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Common Myths About Filing for Bankruptcy

Bankruptcy is a form of debt relief which entails a legal process that enables debtors to wipe out their debts or consolidate and repay them. It is therefore a beneficial and powerful tool in case you find yourself in some sort of financial woe. However, it is an intricate process which has been complicated further by numerous myths that surround this particular realm of the law. In this article we will delineate fact from fiction as they pertain to bankruptcy law. Below are several myths that we aim to debunk:

Myth #1: Only financially irresponsible people file for bankruptcy

Totally untrue.  People who decide to file for bankruptcy come from all levels of society – lower class, middle class, upper class and other classes in between. For some reason they just failed to sustain their monthly payments. Anyone can accrue debt in a number of different scenarios, including loss of a job, divorce, vehicular accident, sudden illness, or even unpaid student loans. There are many things in life that are simply beyond our control and even the most fiscally responsible people can get shoved into debt and left with no choice but to file for bankruptcy.

Myth #2: Debtors will lose everything they have by filing for bankruptcy

Nothing can be farther from the truth. While this may sound logical and certainly a legitimate concern for many who are burdened by mounting debt, it is not imperative for you to just give up properties in case you do file for bankruptcy. As a matter of fact, a vast majority of bankruptcy filers don’t lose anything! Moreover, there are types of bankruptcy which can protect your prized possessions. For instance, you can file Chapter 13 bankruptcy to save your house from foreclosure.

Myth #3: You can only file for bankruptcy once

A surprising number of debtors actually believe this. They try to avoid bankruptcy filing over fears that they may encounter future financial difficulties and have used up their opportunity to file for bankruptcy. The truth is that the law allows you to file more than one bankruptcy case and give you a fresh start. Under a Chapter 7 bankruptcy, your debts can be discharged once every eight years. For Chapter 13 bankruptcy, you can receive a discharge every two years. Just bear in mind that if you get a discharge under Chapter 7, you need to wait six years before receiving a discharge under Chapter 13. On the other hand, if you obtain a Chapter 13 discharge, you have to wait four years to get a discharge from a Chapter 7 case.

Myth #4: Everyone will know that you filed for bankruptcy

Although it’s true that bankruptcy records are accessible to the public, there is very little chance that it would be known unless you are a prominent figure or you tell people personally.  In addition, scores of people file for bankruptcy which means public records are literally inundated with names. So if someone attempts to search specifically for your name, he/she may have to rummage around for days to find yours! In most cases, the only people knowledgeable about a particular filing are the creditors, the trustee, the debtor and the bankruptcy attorney. There is virtually no chance that anyone else will know that you filed. The bottom line is that if you don’t want people to know you filed for bankruptcy, just keep the matter to yourself.

Myth #5: You will never rebuild your credit after filing for bankruptcy

Quite the opposite. The fact is that banks and other lenders tend to give a second chance to people who file for bankruptcy. Wondering why? Come to think of it, bankruptcy is meant to wipe out your debt, and eliminating such debt will allow you to handle more credit.  Hence, you will look more appealing to would-be lenders! Also, people who experience the troubles of bankruptcy become more financially responsible and conservative with their expenditures, thereby showing that they can manage payments and rebuild their credit.

Don’t be deterred by the negative stigma that goes with filing for bankruptcy. Don’t allow the aforementioned myths stop you from filing and getting the fresh start that you deserve. To know more about bankruptcy and how to decide whether or not it suits your specific circumstances, consult one of our experienced bankruptcy attorneys. You will be informed about your rights as well as the options available, including Chapter 7 and Chapter 13 bankruptcy.

 

Tax Refunds and Bankruptcy

This time of year I often advise clients to wait to file Chapter 7 bankruptcy until you file your taxes, receive your tax refund, and spend it on necessary and reasonable expenses.  Depending upon when you file, the bankruptcy trustee is going to take some or all of your tax refund to pay your creditors.  With that said, sometimes clients come into my office facing an imminent collection activity such as wage garnishment or foreclosure.  In these situations you must weigh the amount you will lose by not filing (wages garnished until filing, loss of home) versus the portion of your tax refund that will be lost by filing right away.  Although most of my clients depend on that tax refund to help with necessary and reasonable expenses, they are usually willing to surrender it in exchange for the substantial amount of debt that will be discharged in their bankruptcy.

Although my advice is to file Chapter 7 bankruptcy after spending your tax refund, you must be careful as to where your tax refund is spent.  Strangely enough you should not spend your tax refund to pay your debt.  A repayment of your debt prior to filing bankruptcy may be a preference or fraudulent transfer, and the trustee may recover these funds to pay your creditors.  The biggest mistake I see around tax season is when a repays a family member or friend with his/her tax refund.  This almost always results in the client having to repay the court that amount in order to avoid them pursuing the family member or friend for repayment.  Therefore, if you are filing bankruptcy and promised your family member or friend that you would repay them with your tax refund, you are going to have to tell them you are unable to do so until after your bankruptcy case is filed.

So where do you spend your tax refund?  Your tax refund should be spent on “necessary and reasonable” expenses prior to filing.  Some specifics include groceries, utility bills, mortgage or rent, and bankruptcy attorneys’ fees.  Although it sounds as if I’m being greedy, most my clients fund their bankruptcy with their tax refund.  Some of the expenses I have listed may be paid in advance, but you will want to consult with an experienced Phoenix bankruptcy lawyer about the limitations.  Keep receipts for where the money was spent as the trustee normally asks during your 341 Meeting of Creditors.

If you have any questions about your tax refund and bankruptcy please contact one of the skilled Phoenix bankruptcy attorneys of Ariano & Reppucci, PLLC today.  We offer free consultations and affordable rates to residents located throughout Arizona.

How Do I Repair My Credit After Filing Bankruptcy?

A lot of clients I meet with assume that filing bankruptcy will destroy their credit and they will never be able to obtain a loan.  This is a bankruptcy myth.  Initially your credit score will drop due to your bankruptcy filing; however, most of my clients see an improvement in their credit score within 12 months of filing.  This is due to the fact that when you fall behind on your bills your creditors can report your delinquency each month to the credit bureaus, causing your credit score to continuously drop.  On the other hand when you file bankruptcy your credit score will take a significant hit but will improve over time.

Although bankruptcy may appear on your credit report for up to 10 years, you can begin improving your credit score immediately after receiving your bankruptcy discharge by completing some of the following steps:

Make sure your credit report accurately reflects your bankruptcy.

Review your credit report carefully and dispute any errors.  For a variety of reasons your credit report may not show all of your debt being discharged in bankruptcy.  If there is an outstanding balance your credit score could be taking a hit.  If your credit report does not reflect a $0 balance for the account, you can send a dispute to the credit bureaus to have your credit report updated.

Keep current on accounts that were not included in bankruptcy. 

For example, if you have a student loan or a reaffirmed car loan, you want to remain current on these loans to help improve your credit score over time.

Obtain new credit.

Obtaining new credit after filing bankruptcy is critical to rebuilding your credit score.  Many lenders will approve applicants with a history of bankruptcy, but if you are you are unable to obtain a traditional credit card, you may want obtain a secured credit card instead.  You should anticipate credit being more expensive after filing bankruptcy.

Make your new credit card payments on time and keep your credit balances low.

Make your payments on time every month and keep your balances low.  If possible, pay your balance in full to avoid getting into trouble.

Apply for new credit sparingly and take your time in rebuilding your credit.

Do not apply for too many credit cards at once as part of your credit score is based on how many credit applications you make.  Most important, take your time in rebuilding your credit score.  If you rush you may end up making a mistake that could delay your rebuilding process.

If you have any questions about rebuilding your credit after bankruptcy you should consult with an experienced Phoenix bankruptcy lawyer.  Our dedicated attorneys are available 24/7 to answer your Chapter 7 bankruptcy and Chapter 13 bankruptcy questions.

Debt Settlement Companies: Debt Settlement or Bankruptcy?

I often consult with clients who have attempted debt settlement prior to our meeting.  I’m sure debt settlement has helped many people resolve their debt issues, I only see cases where debt settlement was unsuccessful.  Most of the time these clients are in a worse position then they were prior to attempting debt settlement and are left with little choice but to file bankruptcy.

Debt settlement companies are private, for profit companies that offer to negotiate with your creditors on your behalf in an attempt to reduce the amount you owe.  Some companies charge a fee per settlement while others charge regardless of the result.

One issue with debt settlement companies is that they encourage consumers to default on their debt so that they can negotiate a lower settlement amount.  With this advice, they often do not disclose that failure to pay your creditors could result in a lawsuit, wage garnishment, extra fees and penalties, and more.  A second common issue with debt settlement is that sometimes the creditor refuses to settle.  I often see debt settlement companies resolve the smaller liabilities, while the largest creditor is unwilling to participate.  In this situation the consumer has wasted time and money settling the less troubling debt, while being forced to file bankruptcy due to the non-participating creditor.

With debt settlement there may also be unanticipated costs.  Any debt forgiveness is treated as taxable income.  For example, if you settle $30,000 of credit card debt for $15,000, you will be taxed on $15,000 of income.  This can leave you with a substantial bill from the IRS.  In bankruptcy discharged debt is not treated as taxable income.

Finally, I have seen debt settlement companies that are complete scams.  Therefore, do your research prior to selecting your debt settlement company.

At Ariano & Reppucci, our trusted Phoenix bankruptcy lawyers will give you an honest assessment of whether bankruptcy or an alternative to bankruptcy such as debt settlement is in your best interests.  Too often bankruptcy attorneys push clients into filing either Chapter 7 or Chapter 13 bankruptcy when it does not make sense to do so.  For a free consultation with an experienced bankruptcy lawyer in Phoenix, Tucson, Casa Grande, or Prescott, call us 24/7 at 602-515-0841, 520-461-1077, or 855-298-4727.

Can I Cancel or Dismiss My Chapter 7 Bankruptcy?

Sometimes after filing people realize they do not wish to proceed with Chapter 7 bankruptcy and would like their case dismissed. You may wondering why would anyone want their Chapter 7 bankruptcy dismissed? There are a variety of reasons as to why debtors want their case dismissed, often times due to a change in circumstances that no longer make bankruptcy the most favorable path. One example is if a debtor received an inheritance after filing and did not want to turn it over to the bankruptcy trustee.

Once your Chapter 7 bankruptcy is filed it can be difficult to have it dismissed. Upon filing Chapter 7 bankruptcy your assets become property of the bankruptcy estate. You may voluntarily ask the court to dismiss your case, but if the reason for dismissal is to protect against losing a valuable asset, the court is unlikely to grant a dismissal. On the other hand, if you do not have any valuable non-exempt assets, you most likely will not face opposition from the trustee or creditors, and your Chapter 7 bankruptcy will be dismissed.

Outside of seeking voluntary dismissal from the court, your case will be dismissed for the following reasons. First, if you have not paid the court filing fee your case will eventually be dismissed. Second, if you do not file the necessary bankruptcy documents within the court deadlines your case will be dismissed. You have seven days to file the list of creditors and credit counseling certificate, and fourteen days to submit the remaining schedules and statements. A third way your case will be dismissed is if you fail to attend the scheduled 341 meeting of creditors. Finally, your case will be dismissed if you do not complete the financial management course within 60 days of your meeting of creditors. Although the court will have little choice but to dismiss your case for the foregoing reasons, depending upon why your case was dismissed, you may have to wait a substantial amount of time before you can refile. Therefore, you should consult with an experienced Phoenix bankruptcy lawyer before you attempt to have your Chapter 7 bankruptcy dismissed.

How Do I Come Up with the Money to Pay for a Bankruptcy Attorney in Arizona?

Most prospective clients want to know how much my fees are and whether we have payment plans. Although we offer payment plans, like most bankruptcy attorneys in Arizona, legal fees must be paid prior to filing. Naturally the next question is “how am I supposed to pay bankruptcy fees when I cannot pay my bills?” Below are some suggestions as to how to obtain money to pay your bankruptcy attorney.

Stop Paying Your Credit Cards
You should not use a credit card to pay for bankruptcy. However, if you’re committed to filing bankruptcy I recommend stop paying your credit cards and put that money aside for your bankruptcy fees. Staying current on credit cards that are going to be discharged in bankruptcy is essentially throwing money away.

Use Your Tax Refund
Clients who are living paycheck to paycheck rarely come into additional income except when they receive tax refunds. Tax refunds are non-exempt so any refund owed to you becomes property of the bankruptcy estate upon filing. However, if you receive your tax refund prior to filing and spend it appropriately, that money does not become part of the bankruptcy estate. Bankruptcy legal fees and costs are an acceptable way to spend your tax refund. Therefore, if you are looking for a way to obtain the fees necessary to file your bankruptcy, you may want to consider waiting for your tax refund.

Borrow from Family or Friends
The third most common way I advise clients to obtain the necessary fees necessary is to borrow money from a third party, such as a friend or relative. It’s perfectly acceptable to receive money from a third party to pay for bankruptcy, but remember that you cannot repay any family members or friends within one year prior to the filing of your case.

If you have any questions regarding bankruptcy legal fees or how to come up with the money for your bankruptcy, please contact one of the experienced Tucson and Phoenix bankruptcy attorneys of Ariano & Reppucci, PLLC.

Can I File Bankruptcy Without My Spouse in Arizona?

Clients often wish to file bankruptcy alone while married to protect the other spouses credit.  Although it is possible for one spouse to file bankruptcy without the other in the state of Arizona, there may be consequences for doing so that need to be considered.

Arizona is a community property state which means that most assets acquired during the marriage are community assets and most debts incurred during the marriage are community debts.  As a result, if your spouse obtains a credit card without your knowledge you are still responsible for this debt.

The biggest issue with filing individually while married is that creditors are able to try and collect from the non-filing spouse upon conclusion of the bankruptcy.  Although the creditor has the ability to demand payment from the non-filing spouse, a creditor cannot take any community assets such as wages or any property acquired during the marriage.  Therefore, if the non-filing spouse has no separate property (inheritance, vehicle purchased prior to marriage, etc.), the debt should be uncollectible.  In conclusion, a spouse may file individually while married in Arizona, but the non-filing spouse may face collection efforts after the bankruptcy discharge and could lose separate property in satisfaction of this debt.

If you are considering filing individually while married you will want to consult with an experienced bankruptcy lawyer in Phoenix, Tucson, Casa Grande, or Prescott.  Our attorneys offering free consultations seven days a week.

Can I Use My Credit Card(s) Prior To Filing Bankruptcy?

Often clients contemplating filing Chapter 7 or Chapter 13 bankruptcy ask “Can I continue to use my credit cards prior to filing bankruptcy?” My answer is always to stop using your credit cards if you are going to be filing bankruptcy in the foreseeable future. If you have already made purchases on credit and need to file bankruptcy immediately you can anticipate having to pay back certain charges.

(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—
(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable. 11 U.S.C. § 523(a)(2)(C).

Therefore, if you incur more than $500 of luxury goods within 90 days prior to filing bankruptcy, there is a presumption those debts are non-dischargeable and will have to be paid back. However, if you have purchased something on a credit card within 90 days of filing that exceeds $500 and is necessary for the support of you or your family, you most likely will not have to repay the debt.

(II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor. 11 U.S.C. § 523(a)(2)(C)(ii)(II).

Examples of goods or services reasonably necessary for the support or maintenance of the debtor or a debtor’s dependent(s) may include groceries, electricity, gas, etc.

Credit use outside of 90 days may also be an issue in your bankruptcy case. A credit card company may challenge dischargeability of its debt if the debtor incurred credit card charges with no reasonable expectation of repayment. For example, if a debtor has no source of income in the year prior to filing and survived off of credit cards or cash advances.

Can I Take a Cash Advance Prior to Filing Bankruptcy?

Under 11 U.S.C. § 523(a)(2)(C), there is a presumption of nondischargeability for cash advances more than $750 taken within 70 days prior to filing bankruptcy.

(III) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;

If you have any questions regarding recent credit card use and bankruptcy please contact the experienced Phoenix bankruptcy attorneys of Ariano & Reppucci, PLLC.

How Fast Can You File Bankruptcy? Filing Emergency Bankruptcy.

I receive a number of calls from potential clients who are about to lose their home, are having their wages garnished, or are facing some other imminent collection activity.  Almost always the first question is, “how long does it take to file bankruptcy?”  Filing emergency bankruptcy in either Chapter 7 or Chapter 13 can take only a matter of minutes, but it’s often discouraged unless it is truly an emergency for which filing is necessary.  For example, an emergency filing may be warranted if your home is going into foreclosure in a few days or even hours.  However, if your only emergency is that your wages are about to be garnished, even though the garnishment may greatly impact your livelihood for a period of time, you should strongly consider making sure you have adequately prepared and reviewed the bankruptcy petition prior to filing.

Generally in order to file an emergency bankruptcy in Arizona you will need to pay your attorney’s fees, court fees, and class fees in advance.  Most bankruptcy law firms charge additional fees for an emergency filing as well.   The filing fee may be paid in installments over the course of 2-3 months or may be waived in certain circumstances.  Additionally, you will have to take a 1 hour credit counseling class online or over the phone prior to filing unless you can get an extension or waiver.  Finally, our firm requires that you drop off the Required Documents prior to filing, which include the following:

1. Driver’s License and Social Security card

2. Title and Registration for all vehicles paid in full

3. Motor Vehicle Record and Registration for any vehicles with loans (instructions on page 2)

4. Deeds to all properties; you can find a copy in your closing documents or at the

county recorder’s office/website

5. 6 months of pay records:

  • Each and every pay stub for every job worked
  • If self-employed: monthly income/expense reports
  • If receiving Social Security Income – 2011 and 2012 Benefits letters
  • If unemployed please write a statement giving unemployment dates and

provide records of any unemployment compensation

6. 6 months of complete bank statements for each and every open bank account,

you can print the statements online

7. 3 years of Federal & State Tax Returns, all the forms filed for each year including all W-2’s and/or 1099’s or IRS Transcripts for any year the tax forms are not Available

8. Financial Retirement Statements for all 401K / Pensions

9. Divorce Documents within Six Years

10. Child Support order for non-custodial parties

11. Judgments/Lawsuits filed within the last year

12. Current Life Insurance policies (declaration page)

13.  Printout of Kelly Blue Book private party value for any vehicles (go to kbb.com)

If you have completed the above requirements and we have had a chance to thoroughly examine your case, your petition can be filed within matter of minutes.  With an emergency bankruptcy filing the three page voluntary petition is due on the filing date.  Seven days after filing the credit counseling certificate and initial creditor list must be filed with the court, while the remaining schedules and statements are due 14 days after filing.  Once the voluntary petition is filed the bankruptcy stay stops all collection efforts such as foreclosure or wage garnishment.

Most clients want their case filed immediately regardless of whether they have an emergency.  I generally advise these clients to be patient and wait the 2 to 4 weeks to ensure the bankruptcy paperwork is complete and accurate as most errors are irreversible after filing.

If you are considering filing emergency bankruptcy you should consult with an experienced Tucson or Phoenix bankruptcy attorney of Ariano  & Reppucci, PLLC.

What Happens when a Debtor in Bankruptcy Dies or Becomes Incompetent Before the Case is Closed?

The answer to this question depends on which Chapter of bankruptcy you have filed under.

Rule 1016, Death or Incompetency of Debtor states as follows:

Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred. If a reorganization, family farmer’s debt adjustment, or individual’s debt adjustment case is pending under chapter 11, chapter 12, or chapter 13, the case may be dismissed; or if further administration is possible and in the best interest of the parties, the case may proceed and be concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.

Therefore, in a Chapter 7 case where a debtor has suffered death or incompetency the case continues. The estate of a Chapter 7 debtor is administered and the case concluded as though the death had not occurred. The case is allowed to proceed without interruption because upon filing the debtor’s non-exempt property becomes property of the bankruptcy estate for which it is the Chapter 7 trustee’s job to administer.

However, whether a debtor may continue under Chapters 11, 12, and 13 is at the discretion of the court. In these reorganization Chapters of bankruptcy the court will assess whether continuation of the case is possible and whether it will be in the best interests of the parties.

Contact an experienced Phoenix bankruptcy attorney of Ariano & Reppucci if you have any questions concerning death or incapacity after filing bankruptcy.