Arizona Bankruptcy Attorney Blog

We tell clients this repeatedly.

Why mention this? It's simple: If a creditor (like a bank, for instance) has direct access to your bank account (as banks often do), then you can consider your checking balance dumped into the rancor pit as your creditor laughs their trademarked Jabba the Hutt laugh above you.

You know...

The pit? The one with a Rancor in it? From Star Wars?

Okay, let's put it this way then: If you owe money to a bank where you also store money in a savings or checking account, there's all kinds of technicalities that allow them to siphon the money out of your account without your knowledge or approval. If you owe money and have not made payments they will seize the opportunity, it's a proven fact. It is what they do.

If you're already filing a Bankruptcy then you may have glossed over some of the information you've been given because there's a lot relating to a bankruptcy that's occasionally hard to digest. This isn't one of those things you can sit around to consider; this is an immediate call to action that should have you setting up a bank account elsewhere ASAP.

You can't afford to wait for someone to remind you that you might want to keep your money, so take care of it before the bank makes it a moot point.

If you're still looking into your options to resolve your financial issues and Bankruptcy is on the list, you MUST keep this in mind. DO NOT bank where you owe money if you are filing a Bankruptcy in Arizona (or anywhere else for that matter), because the bank will swim around in your funds like Scrooge McDuck in his money bin, take photos of themselves with YOUR money and leave a bunch of zeroes lying around in your account.

In order to file a Bankruptcy, you'll have to stop paying your creditors and that includes credit cards. Often people will hesitate because they've worked so diligently to protect their credit score and bank accounts to date that doing things like not paying sounds ludicrous or dishonest. If you have misdirected feelings about protecting an unsecured creditor (this counts for ANY unsecured creditor) you need to stop paying them anyway prior to filing because failing to do so means that creditor will be sued by the trustee, which is a bigger hassle for everyone involved. Even the creditor that you were trying to protect.

If there's just one thing you take to heart from this, let it be that you won't be banking where you owe money when you file Bankruptcy. You need a bank account just on general principle, but you need a bank you can rely upon to store money instead of taking it.

It just depends on how much you care about keeping your money.

When you're a newspaper publisher and revenues drop like a rock during a depression, you'd naturally expect your bank to work with you, especially if you'd had a long and productive working relationship with that bank.

Wrong, Insolvency Breath!

Robert Chandler, Publisher of the Bend Bulletin, had some cranky things to say when Bank of America talked about how much it had tried to help the newspaper.

One phrase in the article that I particularly liked was ""They tried to work with us all right--by doubling our interest rate."

See, banks don't like defaults. And big banks really don't like defaults, because once they charge off a loan (an internal bank accounting activity), they have to reserve against that bad loan, and they can't loan as much money.

And if a bank loans less money, it makes less interest on that un-loaned money.

And it makes less profit.

And since banks are for-profit institutions, they tend to be real hard drivers in a negotiation, and sometimes seem irrationally aggressive.

Here's why.

Banks don't care.

They don't have emotions.

They don't care if people will lose jobs when a business closes; that's not their problem, mon.

So if you're on the wrong side of a default with a bank, the bank is not going to be warm and fuzzy.

Practice Pointer: a bank starts warm and fuzzy during a negotiation, in order to get more collateral and additional personal guarantees, and a payment plan that starts small and ramps up to an unpayable amount (they've got your records, right? they know what you can pay!) And that means that when the unavoidable default arrives, the bank is holding all the aces.

Just a thought.

p.s. if you hear the words, "We're from the bank and we're here to help you," you will probably not have a very good day.

I've been asked by some Chapter 7 Bankruptcy clients why it's so hard to negotiate with Bank of America.

My guesses in the past have been that it's a little like a brontosaurus; it's so big that if you stomp on it's tail, it notices fifteen minutes later.

But it appears that Bank of America may have bigger problems than your credit card debt, which is why it may have problems directing brain cells to your credit card negotiations.

And that, in turn, is why your offers to Bank of America could be turned down, even if they are profoundly realistic. The Bank just can't pay enough quality attention to figure out that you're offering it a very good deal!

Hence, "bankruptcy clients"!

But wait; there may be other issues affecting Bank of America, as well.

In a well written post called "Bank of America death-watch", Yves Smith suggests that Bank of America is having the same sort of sleepless nights that its borrowers are having.

For the same reason.

Fear of the consequences of insolvency.

Now, I have no way of telling whether Bank of America is insolvent. But apparently, the market is speaking to that issue, and it's being rather loud. And rude. And unpleasant.

Let's talk briefly about "charge-offs".

A lot of smart people look at their credit reports and say, "Hooray! It says the bank has charged-off my loan! I won't have to file my Chapter 7 Bankruptcy after all!"

WRONG, insolvency breath!

A charge off, or a charge-off, is an internal bank accounting device, which the bank is required to take when a loan is troubled enough.

Banks hate charge-offs.

Here's why.

A bank is the next best thing to a printing press, because I've been told that a bank can loan about 13.7 times as much dough as it has in deposits.

Sound like smoke and mirrors to you?

Me, too.

But leverage works in two directions, so if a bank has a troubled loan and is required to charge it off, that reduces the amounts it can loan by 13.7 times the size of the loan, right?

So a smart bank will bend over backwards to make a loan a "performing loan", so the bank doesn't need to charge it off and reduce its ability to loan.

Except that a lot of bank regulations, which are written in Icelandic Runes or Sanscrit, make that difficult.

So what's a poor bank to do?

Well, I liked this article, which discusses a bank that reserved against part of a loan that was going bad (a loan that is going bad is sort of like a slow-motion train wreck; you know what it'll look like when the process is done, and it ain't pretty).

But for us today, the important part of the article is this: while the bank may be charging off the loan in question, it is also going "to aggressively pursue the recovery of the amount owed in the bankruptcy court proceedings, as well as through other avenues that may be available."

So if you partied when you saw that your bank loan was "charged off", good. Parties are good, right?

But you're still going to need to see a bankruptcy lawyer after the partying is done.

According to Paul Sperry at Investor's News Daily, Eric Holder and the Justice Department is conducting investigations and levying fines against banks that are deemed racist in their policies, based on inadequate loans to low income minorities.

Prosecutions have generated more than $20,000,000 in loan set-asides and other subsidies from banks in out-of-court settlements.

Some banks have been asked to relax their mortgage underwriting and lending standards for low income minorities, as a part of the crackdown on allegedly racist policies.

But the most interesting paragraph in the article is this one: "In several cases, the government has ordered bank defendants to post in all their branches and marketing materials a notice informing minority customers that they cannot be turned down for credit because they receive public aid, such as unemployment benefits, welfare payments or food stamps."

That suggests to me that banks are being placed in a can't-win situation; either they comply under the threat of being deemed racist, or they make bad loans, and are taken over by the FDIC when bad loans default and they become insolvent.

All in all, it's an interesting program by the Justice Department, and its long-term consequences will be just as interesting to watch.

I just read a post from a lawyer who says that some debt collection agencies are setting up shop on Indian Reservations to avoid regulation. 

That just seems wrong to me!

I can't help myself, I have favorites.

You already know my least favorite videos, and I'll probably re-shoot them just because they're so awful; of course, I did 'em myself on my little Apple laptop, and I'm not a cinematography genius like Marius.

But my fave of the series we've done so far has got to be "Zombie Debt Collectors"

Before you file a bankruptcy in Arizona, or anyplace else, you have probably moved through a downward spiral of economic destruction that involved pay cuts, getting fired, getting sued, collectors, a divorce, deep emotional depression, and a partridge in a pear tree.

Sure, fun to write about it; not so much fun to experience.

There's a specialized class of collection guys who are even lower on my hit parade than most debt collectors, and those are the guys who work to collect time-barred debts that are barred by the relevant statute of limitations.

So I talked about 'em a little in a recent bankruptcy video; it's only a short one, but that's more than they deserve!




.

A brilliant paralegal, Fred Hersh, who was the smartest guy in several states, worked for me for several years.

He had essentially memorized the pre-judgment remedy statutes. Knew 'em backwards and forwards.

He had been a marine, and he was a really, truly, and seriously tough guy. He'd been on the beaches at Normandy, and afterward had gotten a broken back when a wave hit his ship. But he was way too tough to die from a garden-variety broken back. Then he became a lawyer. Then he came to Phoenix, Arizona, and became a paralegal. He worked for me for a long time, and took the worst care of himself that I've ever seen. Every day, both before and after his heart attacks and amputations, he ate a Breakfast Jack, extra greasy.

As he was being rolled out of intensive care one time, he asked the orderly for a cigarette. And got it. And, of course, smoked it.

Finally he smoked his one millionth cigarette, knocked back his one millionth shot of whiskey, and then Fred was dead. I still miss him.

Today I was reminded of Fred because a beautiful couple told me that they were waiting for the Sheriff to come out and execute on a pre-judgment remedy.

The reason that it made me think of Fred is that I haven't seen a creditor try to use a pre-judgment remedy since before Fred was dead.

Okay; a pre-judgment remedy happens when a creditor wants to grab stuff before bothering with all that silly "go to Court and get a judgment" silliness.

That enthusiastic creditor must pay a price for his first-in-line attitude; the creditor must post a great big bond to get his pre-judgment relief.

As a result, few ordinary creditors are willing to post that bond, and therefore few creditors actually use a pre-judgment remedy.

It doesn't much matter; what's going to happen is that the lovely couple will file a Chapter 7 Bankruptcy and that will bring things to a screeching halt with the automatic stay of 11 USC 362.

In addition, if the creditor actually manages to collect anything pursuant to his pre-judgment remedy, the bankruptcy trustee will make him cough it up, because the creditor will have received a preference!

Final thought: once I'm retained, if I'm retained, I'll call and give the collection lawyer a heads-up courtesy call. No need for him to waste his time and effort and energy when he won't be able to keep whatever it is that he grabs. And no need for his client to get cranky with the aggressive collection lawyer, which will happen when the collection lawyer gets to explain why it is that the creditor has to return all the dough he received, even if he's paid a third of it to the collection lawyer.

Because there's no good reason to make things rough on the collection lawyer. He's just doing his job.

Fred did a lot of collection work at one point in his career.

And he was very effective.


 

No, I won't file a bankruptcy for you.

Because you are already entitled to receive a $2,000,000 inheritance (not her real number) from your mother's estate in Lithuania (not his real country).

And 11 USC 541 (Property of the Estate) says that if you are or become entitled to an inheritance within about six months of filing your bankruptcy, that inheritance becomes property of the estate.

No, it makes no difference at all that your name is not yet on the property.

No, you can't refuse the bequest; you'll be asked about that at your First Meeting of Creditors, under penalty of perjury.

So what can you do about your current situation, which involves lots of calls from credit card companies and a pending trustee's sale?

We'll, you weren't planning on keeping the house, and there's only one mortgage. Do check and see if there's a tax consequence relating to the trustee's sale, but the Arizona Anti-Deficiency Statute may apply as to deficiencies. Check with your cpa about tax consequences.

As to your credit cards, you're almost a year late paying some of them. Negotiate with them. And talk to your cpa about cancellation of debt tax consequences, because if debt is forgiven, it's treated as regular income. That's what I hear, anyway.

Check with your CPA.

How to negotiate credit card debt?

Very carefully.

Sorry, I couldn't resist.

But after you check with your CPA and decide that you can live with the tax consequences, call all of your credit card creditors and tell them you want to borrow dough from dad, in order to pay something to everybody and make them go away.

After a year of nonpayment, you aren't dealing with The Friendly Bank. You're dealing with The Unfriendly Bottom Feeder who bought your debt for a penny on the dollar or less. Or more, perhaps. But not much in any case.

The bottom feeder sees a 1/3 recovery as a home run. And any more than he paid for the debt is just gravy, after all.

So read ten books on Amazon on negotiating with credit card creditors, and email me and let me know which of them are worthwhile, and which are worthless, so I can let others know as well.

Some folks negotiate credit card debt down to less than 10% after a year, and some can't do that. Remember that it's hard to predict, because you have no clue who has bought and sold your debt again and again.

I don't do credit card debt negotiation because it's frustrating, and debtors are never happy with any results, because it takes too long, and it costs too much, and your credit is trashed during the process, and there's that pesky tax consequence if you're able to do a great job, and the whole process is hard to predict.

And I only like happy clients; I should have gone into adoption law.

And no, I don't know of any companies that advertise on tv or radio who do a good job of credit card negotiating. I know a few that have gone out of that line of work, but none that are good at it.

If you find one, let me know!


 

In Utah, if you're married to a debtor, and you're in a Court proceeding and you tip off hubbie that "They're coming for the Polaris Ranger" with a text message, you get put in jail!

I didn't think you'd believe me.

So here's the link to the article in the ABA Journal:

http://abajournal.com/news/utah_woman_sentenced_to_30_days_in_jail_for_texting_in_court/

So let's hear of no runaway texting around here!


 

I just love the name.

A zombie debt collector is not from Haiti (read the brilliant book about real zombies in Haiti, called "The Serpent and the Rainbow", and made into the worst movie in the history of mankind). He is not the undead.

He is trying to collect on debts that are barred by the relevant statute of limitations.

Don't pay him, not even a little bit; it may restart the statute of limitation clock.


 

Well, you can start with the truth.

If you're not as young as you used to be, that also means you don't need to tie up any excess brain cells on a cover story!

Here's the deal: collection agencies are going out of business, because if you have to decide between paying your mortgage or your unsecured credit card type debts, who you gonna pay?

So they're much more likely to be aggressive.

But they don't want to waste their time, either.

In general, it's pretty simple. You tell them you've talked to a bankruptcy lawyer, and that you're going to be filing a Chapter 7 or Chapter 13. They'll tell you that they'll need to keep calling until you can "confirm representation" (give them a lawyer who'll tell them that they've been retained).

Some collection agencies, but not most, will lie to a debtor. They'll threaten all sorts of things they can't do in order to coerce a payment.

One thing to avoid like the plague is sending a series of postdated checks. The collector generally says that unless you send in five postdated checks immediately, you'll be sued immediately. And that the checks will be held until the date written on them.

Both of those are normally lies. That is, a collector almost never has the ability to cause a lawsuit to be filed against a debtor, or to prevent such a lawsuit. The collector is working, generally, on a hourly basis, and is just grinding through the day.

But the multiple post dated checks, if you send 'em in, get deposited on the same day, and then the collection agency uses the threat of prosecution on a bad check charge to coerce payment.

Bad stuff. If you know that you're going to file a bankruptcy, just tell the collector that you're going to be filing as soon as you can get enough to pay your lawyer, but invite the collector to call back frequently to check status, because you don't want to forget to file that bankruptcy!

And don't try to use bankruptcy as a threat, because that won't work; the collector will receive the bankruptcy as a relief, because then he no longer has to keep calling you and failing to collect, which earns him bad marks from his boss.

Bear in mind that you may eventually be sued by some unsecured creditor, but that generally takes quite some time. And if you file an answer instead of letting the matter go by default, it will take a couple or three months until a judgment is taken against you, and that generally gives you plenty of time to get precise bankruptcy schedules ready to file.

After you file your bankruptcy, creditors who are listed on the master mailing matrix stop calling, because it's not their first rodeo.