an unsurmountable issue.

In short, the means test can still play an important role, even in a Chapter 13 bankruptcy, and you should have a knowledgeable attorney assist you through the process.  Chapter 13 bankrutpcy filings are pretty complex, and while it may seem counter-intuitive to pay an attorney to help you ‘go bankrupt’ – we can help you avoid losses and other problems that you may not be aware of otherwise.

After determining your household income, and realizing that you ‘fail’ the means test because, unbelievably, you make ‘too much money’, not all hope is lost.  There is a very important second step to the means test, that may still allow you to get a fresh start in a Chapter 7 bankruptcy, rather than struggling through a Chapter 13 repayment plan.  In this second step, we take your gross monthly income, as determined during the first step, and take out certain expenses. For one, we get to deduct all the taxes that you pay, so we finally get to work with net income.  We then deduct living expenses.  Absent unusual circumstances,  we are unfortunately limited to what the IRS determines to be the average monthly expense for a household of your size for food, housing, transportation etc.  but sometimes special circumstance exist, and we can show the court why you need to have an additional monthly expense allowance for one of the categories. 

After we take these statutorily determined expenses, we then look at your other monthly expenses.  For example, do you have children in school under the age of 18?  Deduct $137.50 per child.  Do you have life insurance? Deduct your life insurance.  Do you pay real estate taxes?  Deduct your real estate taxes.  There are quite a few more of these categories – most of them a bit difficult to decipher even for an attorney, but they are there, and an experience attorney will get you every deduction you qualify for.  This is another reason why you should not rely on online forms to complete the means test for you, or document preparers.  Most of those guys will run the basic test, maybe check the set deduction, and then send you down the path to a Chapter 13 without even checking for any other deductions that are available for you.   Finally, if you have any secured debts (think house with a mortgage, car with a car loan) or any tax debts we also get to deduct a set monthly amount for your expenses connected to that. 

Once all that is said and done many potential clients that thought they had not options other than a Chapter 13, all of the sudden have all sorts of options… They can get their fresh start right away – stop worrying, and move on with their lives, and all because someone actually took the time to calculate their eligibility.  Or if their budget allows, they can choose to be in a Chapter 13, but how the means test works there is quite another story.  If you think you might need to file for bankruptcy relief, and you want to find out more about it, keep on reading, do your research, and then call a lawyer.

Are thoughts like this going through your head?  What about “Which bills should I pay this month…?” or “Why won’t they stop calling me?”  If you find yourself in a financial situation that is worse than what you had hoped for in this stage of your life, and for whatever reason you find that your debts are eating you alive, bankruptcy just may be the answer to your questions. 

Here is a little step-by-step guide to follow after you have asked yourself the above question:

  1. Take a deep breath… there are options out there – and one will be right for you. Remember – sticking you head in the sand, and ignoring the problems around you never works.
  2. Start doing some research.   (If you are reading this, you are on the right track).
  3. Take another deep breath.  Come to the realization that there is A LOT of information out there – not all of it from particularly good sources, not all of it correct, and most likely none of it fitting your particular situation.
  4. Begin researching bankruptcy attorneys in your state. 

Yes, attorneys.  I realize there is a whole variety of options out there, from document preparers, to debt relief organizations, but the bottom line NEVER CHANGES: Only an attorney can give you legal advice – only an attorney can help you realize the full picture.  Also, on a side note, the guys with the sign on the side of the highway advertising $200 bankruptcies – they are, typically, document preparers.  You know what a document preparer does?  He fills out your forms, based on the information you give him.  He cannot give you legal advice, he is not qualified to give you legal advice, and guess what else?  Once he is done filling out the forms, he’ll most likely hand them back to you and send you on your merry way to figure out not only how to maneuver the bankruptcy system, all on your own. 

So, back to researching your attorneys.  Even though this rarely is the reality of things, but the price should be your least important factor in determining whether to hire an attorney.  Arizona bankruptcy attorneys all know what the other charges, in a round about way, we all have our own ways of figuring out what is fair for you, and keeps our bills paid.  The most important factor is ‘are you comfortable with the person that proposes to represent you?’.  Don’t get me wrong, you’re not going to go steady with your attorney, but you will have to work closely with him or her in preparing and planning your way to a fresh start.  Your attorney is your advocate, counselor and legal representative, and if you just don’t see eye to eye with him or her, it might not be the right fit for either one of you.

If you think you are comfortable going from an intake clerk to a paralegal – kind of passing the attorney in the hallway somewhere in between there, and having the paralegal be your main point of contact – by all means, go with one of the big guys.  Their attorneys are highly competent, and on the couple of occasions you get to talk to one of them, you’ll probably like him or her.  If, on the other hand you would prefer to have your actual attorney walk you through the process, with her support staff doing exactly that – supporting her in the data gathering and logistics, then you may be better of with a smaller firm. 

Aside from that, working style also matters greatly.  Take me for example: If you do not have email, or you only check it about once a month to see what the grandkids are up to – then I’m probably not the right fit for you.  On the other hand, if you value getting your questions answered quickly, both in writing, and if needed over the phone, then I might just be your gal.

To sum up, there are a multitude of options out there.  Even though it may feel like it right now – the world is not in fact collapsing around you.  Always remember, knowledge is power, and getting this knowledge from a licensed attorney will empower you to take your life back, and get your fresh start.

The short answer to this question is, absolutely not!  When your bankruptcy petition is filed, the automatic stay goes into effect immediately.  The automatic stay is the law that states that once someone has filed for bankruptcy protection, a creditor cannot do anything to continue trying to collect from this person.  This includes filing a lawsuit, or, if the debtor was sued prior to the lawsuit, continue the law suit. 

Credit card companies and other lenders don’t really have the resources to sue everyone that is falling behind on their payments.  But, after enough time goes by, they will bring an action against you for breach of contract.  Usually, there is no good defense to a law suit such as this:  You got a loan, you stopped repaying it, the law unfortunately does not consider the hardship that caused you to default, or the good intentions you may have for future repayment…. 

Filing for bankruptcy protection can help you stop the law suit, and prevent wage garnishment.  Even if the law suit was completed prior to filing your bankruptcy, and your wages are already being garnished, the bankruptcy laws put an end to the garnishment.  They most important aspect here is to list the plaintiff as well as their attorneys on your petition, to ensure they are notified about your bankruptcy filing.

Timing is often key to prevent garnishment altogether.  If you have gotten sued (you will have been served with a Summons and Complaint) you should speak to an attorney as soon as possible to determine the best course of action.  In this conversation with the attorney, be sure to also discuss any previous (old) law suits that may have already gone to judgment.  If such a previous lawsuit resulted in a lien on your property, your attorney, through the bankruptcy process, can likely do something about this lien – but only if she knows about it.

Remember, knowledge is power, and sticking your head in the sand after you have been served is never the best course of action.  A free consultation with a bankruptcy attorney such as myself will enable you to better understand your options.  Visit our website at www.marcowimmerlaw.com to find out more about us and our philosophy.