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/.

The Game of Life

The Game of Life was one of my favorites growing up. I always prayed to land on the best profession and get the biggest house.  I also remember that you could purchase different kinds of insurance: fire, home, auto, or life.  While having the big house is great, having the insurance to protect what's important to you is even better, right?

Well, it seems that if the Game of Life happens to bring you to bankruptcy court in Arizona, you may soon be playing the Game of Life Insurance. In this game, that life insurance policy that you probably did not value when playing a game as a kid, but hold dear as an adult, is also highly coveted by your bankruptcy trustee. We are going back to our favorite Arizona exemptions here.  Remember, when you file Chapter 7 bankruptcy, you can exempt certain assets from your bankruptcy estate and your creditors. Arizona statutes allow for protection of insurance proceeds where the policy has been held for two years and  has named as the beneficiary a spouse, child, parent brother, sister, or any other dependent family member (A.R.S. Section 33-1126). 

Last year, two trustees in Tucson challenged the exemption of benefits where adult children were named as the debtors' beneficiaries.  The trustees contended that the beneficiary must be a dependent child in order to exempt the proceeds from the bankruptcy estate. Unfortunately, a bankruptcy appellate panel agreed with them. If you read the opinion a lot of the decision comes down to sentence construction and what the phrase "any other" is modifying. I know its crazy to think that a legal issue might be decided based upon sentence structure, but, in the absence of other court decisions, it can often happen that way.

So, what do the players in The Game of Life Insurance do?  It's hard to say. The decision is supposedly on appeal, so it is not hard and fast law. Which means, you may get a trustee who does not view the proceeds in the same way and will not pursue them.  Whatever the case, it is important that, as a debtor, you mention the existence of life insurance policies to your bankruptcy lawyer. Especially if you have whole life insurance policies (which carry cash surrender value) and have adult children as your beneficiaries. In this case, you may want to cash out the policies prior to filing and live off the proceeds. Of course, you also want to be careful of being a bankruptcy hog (see pigs vs. hogs below).

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, www.perezlawgroup.com.

Pigs and Hogs in Bankruptcy

What do pigs and hogs have to do with consumer bankruptcy? They can be potentially liquid "assets" in a Chapter 7, but in this instance they are acting as a symbols for Chapter 7 debtors.  Because Chapter 7 is a liquidation bankruptcy, protecting assets becomes very important.  That is where the pigs (those Debtors that want to intelligently, but reasonably protect assets) and the hogs (those that greedily hoard their assets from the trustees) come in. 

Recently, there has been concern that Debtors are being more hog-like than pig-like and that they are being assisted by their attorneys in doing so.  Usually, bankruptcy attorneys refer to the strategic protection of assets as pre-bankruptcy planning. At times this means your attorney will identify what assets are non-exempt (for example, stocks in Arizona) and suggest that cash out your stock and use it to live off of or for other necessary expenditures.  A necessary expenditure may even be the purchase of an exempt vehicle or other exempt item that you need. The question becomes is pre-bankruptcy planning just good strategy or is it being so greedy that the act becomes fraudulent?

In 2002, the Arizona bankruptcy court heard a case concerning questionable pre-bankruptcy planning. This case is still considered good law despite having occurred before the bankruptcy law changes in 2005.  In In re Crater, 286 B.R. 756, , Judge Haines determined exemption,or pre-bankruptcy, planning, alone, is not enough to show that a Debtor may have intended to "hinder, delay, or defraud" his/her creditors.  In this case, the Debtors cashed out $40,000.00 of stock and used the funds to pay toward there second mortgage, which increased the equity in their home, but not beyond the allowable homestead exemption.  This was done just months before their bankruptcy was filed.  Judge Haines stated that there must be something in addition to the timing of an act to demonstrate an improper purpose. For example, concealment of the act on the bankruptcy paperwork (i.e. not disclosing the sale of stock as a transfer), transfer of property to a friend or family member, or providing an explanation for the transfer that demonstrates lack of honesty or credibility.

For those of you thinking about filing Chapter 7, I think this opinion is very significant. While, Judge Haines determined that the converting of a non-exempt asset to an exempt asset is not, on its face, fraudulent, he did not say that this will always be the case.  A frequent occurrence for bankruptcy attorneys is that we get a client in our office for an initial consultation who has all the "what ifs" down. "What if I take all of the money out of my bank account and hide it under the mattress?" or "What if I take this asset and move it here or put that asset there?" My response is, "why would you be a hog when you only need to be a pig?"  Pre-bankruptcy planning is important because we do not want our clients to lose everything, especially if there are options and ways to safely protect them.  We have to advocate for our clients.  But Chapter 7 debtors should be weary of getting too greedy and too creative. The issue in the Crater case was whether the Debtors should be denied their discharge.  This is what Chapter 7 debtors want most of all, and we should be careful that the right to receive the bankruptcy discharge is not lost because of hog-like behavior.

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, www.perezlawgroup.com.

Commissions and Chapter 7 Bankruptcy

As I have said before, "even the simple Chapter 7 bankruptcy can turn out to be not so simple." For example, you are a married couple wanting to file bankruptcy with a below median income, partly consisting of social security income.  You have the normal assets: house, car, clothes, wedding rings, but no "toys" like boats or RVs. Should be easy, right? Should be, but things can get complicated quick. Let's say that you, the husband, are a real estate agent, and your income is derived from insurance contracts and commissions off of those contracts. And that right there is where things get ugly.

The issue in this "simple" bankruptcy is that when a Chapter 7 is filed, a bankruptcy estate is automatically created, which includes all of your legal and equitable interests in property 11 U.S.C Sec. 541(a)(1). This includes your rights under a contract created prior to filing bankruptcy and any contingent interests. So, if you're an insurance agent that has already existing contracts, your Chapter 7 trustee will be able to step right into your shoes and take over those contract rights, including the right to receive commissions.

So, what do you do? Are you out of luck? Not quite. However, a lot depends on what jurisdiction you have filed in and also the demeanor and mindset of the trustee assigned to your case. First, your lawyer should take a look at whether any of the commissions are due to your post-petition work and services rendered.  This may be difficult if it is a renewal commission for which little effort is expended in getting clients to renew. Earnings from work started and completed post-filing are not property of the bankruptcy estate. Additionally, the Arizona bankruptcy court has determined that commissions are the same as other earnings and are also subject to the "75% of earned, but unpaid wage" exemption.  This means that if you have completed work prior to filing bankruptcy, but will not get paid until after filing, you can protect up to 75% of those earnings. If you're the insurance agent in this example, you can attempt to protect 75% of the commissions earned from pre-filing work as your unpaid wage.

I think the lesson of this story is that bankruptcy can be a complicated area of law with many unforeseen issues and surprises. Because of that, anyone who is considering filing on their own should maybe think again or, at the very least, consult with an experienced attorney to determine if the case is more complex than it looks.

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, www.perezlawgroup.com.

The Power of Thank You

Ok, so I am diverting from strictly bankruptcy topics once again, but I try to mix it up a little. Keep it interesting.  This morning our law firm, Perez Law Group, made another trip to St. Vincent de Paul to volunteer and serve breakfast. 

I'm not going to lie to any of you. We have to get up early to do this, and that is never easy for a non-morning person like myself to do.  The first ten minutes are pretty difficult.  I am basically a robot.  I wish desperately that I had my Starbucks or that I was back in my cozy bed.  But, once that initial drowsy feeling is shaken, the rewards of the experience take over, and I am grateful that I'm there.

Today I got to hand out the trays to each person in the breakfast line. This time there were over 300 people in Phoenix in need of the service provided by St. Vincent's.  Those numbers a pretty staggering, and the people in the line are varied.  There are the truly homeless and there are those that look like they have just fallen on to some hard times.  What they all have in common, however, is appreciation for what is being given to them.  I cannot count how many times my tray offering was met with a polite smile and warm "thank you."  Those two words, "thank you," really got to me this morning. It made me realize that even the smallest act, such as handing out a breakfast tray, can mean something to someone.  It brought a smile to my face.

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, www.perezlawgroup.com.