Arizona Bankruptcy Attorney Blog

To clarify: Although our firm's founder has passed away, he had forged a team of people strong enough to continue his work in his stead. We still continue to provide both people and businesses with expert Bankruptcy representation. In the very same compassionate way he taught us to serve our clients with professional distinction.

To meet with our firm for a free consultation, we only ask that you review the HOMEWORK first, then either call the office or email myself (sean@bankruptcyattorneyaz.com) or Steve (steve@bankruptcyattorneyaz.com) and we will set you up with an appointment.

 

You've all seen that old Frankenstein Movie Scene, where the Mad Scientist gets to say, "It's Alive!!!"

Well, that's kind of the way I feel about my new bankruptcy blog!

It's built on a different platform from this blog (this is blogger, and that is movable type).

And that wouldn't have meant anything to me a year ago, either.

But I'm trying to build the new blog in a way so that it's easier to navigate; this blog has a lot of nifty information, but not everybody tells me how easy it is to find things, and even I sometimes have to try a few different search approaches to find things that I know are in this bankruptcy blog!

So enjoy the new blog; I'll keep posting here, but I'm going to build a fairly systematic explanation of Chapter 7 in my new blog, and of Chapter 13 in my new, new blog!


  

Bankruptcy filings all over the United States went up in 2010, and that just makes sense; we also saw around 1.1 mortgage foreclosures and trustee's sales in the same period, and bankruptcy and foreclosure go hand in hand.

And since we're on track for 1.4 million mortgage foreclosures and trustee's sales in 2011, I don't expect to see the pace slackening.

What does surprise me is that so many Chapter 13 Bankruptcy Cases are being filed. 

 

The Supremes have spoken again about a Chapter 13 issue, and most of the Justices agree: the credit card companies win, the car companies lose.

Read all about in Johnathan Ginsburg's excellent bankruptcy blog, theBKBlog!

Once upon a time the concept of the "Chapter 20" was born.

That was, in general, a combination of a Chapter 7, to get the debtor to the debt level required for a Chapter 13, followed by a Chapter 13!

Note that the required intervals between Chapter 7 cases and Chapter 13 cases were increased by the Barf Act. 

The debt limits for Chapter 13 cases are located at 11 USC 109 (e), and they move around a fair amount. You'd think that a Congress which attempted to force folks to file Chapter 13 cases by inventing the ever-popular Means Test would have also raised the debt limit on Chapter 13 to the sky, or eliminated it entirely; but that would have been too easy! And because of the low debt limits in a Chapter 13, many folks with substantial debt may have to attempt to file a Chapter 7 under one of the exceptions to the Means Test, or file a personal Chapter 11, which is no fun at all for the debtor; and the cost/benefit analysis for personal Chapter 11 case is waaaaaay less good than for Chapter 7 Bankruptcy Cases.

There are other exotic bankruptcy combo platters, like the Chapter 18 (a Chapter 7 followed by a Chapter 11), but they are far less common than the good old Chapter 20, which is itself pretty rare these days, because the benefits of Chapter 13 Bankruptcy Cases are far less favorable than they were pre-2005.

There's a two-step dance that was used sometimes under the Post-New Code (1979) and Pre-Barf Act (2005), which was a simple negotiation or pay-down, or accord and satisfaction.

For instance, during the Golden Age of Consumer Bankruptcy in the United States, it was not unusual in a sophisticated bankruptcy practice to use a negotiation to drop the amounts of some debt, in order to reach the debt limits for a Chapter 13, in order to obtain the benefits of the late, lamented Superdischarge (which newly-minted "bankruptcy experts" in Arizona and the rest of the United States actually don't know about, because it was, well, after their time!).

And I know a couple of guys who were experts at inventing a "dispute" as to a big chunk of debt, in order that the debtor passed under the bar for a Chapter 13, because the debt limits there are for "undisputed" debt. 

And when a young, newly-minted bankruptcy lawyer asks me, "What is a Superdischarge?", I feel like Methuselah! On the other hand, I feel a little like Methuselah when I put on my tie in the mirror, so I don't blame the kids.

 Very much.

p.s. the best part of the Superdischarge under the pre-Barf Act New Code was that if a creditor filed a Complaint to Determine Dischargeability of Debt, you had the option of educating him about Chapter 13, and you could demonstrate pretty clearly that under a Chapter 13, his client would receive $312.73, so that the settlement value of the case dropped like a rock.

Now I know how my Grandfather felt when he talked about "the good old days"!

 

Approximately 83% of consumer bankruptcy cases filed in Arizona are filed under Chapter 7, rather than under Chapter 13.

And there's a reason for that, I believe. Most people are economically rational.

And a Chapter 13 Bankruptcy case costs about a million times more than a Chapter 7 Bankruptcy case, when you include the three to five years of payments under the plan.

And that's if you qualify to file a Chapter 13 Plan, given the debt limits at 11 USC 109.

But talking about numbers is a little like humming about organic chemistry; it does't convey the relative benefits and detriments of a Chapter 7 Bankruptcy and a Chapter 13 Bankruptcy.

And because of stress, and fear, many debtors can't think with the part of their brains that can do addition and subtraction, because they are trapped in their lizard brains, and are involved in fight or flight processes.

Fortunately, I'm very boring, so when debtors come inside the zone of my Boringness Radiation, they often find that they would rather get more benefit out of a Chapter 7, rather than less benefit (for more legal fees, and three to five years of payments to the Chapter 13 trustee) under a Chapter 13 Bankruptcy.

But some folks who are thinking about filing a bankruptcy, or considering finding a bankruptcy lawyer, are simply unable to retain me, because I'm just a local boy; I'm strictly an Arizona Bankruptcy Attorney.

So how can I help people all over the United States when they are contemplating bankruptcy, and want to figure out approximately what they would need to pay through a Chapter 13 Plan, or under a Chapter 7 (the second figure is pretty simple; there are no required payments under a Chapter 7 Bankruptcy, although you'll need to keep making payments on your car and house if you want to keep them; and bear in mind that many banks are cute, and stop sending you invoices when you file a bankruptcy, so you better be on target to pay the right amount every month after you file, unless you want to walk away from your car and house)?

And yes, that paragraph was too long. I'll do better.

I don't guarantee anything. I don't guarantee that the sky is blue or that the grass is green. So I don't warranty or guarantee the accuracy of any of the bankruptcy resources I'm about to show you.

Just use 'em, and if you like 'em, leave a comment so my readers will have your guidance to help 'em out.

So here are some free, online Chapter 13 Payment calculators, ranging from very simple to quite complex and detailed:

1) this online Chapter 13 Calculator is the simplest of the bunch, but they didn't bother using spellcheck as of this date, so you'll want to take the results with more than a pinch of salt;

2) this online Chapter 13 Calculator is provided courtesy of the Grossbart law firm in Baltimore, and it looks pretty detailed;

3) this approach may or may not work for you: it involves downloading a trial version of the Best Case Bankruptcy Software Package, and tinkering with it in your basement laboratory, right next to the big guy with the electrodes built into his neck.

I really wish I'd had these puppies to work with thirty years ago when I was a bankruptcy law clerk, working for the Chief Bankruptcy Judge; one of my duties, once a month, was to take my little pocket calculator to all of the Chapter 13 Plans submitted for tomorrow's hearing, and make a recommendation whether to confirm the Chapter 13 Plan or no.

Took forever!

On the other hand, back before the 2005 Amendments, there were great reasons to file a Chapter 13, including the late and sorely lamented Superdischarge.

The guys who voted for the 2005 Amendments have a lot to answer for, at some point or another.

Used to be pretty easy, and I could file a fairly "good" kinda bankruptcy for just about anybody, and it didn't require leaping backwards through flaming hoops.

But that was before the dreaded 2005 Amendments, which introduced levels of irrationality into the process, and unfairly treated some debtors more kindly than others (if your debt is "primarily business debt", the means test doesn't even apply to you!).

These days, somebody will wait too long before they come to see me (don't be sad; everybody waits too long), and will walk into my office with their homework (that's very good) and with a stack of lawsuits in various states of disrepair.

Now, the reason that I won't be answering for you is simple: litigation is expensive. And both of us want to find a stop-gap solution for you that minimizes legal fees as much as we can.

So either you are going to file answers in your seven lawsuits (which you're capable of doing, and in some ways better suited to doing than a lawyer, which I'll explain), or I can send you to one of three grades of lawyers to get it done for you, quick and easy. 

Or you can let the suits go to judgment against you.

I don't much like that third option, because lawyers are eternal optimists, and if they get a judgment against you, they'll try to collect on that judgment. With judgment debtor exams, and garnishments, and judgment liens.

Oh, my!

But don't judgments just evaporate after you file a bankruptcy? Maybe not. Your personal liability will probably go away with your discharge, but there may be a properly perfected judgment lien on your house or other property that survives the bankruptcy.

A judgment lien on your house may or may not be a problem for you, depending on whether you ever want to sell your house.  And a judgment lien on your house may be able to be scraped off in a bankruptcy specific sort of suit against the judgment holder, but that costs more in fees and costs, and is not included in any sort of "flat-fee" bankruptcy, or uncontested bankruptcy.

A garnishment, while rotten, might help you pass the means test faster, and on the other hand, might only reduce your quality of life.

A judgment debtor's exam will scare you to death and burn up a few hours that you'll never get back.

And a final judgment against you prior to your bankruptcy filing means that we can't argue amount in a Complaint to Determine Dischargeability lawsuit inside your bankruptcy case.

Here's what you need to know about this issue: when you come in to see me after you do your homework, we'll talk about your lawsuits. I won't be litigating for you, because that's the lowest and worst use of my time, and there are better and more economical solutions for you than that.

But I prefer it if a judgment is not taken against you until we file, unless we need the reduction in your income so you can pass the means test (and yes, that does mean that one technique for passing the means test is to permit a judgment and wait six months. Pretty unpleasant way to do it, but it's one way, and it works in some cases).

And I'd rather make you suffer bankruptcy purgatory for six months prior to filing your Chapter 7 Bankruptcy than stick you in bankruptcy hell for five years in a Chapter 13 Bankruptcy, even though I'll charge you more for a Chapter 13!

Why?

Because I like debtors, and I hate to watch them suffer for five years!

Unlike the Congress that passed the steenking 2005 Amendments. 

You know?

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You know, since I've been doing this for thirty years, you'd think I'd seen it all.

But you would be wrong.

Today, for instance, I got to talk to a pretty, smart young woman with a nice husband and a bundle of children.

And she explained that I wasn't her first rodeo. She had previously visited with a big law firm and they had told her that she had no choice whatsoever; she had to file a Chapter 13 Bankruptcy case, not a Chapter 7 Bankruptcy case.

Why would that surprise me?

BECAUSE SHE WAS A PERFECTLY GOOD CANDIDATE FOR A CHAPTER 7!!!!!!

THE LAW FIRM HAD LIIIIIIIIIIIIIIEEEEEEEEEEEEEEDDDDDDDDD TO HER!!!!!!!!!

BECAUSE THE PRESUMPTIVELY REASONABLE FEE FOR A CHAPTER 13 IS LARGER THAN THAT FOR A CHAPTER 7!!!!!!

Now, I'm just an old-fashioned small-town bankruptcy lawyer, but I expect vultures to have good table manners, at least.

Obviously, I expect too much.

But wait, there's more!

Not only did they want four thousand dollars for a Chapter 13 in a case with small debt, they also wanted to charge her to scrape off a second mortgage that was totally underwater on her house.

BUT WAIT! THERE'S MORE! They also signed her up for a "mortgage modification program" that she could clearly have done for herself.

And the total tariff for these projects in a small, simple case that cried out for a Chapter 7 filing?

A shade under ten thousand dollars.

Now, sometimes I think another lawyer has forgotten something. It happens.

And sometimes I think another lawyer could have taken a different approach. Opinions differ.

But this looked to me like another high-pressure sales job on a defenseless debtor with a houseful of kids and earnings that were not astronomical.

Call me irresponsible, but that seems to be a little high and hard and to the inside for a fair strike, you know?

Now, I have previously suggested that it would be a good idea if folks used the Nolo Free Online Means Test Calculator as a first cut at the ball to determine whether they would qualify for a Chapter 7 or a Chapter 13.

But THAT'S ONLY THE FIRST CUT AT THE BALL. That just tells a debtor that if he files TODAY, he doesn't qualify for a Chapter 7.

It doesn't address what can be done with a certain amount of thought and focus.

But in a post, soon, I'll discuss how to tell whether you qualify for a Chapter 7 without too much work, so if you're told you MUST file a Chapter 13, and you DO qualify for a Chapter 7, you'll know that the guy on the other side of the desk may not have your best interests at heart.

Sure irritates the heck out of me, though. That's the kind of thing that gives lawyers a bad name.

Growl.

p.s. The reason a scheme like the above can work, and even make the mark grateful to the schemer, is that the initial retainer amount is modest; but the rest of the dough is getting paid out through a plan, so the poor debtor is trapped and can't escape the legal fees. Ingenious trick, no?

.

Folks walk into talk to me, and often, they know just enough about bankruptcy law to be dangerous (kinda like me in my first year of practice, you know)?

There are a lot of bankruptcy alternatives that sound wonderful, and there's a lot of obsolete bankruptcy information floating around in the form of out-of-date books, and out of date analysis on the Internet.

There's even perfectly accurate information that doesn't mean what you think it means, because you haven't watched the entire slow-motion train wreck play itself out multiple times; that's been my privilege.

In today's video I sound like a smart-alec, because on some days I just can't stop myself.

So here's a video about Chapter 13, with a little different approach than most Chapter 13 bankruptcy videos.



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Here's a short video discussing the debt limits, and some other aspects, of Chapter 13 Bankruptcy Cases, and why I prefer Chapter 7 Cases for my clients when I can shoehorn 'em in. It wasn't always like that; over my last 30 years as an Arizona Bankruptcy Attorney, I've filed hundreds of Chapter 13 cases.

Just not since 2005, when the cost/benefit ratio for Chapter 13 cases changed radically.

I point out that Chapter 13 cases are waaaaaaaaaaay more expensive in the five years (or three years, if you're lucky) that you're stuck in debtor purgatory before you get your Chapter 13 Discharge in Bankruptcy Court in Arizona, and that Chapter 7 Cases are, by comparison, a walk in a pretty, pretty park.

Now, some Arizona bankruptcy lawyers will, I've heard, try to stick you in a Chapter 13 no matter how painful for the debtor; the fees are higher, you see, and the bankruptcy lawyer can get paid the higher fee over time, through the Chapter 13 Plan. But frankly, there are few cases these days where a superior result for the debtor is obtained in a Chapter 13 bankruptcy, since the Superdischarge vanished from the Chapter 13 list of benefits.

And heeeeeere's the video!


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EDUCATIONAL CONSUMER BANKRUPTCY LAW VIDEOS ARE EXPLODING IN NUMBER!

So pretty soon this will be a popcorn sort of legal area.

That is, a potential bankruptcy debtor under either Chapter 7 or Chapter 13 or Chapter 11 will pop some popcorn, get some soda, and then watch ten hours of educational videos about bankruptcy law in Arizona (or some other state), and learn how it all works, and better understand their personal consumer bankruptcy options and bankruptcy and non-bankruptcy alternatives.

And that will be magnificent!

I am always delighted when clients visit with me for the first time and know the answers to the questions I ask in my homework, which are primarily simple questions about the values of assets and the amounts of debt and income, and have read enough of the most asked questions I have in my homework so that we can move forward.

Because then the initial client discussions are much more useful to the potential client.

Soon I plan to have a lot of my blog entries turned into videos, and I'm planning on buying something my current consumer and small business bankruptcy videos do not have today: something called production values!

That is, I'd love it if potential clients could actually see me talk, hear me talk, and generally not need to squint and cup their ears to keep up with the bankruptcy videos.

Most of my upcoming consumer bankruptcy videos are still a twinkle in my eye, so I'm looking around the internet to see if other experienced and qualified bankruptcy attorneys have bankruptcy videos that I can use as a stopgap to educate my potential bankruptcy clients.

So here's one of those videos by an experienced bankruptcy lawyer who isn't me; and I don't know if James Moroney is board certified in bankruptcy law as a specialist, or is rated AV by Martindale peer review, or if he is rated 10 by AVVO.com; and in this context, I don't care.

What I care about is that he was willing to share some experiences his clients have had over many years of bankruptcy practice.

And like the bunny, he keeps going!

So until my videos are back from editing, enjoy the consumer bankruptcy videos from Jim Moroney; I'll post more when I get a Round Tuit!

And note that this consumer bankruptcy video is one part of a tutorial on the dreaded means test, and that's important to know about if you are considering bankruptcy in Arizona. The numbers won't be identical, because the means test considers the means test in the location where you live.

But here you go, with one part of a means test tutorial!

The title above is from Johathan Alper's Florida Bankruptcy Blog.

And if you want to read the article, I've linked to it here.

And I gotta tell you, there are reasons I really prefer helping people file the troublesome but helpful Chapter 7 Bankruptcy in Arizona, rather than the total pain in the behind for five long years (sometimes three) Chapter 13 bankruptcy in Arizona.

And that's one of the reasons. In a Chapter 7 in Arizona, after the debtor has gotten past the 180-period in 11 USC 541, they have a shot at keeping their inheritance (assuming that their entitlement to receive started after that 180 day period; doesn't help if they simply didn't get the dough out of probate in the first 180 days, you know?); and I've previously explained that the lottery ticket winnings stay with the Chapter 7 debtor, depending on whether he purchased the lottery ticket before he filed, or after he filed (there's a little fudge factor, depending on the source of the dough to buy the tickets, but we'll talk).

So if I can find a way to get a debtor filed under a Chapter 7, I try hard to do that; the screams, over a five year period, as the payments are jerked out of the poor Chapter 13 debtor's hands...they make me sad, you know?

I was at a seminar last night and talked after the class to a couple of very smart lawyers who are buddies of mine.

The talk turned, as it always does, to the economy and it's effect on our various practices.

One of my buddies did a lot of Chapter 13 cases at one point, and he's tapered off, for two reasons. The current version of a Chapter 13 Bankruptcy is much more brutal on the poor debtor than the nifty version we all used back in the good old days (pre-2005 bankruptcy code amendments).

And the economy is so bad, he mentioned, that after he fights like a dog to get a Chapter 13 Plan confirmed in his client's bankruptcy, the debtor loses a job or takes a cut in pay, and the case turns to poop!

Another buddy I saw at the seminar is a tax lawyer who handles a lot of tax controversies.

He echoed the concerns I'd just heard; when he gets a payment arrangement set up with the IRS, or gets an Offer and Compromise approved, the debtor's business fails and the debtor can't make good on the carefully crafted stipulation!

It's a bad economy when a debtor has a problem, fixes the problem by working with a lawyer to cut a favorable deal, and then the debtor falls apart and can't make the payments, through no fault of his own.

And I hope things improve very, very soon.

Texas Bankruptcy lawyer and blogger Steve Sather has gotten the jump on this bankruptcy blog competition by posting a good analysis of the recent Supreme Court case that helps define "projected disposable income" for Chapter 13 bankruptcy plan payment purposes.

The case he discusses is Hamilton v. Lanning, 560 U.S. ___ (June 7, 2010); it's a commonsense opinion by the Supreme Court that simply confirms what any experienced bankruptcy lawyer in the United States could have told 'em; it only makes sense to interpret projected disposable income in one way.

Keep up the good work, Steve!

Prior to the 2005 Amendments, the Bankruptcy Court was a fairly safe, loving, supportive kind of place. Never a walk in the Themepark, but not bad.

It wasn't Disneyland, but bankruptcy lawyers could always point to nice, loving, supportive language in the legislative history to the Bankruptcy Code (the "New Code" of October 1, 1979) that indicated it was supposed to be the land of the Big Mac. I mean Fresh Start.

Now things are somewhat different. The presumptions are changed. Debtors are subject to tests of various sorts to see if they are worthy of relief. And it is clear that the legislators who passed the laws actually intended that there be some poor folks who were not permitted to obtain any relief in Bankruptcy Court.

Tests of various sorts now determine who gets relief and who gets the boot. Or worse.

And the consequences of those who fail the multiple tests are potentially troublesome: dismissal of the case, conversion of the case, denial of the discharge, sustained objections to exemptions, or time in the Greybar Motel.

Previously, both the pity pitch and the stupidity pitch were used extensively in Bankruptcy Court, and probably more than reality would dictate.

Now, neither the pity pitch or the stupidity pitch are of much consequence in Bankruptcy Court. Made a mistake? Too bad! Forgot? Too bad! Got it rough? Too bad! Your numbers don't work, so out you go!

So if I didn't already have white hair, this job would give me white hair. While there are times that I don't worry about my cases, they tend to involve periods of REM sleep.

Or my infrequent trips to the gym, where I only worry about hydration, because my gym is temperature-controlled with swamp coolers.

I've previously used the metaphor that Bankruptcy is sort of like going off the grownup ski slopes without poles, so you better be aimed right on, because changing directions is hard, and there are trees on the slope.

Today's metaphor is the jungle.

The debtor is walking along with the local guide through the fetid, steaming terrain of Bankruptcyland at dawn, seeking the elusive Discharge.

Pith helmets abound.

Suddenly a crocodile darts out! The debtor loses a leg!

The guide and debtor barely make it alive back to base camp, where a Discharge is poised on the debtor's pillow, grinning up at him. The debtor, weak from loss of blood, shoots! After a side trip following the trail into the back country to put the badly-wounded Discharge out of its misery, the debtor departs (vowing never to return) from Bankruptcyland.

The debtor, sadder and wiser and now with the stuffed head of a Discharge on his den wall, talks about the experience for the rest of his life.

Okay, back to Phoenix, Arizona, and the District of Arizona Bankruptcy Court.

Bad things can happen in Bankruptcy Court. They are the exception, and not the rule. But even if you do everything right, things happen.

And don't even think about what happens if you do things wrong.

Because Here There be Tygers.