Download pdf - What You Need to Know About Bankruptcy

What You Need To Know About

BankruptcyB

ankr

up

tcy

Intr

oduc

tion

Welcome to JacksonWhite Attorneys at Law and our guide, What You Need to Know About Bankruptcy. We hope the information contained in this booklet will answer the questions you may have about the bankruptcy process and your options when considering bankruptcy.

We understand that those considering bankruptcy may also have questions regarding other legal issues. These legal issues may include liens, collections, foreclosures, business formation, employment and other real estate and tax matters. JacksonWhite has attorneys available to assist in all of these legal practice areas in addition to bankruptcy. We encourage you to let the dedicated attorneys and staff at JacksonWhite help you with your legal needs.

For more information about JacksonWhite, please visit us on the Web at www.jacksonwhitelaw.com and www.arizonaseniorlaw.com. Both Web sites are loaded with helpful videos, blogs and information, aimed to help you understand our legal practice areas and answer your legal questions. Our bankruptcy attorneys offer free consultations, so if you are considering bankruptcy, please take advantage of this service. All legal consultations can be set up by calling the JacksonWhite office toll-free at 1-800-243-1160.

Business/Corporate LawCommercial/Civil LitigationConstruction LawCriminal LawChapter 7, 11, 13 BankruptcyElder LawEmployee BenefitsEstate PlanningFinancial InstitutionsCreditor/Debtor Issues

Guardianships/ConservatorshipsFamily LawHOA LawInsurance Related DisputesLabor and Employment LawMediation ServicesMedicaid/ALTCS PlanningPersonal Injury LawProbate LawReal Estate LawTax Law

JacksonWhite Legal Services

I Fair Debt Collection 2

II Bankruptcy Overview 4

III Chapter 7 Bankruptcy 7

IV Chapter 11 Bankruptcy 10

V Chapter 13 Bankruptcy 12

VI Bankruptcy and Home Foreclosure 14

VII Legal Assistance 17

What You Need To Know About Bankruptcy 1

Table of Contents

JacksonWhite Attorneys at Law

40 North Center Street, Suite 200 Mesa, Arizona 85201

1.800.243.1160480.464.1111

Additional office in Peoria

© 2010 JacksonWhite P.C., all rights reserved. This publication is provided for informational purposes only and should not be construed as individual legal advice. Please consult a knowledgeable attorney regarding your specific legal needs.

www.jacksonwhitelaw.com

www.arizonaseniorlaw.com

www.myaltcs.com

Fair

Deb

t Col

lect

ion

What You Need To Know About Bankruptcy2

Fair Debt CollectionConsumers are always expected to pay back what they borrow. However, this does not mean that collectors can treat consumers without dignity and respect. The Fair Debt Collection Practices Act (FDCPA) was passed to protect consumers against such abuses. The FDCPA limits the types of practices collectors can engage in and provides remedies for consumers who have been mistreated. Consumers who understand the FDCPA can protect themselves and discourage collectors from further abusive practices. Consumers who are not familiar with the FDCPA may miss out on its protections.

What limitations does the FDCPA place on third-party debt collectors who are trying to locate a consumer?Debt collectors are generally not permitted to divulge information about consumers’ debt. The FDCPA enforces this by placing the following restraints on collectors who make inquiries into a customer’s whereabouts:

» Collectors must not disclose information about a consumer’s debt.

» Collectors must notcommunicate with any one person more than once unless that person specifically requests a return phone call, or unless the collector reasonably believes that the first response was false or incomplete.

» Collectors must notcommunicate by postcard or use an envelope which indicates the contents of the communication.

» Collectors must not communicate with any third-party including the consumer’s family members and co-workers.

» Collectors must communicate only with the consumer’s attorney if the consumer has legal representation.

What limitations does the FDCPA place on third-party debt collectors’ communication with consumers?Debt collectors cannot harass or threaten consumers in any way, shape or form. The FDCPA protects consumers from such harassment by laying out very clear guidelines for collectors. Debt collectors are prohibited from:

3

» Communicating with aconsumer at any unusual time or place, and between the hours of 9 p.m. and 8 a.m.

» Communicating with a consumer at the consumer’s place of employment if the consumer’s employer prohibits it.

» Communicating with anyperson other than the consumer, the consumer’s attorney or a consumer reporting agency.

» Communicating with the consumer if the consumer provides written refusal to pay the debt, except for very limited purposes.

» Using or threatening to useviolent or criminal means to induce repayment.

» Using obscenities or profanities to abuse the listener.

» Allowing the telephone to ringrepeatedly or continuously with the intent to annoy or harass.

» Making telephone calls without disclosing their identity.

» Making any false or misleadingstatement about their identity or the nature of the debt.

Must debt collectors provide written notice of the debt?Debt collectors must provide consumers with written notification of the debt. They must send detailed information about the debt within five days of first contacting a consumer. The statement must provide the amount of the debt, the creditor

to whom the debt is owed, and a statement granting the consumer thirty days within which to dispute the debt. If consumers do not dispute the debt within the 30-day window, collectors can assume the debt is valid. Consumers who dispute the debt, on the other hand, cause the collection to be stopped unless and until the collector provides them with proof of the debt. For this reason, consumers must make a timely response if there is any question as to the debt’s validity.

What remedies are available against debt collectors who violate the FDCPA?Consumers have one year from the time they believe the collector violated the FDCPA to bring a lawsuit. Judgments against debt collectors can provide consumers with compensation for actual damages, attorney fees and a statutory fine of up to $1,000, oftentimes with no upfront costs. Consumers should immediately contact a qualified attorney to enforce these remedies. Likewise, consumers who have already filed bankruptcy but who experienced harassment from debt collectors within the past year should also seek to have these remedies enforced. Debt collectors who pay no regard to the law should be stopped, and filing an action in a court of law can be the most effective means of doing so.

JacksonWhite Attorneys At Law

Fair Debt Collection cont’d

4

Bankruptcy OverviewThere seems to be a lot of misunderstanding surrounding the bankruptcy process. Many people attach a stigma to the term “bankruptcy” and fail to recognize the benefits it can provide. There are those who are too hasty to file for bankruptcy and thus make the process harder. You should understand that certain financial situations provide excellent justification for bankruptcy, such that filing can provide you with a real solution to your problems.

Bankruptcy is by no means a perfect solution to every difficult financial situation. Nevertheless, it does hold a valuable place in the set of tools available to people trying to get out of financial trouble. By gaining an understanding of the bankruptcy process you can become better equipped to deal with financial obstacles that may arise. This booklet examines many of the common questions that arise in regards to bankruptcy and the bankruptcy process. After reviewing this guide, you will stand on more solid footing when deciding whether bankruptcy is appropriate for your particular financial situation.

What is Bankruptcy?The word “bankruptcy” means more than general financial

hardship. It actually describes a legal process under federal law. Different types of bankruptcy are available but they all aim to help people get out of debt. The process by which debt is eliminated varies depending on the type of bankruptcy filed.

People with consumer debt most commonly file for bankruptcy under Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code. Chapter 7 allows you to discharge your debt and Chapter 13 allows you to create a repayment plan by which you can eliminate debt over a period of years. Businesses most commonly file for bankruptcy under Chapter 11, but it is also available to individuals in certain situations (Ideally, people use Chapter 11 to reorganize debt similar to Chapter 13, but liquidation of assets and discharge of debt sometimes takes place as well. Debt, income and assets are all considered when determining which type of bankruptcy is most suitable to your particular situation).

What is the difference between secured and unsecured debt?When it comes to borrowing money, all debt is not created equally. There are two general classes of debt, secured and unsecured, which afford

What You Need To Know About Bankruptcy

Bank

rupt

cy O

verv

iew

5JacksonWhite Attorneys At Law

creditors different remedies in the collection process. Borrowers must put down collateral when obtaining a secured loan to reduce the risk to the lender. If the borrower fails to make payments, the collateral is subject to seizure to help pay the outstanding debt. A prime example is a home purchased with a mortgage because the home itself is the collateral for the loan. Collateral is not required to obtain an unsecured loan, such as a credit card. The most serious consequence faced by those who fail to make payments on an unsecured loan is the negative impact it has on their credit report. These individuals may also face litigation.

A careful examination of secured and unsecured debts is always in order when considering bankruptcy. Despite the notion that bankruptcy causes people to lose ownership of their assets, filing for bankruptcy can sometimes help you to retain possession of property that would otherwise be seized. A thorough analysis may reveal that filing for bankruptcy has less of a negative impact than surrendering the collateral on your secured debts.

What protections are afforded to those who file for bankruptcy?As soon as you file for bankruptcy the court orders an automatic stay, which is an injunction designed to protect those who

file. It can come as a great relief because it prevents creditors – at least temporarily – from collecting debts. From the moment the stay takes effect creditors can no longer seize your property, initiate or proceed with court actions against you, or enforce liens against your property. In fact, they cannot even call you on the telephone.

What are the requirements for filing bankruptcy?In addition to having a financial need for filing bankruptcy,

you must satisfy certain basic requirements. To file for bankruptcy, you must:

• Resideorhaveaplaceof business within the United States.• Passameanstesttodetermine whether you qualify for Chapter 7 or Chapter 13.• Participateincreditcounseling.

What types of assets are subject to forfeiture during a bankruptcy proceeding?Filing for bankruptcy will not cause you to lose all of your assets. You are in fact permitted

Bankruptcy, cont’d

6 What You Need To Know About Bankruptcy

to keep a significant portion of your assets. Under the U.S. Bankruptcy Code only certain assets are subject to forfeiture in a bankruptcy proceeding. For instance, you will never lose payments from Social Security or other government benefit programs. You may even be able to retain the equity you have built in your property. You should never allow a fear of losing property stand in your way of at least considering bankruptcy.

How will filing for bankruptcy affect my credit score?

Filing for bankruptcy always impacts a credit score. However, the negative

repercussions of filing for bankruptcy are not always as severe as many people anticipate. Your present financial situation has a significant impact on how filing bankruptcy will affect your credit score. People with relatively good credit, for instance, are likely to see a significant drop in their score after filing for bankruptcy. However, by the time most people file for bankruptcy their credit score is already pretty low. These people may only notice a small drop in their score. Similarly, those with numerous credit accounts realize a more significant

drop in their score than those with fewer credit accounts.

It is possible for people with poor credit ratings to improve their credit score just by filing for bankruptcy. When you have outstanding debt or a history of late payments, you receive negative marks on your credit report. Filing for bankruptcy removes these blemishes and instead marks them as included in the bankruptcy. This still has an impact on your credit score but it could have less of an impact than the separate unpaid payments. For those with extremely poor credit, filing for bankruptcy could actually make an immediate improvement to their credit score.

It may be the exception that filing for bankruptcy immediately improves a credit score, but it is very likely that filing can help you improve your score over a couple of years. Credit scores are determined by comparing your credit activity with others who are in a similar financial situation. So after filing for bankruptcy, credit agencies will compare your activity to others who have filed for bankruptcy. By sticking to a budget and exercising frugality compared to others in your economic class you can dramatically improve your credit rating. Filing for bankruptcy oftentimes makes it easier to climb out of debt than attempting to do so without filing.

Bank

rupt

cy, c

ont’d

7

Chap

ter 7

Ban

krup

tcy


Chapter 7 BankruptcyWhat is Chapter 7 Bankruptcy?Most consumer bankruptcy filings are filed under Chapter 7 of the U.S. Bankruptcy Code. Chapter 7 provides even those in the direst of financial straits with a means for a fresh start. Chapter 7 requires you to surrender non-exempt assets with the proceeds distributed to creditors. This is oftentimes referred to as liquidation. It is imperative to understand that Chapter 7 only requires you to surrender non-exempt resources. This means that many who file under Chapter 7 are permitted to retain all of their assets. Learning which types of assets are exempt from liquidation will help you determine whether Chapter 7 bankruptcy is suitable for your situation.

Is Chapter 7 a suitable remedy for my financial situation?Chapter 7 bankruptcy is generally most appropriate for individuals because liquidation can raise problems for businesses. Individuals with a steady income, however, may find that Chapter 13 provides a better alternative. Those with little or no income generally find that Chapter 7 is their best alternative.

Before deciding to file for Chapter 7 you should always counsel with a qualified bankruptcy attorney. Your attorney will help you determine whether your financial situation justifies filing for Chapter 7. More important to this evaluation than the amount of debt is your ability – or lack thereof – to repay it. It is advantageous for some to file with only a relatively small amount of debt while others wait until they have accumulated exorbitant quantities of debt before filing. Finding the right time to file for Chapter 7 involves a thorough examination of your debt, income, expenses and assets.

Which types of debt are discharged under Chapter 7?It is possible that even filing for Chapter 7 will not discharge all of your debts. One of the foremost questions you should ask is whether filing for Chapter 7 will discharge the debts you cannot repay. The following debts, generally, cannot be discharged under Chapter 7:

» Student loans» Unpaid taxes» Alimony» Child support» Secured loans such as mortgage and car payments» Criminal fines

8

If the vast majority of your debt falls into these categories it may be that Chapter 7 is not right for you. Chapter 7 does, however, discharge the following debts:

» Medical bills» Civil judgments» Credit card debt» Unsecured loans

You must examine each of your debts to determine whether your dischargeable debt justifies filing for Chapter 7. Chapter 7 is unlikely to provide relief to those with debt consisting mainly of unpaid taxes and student loans. On the other hand, Chapter 7 could be quite suitable for individuals with outstanding medical and credit card bills. As a general guideline, Chapter 7 is most suitable for people whose dischargeable debt outweighs their assets and who have little chance of repaying the debt.

Which of my assets can I keep under Chapter 7?Your financial evaluation should not stop with an examination of your debt. You must also examine your assets. Chapter 7 requires that you surrender some assets to provide creditors with at least partial payment, but other assets are exempt from liquidation. You are generally permitted to keep the following assets:

» One automobile» A primary place of residence

and the equity in the property» 401K plans» Life insurance policies» Personal effects such as household items and clothing

These are just a few of the items that are exempt from liquidation. Assets that are not listed here may also be exempt.Some assets are considered non-exempt and may be subject to liquidation. As such, your evaluation must contrast the debt which Chapter 7 will eliminate with the assets you may lose. Those who file for Chapter 7 must be prepared to surrender any asset that is non-exempt.

Is there any way to keep certain assets outside of a Chapter 7 bankruptcy?Many people worry that filing for Chapter 7 will cause them to lose assets they hold dearly. Such concerns can be quelled by signing what is called a

Chap

ter 7

Ban

krup

tcy,

con

t’d


9

Chapter 7 Bankruptcy, cont’d


reaffirmation agreement. A reaffirmation agreement essentially permits you to keep certain property outside of the bankruptcy. Executing a reaffirmation agreement allows you to continue making payments on outstanding debt such as mortgages or car payments to prevent forfeiture. In this fashion, you can retain more assets than allowed for in the basic exemptions to asset liquidation under Chapter 7.

What role does income and expenses play when deciding whether to file for Chapter 7?Income and expenses must come into the equation when deciding whether Chapter 7 is suitable. You are required under the U.S. Bankruptcy Code to disclose all of your monthly income and expenses. This includes not only earned wages, but all sources of income. Total income and expenses are subjected to a means test. Passing this test means you presumptively qualify to file for Chapter 7. Those whose income disqualifies them for Chapter 7 may still be able to file for bankruptcy under Chapter 13.

How does Chapter 7 work?Upon filing for Chapter 7, an automatic stay is immediately issued. This prevents all of your creditors from collecting debts and repossessing your property.

You will be required to forfeit all of your non-exempt assets to an appointed trustee who will sell the assets and divide the proceeds among your creditors. Keep in mind that exempt assets are not subject to forfeiture. Once the bankruptcy proceeding comes to

an end all of your dischargeable debts are eliminated.

Determining whether Chapter 7 provides the best alternative is oftentimes the most difficult part of filing for Chapter 7. You should never make this decision without counsel. A qualified bankruptcy attorney can assist you in your evaluation. Once you decide to proceed with the bankruptcy, a Chapter 7 proceeding consists mostly of following the rules dictated by the U.S. Bankruptcy Code. Here again, a bankruptcy attorney will be extremely helpful in helping you execute and file the requisite paperwork in a timely fashion.

Chapter 11 BankruptcyIndividual Chapter 11 BankruptciesAlthough Chapter 11 bankruptcies have historically been used primarily by businesses, Chapter 11 relief is also available to individuals. In particular, if you are a high income individual with secured debts over $1,010,650* or unsecured debts over $336,900*, you may be excluded from both Chapter 7 and Chapter 13 relief.

Chapter 11 can provide individuals the protection of an automatic stay, control of their assets during the bankruptcy proceedings, and the opportunity to propose a plan to pay or discharge their debts over time.

The concepts discussed in this section of the guide generally apply to the individual Chapter 11 debtor as well as to the business debtor.

What is Chapter 11 Bankruptcy?Chapter 11 of the U.S. Bankruptcy Code is primarily used for businesses looking to reorganize debt. Although businesses may also file under Chapter 7, Chapter 11 allows them to operate their business during the bankruptcy and reorganize rather than

liquidate their assets. Chapter 11 also allows for liquidation over time.

Sole proprietorships, partnerships and corporations can all use Chapter 11, but filing may affect each of these types of businesses differently. Sole proprietors may need to include both their business and personal assets in the bankruptcy. Likewise, partners’ personal assets can sometimes be used to repay creditors unless they also file for personal bankruptcy. With corporations, while the stockholders’ personal assets are never used to repay creditors, their stock values may be affected.

How does filing for Chapter 11 Bankruptcy work?Filing for Chapter 11 can be voluntary or involuntary. Businesses file voluntary petitions personally and certain types of creditors can file involuntary petitions on behalf of businesses that owe them money. Once bankruptcy is filed, the business maintains control of business assets as a “debtor in possession” throughout the proceeding.

Those filing for Chapter 11 are given an opportunity to propose a reorganized payment plan by which they can repay their debts over a period of years. *As of date of print

10

Chap

ter 1

1 Ban

krup

tcy


11

If the bankruptcy court approves this plan it becomes binding and the filer must then abide by the terms of the plan. Before the plan becomes binding, it must satisfy a number of requirements, including creditor approval. The bankruptcy may be converted to a Chapter 7 if a plan cannot be agreed upon, requiring liquidation of assets. For this reason it is imperative that you do your utmost to create a plan that will appease creditors but still afford you the means to make payments.

The Debtor in Possession’s RoleAfter filing, the debtor is called a “debtor in possession” because it retains control (or “possession”) of the business assets and income. Debtors in possession in Chapter 11 cases have responsibilities and obligations much like those of a trustee. Debtors in possession must work closely with the court and with the U.S. trustee throughout the proceeding. They are required to file reports, tax returns and accountings with the court in a timely fashion. With the court’s approval, they can hire attorneys and accountants to assist them with the process. The U.S. Bankruptcy Code provides debtors in possession many tools to stimulate their business. Loans are available to debtors in possession. The automatic stay prevents creditors from collecting debts and repossessing business assets. The U.S. trustee oversees

debtors in possession to ensure proper administration.

How Are Debts Discharged Under Chapter 11?Generally speaking, once the court approves a business’s reorganization plan under Chapter 11, all of the old debts are discharged. However, the business then becomes contractually bound to abide by the terms of the reorganization. Individuals who file Chapter 11 do not have their debts discharged until they have made all of their payments under the plan. There are exceptions to these general rules, so businesses and individuals should speak with a qualified bankruptcy attorney about the specific facts of their situation.

A Chapter 11 proceeding varies in length depending on the complexity of the business’s financial trouble. The entire proceeding could last anywhere from a few months to several years. If the debtor in possession satisfies the reorganization plan, the business will emerge at the end of the proceeding. If the debtor in possession has difficulty making payments according to the plan, liquidation may follow, either under Chapter 11 or by converting the bankruptcy to Chapter 7. To ensure success, businesses must create a reorganization plan they can comply with for the long-term.



12

Chap

ter 1

3 Ba

nkru

ptcy

Chapter 13 BankruptcyWhat is Chapter 13 Bankruptcy?Chapter 13 of the U.S. Bankruptcy Code requires that you pay off some or all of your debt through a repayment plan. Unlike Chapter 7, Chapter 13 does not involve liquidation of assets so you are generally permitted to retain all of your assets throughout the bankruptcy proceeding. Chapter 13 is effective because debt can be consolidated and may be restructured with better terms such as lower interest. While most debt in a Chapter 13 is discharged, generally a repayment plan is also involved. Therefore, those who file under Chapter 13 must have a regular income. You can work with your attorney to create a restructuring plan which assigns a reasonable amount of your future income to paying off debt.

How does Chapter 13 Bankruptcy work?The U.S. Bankruptcy Code permits those who file under Chapter 13 to play an integral role in how their restructuring will proceed. By working closely with a bankruptcy attorney, you design a plan that is most favorable to your financial situation.

The attorney then drafts a written plan and submits it to the court for approval. Repayment begins about 30 days after the case is filed with the bankruptcy court, and you then have between three and five years to repay creditors. Perhaps the greatest feature of Chapter 13 is that you are permitted to retain all of your assets so long as you follow the plan. Creditors are also required to follow the plan closely and they can only collect debts included in the plan. The court oversees the entire proceeding to ensure that debtor and creditor alike adhere to the plan’s terms.

A certain degree of involvement is required of those who file for bankruptcy under Chapter 13. Debts are repaid over a period of years instead of discharged, as under Chapter 7, so you must be committed to repairing your finances. Before this process can ever begin, however, you must first determine whether Chapter 13 is suitable for your particular situation. As with Chapter 7, you must fully evaluate your debts, assets, income and expenses. Chapter 13 is most appropriate for those with a regular income but who continue to have difficulty repaying debts and covering monthly expenses.


13

Upon deciding that Chapter 13 provides the best alternative, you must create a budget you can adhere to. You should seek legal counsel who can draw from this budget to help you create a Chapter 13 restructuring plan. Your attorney will then submit the plan to the court for approval, and help file forms and pleadings in a timely fashion. You will be required to attend meetings with creditors and the court throughout the bankruptcy proceeding. Once the final payment is made, the plan is terminated and all debts included in the plan are discharged.

What are the benefits of filing for bankruptcy under Chapter 13?As with Chapter 7, an automatic stay is issued immediately upon filing for bankruptcy under Chapter 13. The automatic stay is extremely powerful because it stops all creditor actions, including repossession and home foreclosure. Chapter 13 also prevents wage garnishment. When wage garnishment begins, a portion of your earnings will go directly to repaying your creditor. This is almost always troubling because you lose the ability to allocate your budget according to your priorities. Immediately upon filing for Chapter 13, wage garnishment ceases and creditors are relegated to receiving payments through the restructuring plan.

Chapter 13 can also help you avoid home foreclosure and vehicle repossession. The automatic stay prevents creditors from foreclosing on homes and repossessing vehicles. While the automatic stay is in effect you can create a restructuring plan so that home and car payments become more manageable. Chapter

13 provides you with a means to catch up on home and car payments by restructuring your debt to have lower interest and reduced monthly payments.

Chapter 13 also provides relief to those with excessive back taxes and family support obligations. You can work with these types of debts under Chapter 13 even though they cannot be discharged under Chapter 7. Interest and penalties on these types of debt can be eliminated under Chapter 13. You can create a manageable payback plan to repay unpaid taxes and child support over a three to five year period. You can thus utilize Chapter 13 to fulfill your civic and family duties while climbing out of debt.



How do I qualify to file for bankruptcy under Chapter 13?You will continue to have regular monthly expenses in addition to the amount due under the restructured debt plan. For instance, in regards to mortgage payments, a restructuring plan includes the amount which is now past due, but not future payments. This means that you must have enough income each month to pay your monthly mortgage payment and the portion of the missed mortgage payments included in your monthly plan payment. Chapter 13 allows a little more flexibility in regards to car payments, as future payments can sometimes be included in the Chapter 13 plan, effectively lowering the total cost of your vehicle. The bottom line is you must have a regular income to qualify for Chapter 13 so making payments on your plan will not interfere with your ability to pay other expenses.

Chapter 13 is sometimes appealing to those who cannot pass the Chapter 7 means test. Many people with regular monthly income still struggle to repay their debts. Chapter 13 may be available to individuals in this class who cannot avail themselves to the relief provided under Chapter 7. Chapter 13 can provide these individuals with relief, as

restructuring their debt might reduce monthly expenses just enough to get them back on their feet.

Bankruptcy & Home ForeclosureWhat is home foreclosure?Foreclosure is the process by which financial institutions recoup funds lent for a home purchase when the borrower cannot make mortgage payments. Homeowners who fail to make mortgage payments and become subject to foreclosure run the risk of losing their home to auction. Lenders use the proceeds from such auctions to recover their investment. Sometimes where auction proceeds do not cover the lender’s investment, lenders can seek a deficiency judgment. The worst case scenario for borrowers is when the home sells at auction for less than what they owe and the court orders a deficiency judgment, requiring the borrower to pay the remainder of the balance personally.

Do homeowners have any protection against a deficiency judgment?The Arizona Anti-Deficiency Statute protects homeowners against deficiency judgments so long as certain criteria are met.

14

& H

ome

Fore

clos

ure

Bank

rupt

cy


This means that homeowners who qualify for the Statute’s protection are immune from deficiency judgments, and lenders are limited to recovering only the auction price of the home. To qualify for the Statute’s protection, the following requirements must be satisfied:

(1) The home must be on 2.5 acres of land or less;(2) The home is a dwelling for one or two families;(3) Any refinancing or equity

borrowed against the home was used for the original purchase or to improve the property; and

(4) The home was occupied by either the homeowner or tenant.

How can I prevent foreclosure?Those with past due mortgage payments should do what they can to prevent foreclosure. When short-term financial difficulties arise, you have many options available to you. Potential solutions include borrowing from family or friends and refinancing the home at a lower interest rate. Working out a plan with the lender also provides a potential solution. Those with long-term financial difficulties, however, may find that filing for bankruptcy is their best alternative.

Filing for bankruptcy can provide an extremely viable means of preventing foreclosure, yet it is

oftentimes overlooked. When the alternative is losing a place to call home, the ramifications of bankruptcy can seem small in comparison. From start to finish, a home foreclosure generally takes several months. During this time period, you have plenty of time to create a plan by which you can remain living in your home. Filing for bankruptcy may not be your first course of action, but it certainly pays to consider it as a possibility.

How does an automatic stay impact the foreclosure process?The court issues an automatic stay as soon as you file for bankruptcy. This means that even if a foreclosure is scheduled, it is postponed until the completion of the bankruptcy proceeding. Because bankruptcy proceedings can last for some time, you have an opportunity to make financial arrangements to remain in your home. It should be noted that lenders can file a motion to lift the automatic stay. If the court grants this motion, lenders are permitted to sell the home before the bankruptcy proceeding comes to a close. Nevertheless,

15JacksonWhite Attorneys At Law

Hom

e Foreclosure, cont’d

these procedures take time so the foreclosure will almost always be postponed, even if only for a month.

The protections of an automatic stay are granted to everyone who files for bankruptcy. The automatic stay provides you with a reprieve from creditors, but unless you make other arrangements, the automatic stay only postpones foreclosure. You may be able to avoid foreclosure altogether by filing for bankruptcy under Chapter 11 or Chapter 13.

Can Chapter 11 or Chapter 13 prevent foreclosure?You may be able to utilize a Chapter 11 or Chapter 13 restructuring plan to repay mortgage payments that have fallen into arrears and remain in your home. Repayment plans give you a period of time (no more than five years in Chapter 13 cases) to pay back unpaid mortgage payments and can provide a means to avoid foreclosure altogether. This is possible so long as you have enough regular income to cover future mortgage payments as well

as payments required under the devised plan.

How does Chapter 11 or Chapter 13 affect a second mortgage?In today’s housing market it is not uncommon for homeowners to realize significant losses in the value of their homes. It is also not uncommon for homeowners to have second mortgages on their homes. These two factors present a situation for many homeowners where their first mortgage is secured by the entire value of their home, essentially making their second mortgage unsecured. Homeowners in this class may be able to utilize Chapter 11 or Chapter 13 to eliminate their second mortgage payments altogether. This is because unsecured debt takes last priority in a Chapter 13 restructuring plan and low priority in a Chapter 11 plan. When the second mortgage is reclassified as unsecured debt due to home devaluation, it takes this last or low priority and can sometimes go unpaid.

How does Chapter 7 affect home foreclosure?Even when home foreclosure is entirely unavoidable, Chapter 7 can help postpone the sale for a period of time. The automatic stay provides a window in which people can make future arrangements. Those who cannot make mortgage payments after the stay takes effect can save

16

Hom

e Fo

recl

osur

es, c

ont’d


17

Lega

l Ass

istan

ce


money to put towards a future residence. Additionally, Chapter 7 cancels every debt that is secured by the home so mortgages and home equity loans are discharged during the proceeding.

Legal AssistanceIs an attorney needed when filing for bankruptcy?Filing for bankruptcy is much more involved than merely filling out a few forms and waiting for your debts to

become absolved. You must petition the court and adhere by strict rules and timelines. Moreover, individuals are oftentimes required to meet with creditors and handle objections to the discharge. For many, this process alone can be overwhelming. You can rely on a bankruptcy attorney to provide you with guidance and assistance. Professional legal counsel can help you use bankruptcy as an effective tool to get your finances in order and repair your credit.

JacksonWhite Attorneys At Law offers a free, no obligation consultation with one of our knowledgeable bankruptcy attorneys. Call us at 480.464.1111 to schedule yours. Visit us online at www.JacksonWhiteLaw.com for more information.

Ready for Your Fresh Start?

Fair Debt Collection

Bankruptcy Overview

Chapter 7 Bankruptcy



Bankruptcy & Home Foreclosure

Legal Assistance

Contact Us:


1-800-243-1160 | (480) 464-1111

www.JacksonWhiteLaw.com