Arizona Bankruptcy Lawyer Blog

Collection Threats – Fact or Fiction

Fri, 30 Sep 2011 16:51:18 -0700

In the years that I have practiced as a bankruptcy attorney in Arizona, one of the most common things that drives a client into my office in a state of panic is the threats he hears coming from collectors. In response to these fears I think it is important to separate fact from fiction.

Scenario: You are sitting at home watching a new episode of Grey’s Anatomy, trying to get your mind off your troubles for an hour or so. On the show, they have just wheeled a tragically injured single mother into surgery and just at that moment the patient’s vital signs begin to crash. You are on the edge of your seat, and you think to yourself, will McDreamy be able to save this poor soul or not, and if not, what will happen to her adorable, precocious two year old? All of a sudden your cell phone rings and you are so involved with the plight of the patient in this episode of your favorite show that you momentarily forget yourself and answer the phone (even though you have been purposefully avoiding answering all calls from any unknown numbers because you know you weren’t able to pay your credit card bills this month).

“Shoot,” you think to yourself, “I wasn’t supposed to answer the phone.” Of course, on the other end of the phone line is an angry guy shouting horrible things at you. He starts right in with shaming you and moves to insults. He never lets you get a word in edgewise. Anytime you attempt to explain or defend yourself, he is right there talking over you. He doesn’t care that you were downsized from your job and have been unable to find another one. He doesn’t care that you haven’t been able to afford food or pay your utilities either. His insults turn threatening and he begins to tell you that if you don’t give him a payment over the phone right now, he will just go ahead and garnish your bank account. He makes you think that he will be depleting your bank account tomorrow. You plead with him by telling him that you expect to get a positive answer from one of those job interviews that you went on this week, and if he would just give you some more time, you will send in your payment. He ends the call by making you believe that even if you are successful in getting that job, he will just garnish your wages before you even get them. You hang up the phone thinking you are in no better shape than McDreamy’s patient.

So let’s separate the fact from fiction. Can creditors call you and harass you, sometimes insult you, and instill feelings of shame? In most cases they can. So unfortunately, this is not a fiction, but more of a fact. Can creditors hang up the phone with you and immediately garnish your wages or bank account? Absolutely not, this is fiction.

In order for a creditor to be able to garnish you, he must first serve you with a complaint and summons. If you do not answer the creditor’s complaint within the statutory time frame, that creditor can get a default judgment against you for the amount that the creditor listed in his complaint. The creditor can then file a writ of garnishment and get a court order which would allow garnishment of your bank account or your wages in order to satisfy that judgment. All of these things take time and court action. It can’t happen overnight and it can’t happen unless the creditor has first followed the steps outlined.

The Writ of Garnishment, is what grants the creditor the legal authority to notify your bank of the Garnishment Order. The Garnishment Order allows the creditor to garnish or take everything you have in your bank accounts up to the amount of the judgment with the exception of $150.00. If you are employed, the creditor will also send the Writ of Garnishment to your employer. After receiving the writ of garnishment order, your employer will be required to withhold a maximum of 25% of your net income per paycheck and send it to your creditor. This is called wage garnishment and it will continue until the entire judgment is satisfied.

Now that we have overcome the fearful fiction of collectors, remember that the attorneys at Campbell & Coombs, P.C. have successfully represented many people through the bankruptcy process and successfully protected their bank accounts and wages from garnishment. It is important to speak with an experienced bankruptcy attorney to ensure you are not buying into fearful fiction but combating that fiction with knowledge and truth. You can even tune back into some television without fearing a collection call, because just like McDreamy, you’ve got knowledge and skill on your side.

If I FILE BANKRUPTCY WILL I LOSE MY JOB?

Tue, 20 Sep 2011 16:23:55 -0700

As an Arizona Bankruptcy Attorney, I am frequently asked by my clients, “will filing bankruptcy affect my job.” They are worried that the filing of a bankruptcy will cause them to be fired from their job or that the bankruptcy will cause a demotion. These clients are also worried that the bankruptcy could prevent them from being hired for a job in the future. Both the Bankruptcy Code itself and my 33 years of experience as a bankruptcy attorney show that these fears are unfounded.

The Bankruptcy Code specifically addresses the issue of jobs and bankruptcy. Section 525 of the Bankruptcy Code specifically prohibits discrimination in any form, including termination, by your current employer if you file a bankruptcy. While you could be laid off for some other reason, bankruptcy cannot be one of these reasons. If your employer did try to affect your job due to your filing bankruptcy, that employer would be subject to a bankruptcy court action for contempt and damages. Campbell& Coombs, P.C. is equipped and ready to file such an action should one be required. However, in all my years of bankruptcy practice in Arizona, I have never had and an employer terminate, demote or discipline any of my clients for filing a bankruptcy. This makes logical sense. After all, who would your employer rather have as an employee: The New You after a bankruptcy who is off to your fresh start and not worrying about all your past debts, who can devote all your attention to your job, or the Old You who is constantly being called at work by creditors, who cannot sleep at night while worrying about the bills, or whose paycheck is being garnished leading to extra work for your employer? I know that if I was hiring you, I would want the New, Well Rested, You after bankruptcy as opposed to the Stressed Out, Sleep Deprived, Attention Deficient You before bankruptcy.

Additionally, I have never had any of my bankruptcy clients turned down for a job because of a bankruptcy. Section 525 of the Bankruptcy Code also prevents governmental employers from discriminating against you solely because of your bankruptcy. While this bankruptcy code section currently does not apply to non-governmental employers, I have yet to see non-governmental employers engage in such bankruptcy discrimination in their hiring practices. My clients are often worried because employers sometimes check credit reports when they hire someone. Once again though, you must contemplate, who is going to make the better impression: the Old You with many past due bills showing along with court judgments, or the New You who took charge of his or her life and fixed the problem by filing bankruptcy.

Whether or not to file bankruptcy is a major decision for you and your family to make. Be sure to get the advice of an experienced and caring bankruptcy attorney, and don’t be misled by bankruptcy myths like the one that says you will lose your job if you file for bankruptcy. If you would like more information about bankruptcy click on the link to our website.

Just Say No To Bankruptcy Biases

Thu, 07 Jul 2011 16:15:37 -0700

As an Arizona Bankruptcy Attorney, it really breaks my heart to see people come into my office wearing a scarlet letter that is both self imposed and imposed upon them by the judgments of their peers. Society tends to attach this scarlet letter to a bankruptcy filer that, more often than not in these financial times, need not be so attached. While society ought to realize that, often, circumstances beyond an individual’s direct control can lead that person down the road of bankruptcy, for the most part, even in 2011 it often does not. For some reason, even in present times with all the reports of job loss and the downturn in the economy, there is still something about bankruptcy that causes many to make snap judgments and to stay behind walls of ignorant bias.

There is no doubt that there is an argument that some people in the past have run up large credit card bills all the while just planning to do a Chapter 7 liquidation bankruptcy to wipe out all their unsuspecting creditors. Additionally, there is no doubt that this is not laudable behavior. However, the danger comes when members of society assume this is what ALL people who file bankruptcy do. This stigma often prevents good people who find themselves in circumstances which are beyond their control, circumstances where bankruptcy could definitely save their financial present and future, from seeking out bankruptcy at all, to their great personal and financial detriment. The truth is that any one of us could easily be one divorce, one illness, one job loss, or one judgment away from finding ourselves staring at a potential bankruptcy. That being the case, it is imperative that we let go of stereotypes a bit and embrace reality.

In order to get past the stigma and stereotypes associated with bankruptcy it can be useful to really break down the circumstances that might lead a smart, capable, and responsible individual to look to the Bankruptcy Court for relief from debt. I will even use an extreme example by selecting Sonja Morgan, New York socialite and member of the cast of Bravo TV’s Real Housewives of New York City to make my point.
Ms. Morgan is a smart, attractive, New Yorker who by many accounts seemed to have it all and have it all together. These adjectives describing Ms. Morgan ought not to change simply because she elected to exercise her constitutionally protected right to bankruptcy protection. This is especially true when so many of the reasons that lead her to bankruptcy were very much beyond her direct control. Unfortunately the media and those in society are judging Morgan and looking down their noses at her causing her emotional distress.

At one point in time, Ms. Morgan was married to an heir of J.P. Morgan, a famous American financier, and probably thought she would be in love and financially secure for life. At some point, like more than 50% of Americans, Ms. Morgan’s marriage was not successful and she was forced to face life as a single woman with a daughter. To that end, Ms. Morgan explored some business ventures and hoped to make an investment in a movie she thought would launch a successful future. Ultimately, that movie investment failed and she was saddled with a, reported, $7 million judgment as a result (which was recently upheld by the United States Court of Appeals). The cumulative effect of a divorce and the failed investment lead Ms. Morgan to file for bankruptcy protection in November 2010, with her debts exceeding her assets.

You may not have much sympathy for Sonja Morgan at first blush, but what I am hoping to demonstrate is her humanity. Divorces happen to more than 50% of Americans. A divorce, a bad business decision, job loss, or illness can happen to any of us and these are the very things leading people to bankruptcy in these economic times. Hopefully Ms. Morgan remaining smart, capable, and together after her bankruptcy filing can be a relatable face for others who find themselves in similar circumstances. By filing for bankruptcy protection Ms. Morgan did what she needed to do to stop the bleeding, to protect her and her daughter’s home, and to give her the chance to reorganize and work with her creditors.

Sources: Judge Orders 'RHNYC' Star Sonja Morgan to Shell Out $7 Million

Real Housewife of N.Y. Sonja Morgan Files for Bankruptcy

In Bankruptcy, As In Life, Honesty Is Always The Best Policy

Tue, 31 May 2011 14:12:15 -0700

In Bankruptcy and in life, a lesson you learned in the sand box, “honesty is always the best policy,” absolutely holds true. Federal Bankruptcy law requires that you include every asset that you own on the day you file your bankruptcy case, as in addition to every debt that you owe to any entity or to any person. You may not pick and choose which assets to list or which debts to include, you must include everything. However, just because you list an item of property on your bankruptcy schedules and statements that are filed on your behalf with the Bankruptcy Court does not mean that you will automatically lose that item of property to the trustee administering your Bankruptcy case. To the contrary, it is very possible that your state has a law on the books that would shield that particular item of property from being lost to your bankruptcy trustee, thereby making it "exempt."

Some people attempt to come up with wild schemes that would make an unexempt item of property exempt or make that unexempt item of property "disappear" altogether. If you are tempted, please understand that it is NEVER a good idea to attempt to “game” the system and “sell” items of property to friends or family members just so those items are not technically titled to you or technically owned by you on the day you file your bankruptcy case (presumably to attempt to shield these items from your Chapter 7 or 13 Trustee who will sell those items of property for the benefit of your bankruptcy estate and your unsecured creditors). This type of game playing can end very seriously, as it did recently for an Iowa couple who will now spend some time in prison for bankruptcy fraud.

According to the attorneys who prosecuted Gerald and Fay Schuerer, this couple attempted to defraud their creditors out of approximately $380,000.00 of assets that the couple “sold” to friends and relatives with the understanding that the items would be reacquired by the couple after the bankruptcy case was filed. This type of dishonesty absolutely does not pay. Both Mr. and Mrs. Schuerer will spend time in jail, pay substantial fines and assessments to each defendant that was harmed (their creditors), and pay $394,984.00 in restitution to the United States Trustee. As a result of their dishonesty, the Schuerers are much worse off than they were before they filed for bankruptcy. No possession or item of personal property is worth the true price you will pay should you engage in this type of "gaming" activity.

As an Arizona Bankruptcy attorney I find it imperative to always be truthful and forthcoming when it comes to your actions before filing bankruptcy and in the listing of your assets for the purpose of filing your Arizona bankruptcy case. When you file a bankruptcy case you are asking the Federal government to grant you relief from certain types of debts that you owe so you are no longer responsible to pay these debts. The government will grant you this relief with the understanding that you will pay the government the price that it requires for this relief, that price being your honesty.

Sources: Amana Husband And Wife Sentenced To Federal Prison For Bankruptcy Fraud

Can I Keep My Bankruptcy Filing a Secret?

Mon, 31 Jan 2011 17:44:47 -0700

Most people filing for bankruptcy would prefer that the entire process be kept under lock and key. Unfortunately, it is a matter of public record, so if anyone wanted to know whether you filed for bankruptcy, they could do so rather easily.

Even if there were a way to keep the bankruptcy from the public eye, there are scenarios that require the disclosure of the bankruptcy filing to friends or family members no matter what. The most common are:

1. If you lent money or gave money or assets to a friend or member of the family, you would probably need to disclose the loan or the gift to the bankruptcy court, thus making it public record. The family member or friend that received the gift or the loan would probably be contacted by the trustee.

2. If the family member or friend lent you money, they will have to be notified as a creditor during the bankruptcy case. There is no ability to "leave out" creditors. Your entire financial picture must be disclosed.

"Credit Repair" For a Fee - What You Should Be Aware Of

Sun, 23 Jan 2011 17:23:50 -0700

Can you really "repair" your credit score? Sure...but... if you are considering this option and are going to hire someone to help you do it, be aware of the following:

1. If the credit repair company guarantees the removal of all negative marks on the credit report even if they are true, they are selling the proverbial "bridge". Credit reporting agencies aren't required to remove correct information. They are required to remove correct and negative information after a 7-10 year period. (Credit 7 years, Bankruptcy 10 years). Often, the process used to "remove" correct info will cause the credit reporting agency to remove it temporarily, but once the creditor realizes that it is gone, they will simply update the account, if they hadn't already.

2. If the credit repair company asks you to create a new identity and thereby a new credit history...run away. This is illegal, but it also doesn't work. You will still owe the debt and can be sued.

3. It is illegal for a credit repair company to charge you upfront fees to help repair the credit report.

In the end, remember that if it sounds to good to be true, it is. Talk to an experienced attorney about your credit report before making any serious decisions.

Don't Give Away Cash or Property to Family and Friends Prior to Filing for Bankruptcy

Sun, 16 Jan 2011 16:53:29 -0700

If you are considering bankruptcy and have an asset that may be of value and that may not be exempt in that bankruptcy case, it would be wise to speak with an experienced bankruptcy attorney before you transfer it to another person or entity.

Transferring assets to anyone prior to filing bankruptcy can result in the loss of the bankruptcy discharge, the loss of the asset or even jail time and fines under certain circumstances. In other words, the law has already "thought of that".

Congress enacted specific provisions in the bankruptcy code (see sect. 548) which allows

Retirement Accounts and Bankruptcy - Don't do the following

Sun, 09 Jan 2011 16:40:29 -0700

Retirements accounts are usually safe from common creditors both inside and outside of bankruptcy. If the creditor can't touch the retirement account, it would not be wise for you to do any of the following:

1. Take a loan out against the account

This is a common issue and it is typically a result of good intentions. Most people who are facing financial problems do not want to file for bankruptcy and will do almost anything to avoid it. This shouldn't be one of those things except in very limited circumstances. Speak to an experienced bankruptcy attorney before signing the loan documents.

Auto Repossession - Avoiding It

Mon, 03 Jan 2011 16:20:38 -0700

Car Lenders don't have to wait a certain number of months to repossess your vehicle if you are behind. They don't have to wait at all. Making a partial payment won't legally ensure the repossession doesn't happen either and neither will the fact that you are struggling financially.

Having said that, most car lenders will attempt to work with you if you are late on payments. They typically don't just take the car the first day you are late.

If you are late and do not see an easy way to catch the car up, here are some options:

Will the Credit Card Accountability Act of 2009 slow bankruptcy filings?

Wed, 29 Dec 2010 10:57:07 -0700

President Obama signed the "Credit Card Accountability Responsibility and Disclosure" Act in May of 2009. The law was designed to further restrict credit card practices that the government and many consumer groups considered harmful. A few requirements of the law that I found to be interesting:

1. Credit card companies will not be able to charge a penalty fee that exceeds the amount associated with the violation. If the payment was $10.00, the penalty for paying it late can't be more than $10.00.

2. Penalty fees must be "reasonable and proportional to the omission or violation".

3. Late fees and fees for other violations against the terms and conditions of using the credit card can't be more than $25.00 unless the violation is a repeat, or it costs the company more than $25.00 to deal with it.

4. Credit card companies are prohibited from charging inactivity fees on gift cards and gift cards can't expire for 5 years.

5. Credit card companies must show the consequences of negative actions, including the release of periodic statements concerning the time it would take to pay off the balance and the total cost.

Some other changes:

1. All contracts and terms must now be in "clear in language"

2. The terms of the contract aren't allowed to change for the first year.

3. All promotions must be plainly disclosed.

4. Consumers must no approve transactions that would place balances over limit instead of incurring an over limit penalty.

5. Fees on low limit and bad credit cards would be restricted.

For those with serious credit card debt, the issue is whether or not this act has or will help them avoid bankruptcy.

Tax "return" must be filed 2 years before filing bankruptcy

Fri, 22 Oct 2010 12:33:37 -0700

Taxes for which returns were not filed at all or...were filed, but within 2 years of filing a bankruptcy are not dischargeable.

The issue here is not always just the two year date as that becomes relatively easy to calculate.

It is more often whether or not the return is actually a "return" for purposes of this rule.

If the IRS has filed a substitute return and then the filer submits a correct return later, and more then two years before the bankruptcy filing, the two year rule may not be met as the return may not qualify as a "return".

3 years before bankruptcy is filed and tax debt

Sun, 17 Oct 2010 12:19:33 -0700

Tax debt that is based on your income and for which a return was required to be filed within 3 years prior to the filing of your bankruptcy petition is not dischargeable in bankruptcy. See 11 U.S.C. Sect 523(a)(1)(A).

The "due date" includes extension dates. So if you filed for an extension to Oct. 15. you would not begin counting the three year period until Oct 15.

The 3 year period is also extended by a prior bankruptcy plus 6 months.

Recent Chapter 7 Bankruptcy and Need to File Again?

Thu, 14 Oct 2010 11:44:10 -0700

If you filed a chapter 7 bankruptcy within the last 8 years and received a discharge, you cannot file another chapter 7 bankruptcy.

It is common for chapter 7 bankruptcy filers to need another bankruptcy. So, what do they do?

If it has been less then 4 years, they use a chapter 13 bankruptcy.

11 U.S.C. Section 1328 (f)(1) lays out the rule.

A debtor cannot receive a discharge under chapter 13 if he or she received a discharge in a chapter 7, 11, or 12 bankruptcy filed within the last 4 years.

If it has been 4 years and a day, another bankruptcy can be filed.

There are circumstances where the discharge is not needed, and a chapter 13 bankruptcy may be used for other reasons. In those situations, it may be possible to file the chapter 13 bankruptcy post chapter 7 and prior to the 4 year period,

A prior Chapter 12 or Chapter 13 Prevents a Chapter 7 bankruptcy Discharge

Tue, 12 Oct 2010 11:38:20 -0700

If you have filed a chapter 12 or more commonly a chapter 13 bankruptcy and received a discharge of one of those cases within the the last 6 years i.e. you cannot file a chapter 7 bankruptcy and receive a discharge.

This scenario is much less common in my experience than the debtor who has filed a chapter 7 bankruptcy previously and is seeking to file another chapter 7. In that situation the time between filing dates must be 8 years.

Read 11 U.S.C. Sect 727 (a)(9) for more.

A Prior Bankruptcy Prevents a Chapter 7 Discharge

Fri, 08 Oct 2010 11:34:45 -0700

If you filed a chapter 7 bankruptcy and received a discharge within 8 years of the filing of your present chapter 7 bankruptcy case, you are not entitled to receive a discharge in the present case.

It is 8 years not 6.

Look at 11 U.S.C. Section 727 (a)(8).