How Your Property is Affected by Bankruptcy

It is true that bankruptcy has some kind of an effect on all parts of your finances, but what about your property? Many people assume that filing bankruptcy means that you have to give up your property, but that is not the case. In most cases your property can be safe from liquidation as long as you are current on the payments. Here are some cases where your property may not be safe:

  • You have a high amount of equity in your home – Because of the housing crisis our nation has faced over the last several years this situation does not apply to a lot of Americans. However, some individuals have a balance that is much less than the fair market value of their home resulting in an amount of equity that the court may want to use to pay creditors. In most cases this will be something discussed between you and your bankruptcy lawyer so that it does not have to be a surprise.
  • You have paid in full vehicles and/or homes – As far as the bankruptcy court is concerned, any paid in full vehicle or home that you own is considered an asset that could potentially be sold in order to pay back your creditors. Typically the court will not choose to liquidate the sole vehicle for the household because they understand that it is necessary in most areas in the company. However, when a family has several paid in full vehicles the court will want to evaluate which ones are not necessary. The same is true for homes.
  • You have valuable “luxury items” – The definition of luxury items will differ with each case, but basically it can be any item of a large value. Common luxury items that are liquidated in bankruptcies are boats, jewelry, art, and high end electronics. Again, you most likely will have discussed these items with your attorney beforehand so you will know if there is any chance that you could lose them.

The good news is that even if you own some of the items mentioned above there are exemptions in each state that will protect a certain value. For instance, in Illinois a married couple filing bankruptcy can have up to $30,000 in equity and keep their house because the exemption keeps the home safe. If they had more than $30,000 then the bankruptcy court may suggest selling the home. Exemptions are created by the states specifically for their citizens and your local bankruptcy attorney will be privy to what they can and cannot protect. If there is a certain item, or set of items that you are worried about protecting just contact a bankruptcy attorney and ask them a few questions.

Debt Consolidation Headaches

Many Americans have turned to the fast-growing Debt Counseling industry over the last decade to help solve their debt problems. Debt Counseling companies attempt to improve people’s financial situations by working-out reduced payments with their individual creditors and/or consolidating their debts into one payment.

On a weekly basis for as long as I have practiced consumer bankruptcy law, I’ve heard horror stories from my bankruptcy clients of Debt Counseling relationships that have gone bad. Common complaints that I hear include: Creditors included in my client’s debt consolidation suing them for collection (even though they had been making timely monthly payments to the Debt Counseling company); mismanagement of the funds paid to these companies; credit report scores plummeting; and even fraud and class-action lawsuits filed against these companies.

Since most people consider the filing of bankruptcy a last resort, a large number of my clients over the years have pursued debt consolidation before coming into my office. In all the time I’ve been practicing, I’ve yet to meet anyone who has had a positive opinion of the Debt Counseling company they’ve used. In fact, I’ve actually never met or even heard of anyone who debt consolidation has sucessfully worked for.

According to a recent article, the root of the problem is that there is next to no government oversight of Debt Counseling companies. In fact, there’s NO federal regulation of debt counseling services whatsoever, and only 17 states have specific regulations to govern debt counseling. Thus, a lack of fear of legal recourse has allowed these companies to act and perform in many instances unethically and without regard for their clients who they are supposed to be helping in a difficult time.

While I obviously personally can’t endorse the process, if you’re considering consolidation of your debt with a Debt Counseling company, please refer to this list of suggestions to help you avoid the irreputable companies and find the decent ones:

Additionally, for a list of Debt-Counseling companies that consumers have filed complaints against, please see:

How Long Does a Bankruptcy Take?

Apparently, patience is a virtue, but let’s be honest, we live in an instant gratification society where no one likes to wait on anything. From job applications, to phone calls, we all get a bit antsy when something starts to take too long. If you are looking into the various types of bankruptcies it is a great idea to take a look at what kind of timeline you are getting yourself into. So how long does a bankruptcy take? The two main types of personal bankruptcy, Chapter 7 and 13, have very different timelines due to the way each chapter is handled.

Chapter 7 bankruptcy is the quickest and most common type of personal bankrupcty. The whole process, from start to finish, can take anywhere from 4-10 months. The process officially begins when the bankruptcy paperwork (petition) is filed with the court, but unofficially the clock starts when you decide to file bankruptcy. In the initial stage you will spend time finding and hiring a cheap bankruptcy lawyer, paying the attorney’s fees, and collecting the necessary documents. At that point your bankruptcy lawyer will compile your financial documents into a petition and get ready to officially file bankruptcy. Usually 30 days after your petition has been filed you and your bankrtupcy attorney will attend at “meeting of creditors” where the bankruptcy trustee will ask you simple questions about your paperwork. 60-90 days after your court appearance you should receive discharge papers in the mail stating that your bankrtupcy case was both completed and successful.

The timeline for Chapter 13 bankruptcy is longer and more complex, but it is an extremely effective course of action if you are trying to save your home or vehicle. The initial stages of the timeline mimic that of the Chapter 7: hiring an cheap bankruptcy lawyer, gathering paperwork, and paying fees. In fact, the main changes in the 2 timelines begin after the meeting of creditors which, again, happens around 30 days after the bankruptcy is officially filed with the court. There will be a second court appearance called a “confirmation hearing” that you may or may not be required to atttend, depending on your attorney. This hearing is used to present the potential 3-5 year payment plan to the chapter 13 trustee. At this point the trustee can choose to accept the plan as is, or to request revisions. Once the plan has been accepted the timeline depends upon the length of the plan itself which can range from 3-5 years. At the end of the payment plan the court will issue discharge papers to the debtor showing that their Chapter 13 bankruptcy was completed and successful.

Because bankruptcy is a legal process there is never an exact timeline for any chapter. Everyone’s financial situation is different and various issues and questions may arise at any point during the filing process. Just remember that even if you feel like the process is taking forever, there is a light at the end of the tunnel: bankruptcies help people acheive a financial fresh start!

Metro Detroit Foreclosures Skyrocket

I recently read an article in the Detroit Free Press by Frank Witsil, “Number of foreclosures in metro Detroit skyrockets.” The article discusses how a combination of factors including low housing sales, loss of income, and increases in adjustable rate mortgages have created “the perfect storm” and caused the foreclosure rates to increase dramatically.  He also reports that the foreclosure trend is predicted to worsen.

The article goes on to give several tips on avoiding foreclosure, but fails to even mention that Chapter 13 bankruptcy  is a viable (and possibly the best) means to legally stop a foreclosure.  The filing of a Chapter 13 bankruptcyimmediately stops any further collection activity, including a foreclosure sale, and gives qualified homeowners a minimum of three years to repay any mortgage arrears.  I’ve seen many people save their homes by filing a Chapter 13 bankruptcy and have always felt that it’s the cheapest and safest way to avoid a foreclosure sale if your mortgage company refuses to work with you.

If you are living in Detroit and are facing a foreclosure, you can learn more about Bankruptcy Laws in Michigan and complete a free legal evaluation form to talk to a Detroit bankruptcy attorney about how a Chapter 13 bankruptcy might help save your home from foreclosure.

Tips for a Successful Bankruptcy

During my time as a bankruptcy paralegal I had the pleasure to see hundreds of successful cases come across my desk and I was quickly able to pinpoint trends in each of them. Once I knew which trends to look for it was easy to assume which of the other clients were on their way to a quick and painless case versus those clients who looked like they were going to see some trouble. Based on that experience I have put together what I think are the top 3 tips for clients who want to achieve a successful bankruptcy:

1. Communicate with your attorney

This tip is #1 for a reason; if you hire a bankruptcy attorney to help you file your personal bankruptcy case then communication with them is absolutely vital. This communication isn’t just a phone call to check in every week or two, but instead a steady dialogue between you and your attorney’s office in order to keep everyone involved with your case on the same page. If your attorney needs something from you don’t procrastinate; make it your first priority to get it to them as quickly as possible. Remind yourself that without financial information from you, your attorney cannot move forward with the filing of your case.

2. Gather necessary documents early

Filing bankruptcy requires specific financial information from you regarding all sorts of things and even the best bankruptcy attorney can’t produce that information. It solely comes from you, the debtor. Begin gathering those necessary financial documents early so that you can quickly produce them whenever your attorney requests them from you. Here are a few items that are regularly required by personal bankruptcy attorneys: paystubs, bank statements, tax returns, mortgage statements, vehicle registration, insurance information, and if applicable child support and/or alimony court orders.

3. Make sure your bankruptcy paperwork is correct

The paperwork filed with the bankruptcy court is called a “petition”. It can range from 15-100+ pages depending on your financial situation. When you are presented with your petition before your case is filed it may seem daunting, but if at all possible you should find the time to go through the paperwork to make sure that everything is correct. Some people choose to do this page by page with their attorney, but it can also be done alone since the information pertains to you. If you see mistakes on the petition then they can be fixed by your attorney’s office.

There can, and probably will be, hiccups with any bankruptcy case, but by utilizing these 3 tips you may be able to avoid some of the common slip ups. These tips will not only lead to a successful bankruptcy, but a more stress free bankruptcy. Think about it this way, if you and your attorney are effectively communicating with one another then you will be aware of exactly what is going on and have no reason for extra worries during the process.

Arizona State Bankruptcy Laws

What are the Arizona Bankruptcy Exemptions?

ArizonaArizona law protects all or a portion of your property from being seized by creditors or the bankruptcy trustee in a Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, you are generally allowed to keep all of your assets and property. Certain exceptions may apply, so it’s wise to consult with an Arizona bankruptcy attorney to find which of your assets will be protected in a bankruptcy filed in Arizona. In general, the major Arizona bankruptcy exemptions include:

Real Estate (the Homestead Exemption)
Up to $150,000 in the equity of your home (which includes a mobile home) can be protected.A provision in the new bankruptcy law caps the homestead exemption at $125,000 if you have not lived in the state for at least 40 months prior to the time you file a bankruptcy petition. In some situations, the cap may be permanent. You should consult with an Arizona bankruptcy attorney for specific information.
Up to $5,000 of equity in one motor vehicle can be protected. (Up to $10,000 if the debtor is physically disabled)
Other Property
Household furniture, furnishings and appliances valuing up to $4,000 and clothing valuing up to $500 can be protected.
View the complete list of Arizona bankruptcy exemptions

Please remember that this page provides general information only, and is not intended to provide legal advice. The information is not a substitute for the advice of a qualified bankruptcy attorney. If you need legal assistance, consult an attorney.

Which state’s exemption laws apply in your bankruptcy?

Arizona FlagGenerally, the laws of the state in which you lived for the 730 days (2 years) prior to filing a bankruptcy petition will apply in your bankruptcy.

If you have not lived in the same state for the 2 years immediately prior to filing your bankruptcy petition, the laws of the state in which you lived for the majority of the 180-day period preceding the 2-year period will likely apply.

If application of the preceding general rules renders you ineligible for exemptions under any state’s laws, you may be allowed to choose the federal exemptions applicable in your bankruptcy.

Is Arizona a community property state?

Yes, Arizona is a community property state. Because it is a community property state, you are responsible for any debts that your spouse incurred while you were married. You are therefore equally liable for your spouse’s debts even if you did not voluntarily assume liability for them by, for example, cosigning for a loan given to your spouse.

Did your senator vote in favor of the new bankruptcy laws?

Following years of intense lobbying by creditors, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). How did your Senators vote on these largely pro-creditor provisions?

Kyl (R-AZ) — YEA
McCain (R-AZ) — YEA

Arizona Bankruptcy Court Locations:

230 N. First Ave., Suite 101
Phoenix, AZ 85003
(602) 682-4000

3001 N. Main Street
Suite 2E
Prescott Valley, AZ
(602) 682-4000

38 South Scott Avenue
Tucson, AZ 85701
(520) 202-7500

325 W 19th Street
Suite D
Yuma, AZ 85364
(928) 783-2288

Note: You may not have to actually go to one of the above bankruptcy courts. Trustees often conduct your meeting at a local venue.

Although bankruptcy is federal law, the bankruptcy courts in each jurisdiction have local rules that must be followed. A local bankruptcy attorney will be familiar with the specific rules in your area.

Arizona Bankruptcy Attorney Locations:

Looking for an Arizona bankruptcy attorney?
Looking for a Phoenix, Arizona bankruptcy attorney?

What I Learned from Bankruptcy Court

Throughout my time as a personal bankruptcy paralegal I spoke to debtors as they were going through every step of the process. Whether they were filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy the emotions and questions were very similar. My goals were always the same: make sure they were paired with the best bankruptcy attorney for their situation and help them feel prepared for what was next. After preparing many debtors for their bankruptcy court hearing I would get calls or emails letting me know how it went. Here are some of the things that debtors said they learned from bankruptcy court.

  1. It Wasn’t Like TV Court: Many of us picture a judge, jury, and crowds of people when someone mentions a “court appearance,” but bankruptcy court isn’t like that at all. The hearing is performed by a bankruptcy trustee and there is no need for a jury. One similarity is that in most cases your bankruptcy lawyer will be present with you.
  2. My Creditors Weren’t There: Although the bankruptcy court appearance is also known as the “Meeting of Creditors” there are rarely any creditors present, and even if they are the bankruptcy trustee does not allow them to badger or harass the debtor. If some of your creditors choose to attend the hearing they will most likely speak directly to the trustee and not to you.
  3. It was Over Quickly: One of the most surprising things about the bankruptcy court hearing is the speed of which it takes place. Depending on the type of bankruptcy, a standard bankruptcy hearing can last anywhere from 8-20 minutes!
  4. The Questions Were Harmless: As mentioned earlier the “Meeting of Creditors” is performed by a bankruptcy trustee who will ask the debtor a series of questions to ensure that no fraud has been committed. In most cases, these questions will be simple ones like: “do you own a home,” “are you expecting to inherit any money in the next few months,” and “have you listed all of your debts and assets?”
  5. I’m Not Going Through This Alone: In most cases bankruptcy hearings all take place in 1 or 2 specific courtrooms within the district courthouse; this typically means that those courtrooms have quite a few people in them at one time. It is typical for your hearing to be one of many that is taking place that day.

There may be certain levels of worry associated with filing Chapter 7 bankruptcy or Chapter 13 bankruptcy, but your court hearing shouldn’t be one of them. Remind yourself that after the 10-15 minutes you spend answering questions for the bankruptcy trustee you will just be waiting for your bankruptcy discharge: the paperwork stating that your debts have been eliminated and your bankruptcy is fully completed. If you are still feeling anxiety about your bankruptcy hearing as your bankruptcy lawyer to go through some typical questions with you to give you an extra confidence boost.

Credit Card Bankruptcy

It is not hard to believe that credit card debt is the most common type of debt that Americans face today. Credit cards have been a standard in our society for decades and if used correctly they can be truly helpful; but sometimes, despite the best of intentions, credit cards may lead to a slippery slope of overwhelming debt. For that reason credit cards are one of the main reasons individuals in American choose to go bankrupt, even though there is not technically a type of bankruptcy called a “credit card bankruptcy.” The staggering interest rates, minimum payments, and high credit lines are, in some cases, a recipe for financial disaster. Declaring bankruptcy can typically eliminate unsecured debt like credit cards in slightly different ways depending on whether a chapter 7 vs. chapter 13 is filed.

Chapter 7 bankruptcy is commonly used to wipe away unsecured debt. Credit card debt is classified as unsecured because ultimately there is no collateral against the items purchased on the credit card. In other words, the credit card debt is not tied to a single item like a vehicle or a home, but to the various purchases made with the credit card. When an individual files Chapter 7 bankruptcy they will list all of their creditors on the bankruptcy paperwork, or petition, in order for the creditors to be notified of their decision. Then, if the bankruptcy court decides to approve the Chapter 7 bankruptcy, a discharge notice will be sent to those same creditors stating that the debt has been eliminated by the debtor filing bankruptcy. Because bankruptcy is governed by federal law, the discharge is not something that credit card companies can just ignore.

Chapter 13 bankruptcy takes care of credit card debt in a different way, but achieves the same overall goal: finding financial freedom through becoming debt free. Chapter 13 bankruptcy utilizes a repayment plan where qualified debtors are allowed to pay back a portion of their overall unsecured debt over the course of 3-5 years. The payment plan is based on the debtor’s income, total debt, and other variables depending on their specific situation. Bankruptcy lawyers work closely with both the debtor and the Chapter 13 bankruptcy trustee to find a monthly payment amount that will work for everyone involved. By the end of the 3-5 year Chapter
13 payment plan the debtor will typically be debt free and caught up on all secured monthly payments like vehicles and home.

Since the bankruptcy laws were revamped in 2005 there is no such thing as only filing on 1 or 2 credit cards. In most cases any debt listed on the debtor’s credit report is listed on the bankruptcy paperwork to be potentially eliminated. Credit card debt can go from manageable to overwhelming in a matter of days, so taking control of the situation quickly is crucial. Filing bankruptcy isn’t the answer for everyone, but if you are facing an amount of credit card debt that you cannot see yourself coming out of in the next few years then looking into bankruptcy may be something to look into.

Debt Negotiation Programs

Debt negotiation/debt settlement companies contact your creditors and attempt to negotiate a settlement of your debt for less than the full balance you owe. In recent years, this form of debt management has grown increasingly popular.

Bankruptcy - Debt Negotiation

Debt Negotiation/ Debt Settlement

Creditors usually require a lump sum payment to settle a debt, so you will need to have either the means to pay a lump sum or be willing to enter into a monthly payment plan with a debt negotiation company. The debt negotiation company typically holds your payments in escrow and attempts to settle with your creditors once there is enough money available in your escrow account. The monthly payments you make to the debt negotiation/debt settlement company can be quite steep depending on the amount of your debt and the number of years of your debt negotiation plan, and you’ll probably have to rely on an estimate of the amount of money and payments needed to settle all of your debt. (The majority of programs have to be completed in 3-4 years.)

No Guarantees

Be aware that there are no guarantees the debt negotiation firm will be able to reach a settlement with all of your creditors. Results vary for each individual. Most types of unsecured debts, particularly credit card debt, can be included in a debt settlement program. However, there is no way to force your creditors to accept the settlement you and the debt negotiation firm offer. You are merely asking your creditors to forgive a portion of your debt in return for payment of the remaining portion of the debt with a lump sum payment.

Why would a creditor choose voluntarily to accept less than what you owe? Because they realize that getting something is better than getting nothing. For that reason, they are likely to accept settlement offers from people with a lot of bad debt on their credit and who appear to be good candidates for bankruptcy. The creditors know that most unsecured debts are completely dischargeable in a Chapter 7 bankruptcy, and that they probably would not be entitled to any money should the debtor file bankruptcy because the vast majority of Chapter 7 bankruptcy filings are “no-asset” cases in which no assets are available to satisfy unsecured debt. When considering acceptance of your debt settlement offer, creditors may require that you provide them with documents showing your assets and income so they can determine whether to accept the settlement. There is always a danger when providing creditors with this sort of financial information because there is a possibility the information you provide could give the creditor a reason to sue you.

If a creditor accepts your debt settlement offer, you will typically end up paying 40-60% of the debt. Settling creditors usually require payment of the full settlement amount within a short period of time. Therefore, someone with $10,000 in debt and $6,000 available for payment of that debt in either their bank account or an escrow account with a debt negotiation firm may be able to settle their $10,000 debt with a one-time payment of $6,000, resulting in a debt reduction of $4,000. However, there can be tax consequences when you settle your debts, and the person in the example above could potentially be taxed on the $4,000 debt forgiven by the creditor. In addition, persons who utilize debt negotiation firms will also have to pay that firm a fee for their services.

Debt negotiation is a viable option and can help some individuals, but like many debt management options, there are firms who do not act in the best interests of their customers, and you should be very thorough in making sure you are working with a reputable firm.

The Pros and Cons of Debt Negotiation

Significantly Reduces Debt
If you are able to offer a substantial lump sum payment to a creditor, you may be able to have up to 60% of your debt forgiven, particularly if you are able to demonstrate to the creditor that payment of 100% of your debt would be an extreme hardship.
Once Paid, the Entire Debt Is Gone Forever
Your creditors will never be allowed to try and collect the portion of debt that was forgiven.
Won’t Become Part of the Public Record
Arbitration and negotiation never become part of the public record, although they will be reported negatively on your credit report.
Lower Payments
It is possible to enter into a debt negotiation plan with payments lower than what you would be paying if you were paying all the minimums on your credit card balances.
End Creditor Harassment
If the debt is already in collection, the debt negotiation firm requires that the collector contact them in the future to discuss your debts. Most firms also request that your original creditors do the same, but they cannot force the creditors to do so.
Damage to Your Credit Rating
A debt settlement will be reported on your credit report and may significantly lower your credit score (although settled debt is usually considered an improvement over a significantly past due debt on your credit report).
Not All Debts Are Eligible
Some types of debts are not eligible for debt settlement programs. Student loans, taxes, auto loans, and mortgages typically are not eligible.
Not All Creditors May Accept the Offer
Although some of your creditors may be willing to accept your debt settlement offer, it may be difficult to convince all of your creditors to accept the offer. Creditors’ internal policies towards debt settlement plans can differ greatly, and when you are dealing with a large number of creditors there is a significant likelihood that not all creditors will accept the settlement plan. Even if all of your creditors do accept the plan, they are still permitted to file a lawsuit if you are in default of the original terms of the plan.
Possible Tax Consequences
The portion of the debt that is forgiven by your creditors may be counted as income and affect your tax liability. Consult with a tax specialist before entering into a debt settlement agreement.
Creditor May Require Additional Documentation
Creditors may require detailed statements regarding your finances and assets to determine if you are eligible for their program. There is some risk in providing that information to creditors, who may be able to use the information against you in a lawsuit.
Long Amount of Time to Obtain Relief
Typical debt settlement plans last 3-4 years, although plans can be completed much more quickly if you have a large amount of money saved before enrolling in the program.
Debts Keep Increasing
Debt settlement firms typically advise you to stop sending money to your creditors, so it’s likely that additional late fees and interest will be added onto your total existing debt.

Consider Debt Negotiation If…

  • Paying your debts back in full would be a verifiable hardship
  • Your accounts are delinquent
  • Your budget shows enough disposable income to afford monthly debt negotiation payments, or
  • You are able to offer your creditors a lump sum payment

How Soon After Filing Bankruptcy Will You Qualify For New Credit?

While a bankruptcy is reported on your credit for 10 years following the filing of your case, it doesn’t mean it takes 10 years to obtain more credit. Typically, recent bankruptcy filers qualify for certain types of credit immediately after their bankruptcy is discharged.

Bankruptcy - How Soon to File Bankruptcy

After a good payment history of approximately 18-24 months on this new credit, you will begin to qualify for most types of loans at competitive rates. Creditors also look at your income, other debts, and assets to determine what loans you may be eligible for. How long it will take you to qualify for new credit is not set in stone and will vary for each individual, but below is general guidelines for when you can expect to qualify for different types of credit:

Real Estate

As a rule of thumb, lenders do not consider bankruptcies if you attempt to obtain a home loan at least two years after receiving your discharge. When buying a house, although it is often wise to wait the two years to rebuild your credit and save for a down payment, there are some lenders who may finance a mortgage in as little as one day after your bankruptcy discharge. However, the interest rates offered by those lenders are generally significantly higher than the rate you could obtain after rebuilding your credit for two years.

How long it will take you to qualify for new credit is not set in stone and will vary for each individual…Auto Loans

While the initial interest rates available to you are steep, financing a car immediately after your bankruptcy has been discharged will most likely be an option. Look in any paper or auto magazine and you can see many car dealers advertising that they extend credit to people recently out of bankruptcy.

Credit Cards

Credit cards are also usually available immediately after receiving your discharge. In fact, in many cases the very same creditors whose debts were just discharged in bankruptcy may offer you more credit. Creditors are motivated by future profits, not past losses, and see the bankruptcy on your credit report as an opportunity to justify charging you higher interest rates and fees. Secured credit cards, which require a deposit, are readily available after bankruptcy and can be used just like a regular credit card. Obtaining new credit and managing it wisely is the best way to improve your credit following a bankruptcy — even if obtaining more credit equates to higher interest rates in the short-term.

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