Articles Posted in Bankruptcy

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Bankruptcies and Foreclosures were common just a few years ago and are still occurring. The vast majority of our Clients have never experienced these problems or procedures before, but often there simply are no other sensible options.

Understandably, Clients are concerned as to how these procedures will affect them. They ask how much their credit will be damaged, how long will the damage last and when can they consider buying a home again.   The answers to these questions will be different for each person. Some recover quickly—usually those with good jobs—and others continue to have financial difficulty. However, some answers are available.

Included below is information about how long potential buyers must usually wait before applying for mortgage financing. As it turns out, the wait can be different depending upon the type of loan being applied for.

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In Arizona it is possible to discharge student debt, in whole or in part, but it is a difficult process. Arizona applies the test set forth in the case of Brunner v. New York State Higher Educational Services Corp. 831 F.2d 395 (2nd Cir. 1987). The Brunner test allows the discharge of a student loan as an “undue hardship” where all of the following three circumstances can be proven to exist:

  1. The debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if he must repay the student loan;
  2. Additional proof must exist to show that these circumstances are likely to persist for a significant portion of the repayment period; and
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  1. The Supreme Court confirmed that a Chapter 7 debtor cannot strip off and discharge a second mortgage loan even where the amount owed on the first mortgage exceeds the fair market value of the home and there is no “equity” to which the second mortgage can attach.   This relief is available in a Chapter 13 bankruptcy, however.   Bank of America v. Caulkett, 135 S.Ct. 1995 (2015)
  2. The Supreme Court also decided that, when a Chapter 13 debtor converts to a Chapter 7 bankruptcy, any post-petition income held by the Trustee must be returned to the Debtor. Harris v. Viegelahn, 135 S.Ct. 1829 (2015)
  3. A daughter’s attempt to help her father backfired in Sauer, Inc. v. Lawson, 791 F. 3d 214 (2015). The father owed money and transferred a large sum to his daughter to hide from his creditors. One of the creditors sued the daughter claiming a fraudulent conveyance and obtained judgment. The daughter then filed bankruptcy. The bankruptcy court found that the judgement was non-dischargeable under 11 U.S.C. Section 523(a)(2)(A) as it resulted from fraudulent conduct.
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A recent case highlighted the problems that can arise when debtors file bankruptcy. The case is Rebuild America v. Davis decided by the Supreme Court of Appeals, West Virginia, No. 14-0432, opinion filed April 9, 2015. Although a West Virginia case, it may have application in other states since Bankruptcy law is Federal.

In this case, the debtors, Davis, were unable to pay their real estate taxes and a delinquency notice was published. They filed a Chapter 7 Bankruptcy and were subsequently discharged. During the course of their bankruptcy a second notice advising of a tax lien sale was sent to the Davis’, but it was returned as undeliverable. The tax sale was concluded after the debtors had received their discharge in bankruptcy. No one redeemed the property and a tax deed was issued to the purchaser.

Finally, the debtors took action. They filed suit to set aside the tax sale and the court ruled in their favor. The ruling was upheld on appeal with the appellate court holding that the bankruptcy stay rendered the statutory tax sale notice void ab initio and therefor the tax lien sale did not comply with the necessary statutory procedure. The tax deed was set aside.

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So you have made your decision to file bankruptcy – probably because there is no other viable option that you are aware of and you have heard stories from some of your friends who have had to file. The big question now is whether to hire an attorney to help you or to attempt to do it yourself. After all, how hard can it be filling out the Petition, Schedules and Statements required? And on top of that, you have already admitted that need to file bankruptcy which means money is really tight, so how can you possibly afford to pay for an attorney?

At this point, let me recommend that you pause, take a deep breath before proceeding, and consider a few preliminary steps.. First, you should at least consult with an Arizona bankruptcy attorney. There might be non-bankruptcy solutions you were unaware of. Or you might find out that you cannot or should not file (perhaps because you filed before, or you have non-exempt equity in a valuable asset). This consultation could also provide valuable advice even if you do proceed to file on your own.

Second, before proceeding on your own, please review a new video prepared by a former bankruptcy judge. Judge Case just retired after being on the bench since 1994. He has seen innumerable cases come through his court room, and the pitfalls that ensnare those who do not understand or have experience with the bankruptcy rules and statutes. The video is on the Arizona Bankruptcy website. Is just over three minutes long and can be accessed by clicking this link.

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The Arizona legislature recently voted to update the exemptions protecting a debtor’s personal property. These exemptions are now available in bankruptcy proceedings, and even outside bankruptcy proceedings to protect against a creditor’s attempt to collect on a judgment against the debtor.

When filing for bankruptcy, a debtor must schedule all assets and interests in assets owned by the debtor. After this is completed, the debtor may then identify much of that property as exempt pursuant to the relevant law.  This exempt property may be kept by the debtors.

Arizona has always had a generous homestead exemption which protects the first $150,000 in equity in a person’s home. This law remains unchanged. The more notable changes to the exemption laws are as follows:

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Under A.R.S. 33-1101, Arizona provides an exemption of $150,000 to homeowners. This exemption protects a sizable portion of the homeowner’s equity in their home from creditors and reflects the legislature’s opinion that a person’s home ought to have some minimum protection against creditors. The homestead exemption’s protections extend even into bankruptcy proceedings.

It used to be that documents had to be filed with the County Recorder’s office in order to invoke the homestead protection. However, back in the early 1990’s the laws in Arizona were changed such that the homestead exemption now applies automatically. Only in the case where you might own more than one residence would you be required to designate on which property the homestead exemption is to apply.

If you are in the process of selling your home, the title companies may inform you that any recorded judgments need to be paid on or before closing. However, that is not necessarily true. Only where the equity in the home exceeds the homestead exemption is this required. But, you may have to provide a copy of the statute to your title company or get an attorney involved to convince them of this.

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Arizona Foothills magazine named Platt & Westby, P.C. as their choice for the Best Bankruptcy Law Firm for 2013. The results were announced on their website and later published in the March, 2013 edition. It was the fourth annual “Best Of” listed by Arizona Foothills whose choices were submitted and voted upon by the public.

Platt & Westby takes great pride in representing all its clients and aspires to offer exceptional legal services in all its practice areas including bankruptcy, real estate, probate, estate planning, civil litigation, business law, and family law to name a few.

Our thanks to the many satisfied clients and friends who voted for us, and for making us their choice as the Best Bankruptcy Law Firm in the Valley!

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How to rebuild after a bankruptcy is one of the most often asked questions I hear when meeting with people who are considering bankruptcy. The question can differ slightly, such as how much of a hit will my credit score take or, when will I be able to get new credit or, how can I reestablish my credit? However it is asked, you will need to be intentional about rebuilding after a bankruptcy, and here are some thoughts and helpful hints about what that entails:

  1. Obtain a copy of your credit report to ensure all the debts you discharged are correctly reported. If you do not see the discharge showing up after a couple of months, file a claim with the credit agency.
  2. You will need to remain absolutely consistent in making timely payments on your mortgage or rent payments. The same holds true for your vehicle payments.
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Due to the general decline in the real estate market, many people are finding themselves with homes that have lost so much value that, despite large down payments, they now find themselves with significant negative equity. Under certain conditions, debtors who file a Chapter 13 case can strip away their junior mortgages and significantly improve the financial position on their home. In order to do this, the debtors’ house must be underwater to such a point that the house is worth less than what is owed on the first mortgage. Additionally, the debtors will have to qualify for a chapter 13, and will likely have to complete a five year plan. Only then can the junior mortgages be stripped away.

There are some limits on the amount that can be stripped too, because the liens that are subject to being stripped are essentially treated as unsecured debt and Chapter 13 bankruptcies have a limit on the amount of unsecured debt subject to discharge. However, under the right set of circumstances, the ability to strip a lien can result in setting aside sizable junior mortgages is a powerful tool.

Contact a competent bankruptcy attorney to discuss the availability of this option for your situation.