The Arizona Republic reports that Arizona bankruptcy filings for the first half of 2007 have increased 60 percent from the number of Arizona bankruptcy filings for the first half of 2006, with 895 bankrutpcy petitions filed in June, the highest monthly total of 2007.

The article cites credit card debt, higher mortgage payments, and medical bills as factors driving the trend.

Many bankrupcy attorneys I have talked with would agree with this and have commented that the current market conditions have lead to the "perfect storm", with adjustable rate mortgages dramatically increasing, credit card minimums increasing, and home equity loans becoming harder to qualify for due to the soft housing market and tighter lending requirements.

The dramatic increase in filings may surprise some people, but the Arizona bankruptcy statistics are misleading. I attribute the increase to primarily be a result of the bankruptcy law change (BACPA), which created a huge rush to file at the end of 2005, artificially depressing the number of bankruptcy filings for the first half of 2006. The bankruptcy law changes have being widely criticized, but most individuals still qualify for either a Chapter 7 or a Chapter 13 bankruptcy.

For more information, you can read the entire article here: http://www.azcentral.com/arizonarepublic/business/articles/0716biz-Bankruptcy0717-ON.html

Lean more about Arizona Bankruptcy Laws
Receive a Free Legal Evaluation from an Arizona Bankruptcy Attorney

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At the filing of either your Chapter 7 or Chapter 13 Bankruptcy , a mandatory proceeding called a "341 Meeting of the Creditors " is scheduled by the bankruptcy court.  Depending on your jurisdiction and the volume of bankruptcies filed, your 341 Meeting will happen anywhere from 30 to 60 days after the filing of your case.  In populated states like California , New York , Texas and Florida , 341 Meetings occur typically 45 to 60 days after filing since these courts often get backlogged.  In less populated states such as Idaho , Iowa , Wyoming and North Dakota , 341 Meetings usually take place closer to 30 days after the filing of a bankruptcy because there are less total bankruptcies being filed.  You will receive official notice from the Bankruptcy Court of your 341 Meeting's date, place and time. 

341 Meetings are supervised by a government-appointed Bankruptcy Trustee.  Your Trustee's duties are to handle the administration of your case and represent the creditors at your 341 Meeting in their absence. (NOTE***Your creditors in a Chapter 7 bankruptcy will rarely ever show for your 341 meeting. There are also no judges present at 341 Meetings in either Chapter 7 or Chapter 13 Bankruptcies.) 

The Bankruptcy Trustee's job at your Chapter 7 341 Meeting is determine whether or not you have the ability to repay your debt based on your income or have any assets that he/she can liquidate to repay your creditors. The Trustee's job at your Chapter 13 341 Meeting is to make sure that you have filed a feasible plan and are repaying the correct amount to your creditors based on your economic situation at the time of filing.  At either 341 Meeting, you'll be required to testify under oath regarding your filed bankruptcy petition schedules, finances and income.  Answer all the Trustee's questions truthfully.  While the Trustee is an adversary in your bankruptcy proceeding, their intention is not to try to verbally trip you up or corner you, they simply want to make sure that your bankruptcy schedules are accurate and that you qualify to file bankruptcy. If you have any additional concerns, make sure your bankruptcy attorney discusses all details of your case with you prior to the filing of either Chapter 7 or Chapter 13 bankruptcy so there are no surprises at your Creditor's Meeting. 

341 Meetings are rather informal and you can dress casually, but try to look presentable.  Where you live will dictate what you need to bring to your Meeting of the Creditors, and your attorney will advise you prior to the Meeting.  As a general rule, you'll need to bring:

1) a valid photo I.D.
2) a social security card
3) your tax returns from the last two years
4) the last two-to-six months of paystubs or proof of income prior to your filing date 

All in all, 341 Meetings move quick and usually only take 5 to 10 minutes to administer.  In Chapter 7 bankruptcies, you will receive your discharge papers roughly 60-90 days after filing.   

Andrew W. Partridge, Esq.
BankruptcyHQ.com

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A recent study by the National Consumer Law Center concluded that the credit counseling and financial education courses required by the new bankruptcy laws (BACPA) have failed to provide significant benefits to individuals seeking bankruptcy protection.

New Burdens but Few Benefits: An Examination of the Bankruptcy Counseling and Education Requirements in Massachusetts, based its review on the implementation of the required courses in Massachusetts. The study cites several problems and proposes a number of recommendations to improve the process. The full report can be viewed at http://www.nclc.org/reports/content/Bankruptcy_Burdens.pdf

In my opinion, the required courses are largely ineffective do nothing more than impose an unnecessary expense and obstacle to individuals who need to file bankruptcy.

The pre-filing credit counseling course is designed to provide bankruptcy alternatives, but the individuals who are taking these courses often have explored all other avenues of debt relief and don’t have any realistic alternatives. They have to spend up to $50 for someone to tell them they should file bankruptcy, even if they already had consulted with a bankruptcy attorney and determined that was the best course of action. The requirements have inundated various credit counseling agencies, making it harder for them to provide counseling to individuals who actually good benefit from their services.

There is some value to the pre-discharge debtor education course, which educates individuals emerging from a bankruptcy about budgeting and financing with a focus on avoiding financial difficulties in the future. As the report details, the debtor education course has some problems, but I think it could be refined and made into a valuable education resource.

Isn’t one course enough? Why not eliminate the pre-filing requirement? The bankruptcy court could then focus its efforts on creating a meaningful, uniform, and widely accessible pre-discharge debtor education course.

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Bankruptcy is intended for individuals who honestly cannot afford to repay their debts. In comparison, debt consolidation is intended for individuals who have the necessary disposable income to at repay at least a portion of their debt. Bankruptcy offers many advantages and is often the fastest and cheapest way to eliminate a large amount of debt, but bankruptcy alternatives like debt consolidation should always be considered before making the decision to file bankruptcy.

Unfortunately, the debt consolidation industry contains some unethical companies that don't have your best interest at heart and are driven by a desire to make money off you. Since you are dealing with sensitive financial information, it is very important to find a reputable debt consolidation company that can put together a plan to get you out of debt. A referral from a friend or family member is a great way to make sure you are dealing with an ethical debt consolidation firm, but people often don't like talking about their debt problems and a good referral can be hard.

Searching the internet is another popular alternative to finding a reputable debt consolidation company, but the huge amount of listings makes it very difficult to identify the reputable companies among them. Debtconsoldiationcare.com has developed a solution to this problem by allowing their community members to rate the various debt consolidation companies based on their personal experiences. Individuals can request a free debt evaluation from a company that the other community members rated highly. A debt counselor from one of the highly-rated company then calls you to discus your debt issues and offer possible solutions.

DebtConsoldiationCare.com also has a active community forum with topics covering a wide variety of debt and credit management solutions including, Bankruptcy, Credit Repair, Identity Theft, and Debt Consolidation and Settlement.

More Bankrupcy Alternatives...

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One of the many changes to the Bankruptcy Code in 2005 was the implementation of two mandatory financial education courses that Chapter 7 bankruptcy and Chapter 13 bankruptcy filers are required to take.

The first course, often referred to as the "Credit Counseling" requirement, must be completed within 180 days before the filing of a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. The second course, called the "Debtor Education" or "Financial Management" requirement, must be completed depending on your jurisdiction within 28 days to 60 days after one's 341 Meeting of the Creditors. Recently, there has been a national trend of rulings amongst bankruptcy judges regarding the former Credit Counseling course and effectively preventing "same-day filings".

"Same day filings" occur when a with a client hires a bankruptcy attorney the same day that attorney files their Chapter 7 or Chapter 13 bankruptcy case for them. This situation occurs often when a client has an urgent financial matter. Such urgencies typically include pending real-estate foreclosure sales, vehicle repossessions, body attachments, judgments and garnishments. The bankruptcy judges' ruling that is becoming all-the-more common is the interpretation of the time-frame of when a filer's Credit Counseling course must be completed.

The Bankruptcy Code states that a filer's Credit Counseling course must be completed within "180 days before" the filing of their bankruptcy case. More and more bankruptcy judges are now interpreting this language to mean that a filer's Credit Counseling course must be completed within 180 days literally before the filing of their Chapter 7 or Chapter 13 bankruptcy, and not including the actual day of the bankruptcy filing.

The consequences of filing a case where a Credit Counseling course has been completed on the same day of a bankruptcy filing is in most cases complete dismissal of the filer's Chapter 7 or Chapter 13 bankruptcy. The bankruptcy filing is void as a matter of law, as if it was never filed. Unfortunately, the only practical course of action for the victims of this situation is the refiling of their bankruptcy and the repaying of the requisite filing fee.

In most situations when a client with an urgent financial matter seeking a same day filing walks into a bankruptcy attorney 's office, they have not yet completed their pre-filing Credit Counseling Course because they were unaware they needed to do so. Even with their bankruptcy attorneys' direction to complete their Credit Counseling Course immediately, the fastest a client in this situation could get their bankruptcy filed would be the next calendar day. Often times this can be one day too late.

Andrew Partridge, Esq.
BankruptcyHQ.com

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Last week I had a discussion with one of my Chapter 7 clients about a potential wrinkle to her upcoming bankruptcy filing, commonly referred to in bankruptcy practice as a "trustee buyout".

When this client had retained our firm back in September, 2006, she had indicated to me that her home was worth $240,000 and that she owed $209,000 on a single mortgage. She had based this $240k valuation from a refinance appraisal she'd received in March, 2006. She was current on her monthly mortgage payments and wished to keep her house through the Chapter 7 bankruptcy via reaffirmation. Unfortunately, due to an illness from which she suffers, things went delayed and we are just now getting to the point where we're ready to file her Chapter 7 bankruptcy for her.

Last week's new issue came to light when my client told me that a condo identical to hers in her building had sold in the last month for $250k. Concerned about the possible change in circumstances and how it may affect her future Chapter 7 filing, I did some due diligence on her behalf and checked several websites that produce "CMA's" (comparative market analysis). The property indeed was being valued on these websites at closer to $250k than the $240k valuation she had initially told me.

When filing a Chapter 7 or Chapter 13 bankruptcy, a filer is entitled to protect a certain amount of equity in their homestead property. The homestead exemption only protects equity in a property that someone lives in. Equity is the difference between what the property is worth after cost of sale and what is owed in total on the property. While it varies from state-to-state, the homestead exemption in Illinois where I practice is $15,000 per person. (Note: The exemption doubles to $30,000 in Illinois for a married couple's joint filing.)

My client owns her property in fee simple, which means no one else is on the deed to her house. As a general rule, a trustee will typically allow a 7-9% cost of sale deduction off of a house's valuation to account for broker fees, taxes due at sale, etc. So in this case, with my client property being worth $250k, deducting an 8% cost of sale would leave the value at an even $230k. Remembering that my client owes roughly $209k on her condo, the equity difference between $230k and the $209k owed would be $21k. Because we can only protect $15k of equity at filing in Illinois, this means that the equity in her house is $6k above the exemption amount and could thus be perceived as an asset for liquidation by a bankruptcy trustee.

At this point, I suggested to my client that we needed to get a current appraisal on her property to determine the actual value. She did this immediately and the condo's value was indeed appraised at $250k. I then gave my client several options on how we could proceed from here:

1. We could file a Chapter 13 for her instead of a Chapter 7 to protect the exposed equity in her condo. She would be required to pay back at least $6k of the $50k in credit card debt she owed to match the amount that could be liquidated in a Chapter 7.
2. She could sell her house prior to filing the bankruptcy, protect up to $15k of the equity, and spend down the remaining $6k or so on necessities, like rent, food clothing, etc.
3. We could file a Chapter 7 for her and if necessary negotiate a "trustee buyout".

My client had no interest in selling her house and much preferred filing a Chapter 7 bankruptcy to a Chapter 13 bankruptcy, so we decided together that a "trustee buyout" was her best course of action.

In a Chapter 7 where a filer has an asset worth above the allowable exemption, it is usually possible to negotiate an arrangement with the Chapter 7 trustee to pay him the cash amount equivalent to the valuation of the exposed asset and protect the asset itself. In my experience, the payment arrangement can vary in time from 3 months to a year, or even possibly a one-time lump sum payment. It is also often the case that a trustee in a Chapter 7 proceeding will choose to ignore an asset that he could potentially liquidate. If a trustee believes that he could not make a meaningful distribution to the creditors listed in the Chapter 7 proceeding, he can choose to acknowledge the asset but pass on liquidation or further action because the value of the asset is too small to make any kind of repayment dent to the creditors as a whole. Hopefully in my client's situation above, this will be the case.

--Attorney Andrew Partridge

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Bankruptcy mistakes can be very costly and all too often an individual filing bankruptcy will make inadvertent mistakes that jeopardize their chance of discharging their debts and retaining exempted property. Avoid these Top 10 mistakes and you will be well on your way to a successful bankruptcy filing.

1. Transferring Real Estate or Other Assets:

Some people try and protect their assets by transferring them out of their name, but this strategy will not work in a bankruptcy proceeding. Recent property transfers must be disclosed to the bankruptcy trustee and the bankruptcy court may “avoid the transfer” and put the parties in the same position they were in before the transfer. Even if you don’t feel that the property or asset that your name is rightfully yours, the bankruptcy court may still “avoid the transfer”. It is often unnecessary to transfer any property or assets before filing bankruptcy as each state has bankruptcy exemptions designed to protect all or a portion of your assets.

Bankruptcy Exemptions by State

2. Transferring Credit Card Balances:

Transferring a large amount of debt to one credit card can result in debt on the new credit card not being eliminated due to the large amount of debt incurred to one creditor right before filing bankruptcy. The new creditor may have a strong argument that the balance transfer should be presumed fraudulent, especially if the transfer was within 60 days prior to filing and over $1500.

3. Repaying Loans to Family Members:

The bankruptcy code requires that you treat all of your creditors equally and does not want you choosing which creditors to repay right before filing bankruptcy. The bankruptcy code does not allow you to repay Uncle Bob the $2000 from when the furnace went at the expense of your other creditors. The bankruptcy trustee may pursue the relative for a portion of the funds recently transferred to them. You are required to list debts that are owed to family members, but assuming there is no discharge objection brought, the debt will be legally eliminated and you can repay the loan if you choose to.

4. Not Including All Your Debts on your Bankruptcy Petition:

You are required by law to include all of your debts on your bankruptcy petition, even if you want to keep the debt. If you want to keep your house and automobile when you file a Chapter 7 bankruptcy , you usually will sign a reaffirmation agreement with the bankruptcy court excluding the discharge of those specific debts.

5. Ignoring Lawsuits:

Many people fear lawsuits and don’t know what to do when they get a summons in the mail. In most cases, if you have already filed bankruptcy and receive a summons from a debt listed on your bankruptcy petition, your bankruptcy attorney should be able to fax your case information to the creditor’s attorney and get the case dismissed. However, if you are in the process of filing bankruptcy, but the case is not officially filed yet, it can be helpful to attend the designated court hearing and request a continuance to give you an opportunity to file for bankruptcy relief.

6. Withholding Information from Your Bankruptcy Lawyer:

Bankruptcy Lawyers are often frustrated at 341 hearings when their clients are placed under oath and disclose new information that was previously withheld from their attorney. Bankruptcy lawyers need all the requested information to properly advise you and protect your income and assets. The horror stories about bankruptcy that we’ve all heard are frequently due to an individual failing to disclose vital information to a qualified bankruptcy attorney for proper advice and planning.

7. Cashing in 401(k)’s, IRA’s, and other Retirement Funds:

Generally, 401(k)’s, IRA’s, and other retirement funds are protected from the reach of your creditors and are allowed to be kept during and after a bankruptcy. However, a common mistake is people cashing in their retirement accounts or obtaining a loan. The money that is taken out of your retirement account is no longer protected from your creditors, and you’ll likely owe penalties and taxes on any accounts that were cashed in.

8. Filing Bankruptcy when you are expecting a Large Tax Return:

In many states, a tax refund is considered to be an asset that can be liquidated if the bankruptcy exemptions aren’t enough to protect it. Depending on the amount of the refund and the relevant state laws, it is often advisable for you to receive your tax refund and spend the proceeds on living necessities before the bankruptcy is filed. Many states offer a “wildcard” exemption that can be used to protect tax refunds among other things.

9. Waiting Until the Last Minute Before Filing Bankruptcy:

The moment you file a bankruptcy an “automatic stay” goes into place which prohibits your creditors from any further collection activity against you, but it is unlikely that you will be able to recover any wages garnished or property taken before the filing of the case. Too many people wait until their creditors have already taken action against them before consulting with a bankruptcy attorney. It can take considerable time to prepare the bankruptcy petition, review the relevant documentation, and be certified by a trustee approved credit counseling agency. Once you have made the decision that bankruptcy is your best alternative, you should file as soon as possible to avoid anymore creditor harassment and allow yourself to put future earnings towards long-term goals and savings instead of chipping away at an insurmountable amount of debt.

10. Not Hiring a Bankruptcy Attorney:

Fortunately, experienced bankruptcy attorneys are aware of all of these common mistakes and many more. Bankruptcy is a complex area of the law and the process has being further complicated with the new bankruptcy laws. Mistakes can be costly and a thorough case evaluation from a local bankruptcy attorney is the best way to identify any possible issues and develop a strategy to relieve your debt problems. Receive a Free Legal Evaluation with a local bankruptcy attorney.

by Richard J. Waple, Attorney at Law

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For as long as I've practiced consumer bankruptcy law, a common issue that has confused my clients is the difference between court-ordered garnishments and voluntary wage assignments. Garnishments and wage assignments are both methods of creditor collection where monies owed are taken directly out of a person's paycheck. The pivotal difference between the two is that one is mandatory while the other is voluntary.

Garnishments: If your employer, payroll department, or human resources department receives a court-ordered (and usually court-stamped) notice of wage deduction, this means that a collection judgment has been entered against you and the creditor who sued you is exercising their legal right to collect the money owed to them via your paycheck. Your employer must comply with this court-order, or they themselves can be held in contempt of court and subject to fines, etc. Depending on the jurisdiction on which you live and pursuant to any instructions on the order, your employer much start the garnishment coming out of your check typically within two to four weeks after receiving the order. Being mandatory, the only way to stop a pending garnishment in most cases is either by filing Chapter 7 or Chapter 13 bankruptcy, or by paying the creditor off in full via a lump sum payment.

Voluntary Wage Assignments: A voluntary wage assignment is a contract that a person signs at the time they apply for a loan or credit. These are typically used by creditors to assure that they have a way to collect on a borrower (often with less-than-perfect credit) should that person default on the loan or credit they've extended to them. The contract states that if the borrower should not make their payments to the creditor timely, the borrower gives the creditor the right to submit the voluntary wage assignment to their payroll for collection. (Payday Loan places, jewelery and furniture stores that extend people credit directly are the creditors that use wage assignments the most often from my experience.) While filing a bankruptcy is the only way to stop a court-ordered garnishment, a written revocation is all that's necessary to stop a voluntary wage assignment. A simple letter from you or your bankruptcy attorney notifying your employer and the creditor who issued the wage assignment is all that's needed to prevent or stop any further funds from coming out of your paycheck.

--Attorney Andrew Partridge
--BankrutpcyHQ.com

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Last night I had a consultation with a prospective client who in the previous year had lost his good-paying job and had been forced to take part-time work at much lesser pay to make ends meet. Because of his decrease in income, he'd resorted to overspending on his credit cards and now has $60k of unsecured debt that he can not repay.

Unfortunately, I wasn't able to help this individual because of actions he had recently taken before coming into my office.

In January, 2007, my prospective client quitclaimed the fee simple interest he possessed in his homestead to his longtime live-in girlfriend via a quitclaim deed. At the time of the transfer, the house was worth $300k and the balance on the only mortgage was $140k. He was quite frank with me that the reason he transferred the property out of his name was because he was planning on filing a Chapter 7 bankruptcy in the near future, and did not want to lose his house to the bankruptcy court and his creditors.

It then became my unenviable job of telling him that what he'd done would not prevent the court from seizing the house as an asset in a Chapter 7 liquidation bankruptcy. The issues here are one of equity and one of transfer. In Illinois where I practice, an individual can protect up to $15k of equity in their homestead. (PLEASE NOTE: The homestead exemption varies state-to-state .) Even after a cost of sale analysis to account for broker fees, etc., my prospective client had over $130k of equity in his house. After deducting the $15k homestead exemption, this would leave roughly $115k of exposed equity in the house were he to file a Chapter 7 bankruptcy. In this case, a bankruptcy trustee would seize and liquidate the house and use the monies to repay this person's creditors. Any surplus of sale would be returned to the client after all qualifying debts had been paid.

The fact that he'd transferred the house before the filing of bankruptcy will not stop the court from pursuing the equity in this situation. All transfers of assets within a two-year window prior to filing must be disclosed on a Chapter 7 or Chapter 13 bankruptcy petition in the Statement of Financial Affairs. A bankruptcy trustee by statute possesses the power to offset any transfers within a four-year window prior to filing if he deems the transfer to be fraudulent and if there's a sufficient asset to make a meaningful distribution to the filer's creditor's.

In this case, had I filed a Chapter 7 Bankruptcy for this person, his assigned bankruptcy trustee would have "set aside" the fraudulent transfer and sold the property out from under the client so he could repay the $60k of credit card debt the client had incurred with the proceeds of sale from the house.

To make matters worse for this person, I also unfortunately could not put him into a Chapter 13 repayment plan because he no longer possessed the requisite household income to repay his debts and maintain his necessities, i.e. mortgage payment, food, clothing, transportation, utilities, etc.

Thus, I had to break the bad news that the only options he has now are either to sell his house and use the money he receives from the sale to repay his debt; somehow legitimately increase his income so he can support a Chapter 13 repayment plan; or wait the four year period until February, 2011 to file a Chapter 7 Bankruptcy so a trustee can not set aside the transfer at issue.

The lesson to be learned here is simple. If you are contemplating materially changing any aspect of your financial situation before filing bankruptcy, make sure to consult with an experienced attorney who can advise you if your intended actions would be potentially damaging to your future case.

--Attorney Andrew Partridge

--BankuptcyHQ.com

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On Tuesday, The American Bankruptcy Institute released filing statistics for the 2006 calendar year. The total number of bankruptcy filings in 2006 was down 71 percent, to 618,000 bankruptcy filings, from a record high in of 2.1 million filings in 2005. Bankruptcy filings were the lowest since 1980. States showing significant declines in bankruptcy filings include Louisiana , West Virginia , and Oklahoma .

This dramatic decrease comes as no surprise and is largely due to the sudden surge in filings seen leading up to the enactment of the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (BACPA) and the rush to file before BACPA was enacted.

There is always a percentage of the population that needs a bankruptcy and are effectively insolvent, but don’t actually file for bankruptcy protection until a triggering even leaves them with no other viable options. Typically, filing bankruptcy is triggered by some form of collection activity, such as harassing phone calls, foreclosure, repossession, garnishment, or law suits. However, the bankruptcy law change in 2005 acted as a trigger for the thousands of people who were on-the-fence and were motivated to file bankruptcy before the uncertainty of the new bankruptcy laws. This explains a large part of why 2006 filings were down so dramatically, and I’d expect them to gradually rise as the amount of people who need a bankruptcy increases. The recent increase in foreclosures and the rising use of consumer credit are expected to further contribute to an increase in bankruptcy filings for 2007.

Bankruptcy Filings for 2006 were at their highest in the fourth quarter and are increased each quarter, with a further increase expected for first quarter 2007.

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