You want to know the chapter 13 rules that apply so that you can determine whether this is the right form of bankruptcy to file for. Here are some quick tidbits on this particular law to help you find out if this method would be right for your situation. The first thing you need to know about chapter 13 is that it involves financial re-organization under the bankruptcy court supervision and it doesn’t
involve you selling off all your assets to pay off your creditors, as does chapter 7. Assuming you have sufficient income and levels of debt to qualify, you will get a court plan specific to your situation that you are required to file in order to fulfill your debts and receive a full discharge from those obligations.
The chapter 13 rules show that the plan needs to be executed within a three to five year time, and in this time, the creditors cannot try to get their money from you except through the bankruptcy court. Keep in mind; this is not for incorporated businesses, but for personal and self-employed bankruptcy claims. In addition, partnerships usually are not covered under chapter 13 rules, and therefore either need to go for chapter 7 or 11. This form of bankruptcy obviously sounds good, as you get to keep your personal possessions and business if you have one; you are not relieved of your debts. You need to use a lot of your income you generate over the next several years to pay the chapter 13 plan in full and get a discharge. As opposed to a chapter seven, where your debts are completely voided after selling off your assets, under chapter 13 rules you are obligated to continue paying off those debts.
Therefore, in some instances you might actually prefer a chapter 7 bankruptcy, as you can at least wipe the slate clean and start over. With that said, more often than not, if you manage your money correctly, it is definitely best to keep your assets while paying off your debt, but it is not always easy to qualify. In order to do so for chapter 13, you need to have a relatively stable income stream, secured debts which total fewer than eight hundred and seventy thousand, and unsecured debts under two hundred and ninety grand. Therefore, whether or not you qualify depends completely on your individual situation. A good lawyer will be able to advise you on all the specific chapter 13 rules and help you determine whether you would make a good candidate for this form of bankruptcy. There are affordable and experienced bankruptcy attorneys in your area.
If you are currently filing for bankruptcy protection, I have some good news: you are not alone. In addition to the thousands of Americans who are currently facing similar financial hardship, some very recognizable names are in your company. (Yes, even bigger than Teresa and Joe Guidice.) Without further ado, I present to you the biggest individual bankruptcies in history:
Now, before I get too distracted, I have to give thanks to friend, colleague and fellow bankruptcy lawyer Brian Dault. I first stumbled upon this gem on his bankruptcy blog and any credit should be sent his way. Thank you, Mr. Dault.
The reason I decided to share it with you is two-fold. First, I simply find it pretty darn interesting. The next time your at a cocktail, quiz the crowd as to what Donalt Trump, Mike Tyson and Henry Ford have in common. I bet ‘bankruptcy’ won’t be a top answer. (disclaimer: I am not responsible for any disturbing or inappropriate answers given…they are your friends, not mine)
Second, I simply want to stress the often overlooked point that bankruptcy and future financial success are not mutually exclusive. Don’t believe me? Just ask the Donald.
I like to think of myself as a pretty darn modern bankruptcy attorney. I have an IPad. I engage in social media. I blog (though faithful readers will know that I am on track to turn over a pretty hefty portion of my paycheck this year….maybe I don’t blog as much as I think). While I won’t deny that these avenues help me grow my business by engaging potential clients, the primary reason I chose to participate is because I believe strongly in the spread of information.
Ok, you look confused. Because of this belief, I spend a lot of time purusing other bankruptcy blogs. I find they can be a great resource for potential topics and fresh viewpoints. Over the weekend, I was catching up on my bookmarked sites and came across an interesting post by a Florida Bankruptcy Attorney. I have pasted an exerpt below:
How to mess up a bankruptcy exemption. I happened upon a Florida bankruptcy case decided in 2010 wherein a court held that a debtor’s self-directed IRA was not exempt. The debtor’s had a securities account that clearly was titled as an IRA account. The IRS approved the securities account as a proper self-directed IRA account as to its form. The problem was that our debtor used his IRA money improperly and in violation of IRS rules for self-directed IRAs. The debtor borrowed money from the IRA, pledged his IRA account as security for a loan, and commingled IRA funds with his other money. The debtor’s misuse of the IRA disqualified the IRA under IRS regulations. Even though the IRS had not investigated or independently disqualified the IRA the bankruptcy court held that the money in this debtor’s IRA lost its exemption.
Yes, I know. This article references a Florida bankruptcy case. And, despite our shared sunshine, I am well aware that we are in Arizona. However, this article touches on an important point that can apply to all bankruptcy cases: just because an asset starts out exempt, doesn’t mean it will end that way. In other words, you must handle you assets purposefully and in accordance with the bankruptcy code if you want to protect their non-exempt status.
Need some convincing? I recently heard about a bankruptcy case in which a debtor was struggling to protect exempt social security funds that had been comingled with non-exempt funds in a single bank account. Another all-to-ccommon speedbump occurs when debtors take funds from their exempt retirement accounts, or from protected home equity for that matter, prior to filing bankruptcy. This change in form can strip an asset of its exempt status.
What is my advice to you? If you are currently filing or considering filing for bankruptcy protection, please, pleeeaaaase, PUH-LEASE consult with your bankruptcy attorney prior to making and financial decisions. This means that BEFORE you sell your car, pay off a loan, put equity into your home, or deposit your social security checks, give your attorney a ring. He or She will be happy to hear from you.
First, I have something important to say. HEY BLOG READERS, CHECK OUT MY SIDEBAR!!! Hmmm, that doesn’t sound quite right. No, I am not referring to anything inappropriate. If you look to the right, you will see that I added a ‘Skribit’ box. This allows blog readers to anonymously suggest ideas for future post topics.
This means that, if while perusing my blog you cannot find the answer you came looking for, simply suggest a topic. I will happily address it in the next week or so. While I cannot offer you legal advice pertaining to your case, I will answer your hypothetical bankruptcy questions through a rambling blog post. And hey, it is FREE. Now THAT is service.
Now on to today’s post. In an attempt at complete transparency (because who likes a lawyer that’s hiding something), I will flat out say it: I am cheating today by not addressing a unique bankruptcy law topic. I am completely out of ideas (and am staring down a “honey-do list” that seems a mile long). What I am going to do is provide all potential Arizona bankruptcy debtors with a resource.
Here you will find fill-able pdfs that I use to collect information from my clients. As you can see, they are extensive. This is a good thing, because it provides me (or any other bankruptcy lawyer) with an accurate portrayal of your financial picture. Er…that is….as long as you complete them ACCURATELY (translate: please don’t underestimate your income by $3,000 a month).
I get many phone calls from potential clients…. two common questions stand out in my mind:
1. Can I file for bankruptcy in Arizona (successfully, that is. Anyone can file, but if a case is dismissed 2-weeks later I am pretty sure the client will not be happy)
2. How much will it cost to file bankruptcy.
While I do my best to advise these individuals, I make it clear that I cannot definitively answer either questions without reviewing the information contained in the forms above. Therefore, if you would like to determine if bankruptcy is a good option for you and/or how much it will cost to file bankruptcy in Arizona, get working on the above forms.
When you are finished, pass them along to my office (e-mail, fax, snail-mail, carrier pigeon – whatever suits your fancy), and I will personally review them for you. At that point, I can give you an accurate assessment of whether bankruptcy is a good option for you and how much it may cost to file.
“Matthew,” asked the Pastor, “what’s the matter?”“Well, Pastor, my business is shot, I’m losing my house and my wife says she is going to leave me and take the kids if I don’t straighten things out. I just don’t know what to do.” “Matthew, find the answer in the Bible,” the Pastor replied. And Matthew left. Four months later, the Pastor sees Matthew coming out of Church, only this time, he’s wearing an Armani suit, a nice cap and lighting a big old cigar. “Matthew, you look great! Did you follow my advice?” “I did. I went home that day and decided to open the Bible and to follow the advice I saw. So I opened the Bible and the first phrase I saw said: Matthew Chapter 11.”
After realizing that the demise of my weekly “hump-day humor” post was due to the realization that bankruptcy just isn’t that funny, a client passed along the above witticism. Let me just say, THANK YOU MRS. (Name withheld to protect the innocent)! YOU MADE MY DAY.
All humor aside, I believe this also serves as a segway into an important point regarding filing for bankruptcy. The bankruptcy code exists to provide those suffering from overwhelming financial hardship the means to obtain a financial fresh start.
There is no denying that there is often a social stigma associated with filing for bankruptcy. I have had many clients express to me feelings of failure or embarrassment over their case. It is almost as if they feel that they are letting down their cohorts by seeking protection under the bankruptcy code.
While these feelings are not uncommon, as a bankruptcy lawyer I view the scenario from a different perception. Bankruptcy exists not only for the benefit of the individual debtor, but also for our economy and our society as an entirety. After successfully achieving discharge, a debtor is in a financial position that is much more conducive to economic growth.
Their debt to income ratio is likely right-side up. They are more likely pay their bills on time, as compared to their pre-petition habits. They often finance new vehicles, contribute to health insurance and apportion funds to their retirement accounts. In all, I would argue that a post-petition debtor makes a strong contribution to their local economy.
This is not to say that bankruptcy should be considered a first option (or even 2nd or 3rd for that matter); however, I think many woefully indebted individuals dismiss it as an option solely due to the perceived social implications.
As an experienced bankruptcy lawyer, a scenario I struggle with is when a potential debtor has battled unsuccessfully against their exorbitant debt for a period of months of years. When they finally meet with me, they have drained their savings, lost their property, and (due to fines and late fees) end up discharging substantially more debt than they started with. A lose-lose scenario all around.
If you are currently facing seemingly insurmountable debt, please don’t hesitate to contact an experienced bankruptcy lawyer. Conveniently enough, I fit that category pretty well. Contact me today if you would like to schedule a free consultation.
[Steps off my soapbox]
What happens when you lose your home to foreclosure? Are you liable for the deficiency? Will you get taxed on any forgiven debt? Should you file bankruptcy to prevent liability on a foreclosed home? These are very common questions.
Unless you have been hiding out in a cave (or perhaps just don’t reside in Arizona), you are probably aware of the abysmal housing market in the state of Arizona. In the last 1/2 decade or so, home prices have tumbled to 10 year lows and somewhere around 50% of Arizona homeowners are currently underwater on their primary mortgage. “Yikes” doesn’t quite cut it.
Given the above scenario, it is not surprising that, as a local bankruptcy lawyer, a large number of potential debtors contact me in order to eliminate an underwater mortgage. It seems that many underwater homeowners are not aware of the current Arizona Anti-deficiency laws, which protect homeowners from liability extending beyond foreclosure.
I am here today with a message for all homeowners in Arizona that are currently considering foreclosure:
YOU MAY NOT HAVE TO FILE BANKRUPTCY TO ELIMINATE LIABILITY ASSOCIATED WITH A MORTGAGE DEFICIENCY AT THE TIME OF FORECLOSURE.
Yes, I am a bankruptcy lawyer. No, you didn’t misread the above lines. I recommended against filing for bankruptcy for a subset of Arizona homeowners. See, Arizona has a set of anti-deficiency laws that protect homeowners from liability stemming from a mortgage deficiency at the time of foreclosure. Therefore, if a mortgage deficiency is your only debt then, under certain circumstances, bankruptcy may not be the best option for you.
Huh? In simple terms, Arizona has a law that states you will not owe anything towards a mortgage balance (the “deficiency”) at the time of foreclosure. Note that there are some provisions that must be met in order to claim protection under that Arizona Anti-deficiency laws. These are listed below:
- Your home is a single family home or a duplex
- Your home is on less than 2 1/2 acres
- You or someone has actually lived in the home
- The loan on your home was purchase money (i.e. actually used to buy your home)
If all of the following are true, you will be able to walk away from your home and not owe any additional funds and not be subject to any law suits. However, if any of the above factors are not present, then you could get sued after your home forecloses for any deficiency owed. This is especially frightening given the dramatic fall in home prices that we have seen in Arizona.
A common scenario that is not protected under the Arizona anti-deficiency laws is one in which an Arizona home owner took equity out of their home, and used the funds on something unrelated to the purchase of their home. Notice that one of the above provisions states that the mortgage with which the deficiency is associated must have been used to purchase the home in order to to qualify for protection under the anti-deficiency statute.
This means that, if you have a deficiency balance on a second mortgage or Heloc, you are likely not protected by the Arizona anti-deficiency laws. In these cases, the bank has 90 days after the foreclosure sale to sue you. The good news in this scenario is that these loans, when wholly unsecured due to falling home prices, can be stripped of their secured status and thus discharged in chapter 13 bankruptcy.
On a final note, it is important to note that Arizona’s anti-deficiency statute does NOT apply to short sales. In these scenarios, the lien holder of a second mortgage or Heloc must agree to wave the debt owed. If not, these lenders can (and likely will) sue you for the deficiency associated with the sale.
As always, I am a experienced Phoenix bankruptcy lawyer that offers free consultations for those seeking additional information on anti-deficiency laws in Arizona. Contact me today to schedule a free bankruptcy consultation.
Question: I want to file for chapter 13 bankruptcy, but I don’t know how to calculate my disposable income. Is social security included? Is unemployment included? What about gift money? Gambling proceeds?
Answer: When calculating disposable income, you do not include social security proceeds as income (line 6), but do include most other common income sources, including unemployment, gift money and gambling proceeds.
If you are a regular reader, you may remember a post regarding the intricacies of completing a chapter 7 means test. In particular, I provided chapter 7 debtors with a document provided by the US Trustee’s Office regarding intricacies and issues that have arisen with the means test since its implementation 5 years ago.
In an attempt to be fair to all you chapter 13 debtors out there, I have found a similar document regarding issues that have arisen when determining chapter 13 disposable income. This document is put out by the US Trustee’s Office to clarify common points of contention that debtors and their attorneys have stumbled upon when calculating chapter 13 disposable income. The read the article in it’s entirety, you can download it here.
The first point I would like to make is that social security income is not included in disposible income calculations. You will notice on line 6, you are asked to list proceeds from pensions and retirement income sources. Here you will include income from all (including government) retirement accounts, 401(k)s, and IRAs. However, social security income is excluded.
Another point I would like to address involves the regular contribution to household expenses from an outside source. On line 7, you must include income paid by another person or entity for your household expenses or the support of you or a dependent. This includes regular payments made either directly to you or to a creditor on your behalf. Note that irregular cash gifts are not included here, but must be accounted for later on.
Speaking of those cash gifts, let’s take a quick look at Line 9. This section asks you to account for any additional income sources, including but not limited to: net gambling proceeds, cash gifts, litigation or lawsuit proceeds, or trust income. Another point of contention is that private disability proceeds are included in this calculation, while SSA benefits are not.
If it is of interest to you, feel free to read the remainder of the document. It contains valuable information regarding claiming expenses and residency requirements for filing. As always, I firmly content that you should consult with an experienced bankruptcy lawyer in Phoenix or Casa Grande if you are considering filing for chapter 13 bankruptcy. Chapter 13 bankruptcy is a complicated process, and I am of the belief that no debtor should file for chapter 13 pro se, unless they are intimately familiar with the process.
Feel free to contact me (remember, I am an experienced bankruptcy lawyer) for more information on the subject, or to schedule a free chapter 13 bankruptcy consultation in Phoenix or Casa Grande.
First, let me point out that you can file for bankruptcy as often as you like. However, the BAPCPA changes to the bankruptcy code limit restricts your ability to obtain a discharge in cases of serial filing. This means that, even if you successfully file a bankruptcy petition within the below specified timeline, you have not circumvented the timeline minimums set forth below. You will not receive a discharge in a bankruptcy case that was filed within the minimum time frame.
Now let’s move on to the discussion of how often an individual can file for bankruptcy protection. You are correct in your concern that the bankruptcy code limits the frequency with which a potential debtor can file for bankruptcy protection under chapter 7. Fortunately, that time frame is 8 years. This means that a potential chapter 7 bankruptcy debtor is allowed to file under chapter 7 of the bankruptcy code every 8 years.
Another important thing to remember is that the number 8 applies only to consecutive chapter 7 bankruptcy filings. The time period is different when you consider filing for chapter 13 bankruptcy protection subsequent to filing for chapter 7 protection. In this case, an individual can file for chapter 13 bankruptcy protection 4 years after filing for chapter 7.
For completeness, let’s consider an alternate scenario. What if a debtor had previously filed for chapter 13 bankruptcy protection, and was now interested in filing for chapter 7 or chapter 13 bankruptcy? A second chapter 13 bankruptcy can be filed 2 years from a prior Chapter 13 filing and a chapter 7 bankruptcy can be filed 6 years from a prior chapter 13.
As a final note, notwithstanding the above, you can be barred from filing a new case for 180 days after a case is dismissed, if the dismissal is either because you willfully failed to abide by an order of the court or to properly prosecute the case, or was at your request after a creditor requested relief from the automatic stay.
Question: What income sources are used to calculate a debtor’s average income for purposes of the means test? Will I qualify for chapter 7 bankruptcy if I make $1,000,000 a year in tips, gift money and pension proceeds but don’t actually have a ‘real’ job?
Answer: Social security proceeds are excluded, most other common income sources are included.
Remember that the means test was born from from the BAPCPA provisions of the bankruptcy code, set forth in 2005. In the 5-ish years since, chapter 7 debtors (and their bankruptcy attorneys) have been test-driving the code. If you haven’t realized this yet, the true meaning of any provision is not elucidated at the time it was first instated. Like a pair of jeans, it has to be worn in a little for a good fit.
When completing a means test to determine chapter 7 eligibility, it is important to realize that there are subtle nuances relating to income. Unless you are familiar with the process of filing for bankruptcy, these can be easily overlooked. In many cases, these subtle interpretations determine whether or not a debtor can file for bankruptcy protection under chapter 7.
I recently stumbled across this document which is issued directly from the U.S Trustee Office. It describes their official position on a number of issues that have arose over the lifetime of the Means Test. For those of you allergic to formal legal documents, you can stops scratching. I will summarize the most interesting points below:
- You may have heard that disabled debtors are not required to complete the means test. This is limited to those at least 30% disabled during their active duty for debt incurred primarily during active duty.
- Wages, overtime, tips, etc. must be listed regardless of whether the income source is taxable or not.
- Business and real property income and expenses must be reasonable and depreciation cannot be included.
- Pension and other retirement income is included. Social security income is not.
- Any income paid regularly from friends or family members is included. This extends to payments made directly to creditors in your behalf.
- Unemployment income is included
- Miscellaneous income sources that should be included when preparing your means test are: gambling proceeds, private disability, gift money, and trust disbursements. It does not include loan payments, tax refunds or SSA benefits.
There is another 4 pages of information in this document that I didn’t address, including valuable information on residency requirements and declarations of expenses. For this reason, if you are currently researching the chapter 7 means test, I recommend you read through this documents.
***I want to take a moment to point out the format I am test-driving. I have decided to format my blog posts as Q&A topics. At the beginning of each post, you will see the proposed question and and appropriate response, limited to 200 words or less. Because you cannot scratch the surface of most legal topics in 200 words, I will follow this with my usual long (winded) answer. Read at your own risk.
AZ state residency requirement for filing a personal bankruptcy petition:
This is a fun one today. See, as you may already know, Arizona is a state of transplants. Me? I am from the windy city. I would bet that if you asked 10 random people on the streets of Phoenix about their home, a majority would be born and raised outside of sunny Arizona. Do you blame us? I recently received this photo from a family member in Chicago. Frightening, huh? (And no, I am not referring to the tape deck.)
There are 2 numbers you need to remember regarding Arizona bankruptcy residency: 180 and 2. Bankruptcy law discussing residency provides, generally, that you must have had a “domicile, residence, principal place of business…or principal assets” in the district where you file for 180 days before the date that you file a bankruptcy case. That is, the standard residency requirement is that all Arizona debtors must show convincing ties to the state of Arizona for 180 days prior to filing.
If you have not lived in Arizona for 180 days, then generally you may still be able to file in Arizona if you have lived there for “longer than” you have lived anywhere else in the 180 day period before your filing. This can be interpreted as living in Arizona for the majority of 180 days or, if you are really sneaky, 3 months + 1 day. Note that these questions vary with individual circumstances. If you have moved immediately prior to filing for bankruptcy protection, you should probably meet with a bankruptcy attorney to discuss issues of venue.
Another important question is, if you meet the residency requirements to file, what exemptions should you use. As we have discussed previously, each state allows their debtors specific exempt property to retain in a chapter 7 bankruptcy. The type and amount of these exemptions vary widely from state to state. Would you like an example? Sure, let’s compare common exemptions between Arizona and Illinois:
While I am not familiar with the exemptions of every state, I have noticed that Arizona has fairly generous bankruptcy exemptions. How do you determine what exemptions you should use for your bankruptcy petition? The general rule states that you should use exemptions corresponding to the state you lived in for the 730 days (2 years) before filing. If you did not live in a single state in the previous 2 years you use the state where you lived the majority of the 180 period preceding the 2 year period. If the preceding renders you ineligible for any exemptions then the debtor is allowed to choose the federal exemptions.
Another thing to watch out for is that if you have moved to Arizona recently, you might be required to use the exemptions (the laws that set out the property you are allowed to keep) of the state where you lived before, and they might be more generous or less generous than Arizona’s exemption laws. Again, it would be well worth your time to consult with an attorney who specializes in bankruptcy, so that you can get advice about your own unique situation.
Remember yesterday, when I listed common mistakes made by pro se debtors? Add this one to the listed. Using the wrong exemptions is a good way to bungle up your case and perhaps lose valuable assets.