In this volatile economic climate, bankruptcy is a viable economic alterative for increasing numbers of Arizona residents.
The Law Office of James E Holland, P.C. dispels the myths and media hype perpetuated elsewhere as they assist their clients in defending their rights and in obtaining financial relief. Filing Chapter 7 and Chapter 13 bankruptcy cases are viable options for most people who contact our law firm for help. Simple questions determine which chapter filing is the appropriate choice for one’s individual situation.
Mr. Holland has a personable approach to financial issues and he clearly communicates to his clients so that his clients understand their options regarding debt elimination and property protection that are available under the law. A quick review of the following topics will assist in insuring that one is informed of the options for debt relief.
Bankruptcy Discharge
The United States Bankruptcy Court grants a Discharge to the person/personas names as the debtor/debtors. A Discharge is not a Dismissal of the case and it does not determine how much money, if any, the Trustee, will pay to creditors.
By law the collection of discharged debts is prohibited. The Discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone or otherwise to file or continue a lawsuit, to attach the debtor’s earnings or other property, or to take any other action to collect a discharged debt from the debtor. In a case involving community property, there are special rules that protect certain community property owned by the debtor’s spouse, even if that spouse was not a party to filing the bankruptcy case. A creditor who violates this order can be required to pay damages and attorney fees to the debtor.
However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtor’s property after the bankruptcy if that lien was not avoided or eliminated in the bankruptcy case. A debtor may not voluntarily pay any debt that has been discharged.
The Discharge Order eliminates a debtor’s legal obligation to pay a debt that is discharged. Most, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed. If this case began under a different chapter of the United States Bankruptcy Code and subsequently converted to a Chapter 7, then the discharge applies to debts owed when the bankruptcy case was converted.
Some of the common debts that can not be discharged by filing a bankruptcy case are:
- Debts for most taxes.
- Debts incurred to pay nondischargeable taxes.
- Debts that are domestic support obligations such as spousal or child support.
- Debts for most student loans.
- Debts for most fines, penalties, forfeitures or criminal restitution obligations.
- Debts for personal injuries or death caused when a debtor is intoxicated and operating a motor vehicle, vessel or aircraft.
- Debts not properly listed by the debtor at the time of filing the bankruptcy case.
- Debts that the Bankruptcy Court on a case by case basis has decided or will decide to not discharge.
- Debts for which the debtor has given up the discharge protections by signing a Reaffirmation Agreement in compliance with the United States Bankruptcy Code requirements for reaffirmation of debts.
- Debts owed to certain pension, profit sharing, stock bonus, other retirement plans or to the Thrift Savings Plan for deferral employees for certain types of loans from these plans.
This information is only a general summary of the Bankruptcy Discharge. There are exceptions to these general rules. Because the law is complicated, seeking the advice of an attorney is in the best interests of a debtor in order to determine the effects of a Discharge in any specific case.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is called the “liquidation bankruptcy.” It is intended to liquidate debts and give the debtor a fresh start financially. Under specific legal exemptions, some of the assets of the debtor may be eligible to be retained. When a debtor’s property is determined to be non-exempt under the United States Bankruptcy Code, the property may be forfeited to the bankruptcy estate to be sold at auction or the debtor may choose to negotiate the value and pay for the non-exempt asset from the bankruptcy estate. All proceeds from non-exempt assets are used to pay for administrative costs incurred by the Bankruptcy Court and to pay debt to qualified creditors.
The Chapter 7 filing moves quickly in most circumstances and debt relief is provided within three (3) to six (6) months from the date of the First Meeting of Creditors held at the Bankruptcy Court. The relief obtained can be multifaceted. On the date the case is filed, the Court grants a Temporary Automatic Stay which prevents creditors from contacting the debtor for any purpose whether by phone calls, letters, email, personal contact or service of legal process, the filing of lawsuits, issuing service of process of lawsuits filed, garnishments, attachments or levies. The Temporary Automatic Stay will remain in effect until one of the three following events occurs:
(1) The case is dismissed by the Court whereby no relief is granted to the debtor; (2) The Court grants a Motion of Lift Stay by a creditor which entitles the creditor to proceed with legal efforts to collect the debt; or (3) The Court grants a Discharge of the debtors’ debts.
The Discharge of debts is a permanent restraint against the creditor from legally collecting from the debtor on the indebtedness discharged. The debts thereafter will be reported on a credit report as being “discharged in bankruptcy.”
Means Test
Unfortunately, the current bankruptcy law does not allow discretion in determining eligibility for Chapter 7 Bankruptcy. Under the current law, every debtor is required to complete an evaluation process referred to as the “Means Test.” The Means Test will determine the specific chapter in bankruptcy a debtor qualifies, whether it is to file a Chapter 7 Bankruptcy case or a Chapter 13 Bankruptcy case. The final determination of Chapter 7 eligibility is determined by the Means Test results. The Law Office of James E Holland, PC will work to ensure that clients receive every consideration available under the law in determining a proper assessment of the Means Test Calculations.
The Means Test Calculations are made with information provided by the debtor disclosed from one’s housing, transportation, health care, child care, and other essential living expenses to determine one’s calculated Chapter 13 Plan payments. Specific calculated living expenses are subsequently computed using nationally determined average expenditures. The Means Test Calculations results determine the monthly repayment amount that one will be required to pay into the Chapter 13 Plan. Because of the complexity of these calculations, an accurate evaluation of each person’s calculations before an estimated Plan payment amount can be determined. The Law Office of James E Holland, PC will ensure that each calculation is correctly made to protect one’s funds and to ensure that their Chapter 13 Plan operates in compliance with the bankruptcy laws.
Under the current bankruptcy laws, a candidate for bankruptcy must submit documentation to meet the requirements of the Statement of Current Monthly Income and Means Test Calculations. These calculations serve two purposes: (1) to determine the chapter in the Bankruptcy Code for which a debtor qualifies to file, a Chapter 7 case or a Chapter 13 case; and (2) to determine the minimum amount a debtor filing a Chapter 13 case will be required to pay monthly into a Chapter 13 Plan, should a Chapter 13 Repayment Plan be merited.
The three primary factors used to determine which chapter in bankruptcy a debtor qualifies to file are as follow: (1) the location of the residence of the debtor; (2) the number of people living in the debtor’s home, a number that is generally restricted to a married couple and their legal dependents; and (3) the average gross monthly income for the six (6) months prior to the filing date of the bankruptcy case.
Debtors living in Maricopa and Pinal counties, after determining their average gross monthly income for the six (6) months prior to filing the bankruptcy case, will use the following graph to determine eligibility to file a Chapter 7 Bankruptcy case. A median income that is greater than the applicable median income stated on the graph below indicates that the debtor does not qualify to file a Chapter 7 Bankruptcy case and will therefore be required to file a Chapter 13 Bankruptcy case should that debtor otherwise be eligible for bankruptcy relief.
| Household Size | annual | Monthly | Household Size | annual | Monthly | |
| Persons 1 | $42,476 | $3,540 | Persons 5 | $76,705 | $6,392 | |
| Persons 2 | $56,692 | $4,724 | Persons 6 | $84,205 | $7,017 | |
| Persons 3 | $61,845 | $5,154 | Persons 7 | $91,705 | $7,642 | |
| Persons 4 | $69,205 | $5,767 | Persons 8 | $99,205 | $8,267 | |
|
Additional |
$7,500 |
$625 |
For each additional person add $625 to the median monthly income or $7,500 to the median annual income.
(This graph is for illustrative purposes only,not to be construed as legal advice nor does it establish an attorney-client relationship.)
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is commonly known as “Reorganization Bankruptcy.” The Chapter 13 Bankruptcy case requires the debtor to work though a Chapter 13 Plan to complete the terms of the bankruptcy case. The bankruptcy law requires that the term of the Plan extend a minimum of thirty-six (36) months but the Plan may not extend a longer time than sixty (60) months.
The relief obtained in a Chapter 13 Bankruptcy can be multifaceted. On the date the case is filed, the Court grants a Temporary Automatic Stay which prevents creditors from contacting the debtor for any purpose whether by phone calls, letters, email, personal contact or service of legal process, the filing of lawsuits, issuing service of process of lawsuits filed, garnishments, attachments or levies. The Temporary Automatic Stay will remain in effect until one of the three following events occur: (1) the Court grants a Dismissal of the case whereby no relief is granted to the debtor; (2) the Court grants a Motion of Lift Stay by a creditor which entitles the creditor to proceed with legal efforts to collect the debt; or (3) the Court grants a Discharge of the debtors’ debts.
Through the Chapter Thirteen Plan, the monthly payments can be used to pay a portion of the debtor’s unsecured debt during the life of the Plan and the remainder of the unsecured debt will be discharged in bankruptcy at the conclusion of the Plan. The Plan can also be used to pay back arrearages owed on the debtor’s secured debts. During the life of the Plan, the debtor will be required to operate under a budget that is developed as part of the Plan. The amount that may be paid into the budget is determined by the outcome of the completed Means Test.
Under the Court’s Automatic Stay protection, debtors are given the opportunity through the Chapter 13 Plan to pay missed payments plus accrued interest without penalty. Mortgage payments, automobile payments and other secured payments that were not paid by the debtor in a timely manner prior to the bankruptcy filing may be paid over the thirty-six (36) to sixty (60) month life of the Chapter 13 Plan. The Chapter 13 Bankruptcy allows the debtor to systematically pay arrearages owed in conjunction with the current payments due and thereby obtain a Bankruptcy Discharge at the conclusion of the Plan for unpaid unsecured debt. Chapter 13 Plan payments are generally determined through the Statement of Current Monthly Income and Means Test Calculations. Because each Chapter 13 Plan is fashioned and created specifically for each debtor with the aid of the debtor's attorney, it is not possible to give generalized statements concerning the amount an individual debtor will be required to pay each month as a Plan payment. Plan payment amounts will be determined and disclosed to the debtor prior to the filing for bankruptcy relief. This filing generally requires an experienced bankruptcy attorney to advise a client and to advocate for his or her rights in the Bankruptcy Court. The Law Office of James E Holland, PC provides the need legal assistance to ensure that clients are given every available consideration.
The Discharge of debts at the conclusion of the Plan and is a permanent restraint against the creditor of ever legally collecting the debtor on the indebtedness discharged. The debts thereafter will be reported on a credit report as being “discharged in bankruptcy.”
Bankruptcy Trustee
Every bankruptcy is administered by a Trustee. A Trustee is employed by the United States Trustee’s Office, an arm of the United States Department of Justice. The Trustee reviews the bankruptcy paperwork, requests additional information, presides at the First Meeting of Creditors, supervises the gathering and distribution of bankruptcy estate assets, and in the case of a Chapter 13, supervises the acceptance and administration of Chapter 13 Plans. Trustees do not typically enter debtors’ homes, inventory assets, or remove neither personal property nor does the Trustee routinely close or confiscate debtors’ banking or other financial accounts. Most Trustees are well trained and very professional in the execution of their duties. Developing a good working relationship with the Trustee is essential.
First Meeting of Creditors
Generally within thirty (30) to forty-five (45) days after filing a bankruptcy case, a mandatory meeting is held in which the debtor will appear at the United States Bankruptcy Court before the Bankruptcy Trustee to testify under oath. The debtor will be required to testify concerning the information provided to the Bankruptcy Court in the bankruptcy petitions and schedules that were filed with the Court. Additionally, the Trustee may ask questions concerning the additional information provided by the debtor to the Trustee prior to the meeting. At the conclusion of the meeting, the Trustee will invite creditors wishing to be heard to ask the debtor questions or to make statements. Usually the First Meeting of Creditors takes only five (5) to fifteen (15) minutes and creditors seldom attend the First Meeting of Creditors. The Law Office of James E Holland, PC assists his clients in the preparation for the First Meeting of Creditors and will be present at this meeting with his clients to ensure that the issues are properly and successfully addressed with the Trustee and the creditors.
Asset Protection
Under Arizona law, there are many assets that may be determined to be exempt from seizure and forfeiture by filing a bankruptcy case. Property that is exempt is not subject to legal process or seizure by creditors or the United States Bankruptcy Court.
Examples of some of the exemptions under the Arizona law include: one hundred fifty thousand dollars ($150,000.00) equity per family in a debtor’s primary residence; five thousand dollars ($5,000.00) equity exemption in a vehicle per debtor; four thousand dollars ($4,000.00) exemption in household furnishings per debtor. One hundred percent (100%) of IRA, 401K or similar funds are accepted as a retirement fund by the Internal Revenue Service. These funds must be administered by a qualified administrator. All exemptions must be evaluated on an individual case by case basis. The Law Office of James E Holland, PC facilitates his clients in determining which assets that can be preserved and protected as exempt assets.
Automatic Stay Relief
The day that a bankruptcy case is filed, the debtor is granted a "Temporary Automatic Stay.” The Automatic Stay prohibits creditors from making any attempt to collect debt. The Automatic Stay further prohibits the creditor from making contact with the debtor by telephone, electronic devise, in person, by mail and through third persons other than the debtor’s attorney. During the life of the Automatic Stay, all lawsuits and other legal proceedings are stopped. The Automatic Stay will remain in effect until one of the following three events transpire: (1) The bankruptcy case is dismissed; (2) The Court grants the debtor relief from the automatic stay. This relief is generally granted so that a creditor or another litigant can proceed with the legal process: or (3) The bankruptcy is discharged at which point the Temporary Stay becomes a permanent stay and the creditor is forever barred from collecting the debt from the debtor.
Abuse of Debt
Debtors must avoid incurring additional debt within one hundred twenty (120) days prior to declaring bankruptcy case. Incurring additional debt within one hundred twenty (120) days from the filing of a bankruptcy case will have an adverse effect on the debtor’s ability to have the debt discharged in bankruptcy. Although the Trustee may require a debtor to address and explain any debt that has been incurred within the past four (4) years, generally the Trustee and the creditors will restrict their evaluation of debt to debt incurred within the four (4) months prior to the bankruptcy filing date.
Abuse of debt often is referred to as “consumer fraud” because the debtor knew or should have known that the debt would not or could not be repaid. Abuse of debt will result in the debtor being required to address the debt in an “Adversary Proceeding” filed by a creditor in the Bankruptcy Court. An Adversary Proceeding is an independent lawsuit filed with the Bankruptcy Court to address a specific issue in the original bankruptcy case. Usually the abuse of debt results in that specific debt being declared as a debt that cannot discharged with the bankruptcy case.
Often the abuse of debt will come from the use of credit card debt. However, it may also result from incurring debt from other sources. Once it is determined that the debtor is not able to make payments that will retire the indebtedness without borrowing additional money, the debtor should seek legal counsel to ensure that the debtor’s continued borrowing is not an abuse of debt.
At the Law Office of James E. Holland, P.C. every client receives personalized attention to address his or her financial challenges.
