Phoenix Arizona Bankruptcy Attorneys FAQ - Questions About Bankruptcy in AZ
Our Phoenix, Arizona bankruptcy attorneys with Phillips and Associates understand that if you are considering filing for bankruptcy, you undoubtedly have many questions. We try to answer the most frequently asked bankruptcy questions here. If you have others, or wish to discuss your case in person, please contact our Phoenix, Tucson, Arizona area bankruptcy attorneys to schedule a free consultation. We can help you get back on track with your finances.
Can I keep my house through bankruptcy?
In most cases, you can keep your house even if you file for bankruptcy provided the equity in your house is exempt and you can keep the payments current. You have a right to file bankruptcy and it is not a breach of the home loan agreement. Often, failing to make the payments according to the loan agreement is a breach. So, make the payments, and keep current if you want to keep your home. If you are behind on your payments and it makes sense to keep the house you might consider Chapter-13
In Arizona, you are allowed to keep up to $100,000 equity in your home, even if you file Chapter-7 Bankruptcy and eliminate most or all of your debts. Because few bankruptcy clients have over $100,000 in equity, almost everyone can keep all the equity they have in their home. If you have more than $100,000.00 equity in your home, you might consider a Chapter-13 Bankruptcy and still keep your home.
In bankruptcy, generally, the secured creditor wants you to keep the house and you to keep paying your loan. The lender is not looking for an excuse to foreclose. Everyone loses in that situation.
The secured loan amount on your mortgage survives the bankruptcy and is not eliminated. The bankruptcy discharge eliminates your personal liability for the mortgage, but it does not disturb the lien on the property. Thus, after bankruptcy, the mortgage lender still has its rights in the property, including the right to foreclose if you fail to honor the loan agreement.
Serving Phoenix, Tucson, Mesa, Scottsdale, and other Arizona areas, the bankruptcy attorneys with Phillips and Associates can discuss your individual situation with you and determine which bankruptcy filing -- Chapter 7 or Chapter 13 -- is best for you.
back to top
Is it smart to keep my house if I’m filing for bankruptcy?
Whether or not it’s smart to keep your house if you file for bankruptcy depends on the value of your home, the amount of your lien and your other options for housing.
Sometimes debtors take out home equity loans that exceed the value of their home. These loans are secured and non-dischargeable. In these cases, it may be more expensive to keep the house than to buy or rent a comparable home.
Part of getting a fresh start might be walking away from a problem home. Our Phoenix, Tucson, Arizona bankruptcy attorneys will review your specific situation with you free of charge and help you make a decision that is best for you.
back to top
What is consumer credit counseling?
Many people who are considering filing bankruptcy look to consumer debt counseling as an alternative. You might want to be leery of consumer debt counseling or debt management programs. It is an unfortunate truth that not everyone offering to help you get control of your finances has your best interests (as opposed to their own) at heart. Approach debt consolidation loans with skepticism.
While a loan to consolidate all of your debt into a single obligation is appealing and may have a lower interest rate than the credit card interest rate, make sure that you can really repay that amount. Understand clearly the term, and interest rate on the loan. It may be that even lowering the interest rate does not make your present debts manageable, it just postpones your bankruptcy and prolongs your headaches.
Some debt counselors confine themselves to dealing with your unsecured commercial creditors, excluding your obligations for child support or unpaid taxes. In effect, they ignore the debts that won't go away, while channeling your money to creditors whose claims could be discharged in bankruptcy.
There are several debt management programs with modest cost to you, the client. Approach for-profit or fee-based services with caution and make sure that the service is worth what it costs. Make sure that you don't worsen your situation by enlisting others to help with debt management. While it is comforting to have an ally in your struggle, make sure that their help has your best interest at heart.
If you participate in a program where a service negotiates with your creditors or makes payments on your debts for you, understand whether the service promises to lower the amount you owe or the interest rate you pay, or just promises to lower the payments you make every month, without significantly changing your obligation. Know what happens if a creditor won't negotiate.
Find out whether the loan will pay off over the life of the loan, or whether you will owe a "balloon" payment at the end. For most borrowers, balloon payments are just an invitation to another loan, and you never get free of this debt. In this situation, you may end up filing for bankruptcy at some point in the future.
Home equity loans are risky because they put your home in jeopardy. If you can't pay your present unsecured debts, all your creditor can do is sue you and try to collect any judgment it gets. If you can't pay your home equity loan, you may lose your house in foreclosure. Most states provide an exemption that protects a given amount of equity in your home and puts that equity beyond the reach of your creditors. If you voluntarily pledge that equity to a creditor, the exemption no longer protects your home.
Our Phoenix, Tucson, Arizona bankruptcy attorneys understand that exploring your options can be confusing. We can help. Schedule a free consultation with us.
back to top
Can I discharge my student loans in a bankruptcy proceeding?
Generally not, under any chapter. The borrower's bankruptcy options on student loans have shrunk to very few. Recent changes to the Bankruptcy Code made student loans non-dischargeable, regardless of the age of the loan, unless the borrower can establish what is nearly impossible to prove: "substantial hardship".
Student loans are no longer dischargeable in bankruptcy just because they have been in pay status for the requisite time. The only way the loan can be modified or discharged is by proving that repayment of the loan will create a substantial hardship on the debtor/borrower and his family.
This standard is generally interpreted to mean that the debtor cannot maintain a minimally adequate standard of living and repay the loan. It usually requires a showing that the conditions that make repayment a hardship are unlikely to improve substantially.
Absent a showing of substantial hardship, the best that bankruptcy can do with respect to student loans may be to eliminate other debts that compete for the borrower's dollars, or to provide a measure of peace during a Chapter-13 plan.
Student loans are contracts like any other loan and are subject to challenge for fraud, etc. However, student loans are not enforceable when the school has closed prior to the student completing his education. These challenges could be raised in a Chapter-13 proceeding and decided by a bankruptcy judge. In the usual Chapter-7, there is no dividend to creditors and thus no reason for the bankruptcy court to rule on the enforceability of a claim, outside of an adversary proceeding to obtain a hardship discharge.
Another problem in student loans is the state of the lender's records: the loan has been transferred several times and it is not clear just what is owed and whether all of the additional charges are in accordance with law.
There is some small comfort in the federal regulations which restrict the amount of a student/borrower's wages that can be garnished to repay a student loan to 10% of the borrower's take home pay. Of course, the lender has the right to intercept tax refunds and apply them to the loan in addition.
To thoroughly discuss your options, contact our Phoenix, Tucson, Mesa, Scottsdale, Arizona bankruptcy attorneys with Phillips and Associates.
back to top
Will I be able to get credit after filing bankruptcy?
Filing bankruptcy does not prevent you from getting new credit. An entire class of lenders target the recently bankrupt as customers! Immediately after a bankruptcy filing, you can expect credit to be more difficult to get. Credit is, however, available but usually from large car dealers who want to sell you a car at their price. Still, this can help you reestablish your credit.
Two years after a bankruptcy discharge, some debtors are eligible for mortgage loans on terms just as good as those with the same financial characteristics who have not filed bankruptcy. That is, in getting a home loan, the size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.
While the fact that you filed bankruptcy stays on your credit report for up to 10 years, it becomes less significant the further in the past the bankruptcy is. In fact, you are probably a better credit risk after your bankruptcy than before when you owed all that money.
There is no "right" to credit, and landlords and credit card companies are well within their rights to consider your financial history in their credit decision. However, debtors are protected from discrimination based solely on the fact that they have filed bankruptcy by provisions of the Bankruptcy Code.
If you feel that you have been discriminated against in getting credit because of a bankruptcy filing, contact the Phoenix and Tucson area bankruptcy attorneys with Phillips and Associates.
back to top
Will all credit card debts be dischargeable in bankruptcy?
Credit card issuers sometimes challenge the discharge of their debt in Chapter-7 Bankruptcy by filing an adversary proceeding claiming that the debt was incurred by fraud and therefore should be excluded from the discharge. This is sometimes called a "non-dischargeability action".
Credit card debt may be non-dischargeable in bankruptcy under either of two legal theories:
- The application submitted to get the card was fraudulent
- The card was used fraudulently
This issue arises only in Chapter-7 Bankruptcy since in Chapter-13, even debts tinged with fraud are dischargeable.
Non-dischargeability in bankruptcy is a hot issue for credit companies. While each card issuer has a different practice about non-dischargeability actions, each of the following circumstances probably increase the likelihood that the debt may be subject to challenge by the creditor:
- Increase in credit card usage shortly before filing
- Newly issued card
- Large cash advances in months before filing
- Use of card for recent travel or vacations
- Pattern of borrowing on one card to make payments on other
- Exceeding credit limit
- Using card when unemployed or without reasonable belief that the debt can be repaid
Generally, the longer the length of time between any particular use and the bankruptcy filing, the less likely the usage will trigger a challenge to dischargeability. Our Phoenix, Arizona bankruptcy attorneys can help you make sense of your situation. Contact us!
back to top
What credit card debt strategies are available if I file for bankruptcy?
If you are concerned about a challenge by a credit card issuer to the discharge of a particular debt, there are several strategies available:
- Wait to file bankruptcy for a while so that you can make payments on the account between usage and filing
- Settle with any objectioning creditor if and when they file a non-dischargeability action
- If non-dischargeability actions are filed, discuss with bankruptcy attorneys converting the case to a Chapter-13
- Contest the suit at trial. If you win, you may recover attorney's fees incurred to defend the action
- File Chapter-13 where even debts that may have been incurred fraudulently are dischargeable
Still confused? You don’t have to be. Schedule a free consultation with the Phoenix, Arizona bankruptcy attorneys at Phillips and Associates.
back to top
What taxes can be discharged in bankruptcy?
Bankruptcy can provide relief from some taxes. Some taxes and penalties are dischargeable; those that can't be discharged can be paid without interest in Chapter-13.
The automatic stay in bankruptcy stops even collection actions by taxing authorities, including garnishment and seizure. These provisions of the law apply equally to state and federal tax agencies.
back to top
How much tax relief can I expect if I file bankruptcy?
The precise measure of the relief available in bankruptcy depends on a number of factors including:
- The kind of tax involved;
- The age of the tax;
- Whether a return was filed; and
- The chapter of bankruptcy selected.
In general, unsecured income taxes that were first due more than three years before the bankruptcy is filed, for which a timely and non-fraudulent return was filed, can be discharged in full in any chapter of bankruptcy.
Specific taxes not dischargeable in bankruptcy:
- Recent taxes
- Unfiled returns
- Trust fund taxes
- Penalties
A better solution when the priority tax (recent taxes or trust fund taxes) is too large to pay off in a Chapter-13 may be what is called an offer in compromise. In an offer in compromise, the IRS is now also under direction to consider settlement offers (aka "offers in compromise") from those with pending bankruptcy cases.
This is only a summary of the treatment of taxes in bankruptcy. The effect of recent tax assessments, offers in compromise, and amended returns have been omitted for simplicity. Be certain to bring these issues to the attention of any bankruptcy lawyer you consult.
The Phoenix and Tucson area, Arizona bankruptcy attorneys with Phillips and Associates have the knowledge and talent necessary to help you make the right financial decisions. Contact us.
back to top
Is it possible to discharge child support or other family obligations through bankruptcy?
Child support, alimony and family support are all non-dischargeable in bankruptcy. Nonetheless, if you owe back support, bankruptcy might help you get control of your support obligations by eliminating other creditors who compete for your dollars or by creating a Chapter-13 plan for the cure of support arrears.
In Chapter-13 Bankruptcy, support is a priority claim, which must, by law, be paid in full over the life of the Chapter-13 plan. Support has a higher priority than even taxes. The automatic stay protects you from all creditor action to collect back debts while you propose and perform on a Chapter-13 plan.
Often times the financially stressed spouse who should be paying support can't for reasons of job loss, illness, etc. The biggest mistake the non-paying party can make is not attempting to get the court ordered support modified to fit the current circumstances. The current order will control what is owed each month, now and forever, until it is changed. It is virtually impossible to get a court to retroactively modify a support order, or to get any governmental agency collecting back support to compromise.
So, if circumstances have changed and you truly can't pay at the ordered level, go back to court to get it adjusted. Sticking your head in the sand on this issue is a mistake that will follow you forever until paid.
back to top
What effect will bankruptcy have on lawsuits?
Service of a lawsuit or impending trial often prompts defendants to consider bankruptcy.
Since the legal theories behind lawsuits can range from the simple collection action to a complex business tort case, there are no universal answers about whether the filing of a suit signals time to file bankruptcy. Here are some things to consider:
- Should I answer the complaint?
- What happens if I do nothing?
- Do I have to file bankruptcy before my creditor gets a judgment?
- Will bankruptcy stop garnishment on a judgment against me?
back to top
Should I answer a lawsuit complaint if I’ve filed for bankruptcy?
The law presumes that if you don't answer the complaint, you agree with the allegations of the lawsuit. Consider answering the lawsuit if you have a defense or you want to buy time to consider your options. Consult with our Phoenix, Tucson, Mesa, Scottsdale, Arizona bankruptcy attorneys to further discuss your situation.
back to top
What happens if I do nothing about the lawsuit complaint?
Filing for bankruptcy can play a strategic role in the answer to this question. Consult with our Phoenix and Tucson area bankruptcy attorneys to discuss the specifics of your case.
If you do not file an answer, the plaintiff (the entity that brought the suit) can ask the court for entry of a judgment in the amount stated in the complaint. If no amount is stated, the plaintiff has to provide proof of the amount of damages; generally unless you answered the complaint, you cannot participate in the hearing to set the damages.
Once a judgment is entered, the plaintiff can obtain a lien on your assets and can use the services of the sheriff to levy on your bank accounts and garnish your wages. If all of your assets and income are exempt under the law of your state, you may be able to ignore the suit altogether.
Even after a creditor gets a judgment, you can negotiate with the creditor for the payment of the judgment. Since the creditor incurs expenses and delay in using legal processes to collect a judgment, you can sometimes negotiate a discount on the judgment for voluntary payment.
back to top
Do I have to file bankruptcy before my creditor gets a judgment?
In general, a debt represented by a judgment is just as dischargeable in bankruptcy as the same debt prior to entry of judgment. Note, however, that a judgment lien that attaches to assets is only avoidable if it impairs an exemption or attaches within 90 days before bankruptcy.
If the complaint alleged fraud or other grounds that would make a debt non-dischargeable in bankruptcy, doing nothing may prevent you from later contesting the facts (i.e., you may be unable to get a bankruptcy court to hear your side of the fraud charge in a non-dischargeability action).
In the case of debts that are unliquidated (uncertain in amount), a judgment will liquidate the debt. This may have the effect of increasing your debts beyond the eligibility requirements of a Chapter-13 Bankruptcy, with its "super" discharge and inexpensive reorganization possibilities.
back to top
Will bankruptcy stop garnishment on a judgment against me?
Bankruptcy will terminate garnishments as to wages earned after the filing of the bankruptcy. Wages earned before the filing may be recoverable from garnishment if those wages would have been exempt under bankruptcy.
The only possible exception concerns child support collections. In such cases it depends on what chapter bankruptcy case is selected and whether the support first came due before the commencement of the case, etc. We recommend that you schedule a consultation with our Phoenix, Arizona bankruptcy attorneys to discuss your specific situation.
back to top
Is bankruptcy the solution?
The decision to file bankruptcy should not, in general, be driven by a single debt, but should be made after considering the total financial picture, the scope of relief that bankruptcy offers, and the non-bankruptcy alternatives.
If you still have questions on any bankruptcy issue, our Phoenix, Tucson, Arizona bankruptcy attorneys will consult with you at no charge. Contact us to schedule a free debt evaluation or specifically request to speak with one of our experienced bankruptcy attorneys. We are available to help you now.
back to top
If I file for bankruptcy, should I keep secured property or should I surrender it?
In a bankruptcy proceeding, when a debt is secured the creditor has rights in the security (or collateral) in addition to the rights against the debtor.
The debtor's personal liability may be discharged in Chapter-7 Bankruptcy while lien rights in the collateral pass through bankruptcy unaffected unless they are avoided or stripped down. When the lien cannot be avoided, the debtor gets choices about how to provide for the creditor's rights in the collateral.
Long term secured debts like mortgages pass through the bankruptcy unaffected by the discharge. Most creditors secured in real property are happy to continue receiving payments on the debt, so long as you are current.
You've got choices: Redeem, Reaffirm, or Surrender
Redemption in bankruptcy means you pay the secured creditor the present value of the asset that is the collateral for the debt in a single cash payment. Upon payment, the asset is yours, free of the secured debt. The balance of the debt is treated as an unsecured debt in the bankruptcy and discharged with your others debts.
Reaffirmation in bankruptcy is an agreement to waive the discharge as to the reaffirmed debt and to pay the debt according to the terms of the original agreement. The reaffirmation debt is legally enforceable if you breach (stop paying) later on, and the creditor retains the security interest in the asset until the debt is paid.
Surrendering the collateral renders the debt an unsecured debt in bankruptcy. The creditor can sell the asset to recover part of the claim. Even if the asset isn't worth what was owed on it, the unpaid balance is discharged in the bankruptcy.
As illustrated by this question and answer page, bankruptcy is a complex issue. Making the wrong choices can have lifelong financial consequences. At Phillips and Associates in Phoenix, our bankruptcy attorneys will discuss your bankruptcy situation with you free of charge. Please contact us. We can help.
back to top
We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code.
|
