Posts Tagged ‘flagstaff bankruptcy attorney’

Can you sell assets you would otherwise lose in bankruptcy and pay down your mortgage?

Wednesday, January 20th, 2010

Many Arizona residents are aware that they are allowed a “homestead” exemption for equity in their primary residence.  Many bankruptcy attorneys are aware of this fact as well.  Currently, the homestead exemption in Arizona is $150,000.  In the past, it was a tolerated, if not wholly supported, practice for individuals facing bankruptcy to sell assets they would otherwise lose in a bankruptcy and use the proceeds to pay down the mortgage on their home.  This allowed debtors to potentially protect $150,000 in property by putting it into their home.  In other states, such as Texas and Florida, the homestead protection was even more generous, allowing debtors to shield far more assets from creditors.

I recently met with a potential client that had seen three prior bankruptcy attorneys.  One of these had suggested to the potential client that she sell a valuable piece of property that she owned free and clear, and use the proceeds from the sale to pay off the mortgage on her home here in Arizona.  Then, he recommended she file bankruptcy and “protect” the equity in her home.  As few as five years ago, this may have been an acceptable strategy, and under the right circumstances MIGHT, and I emphasize might, still be possible today. 

However, the prior attorney failed to mention that major changes to the Bankruptcy Code in 2005, severely limit a debtors ability to engage in this form of “pre-bankruptcy planning.”  The specific code provision in question is Section 522(o).  This section limits the homestead exemption in the context of “pre-bankruptcy planning.”  It requires the deduction of the value attributable to fraudulent conversions made within 10 years of filing, to the extent that such value could not have been exempted if the disposition had not been made.  In plain English, if you sell an asset that you were going to lose in bankruptcy for $100,000, (like a brick of gold, vacant land you were going to build on some day, or any number of other items), and you use the money to pay down the mortgage, you are in for a rude awakening when the trustee objects to your claimed $150,000 homestead exemption.  

The statute speaks of “value… attributable to… property that the debtor disposed of… with the intent to hinder, delay, or defraud a creditor.” The language is strikingly similar to that used in Section 548(a)(1)(A), which authorizes the avoidance of transfers made with actual fraudulent intent, and in Code § 727(a)(2), which bars a Chapter 7 discharge for such conduct. The similarities may suggest parallel analysis, although there is not yet a Ninth Circuit case setting forth the precise standard to be used to determine whether the transaction was done with “intent” to defraud, hinder or delay.  However, there are lower court cases that state the Trustee (or objecting creditor) need only show fraud by a preponderance of evidence, rather than the higher, “clear and convincing evidence” standard that is sometimes used. 

Section 727(a)(2) prohibits the grant of a discharge to a Chapter 7 debtor that engaged in fraudulent asset conversion in the year prior to filing bankruptcy.  Seciton 522(o) now adds loss of the homestead exemption to the price the debtor will pay, and more troubling, extends the look back time for an astonishing 10 years.  Furthermore, section 522(o) not only applies in Chapter 7 cases, but across the bankruptcy code. 

While pre-bankruptcy planning, and the conversion of nonexempt property into exempt property, without more, is allowable, the intent to hinder or delay creditors is fraudulent under the code.  Whether a particular transaction is fraudulent is a fact intensive question, and the objecting creditor or the Trustee bears the burden of proof.  However, if you are considering bankruptcy, and you are thinking about selling, giving away, or otherwise disposing of any assets prior to filing, you should speak to a competent bankruptcy attorney first.

For more information, or to register for one of our free bankruptcy seminars, please visit www.mcguiregardner.com or www.freearizonabankruptcyseminar.com.

Should I file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in Arizona?

Tuesday, January 5th, 2010

Bankruptcy clients often have a difficult time determining which chapter to file under.  The Chapter 7 is the most commonly considered type of bankruptcy.  It is faster, cheaper, simpler, and the entire case is usually concluded within months.  However, for some people, there are many advantages to filing a Chapter 13 Bankruptcy, even if eligible for a Chapter 7.

 

First, the debtor and his or her attorney must determine if the debtor is eligible to file for a Chapter 7.  The 2005 law changes included a means test, that requires the debtor to determine eligibility to file for a Chapter 7.  Our office can help you understand the means test and determine if you qualify.

 

One consideration is that voluntary retirement contributions and retirement loan repayments are deductible in a Chapter 13, but not in a Chapter 7 case when determining disposable income.

 

Another consideration is eligibility for a discharge.  If the debtor filed a bankruptcy within the last eight years, the debtor cannot receive a Chapter 7 discharge, but can receive a Chapter 13 discharge so long as it has been at least four years since filing for a bankruptcy that resulted in a discharge.

 

The debtor must also determine if it is likely that he or she will incur additional debts in the near future.  A Chapter 13 may be voluntarily dismissed by the debtor much more easily than a Chapter 7, allowing the case to be refilled to include subsequent debts if necessary.

 

A Chapter 13 allows a debtor to retain a vehicle without reaffirming the debt. The problem with reaffirming a debt in a Chapter 7 case is that the debtor may be responsible for the deficiency if the vehicle is later repossessed, or totaled in an accident when the vehicle has negative equity.

 

Many debtors have assets that exceed the permitted exemptions.  Filing a Chapter 13 provides an opportunity for the debtor to keep un-exempt assets. 

 

Debtors that own a sole proprietorship should strongly consider a Chapter 13, which would allow for the continued operation of the business with much less interruption and interference than would result from a Chapter 7 case.

 

Certain non-dischargeable debts are more easily handled in a Chapter 13 case, including non-dischargeable taxes, secured debts, real property arrearages, etc.

 

Finally, in many cases we can assist the debtor in stripping off second or third mortgages on real property, and/or cramming down the amount that must be paid on a vehicle to the value of the vehicle, not the greater amount still owing on the loan. 

 

On the other hand, Chapter 13 cases cost more, though the additional cost is generally paid through the bankruptcy plan.  There is additional paperwork and the case remains open for years, not just months. 

 

If you are considering bankruptcy, and would like to learn more about a Chapter 7 or Chapter 13 case, please call us today for a free initial consumer bankruptcy consultation, or attend one of our upcoming free bankruptcy seminars.  To learn more, visit us at www.McGuireGardner.com or www.freearizonabankruptcyseminar.com

Tempe Bankruptcy Attorney notes bankruptcy tips on msn.

Monday, December 28th, 2009

A recent online article on MSN.com provides some good information about consumers who are considering filing for bankruptcy.  You can read the full text of the article here: http://articles.moneycentral.msn.com/Banking/BankruptcyGuide/10-secrets-of-filing-for-bankruptcy.aspx.  We would echo many of the items in this article.  Most of our clients can keep their homes, if they want to, and even when they have equity up to $150,000.  A debt relief agency will often do more harm than good.  To learn more about bankruptcy and whether it fits your financial situation, sign up for one of our free bankruptcy seminars at www.freearizonabankruptcyseminar.com  or visit our website at www.bankruptcylawyeraz.com.

Phoenix Bankruptcy Attorney notes that “cramdown” fails in the House of Representatives.

Monday, December 14th, 2009

Once again, the judicial mortgage modification amendment intended to assist home owners with houses which are significantly upside-down has failed in the the House of Representatives, this time failing on a 188-241 vote late last week. 

Similar legislation passed the House earlier this year on a 224-191 vote. Today, 50 Democrats who had voted in favor of H.R. 1106 switched their position and voted against the judicial mortgage modification amendment.  This is especially baffling, given all the evidence that the voluntary program is not working …and the escalating foreclosure crisis.

If you want to know how your Member of Congress voted today, go to http://clerk.house.gov/evs/2009/roll963.xml.  If you want to compare your Representative’s vote today with that on H.R. 1106, go to http://clerk.house.gov/evs/2009/roll104.xml to see their earlier vote. 

Of course, there were a number of variables associated with the vote that were not a factor in the earlier vote, particularly given that Members also were being asked to vote against the banks by supporting the creation of a Consumer Financial Protection Agency (CFPA).  As hard as it may be to believe, some Members just could not vote twice in the same day against the interests of the financial services industry.  It is just that simple.

Phoenix Bankruptcy Attorney Comments on Link Between Medical Debt and Bankruptcy.

Wednesday, November 25th, 2009

While many bankruptcies are caused largely by job loss, divorce, and other direct financial problems, more and more bankruptcies are being caused by insurmountable medical bills of the debtor or his/her family members.

In many of these medical bankruptcies, the debtor had medical insurance, but the large deductibles and co-pays, the uninsured expenses, and in many cases the 20% that the insured is required to pay is simply more than the debtor can afford to pay.

In one Harvard study, the conclusion was drawn that 62 percent of bankruptcies had medical bills as a contributing factor in 2007.

If you are overwhelmed by medical debts or other debts, please call us to schedule a free consumer bankruptcy consultation with an attorney, or to reserve your seat at one of our upcoming free bankruptcy seminars around Arizona. To learn more visit us at www.FreeArizonaBankruptcySeminar.com.

To view the New York Times Article, go to: http://www.nytimes.com/2009/11/25/health/policy/25bankruptcy.html?_r=1&th&emc=th.

Phoenix Bankruptcy Attorney Comments On Loan Modification Plan.

Friday, November 13th, 2009

An editorial in the New York Times today sheds light on what most consumer bankruptcy lawyers have known for months, current government subsidized loan modification programs are inadequate to stem the rising tide of foreclosures.  You can read the editorial online here.

In Arizona the problems are particularly evident.  Clients often come to us after having first been completely frustrated by lenders who are unwilling or unable to modify their mortgages.  Further complicating matters, many in Arizona have a first and a second mortgage, most often with different companies.  Modifying the two mortgages in a meaningful way is difficult.

Too often we see a bank tell a client to become late in order to qualify for a modification and then they do not return calls, put up unreasonable obstacles to modification, request documents, lose them, request them again. . . you get the idea.  Sadly, many of these homeowners then end up in foreclosure or bankruptcy.

For more information on loan modification or bankruptcy, please visit our website at www.mcguiregardner.com, or bankruptcylawyeraz.com. If you live in Arizona, and want to learn more about bankruptcy, check out www.freearizonabankruptcylawyer.com for the time and date of our next free seminar near you.

Arizona Bankruptcy Attorney Comments on “Free Credit Report Sites”

Tuesday, November 3rd, 2009

Consumers and potential clients should proceed carefully when seeking out their credit reports.  Many consumers, having heard the extensive advertisements for “Free  Credit Report .Com” are lured to that site. 

 

One must ask his/her self -  if the site is spending over fifty million dollars ($50,000,000.00) per year to advertise, are they really giving away their credit reports for free- just to help you out? 

 

Much of the confusion arises because the federal government (the F.T.C.) has mandated that consumers be allowed to access their credit report for free at least once every 12 months.  As there are three major credit reporting agencies, a smart consumer can get a free credit report from one of the major credit reporting agencies every four months. 

 

The government’s website for a truly free credit report is:  www.annualcreditreport.com.  For more information regarding the battle between the F.T.C. and sites that mislead consumers about a free credit report, see the New York Times article from  November 2, 2009, by Ron Lieber, entitled:  “A Free Credit Score Followed by a Monthly Bill” at http://www.nytimes.com/2009/11/03/your-money/credit-scores/03scores.html?th&emc=th

For more information visit our websites at www.mcguiregardner.com and www.bankruptcylawyeraz.com.  For a list of upcoming seminars, visit www.freearizonabankruptcyseminar.com

When Federal Bankruptcy Law collides with Your Arizona Family Law Case

Wednesday, October 7th, 2009

One of the most common areas in which bankruptcy and family law cases collide pertains to a bankruptcy debtor attempting to discharge a debt or obligation owed to his or her spouse or ex-spouse.

 

Prior to the significant changes in 2005, a debtor could argue in his or her Chapter 13 Bankruptcy that the spousal support ordered previously in a State Superior Court divorce imposed a financial hardship.  In certain cases where financial hardship was appropriately demonstrated, the Courts would then allow for the spousal support obligation to be discharged in the bankruptcy. 

 

With the changes in 2005, Federal Bankruptcy Law simply does not allow for the discharge or elimination of spousal maintenance or child support (together referred to under the bankruptcy code as domestic support obligations) under any circumstances.  See 11 U.S.C. § 523(a)(5).  Further, the Bankruptcy Code defines domestic support obligations quite broadly, as a debt that “accrues before, on, or after the date of the order for relief in a case under this [bankruptcy] title, including interest that accrues on that debt as provided under applicable non-bankruptcy law . . . that is owed to or recoverable by a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or a governmental unit.    11 U.S.C. § 101 (14A). 

 

While debts for domestic support obligations, 523(a)(5), cannot be discharged in any type of bankruptcy, other debts owed to a former spouse can be discharged in a Chapter 13 case.  These debts are listed in 11 U.S.C. 523(a)(15) and include debts “to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit. 

 

There is some speculation in the case law that Congress may have inadvertently omitted (a)(15) debts from the list of debts that cannot be discharged in a Chapter 13 case.  Nonetheless, 523(a)(15) is not on the list found in 11 U.S.C. § 1328(a)(2) which itemizes those debts not dischargeable in a Chapter 13 case, and Bankruptcy Judges have determined that their job is not to question Congress, but to follow the law as it is written, and have accordingly established case law permitting the discharge of non-support obligations to a spouse or former spouse or a child through a Chapter 13 Bankruptcy.

 

Accordingly, the question that immediately arises is:  What debts to former spouses will be non-dischargeable  as maintenance or support under (a)(5), and which debts will be discharged as other obligations under (a)(15).  Bankruptcy case law has made it clear that the title or nomenclature used in state court is not binding, and that the Court must make an independent determination categorizing the debt.  Furthermore, federal law is utilized in determining if the recipient needed spousal support, rather than state law.  In re Strickland, 90 F.3d 444, 446 (11th Cir. 1996); Harrel v. Harrel, 754 F.2d 902, 905 (11th Cir. 1985). 

 

Issues often arise in cases which parties and attorneys  make decisions for tax purposes or bankruptcy purposes to call debts equalization payments rather than spousal maintenance, or spousal maintenance instead of an equalization payment.  Practitioners must understand that simply calling an equalization payment “spousal maintenance” in a property settlement agreement or a consent decree will not automatically protect that debt from being discharged as a debt owed to a former spouse under (a)(15). 

 

One factor that the Courts will consider is the name given.  However, the Bankruptcy Court must look beyond the label and consider the circumstances of the payor and the payee.    Cummings v. Cummings, 244 F.3d 1263, 1265; (11th Cir. 2001).

 

HYPOTHETICAL #1:  Is the Debt Non-Dischargeable Support, or Dischargeable Property Equalization?

 

Let’s examine this through a hypothetical case:  Several years ago, PAYOR and PAYEE entered into a settlement agreement after extensive negotiations.  PAYOR would receive the business, and PAYEE would receive the real estate and certain other assets.  The settlement agreement then stated that PAYOR would pay PAYEE $X,XXX.00 per month for 5 years as and for a property equalization payment. 

 

On its face, because it is titled “property equalization,” PAYOR is able to file a Chapter 13 bankruptcy and seek to have the debt discharged.  However, PAYEE may decide to fight this case in Federal Court, challenging the discharge and claiming that the debt arises under (a)(5), and not under (a)(15).  The Bankruptcy Court must then make an independent determination classifying this debt as either 1) spousal maintenance, 2) equalization payment, or 3) a hybrid or combination of spousal maintenance and equalization payments.  If the debt is determined to be spousal maintenance, it is not dischargeable under 11 U.S.C. 523(a)(5).  If the debt is determined to be an equalization payment, the debt would be dischargeable under 11 U.S.C. 523(a)(15).  If the Court determines that it is a hybrid, the Court must determine the portion that was truly support in nature and allow this claim to be non-dischargeable in the bankruptcy, and permit the remainder to be discharged in the bankruptcy.

 

Any practitioner who has been involved in negotiations understands how under these limited facts, the actual need could have been either support or equalization.  The parties and attorneys may have called this equalization so that PAYEE could shortly remarry, and still receive her support, rather than agreeing to non-terminable spousal support.  The parties could have agreed to designate this as an equalization payment to prevent the tax burden from being shifted to PAYEE from PAYOR.

 

Depending upon the circumstances, PAYEE could have been in need of short term spousal maintenance, which may have comprised some piece of the full series of payments agreed to by the parties; PAYEE could have been in need of long term spousal maintenance, which may have comprised a larger piece of the full series of payments or even the entire series of payments; or the entire series of payments could have been exactly what it was designated, an equalization payment. 

 

In a contested trial in the Bankruptcy Court, a finding that PAYOR’s business was $1,000,000.00 more valuable than PAYEE’s real estate, would lead to the conclusion that the $500,000.00 equalization payment was required to equalize the distribution of these two assets.  Conversely, PAYEE would want to show that she was in need of long term support at the time of the dissolution of marriage and that her real estate had the same approximate value as PAYOR’s business (eliminating any need for an equalization payment).

 

The 2005 change in Federal Bankruptcy Law removing the power from the Bankruptcy Court to discharge a debt for spousal maintenance can be justified by the fact that child support and spousal maintenance are modifiable, and the debtor can go back into the state court and argue that his support obligation needs to be changed because of his or her change in circumstances.  Thus, the debtor is not without recourse, just without recourse in the Bankruptcy Court. 

 

However, A.R.S. § 25-319(C) adds a dangerous element to this type of case in Arizona.  A.R.S. § 25-319(C) provides that by agreement of both parties, the spousal maintenance can be designated as non-modifiable.  By so designating the payments, the payor has now lost the ability to go back into State Court and to argue that his or her payments should be reduced or eliminated due to a change in financial circumstances.  The debtor can no longer argue for this in Bankruptcy Court, which until 2005 court have discharged the spousal maintenance whether or not it was designated as modifiable.  The only avenue of recourse now remaining for the Debtor is to go into Federal Court in a Chapter 13 case, and argue that all or at least most of his payments were for non-support purposes.  Perhaps the “non-modifiable” terms of the agreement will provide some support the Payor’s claim that this was a non-support payment, because the support was to persist regardless of the Payee’s continued need for such support.  However, the Court must look at the full picture.

 

 

HYPOTHETICAL #2:  Should I Seek To Eliminate The Obligation In A State Court Post Dissolution Case or a Bankruptcy?

 

In another type of case, the difference in the Federal Bankruptcy Law pertaining to spousal support applied by the Bankruptcy Courts and Arizona Law set forth in A.R.S. § 25-319(A-B) and its related case law can cause problems. 

 

To create another hypothetical, suppose PAYOR brings a post-dissolution case in the State Court to terminate a spousal maintenance claim.  Further, suppose that PAYOR’s claim is that the monthly payments to the ex-spouse and the obligation to continue to pay the ex-spouse’s insurance through the business assigned to PAYOR during the marriage are both in the form of spousal maintenance.  The State Court may agree that the monthly payments are support and terminate this support obligation, and at the same time the State Court may not agree that the payment of insurance is support but rather an equalization payment based upon the award to PAYOR of the full business. 

 

Under this hypothetical, the State Court could only terminate the spousal maintenance provisions, but would not have the ability to terminate the non-support equalization payments.  If PAYOR then decides to pursue a Chapter 13 Bankruptcy, PAYOR could request to have the non-maintenance payments towards the ex-spouse’s insurance discharged under (a)(15).  Federal law would look to see if these payments were related to the support of the ex-spouse, and providing medical insurance could be argued to be supportive in nature, despite the State Court’s prior ruling.  Accordingly, the Federal Bankruptcy Court may determine that the payment of medical insurance is support, and is therefore not dischargeable under (a)(5).   To resolve such a potential problem, PAYOR and his or her attorney would want to lock PAYEE into specific testimony at the first trial as to whether PAYEE believes the payments are support or equalization in nature.  Once PAYEE is locked into one side, principles of estoppel could be used when PAYEE later seeks to argue the other side in the second trial.  Furthermore, while not binding, the State Court’s ruling on this issue would be extremely influential to the Bankruptcy Court.

 

Ultimately, most payments to a former spouse can be eliminated, if the payor’s circumstances have dramatically changed for the worse.  Support payments and other “domestic support obligations” must be modified or eliminated through the state court post decree modification process, and non-support payments can be eliminated through a Chapter 13 Bankruptcy proceeding. 

 

HYPOTHETICAL #3:  Can I discharge unusual obligations to a spouse through a Chapter 7 case filed before the divorce is finalized?

 

 

One final hypothetical illustrates a difficult situation that may occur in cases where a federal bankruptcy and a state divorce are sought simultaneously or nearly simultaneously.  Upon the filing of a bankruptcy, federal law imposes the Automatic Stay, which, similar to the Preliminary Injunction automatically arises in each case immediately upon filing.  As discussed in the article by this same author entitled Bankruptcy Issues in Family Law Cases,  published in the May 2009 edition of this Family Law News publication, the Automatic Stay (11 U.S.C. § 362)  precludes the State Court from proceeding with the division of assets and debts unless and until the stay is lifted by the Court during the pendency of the bankruptcy, or at the conclusion of the bankruptcy case by operation of law.  At the conclusion of a successful bankruptcy, the temporary Automatic Stay is replaced by the permanent Discharge Injunction (11 U.S.C. § 524 (Effect of Discharge)).  This permanent discharge provides:

 

(a)  A discharge in a case under this title –

(1)  Voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged (in a Chapter 7, 9, 11, 12, or 13) . . .

(2)  Operates as an injunction against the commencement or continuation of an action . . . to collect, recover, or offset any such debt as personal liability of the debtor . . .

 

As discussed above, spousal support would not be dischargeable under either a Chapter 7 or Chapter 13, where as a property equalization payment is dischargeable under a Chapter 13 but not under a Chapter 7.  However, in a case where a client knows he or she may be required to make a payment that is neither equalization nor maintenance to a former spouse, this hypothetical will explore what would occur if a party files for and successfully obtains a Chapter 7 discharge after the dissolution of marriage case has been filed, but before the dissolution case is finalized at the State Court. 

 

An important bankruptcy concept is understanding when a claim arises or a debt exists.  11 U.S.C. 101 (5) provides the definition of a “claim” as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured . . .”  Furthermore, a debt in bankruptcy is defined by 11 U.S.C. 101(12)  as a “liability on a claim.”  Because of this broad definition of claim and debt, bankruptcy cases have often found that the claim or debt existed as soon as either party understood that a disagreement may arise in the future.

 

By completing the Chapter 7 case and receiving the Chapter 7 discharge while the divorce case is pending, the debtor must still make any payments to his PAYEE or child that fit under the exceptions to discharge contained in both 11 U.S.C. 523 (a)(5) and (a)(15).  However, by obtaining the discharge, and having listed his or her soon-to-be ex-spouse in the bankruptcy as having a potential claim, the debtor may have prevented the Court from going forward in making a determination of other types of liabilities, such as a tort claim, a claim for contribution to jointly owned property, and other pendant claims being aired in the divorce that are not support or property equalization issues. The discharge injunction, as stated in 11 U.S.C. 524, quoted above, “voids any judgment at any time obtained” that would be discharged in a bankruptcy and further “operates as an injunction against the commencement or continuation of an action . . . to collect, recover, or offset any such debt.”  It becomes clear from the broad definition of claim and debt, 11 U.S.C. 101, that if such debt is a part of the divorce case, that the claim has arisen with the commencement of the divorce case, if not even before that. 

 

Debts that qualify under either 11 U.S.C. 523(a)(5) or (a)(15) are not discharged in a Chapter 7 Bankruptcy.  At first glance, the definition of (a)(15) may cause a practitioner to believe that all debts to a spouse or former spouse must fall under one of these two categories ((a)(15) states ““to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) . . .”  While this language does make it clear that not all debts to a spouse or former spouse are “domestic support obligations,” the full language does leave room for a third category. 

 

The first category is domestic support, which would include debts to a spouse, former spouse, or child of the debtor and . . . of the kind described in paragraph (5.)  The second category would include debts to a spouse, former spouse, or child of the debtor (not domestic support) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.  The third category would include debts to a spouse, former spouse, or child of the debtor (not domestic support) that is incurred by the debtor but not  in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.  At first, the practitioner may observe that the difference between the second and third category is only a matter of timing, in that the Divorce Court just has not had the opportunity to accept the separation agreement, enter the decree or other order of the court.  Perhaps this observation is correct, however the difference in timing is important.  Once the discharge is obtained in a Bankruptcy, the State Court is prevented by the discharge injunction of 11 U.S.C. 524 from accepting the separation agreement or entering the decree or other order of the court.

           

            If this strategy is to be used, the Chapter 7 Bankruptcy must be filed before the State Court enters an order or decree or accepts the separation agreement of the parties.  The Chapter 7 discharge must be obtained prior to any order being entered against the spouse.  (Once the case is filed, the automatic stay makes this second task quite simple).  Once an Order has been entered or a separation agreement has been accepted by the Court, the pendant claim is now a part of the divorce and would be difficult to separate out from other debts dischargeable only through a Chapter 13 as claims under 11 U.S.C. 523(a)(15).  By failing to advise a client of the need to file a simpler and cheaper Chapter 7 Bankruptcy, the client may be left with the only option being to file a more costly and complicated Chapter 13 case to discharge his liability on a pendant claim included in the divorce case. 

 

            This strategy will not work in an equitable division of assets and debts situation, as the State Court, charged with equitably dividing assets and debts of the parties could easily divide the assets in such a way that the debtor would not be required to pay any monies to the spouse or ex-spouse.  Furthermore, an equalization payment does not arise until the assets and debts are divided, and would therefore not have been a claim that existed prior to the commencement of the Chapter 7 Bankruptcy filing, and would not have been discharged in the bankruptcy case.  While most obligations that arise from a divorce will be either support in nature or property equalization in nature, this strategy may work in cases where one spouse has asked the Court to utilize pendant jurisdiction to hear other types of claims not typically associated with a divorce case.

 

            Because of the tremendous increase in bankruptcy filings, family law practitioners will continue to be faced with questions and concerns from clients and prospective clients that require explaining Arizona divorce law as well as aspects of Federal Bankruptcy Law.  The family law practitioner must continue to increase his or her understanding of bankruptcy to properly advise clients, and must also know and understand when aspects of a particular case are over that  practitioner’s level of understanding.  When in doubt, be sure that you have a bankruptcy attorney on your speed-dial to discuss your difficult cases. 

For more information, please visit our website at www.mcguiregardner.com

Phoenix Bankruptcy Lawyer Answers The Question, “What can I keep if I file a Bankruptcy?”

Tuesday, August 25th, 2009

For specific answers, you will need to set up a free consultation with our office, and we can provide you specifics as they pertain to your case and situation.  With a Chapter 7 (liquidation) Bankruptcy, you are permitted to keep certain assets, such as up to $5,000.00 equity in a vehicle, $150,000.00 equity in a residence, $4,000.00 of household goods, and much more.  We have found that for most of our clients filing a Chapter 7 Bankruptcy, they are able to keep substantially all of their property and at the same time eliminate substantially all of their credit card, medical, and other unsecured debts. 

 

Occasionally our clients have substantial assets that they would lose in a Chapter 7 (liquidation) Bankruptcy.  This does not mean that they cannot have the protections and benefits of a Bankruptcy, but rather it requires that we be more creative.  With a Chapter 13 (reorganization) Bankruptcy, we are generally able to formulate a plan to keep even non-exempt assets, and  still eliminate the majority of our clients’ credit card, medical, and other unsecured debts. 

 

If you are contemplating bankruptcy because of your present financial situation, and have specific questions about what you will be able to keep if you file a bankruptcy, please contact our office to schedule a free consultation, or reserve a seat at one of our upcoming free Bankruptcy Seminars.  For more information please visit our website at www.mcguiregardner.com

Phoenix Bankruptcy Attorney Comments On Number Of Homeowners Upside Down On Their House.

Thursday, August 20th, 2009

Zillow.com recently reported that as many as 25% of homeowners now owe more on thier homes than the homes are worth.  More discouraging, this number is expected to rise.  While bankruptcy legislation allowing a bankruptcy judge to “cram down” the loan on a home to what the home is worth has stalled recently, many of our clients are able to utilize what we call “lien stripping” to get rid of a second mortage altogether.  This option is available in Chapter 13 cases.  For more information, visit our website at www.mcguiregardner.com, or read our other blog posts for information on how “lien stripping” might help you better afford your home.

Get Adobe Flash playerPlugin by wpburn.com wordpress themes