Back in the Day Cafe



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I remember that one of the local radio stations used to have a segment called "Back in the Day Cafe" during which they would play "old school" hits from the 80's and 90's. Well, today we are going back in the bankruptcy day to 1994. This was a very different time in the bankruptcy world; a time when 341 hearings were not held at the bankruptcy courthouse on 1st Avenue and Van Buren but at the Firstar Metropolitan Bank & Trust building.

This was also a time of the "zero-down" bankruptcy epidemic. A few select bankruptcy firms in Arizona were offering zero-down bankruptcies, meaning a potential bankruptcy client only had to pay the bankruptcy filing fee up front. All attorney's fees would be paid after the bankruptcy was filed and on an installment plan. These firms would actually issue unsecured promissory notes for repayment.  The notes would then be sold to collection agencies and pursued aggressively post-bankruptcy filing.

So, why do you have to pay your bankruptcy attorney all those fees before they can file your case? Because of the lesson that bankruptcy in the 1990s taught us: that attorneys should not be your existing creditors when you file a  bankruptcy case.  If an attorney is owed money at the time your bankruptcy case is filed, that money would be an antecedent and dischargeable debt.  If the attorney attempted to collect from you, they would be in violation of the bankruptcy code.  And besides all of that, attorneys want to get paid for the work they do, and you should pay them to ensure the work they complete is the high standard of work you expect. What happened in the 1990's is that the "zero-down" bankruptcy firms produced such shoddy work that the bankruptcy community became very concerned.  The end result was that many of the zero-down attorneys were sanctioned and suspended from practicing law.

Additionally, there is a little bankruptcy rule found at 11 U.S.C. Sec 526(a)(4), which states that a debt relief agency (your bankruptcy attorney) can't advise you to incur more debt prior to filing for bankruptcy.  What is a zero-down bankruptcy if not an incurring of more debt prior to filing? 

If you do go for a bankruptcy consultation, and the attorney makes the statement that your case will not be filed until all fees are paid in full, please try to remember that this attorney is not greedy.  Remember this little trip back to the wild bankruptcy days of the 90's and the lessons learned from zero-down bankruptcy law  firms.

(The background for this blog was taken from a very interesting article in Phoenix NewTimes.  If you wish to read the entire article, you can find it at http://www.phoenixnewtimes.com/1994-02-02/news/debt-in-the-water-zero-down-bankruptcy-firms-cost-their-clients-plenty/)

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.

Name that Creditor

Having filed numerous bankruptcy cases, we have met a variety of people and seen the spectrum of situations. Sometimes we have clients with just three or four creditors, and sometimes we have clients with twenty or thirty creditors.  Regardless of how many creditors they have, our clients often can't remember just who they owe money to, and this can cause problems when it comes time to receive the bankruptcy discharge.  

Whether the quantity is large or small, it is important to make sure that each potential creditor is adequately identified and named in your bankruptcy petition. If you fail at playing Name that Creditor, you may give a  creditor a loophole to claim non-dischargeability of a debt that would have otherwise been discharged in your bankruptcy. 

The United States Bankruptcy Code, Section 523(a)(3) states that a debt may be non-dischargeable if is not listed or scheduled in the bankruptcy petition in such a way that a creditor would have notice of the case. Creditors must  have notice of your bankruptcy filing in order to be able to file a claim for the money you owe them or to object to discharge.  In bankruptcy, everything is processed through the mail.  There is no physical service on parties in interest. Generally speaking, if you make your best attempt to list your creditors with correct addresses, and information regarding your bankruptcy filing is deposited in the mail, you will be deemed to have given notice to your creditor.  However, an Arizona bankruptcy judge issued an opinion this year that tends to say that proof of mailing is not enough.  The general facts must also show that the notice was adequately received by the creditor in question. The judge made a clear distinction between service and notice. Service is complete upon mailing, but notice may only be achieved if your creditor received the court paperwork and had knowledge of the bankruptcy filing.

Another important question in Name that Creditor is who is the proper party to serve and give notice to? Sometimes debts are passed around from collector to collector, and it is difficult to discern who is the actual owner of a debt.  In the same case addressed above, the judge determined that the proper party would be whoever intends to enforce the debt after the bankruptcy is filed. This is important for those debtors that have been sued in state court prior to filing bankruptcy.  Just because an attorney represented a creditor in a state court lawsuit against you, does not mean that they are now the interested party and agent for that creditor in your bankruptcy case.  In this instance, it would be safer to have your attorney list both the attorney handling the lawsuit and the original creditor.

What all of this says to you as potential bankruptcy debtors is that a lackadaisical approach to completing your bankruptcy petition is not the best approach.  You really want to identify each of your creditors for your bankruptcy attorney.  This will ensure that you do not give any creditor an easy way to claim that they did not know you filed bankruptcy and therefore, assert that their debt is non-dischargeable.

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.

Having an A+ Credit Report After Filing for Bankruptcy

Within the last two days, I have had several potential clients ask me the exact same question, "what will filing for bankruptcy do to my credit, and will I be able to get loans in the future?" My typical lawyer answer is, "it won't be that bad and maybe."  Kind of non-committal, I know, but the truth is that there is no surefire answer.

Bankruptcy is going to affect your credit.  It can't be avoided. But most of the time, your credit has already taken a hit by the circumstances that have you lead you to our offices. Being late on payments, having accounts sent to collections agencies, and carrying multiple high balances are all things that are going to bring your credit score down.  In this situation, a bankruptcy filing can be just what your credit needs to wipe the slate clean.  Each of those individual negative blips will all be wiped out and replaced with a reporting of "included in Chapter 7 or Chapter 13 bankruptcy."  This may even cause a quick jump in your credit score. Another reason bankruptcy doesn't impact your credit score as negatively as one might imagine is that your credit score, or FICO score, is calculated by comparing you to others in your situation. So, the score of a bankruptcy filer is computed by looking at scores of other bankruptcy filers and not non-bankruptcy filers. 

So, bankruptcy wipes the slate clean and everything is good to go?  Well, almost. After filing bankruptcy, particularly Chapter 7, you will receive numerous credit card and vehicle loan offers.  So new loans are a possibility, but you may not receive the same terms as you would  have pre-bankruptcy.  However, you can improve your credit over time and, in turn, improve your loan terms.  In order to do so, you need to make sure that your credit report has been properly adjusted and that no accounts are still listed as delinquent (call the credit bureaus if this is not the case).  After that you can attempt to get a unsecured credit card with a small credit limit or secured credit card.  Make minimal purchases and pay them off each month.  This positive reflection on your credit will help you quickly rebuild. Also, if you do have a  home or vehicle loan, make sure you continue to make timely payments on these installments. This is just another positive ding to your credit that will help over time.

Lastly, most clients ask if there is a difference in filing Chapter  7 or Chapter 13 for credit purposes. The answer is really no. Both are going to be reported on your credit and affect your credit score. The only real difference is that a creditor may be more willing to extend new credit to you, despite the bankruptcy on your credit report, while you're in a Chapter 13 because you are making repayments on your debt.  However, this would really be more of a "personal" decision on the part of lender. 

Despite which way you go, Chapter 7 or Chapter 13, it is clear that there is life after bankruptcy, and the decision to break free from your debt should not be hindered by fear of your credit future.

This blog is for informational purposes only and is not to be construed as legal advice. 
More information about Perez Law Group can be found on our website, http://www.perezlawgroup.com/.