The other day I was scheduled to attend a continuing education conference with some of the local Arizona bankruptcy trustees.  I thought I had given myself plenty of time.  I arrived at the parking garage, walked inside, and immediately realized that I was in the wrong building.

So I got back in my car and tried to head to the right building.  I ran into a problem.  The parking garage only took cash and I only had my debit card.  I told the attendant that I had only been parking for 5 minutes and had the wrong building.  My pleas fell on deaf ears!  She took my driver license and wrote up (on a pre-printed form no less) a promissory note for a grand total of 75 cents.  Seventy-Five big ones!

As I was driving down the road I read over the terms of my new debt, and of course it said if they had to sue me to collect their 75 cents that I would be responsible for their attorney’s fees and costs.

Surely someone wouldn’t sue over such a small amount?  Well, if you live in California, they just may.

Earlier this week in the L.A. Times there was an article on a new debt collection company that has purchased old Hollywood Video accounts and is attempting to collect on them.  Some of the amounts sought were as low as $24 and stemmed back from 2009!

Many of the people that were being harrassed disputed that they actually owed the debt.  But here lies the problem.  Who keeps receipts for their video rentals from three years ago?  In the end I will bet that for small dollar amounts like these many people will simply pay it just so they don’t have to deal with it.

Here in Arizona there are debt buying companies that do the same thing, only on a larger scale.  They buy old credit card debts for pennies on the dollar and then file a lawsuit.  The big buyers in our area are Midland Funding (or Midland Credit Management), Portfolio Recovery, and LVNV Funding, LLC – just to name a few.

The problem they run into is often they don’t have the necessary documentation to back up their allegation that you owe them money.  If you have been sued by one of these debt buyers it is worth your time to have a consumer attorney look at the documents and help you determine if it is something you should fight.

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I recently attended a continuing education course that was presented by a group of Arizona bankruptcy attorneys that I am apart of.  The presentation was given by three Phoenix bankruptcy trustees.  In every bankruptcy case that is filed there a bankruptcy trustee assigned to review your documents and administer your case.

The main point of the presentation was to give us attorneys pointers on how to help our client’s bankruptcy cases proceed more smoothly from the view point of the trustee.  Bankruptcy trustees generally have a lot of cases.  The information we were given yesterday estimated that each bankruptcy trustee in the Phoenix area gets 50-90 new chapter 7 bankruptcy cases every two weeks.  The trustee must review the filings in each case (usually about 40-60 pages) as well as review tax returns, bank statements, and pay records.

As you might imagine this is time consuming.  This process is bogged down even further if the information you provide in your bankruptcy documents is inaccurate, vague, or just flat out missing.  While this particular presentation was aimed at Arizona bankruptcy attorneys, it is applicable to you as a person going through the bankruptcy process.  As a bankruptcy attorney, the only information I can provide to the court is the information you provide me.  The more precise and accurate you are, the more precise and accurate I can be.

Bankruptcy attorneys constantly discuss ways to streamline the process of obtaining the large amount of information from their clients for the preparation of the case.  There is just no getting around it that there is a lot of detailed information required.  This takes time.  It takes effort on your part and my part.  However, as I tell my clients again and again, if we put the effort in now and the documents we file are detailed and accurate, once we file the case things will generally proceed very smoothly.  The key is in the preparation.

Help me to help to you.  The more detailed you can be in your responses to my questions, the more precise I can be in your documents that will be filed with the bankruptcy court.  The more precise I can be in your documents the happier your bankruptcy trustee will be.  And a happy trustee is always a good thing.

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You made “the call”.  I realize that by the time my clients actually call me to set up a bankruptcy consultation there has been a lot of internal (and external) debate.  Now that you have taken the all important first step of setting up the bankruptcy consultation I thought I would share a few ideas of how you can make this meeting as productive as possible.

#1 – Whatever You Tell Me is Confidential

When you visit with me in my office about your debt problems those discussions are protected under the attorney/client privilege – even if you haven’t hired me yet.  I won’t tell my wife, I won’t tell my friends, your friends, nobody.  Your bankruptcy consultation will be much more beneficial to you if you are prepared to discuss your entire financial situation.  And, along those lines…

#2 – Be Prepared to Bare Your Financial Soul

Bankruptcy can be a fairly straight forward process – IF you provide me with with all of the necessary information.  Now is not the time to withhold anything.  I will have a lot of questions for you and will require that you provide me with a lot of documents.

You may have had a friend or a relative tell you what they know about the bankruptcy process and how you don’t have to disclose certain assets or transactions.  Disregard that advice.  Nothing can make your bankruptcy case go from “straight forward” to your worst nightmare like concealing assets.

Bankruptcy is no time for secrets.  When in doubt, disclose.  I am on your side.  I am here to help you.  And in most situations if I know of a possible problem  before your bankruptcy case is filed with the court we can fix it.  If I learn of a problem for the first time after your bankruptcy case is filed it is much more difficult to fix, if it can be fixed at all.

#3 – Have a Sound Understanding of Your Current Financial Situation

Prior to coming in for a bankruptcy consultation, review your debts, assets, income, expenses, and any significant financial transactions you have been involved in over the last couple of years.

If you decide to proceed with a bankruptcy filing I will get all of this information in detail, but for the initial consultation I need to know what your income is like on a monthly basis, what kinds of debt you have (is it mostly credit card debt or a lawsuit?), what is the total amount of debt (approximately).

I understand that it will be difficult to know every little detail at this early stage, however be prepared to discuss generally what types of debt issues you have and what assets you have.  This will help me in determining what chapter of bankruptcy is appropriate for your situation.

After the consultation is over you will feel a great deal of relief.  How do I know this?  Because I see it on a daily basis when I meet with families who are going through the same thing you are going through.  They are stressed out of their minds.  Worried.  Hopeless.  Bankruptcy cannot fix all problems.  But it can give you the peace of mind that comes with having a game plan to becoming debt free.

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In a chapter 13 bankruptcy you will be required to pay your disposable income to your creditors over the life of your bankruptcy case.  Chapter 13 bankruptcy cases typically are a minimum of three years and a maximum of five years long.  In calculating your disposable income we look at your monthly income and subtract all of your monthly expenses – not including payments you are currently making on your debts.

Part of this process is disclosing to the bankruptcy court your monthly budget.   Your budget is relevant because the more expenses you have the less you will have in disposable income to pay your creditors.  In Arizona the chapter 13 bankruptcy trustees have provided us with guidelines as to what is acceptable when it comes to a budget.  This means that you generally cannot inflate your budget to reduce disposable income to be paid to your creditors.

The numbers below are general guidelines issued by the Arizona chapter 13 bankruptcy trustees on acceptable expenses.  It is important to note that these numbers were issued in 2008 and thus there is some wiggle room.

These numbers are not set in stone but are a good guideline of what are acceptable expenses while you are in a chapter 13 bankruptcy case.

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I usually try and come up with some clever title for my articles (rarely do I succeed), but with this article I just want to relay pure information.  If you need to file bankruptcy, do it now, don’t wait.  Delay will only cause you further grief.

Yesterday I met with a handful of families that were looking into filing bankruptcy. In each of there cases it was apparent that they needed to file and in fact all of them had been talking about filing for bankruptcy for quite some time.  But the delay ended up costing them.  One person had their home foreclosed on, and the others were dealing with wage garnishments or bank garnishments.

I felt for each of these families.  They were all in very difficult situations.  Having every penny you have to your name garnished out of your bank account is awful.  When you are living paycheck-to-paycheck it is devastating.

No one wants to file for bankruptcy.  I understand that.  But delaying the inevitable will usually just make the problem much worse.  In Arizona, if you ignore the lawsuit that was filed against you up to 25% of your wages may be garnished.  All but $150 may be taken out of your bank account.  And if you wait too long to deal with your mortgage you may lose your home to foreclosure.  In each of these situations once the genie is out of the bottle it is unlikely that I can get her back in.  The garnished money will be gone, your house will remain sold.

It is a difficult decision to make.  But there are times when it needs to be made.  Take an honest look at your finances.  If you are in it up to your neck, act now before you are in over your head.

In January the State Senate in California passed legislation aimed at debt buyers like Midland Funding, LVNV Funding, and Portfolio Recovery who sue people over debts without adequate documentation to prove that they own the debt or that they are even suing the right person.  This new legislation would prohibit debt buyers from obtaining a judgment in a debt collection lawsuit unless the debt buyer can prove that they own the debt, what the balance is, the date of default or last payment, the identity of the owners, and the name and address of the person on the original records.  Further, the debt buyer must have the original contract that was provided to the consumer while the account was active.

While this is a significant piece of legislation that will help protect consumers, in reality the Rules of Evidence the govern civil lawsuits already require most if not all of these documents.  The trouble is many of these types of lawsuits go unanswered, resulting in a default judgment, or judges simply ignore the rules and grant judgment without the supporting documents.

This new legislation will help those living in California, but what if you have been sued by Midland Funding, LVNV or one of the other debt buyers and you live in Arizona?  Arizona does not have a similar consumer protection law.  You are left to defend yourself in court.  The good news is, in many cases there are strong legal defenses you can raise in court and many times people are successful in defending such lawsuits.  The debt buyer has the burden of proving that they own the debt and that you are responsible.  If they can’t do that they can’t win.

In the past I believe that many people, including judges (they are people too!)  believed that if a person was sued on a credit card debt or some similar type debt that they probably owed it.  With the dramatic increase in lawsuits by debt buyers that are filed with little to no documented support this assumption is no more.  I have represented clients that literally had no connection with a debt they were being sued on other than their name being similar to someone who actually owed the debt.

When people are wrongfully sued they are put in the difficult situation of having to prove they didn’t do something.  This can be more difficult that it seems.  If you have been sued by Midland Funding, LVNV, Portfolio Recovery or one of the other debt buyers it is important to seek out legal representation immediately.  Failing to respond – or just as bad- responding but failing to do so in a proper manner can result in garnishment of wages, bank accounts and damage to your credit score.  If you have been sued, act.  Don’t delay.

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One of the drawbacks to filing chapter 7 bankruptcy is that you may lose some of your stuff.  Chapter 7 bankruptcy is a liquidating bankruptcy – meaning if you have assets that you own free and clear of any liens and that are not protected under one of Arizona’s exemption laws, then in chapter 7 you could lose them.  For instance, in Arizona there is no exemption for ATVs.  So, if you own a Yamaha Banshee (my favorite ATV), in bankruptcy the trustee could require that you turn the Banshee over, they will sell it and then give the money to your creditors.

Often there is a way for you to be able to keep your stuff and file chapter 7 bankruptcy.  In Arizona many of the bankruptcy trustees will allow you to keep your asset if you will agree to pay the value of the asset so that it can be distributed to your creditors.  So, with the example above, if your Yamaha Banshee is worth $3,000 you could offer to pay the trustee $3,000 (or some other offer I will help you come up with ) and keep the ATV.  Most chapter 7 trustees in Arizona will even allow you to make that in payments.

But what if the idea of paying the trustee for the stuff you own doesn’t seem like a great idea to you?  There are other options – you can sell the asset before your bankruptcy case is even filed.  If you transfer any asset out of your name prior to filing bankruptcy you can count on that transaction receiving scrutiny.  However, if you follow a few simple guidelines you can sell assets and still file chapter 7 bankruptcy.

#1 – You Can’t Give it Away.

Did you know that bankruptcy is mentioned in the United States Constitution?  Bankruptcy laws, in one form or another, have been around for a long time.  Because of this, any way you can think of to try and hide an asset has been thought of by many people before you and the bankruptcy laws have evolved to prevent such behavior. Not that you would/should ever think of hiding an asset (seriously, don’t ever try and hide an asset – it will not end well.)

The first important point is that you cannot give away assets prior to filing for bankruptcy.  You cannot have your brother “hold” your boat while you go through bankruptcy by transferring the boat into his name.  Such transfers must be disclosed and they will require your brother to return the boat so that it can be sold and the money used to pay your creditors.  If your brother doesn’t return the boat the bankruptcy trustee will sue him to get it back.  And nothing ruins future family reunions like a federal lawsuit between brothers.

You can’t give stuff away.  Don’t do it.  If there is an asset you are worried about, talk to your bankruptcy attorney.  There are often other solutions.  One of them is to sell the asset prior to filing your bankruptcy case…

#2- You Can Sell Your Stuff

If the thought of paying for your stuff twice (once when you bought it and a second time to the bankruptcy trustee) doesn’t sit well with you, it may be a good idea to sell your asset prior to filing your bankruptcy case.  You can sell things like cars, ATVs, boats, etc., so long as you sell them for fair market value and an actual sale takes place.

For example, if your Yamaha Banshee is worth $3,000 so long as you sell it somewhere near that price you will be fine.  If you sell it to your brother for $500 that is not fine and will result in additional problems in your bankruptcy.  You must sell the asset for approximately what it is worth.

Next, an actual transaction must take place.  You must actually sell the item and cash must change hands.  It must be a real sale.  No trickery.

Now What Do I do With All This Money?

Asset is sold, problem solved.  Right?  Not yet.  In Arizona you are not permitted to have more than $150 on the day you file for bankruptcy.  If you have more than that the bankruptcy trustee will take it and give it to your creditors.  So what do you do with the $3,000 you just got for the Banshee?  That is something you and your attorney will need to go over.  You can use it to buy general living items like groceries, tires for your car, car repairs, etc..  You can put it in a retirement account like a 401(k) or IRA.  You could even pay your bankruptcy lawyer with it!

The point of this article is if you are needing to file bankruptcy – particularly if you are looking to file a chapter 7 bankruptcy – you need to meet with a bankruptcy lawyer to discuss all the details of your situation and how best to protect your assets while going through the bankruptcy process.

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In previous articles I have gone over the litigation strategy of debt buying companies like Midland Funding, LVNV, LLC, and Portfolio Recovery.  Despite the fact that they have filed a lawsuit against you, they really don’t want to fight you.  Their hope is that you will do nothing to defend yourself and that they will get a default judgment against you.

So what if you put up a fight?  Sometimes they will simply seek to dismiss your case.  You receive the Motion to Dismiss and you are thinking that you are good to go, right?  Wrong.

With Prejudice vs. Without Prejudice

If you are being sued by Midland Funding or any of the other debt buyers and you are contesting the suit, you may be surprised that at times they will simply seek to dismiss the lawsuit.  The catch is they will seek to dismiss the lawsuit without prejudice. This means that they can refile the lawsuit at a later date if they choose to do so.

If they are wanting to dismiss case you will want it to be with prejudice, meaning the case cannot be filed again.

Arizona Law on Dismissal

Also it is important to understand that in Arizona the court rules state that if a person has been sued, and that person responds to the lawsuit, then the company suing that person cannot dismiss the case without the person being sued signing of on it (did you follow that?).

This means if you have been sued you shouldn’t agree to it being dismissed unless Midland or whoever is suing you agrees to dismissing the case with prejudice.

Main point.  Educate yourself on the procedure.  Don’t be a pushover.

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When you file for bankruptcy here in Arizona your case will be assigned to a bankruptcy trustee.  This person works under the Department of Justice and in a chapter 7 bankruptcy, their job is to review your bankruptcy documents, determine if there are any assets that can be sold, and then distribute the proceeds to your creditors.

If your chapter 7 case is typical you will only see your bankruptcy trustee on one occasion – the Meeting of Creditors.  However, despite not having much face time with your trustee, your bankruptcy trustee can cause you and your bankruptcy attorney a lot of grief.

The good news is there are things you can do to that will keep your case in the good graces of your Arizona bankruptcy trustee.  I recently attended a presentation by one of the local Phoenix trustees and he gave the following tips:

Don’t Lie to the Trustee

The trustee has a job to do.  In order to complete this job they need you to tell them the truth.  There are two times in particular that you need to make sure you are providing nothing but correct information to your trustee: first, when you complete your bankruptcy documents, and second, when you sit before your trustee and answer his questions under oath.

As the trustee I went to listen to said, “lying bespeaks a belief by the Debtor that the Trustee is stupid enough to fall for it – The Trustee feels that the Debtor is trying to play him/her for a fool.  The person being ‘played’ is invariably infuriated by being thought so stupid.”

It is generally in your best interest to not “infuriate” the trustee.  Things will go more smoothly.  I promise.  Just tell the truth.

And in reviewing my notes, that was actually the only tip.  Don’t lie to the trustee.

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Should you seek out God’s guidance before filing for bankruptcy?  Rev. Billy Graham says yes in a recent article when the question of the morality of bankruptcy was posed to him.  After I have explained the nuts and bolts of the bankruptcy process to people I often get asked whether I think it is morally acceptable to file for bankruptcy.

In a way it is a funny question to ask a bankruptcy lawyer.  Either I feel that it is morally acceptable to file bankruptcy or I am encouraging people to do something I personally believe is immoral on a daily basis.  I would hope that it is the former with all bankruptcy attorneys.

Bankruptcy is not right for every debt situation.  It may be hard to believe, but I truly don’t recommend it for every person.  There are some situations where there are other options.

As to the morality of bankruptcy, I do see a difference between those people who have incurred debts with every intention to pay and then something occurs in life (i.e. job loss, reduction in income, medical problems) that makes it nearly impossible to pay the bills, and those people who rack up the credit card debt with no intention of ever paying the debt.  And I can truly say as a person who deals with people’s debt problems on a daily basis that I almost never see the latter type situation.

Further, the behavior of debt collectors often leave people with very little choice.  The aggressive tactics used by collection agencies back a person into a corner where the only choice left is bankruptcy.  High interest rates, non-stop telephone calls, contacting family members, threatening jail, and other heavy-handed (and often illegal) tactics strain people to their limits.  The days of letting people pay what they can to get the debt paid in full are essentially gone.

People don’t want to file bankruptcy.  They file because they have to.  They file because their lives have been turned upside down and don’t have any other options.  They file because there really is no other choice.

If you need help with your debt problems.  Give me a call.  (480) 420-4028 or email me at john@skibalaw.com.

Thanks to New York bankruptcy attorney Jay Fleischman for bringing this article to my attention.

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