Monthly Archives: January 2013

Co-signer Liability in Chapter 7 Bankruptcy

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Quite often we have clients who require a cosigner in order to be approved for a loan. A cosigner is someone who can take responsibility for the debt if you become unable to pay it. So what happens if you file for bankruptcy and your cosigner does not?

 

If you file for bankruptcy, you will be protected from creditors by the Automatic Stay of Bankruptcy. The Automatic Stay of Bankruptcy prevents creditors from attempting to collect money from someone who has filed bankruptcy. This Automatic Stay is like a shield that protects anyone who files bankruptcy; however, a co-signor who does not file bankruptcy has no such protection.

 

Fundamentally a co-signor is in no worse position if you file for bankruptcy. So for example, if you are current on a car loan and file for bankruptcy your creditors cannot pursue the cosigner. Just as if you are current on a car loan and you do not file for bankruptcy. Additionally, if you fall behind on your car payments, the vehicle is repossessed and you do not file for bankruptcy then the bank can pursue the cosigner for any losses they sustain. Likewise, if you fall behind on your car payments, the vehicle is repossessed and you do file for bankruptcy the bank will still be able to pursue your cosigner, the only difference is that the bank will not be able to pursue you.

 

Therefore, it is important to speak with an experienced bankruptcy attorney to help you fully understand the options available to you, especially if the co-signor was a family member or friend. Talk to an experienced attorney at the Guinn Law Group and learn how bankruptcy can help you.

When You Owe Federal Taxes: Offer in Compromise

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One common source of debt is federal taxes, whether they be income taxes, payroll taxes, or other types taxes related to a business endeavor. Unfortunately, federal taxes are not typically dischargeable in bankruptcy proceedings, which can leave people still owing significant amounts of debt, even if they are successful in discharging other debts through bankruptcy.

The Internal Revenue Service (IRS) does provide some options for minimizing or at least reasonably handling federal taxes that are owed. Through the offer in compromise process, an individual or a business can offer to pay an amount that is less than the tax debt that is actually owed to the federal government. An offer in compromise may be an option if an individual simply cannot pay the full tax debt, or if paying the full tax debt would result in financial hardship. Each case is considered individually by the IRS and the decision whether to accept an offer in compromise is based on the following factors:

  • Ability to pay
  • Available income
  • Amount of expenses
  • Equity in any assets owned

The IRS provides a comprehensive guide and forms for participating in the Offer in Compromise program, Form 656-B. By submitting the appropriate forms, a non-refundable $150 application fee, and an initial payment to the IRS, an individual or business can submit an offer in compromise regarding any amount of federal taxes owed.

You have the option of either offering the IRS a lump sum cash payment, which is payable in an initial installment of 20% of the lump sum offer, and then the balance in five or fewer payments, or in monthly installment or periodic payments. While the IRS is considering an offer in compromise, you must continue to make payments as set forth in your offer, and all other collection activities will be suspended. However, you cannot be involved in ongoing bankruptcy proceedings while participating in the offer in compromise program.

If you owe federal taxes, the offer in compromise program may be an option for you, depending on the situation. On other hand, bankruptcy proceedings, or other form of relief, might be a better choice in your case. To explore all of these options and decide which option is best for you, contact our office to speak with an experienced Arizona bankruptcy attorney today.

Ch. 13 vs. Ch. 11

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There are many similarities and many differences between Chapter 13 and Chapter 11 of bankruptcy. Chapter 13 bankruptcies are available for individuals and sole proprietorships but not corporations. Chapter 11 bankruptcy is available for businesses and individuals with very large amounts of debt.

Why would an individual file a Chapter 11 instead of a Chapter 13? Typically it is because the filer is exceeds the Chapter 13 debts. Currently the debt limits for Secured debt are $1,081,400.00 and $360,475.00 for unsecured debt (please note that these limits are adjusted periodically for inflation). Secured debts connected to some kind of a property. i.e., a home, car, boat, land, etc. These debts are considered “secured” because should you stop making payments on the loan, the lender can seize the property connected to the loan. Unsecured debts are not linked to any kind of property, and include student loans, credit cards, medical bills, and payday loans. These debts are considered “unsecured” because the lender cannot repossess or foreclose a piece of property if a borrower stops making payments.

So for individuals who have invested in several pieces of real estate, you may not be eligible to file a Chapter 13. For instance if you purchased 5 investment property at $250,000 each, then you have at least $1,250,000 in debt and cannot do the Chapter 13. Likewise, if you are someone who has a large amount of medical bills, credit card debt, student loans, and/or IRS debt then you will not be able to file a Chapter 13 if it totals more than $360,475.00. But don’t worry, if you are an individual who is not eligible for a Chapter 13 you may qualify for a Chapter 7 or Chapter 11 bankruptcy.

Does my spouse have to file? What if we are thinking about a divorce?

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It is legally possible for a married person to file bankruptcy individually, but there are several issues that you need to be aware of especially if you live in a community property state. Community property laws state that generally speaking whatever is accumulated during marriage—regardless of how it is titled—is owned jointly by both spouses. So for example, if you are married and your wife opens a credit card—in ONLY her name—takes the new credit cart and goes on a shopping spree and racks up $10,000 in debt, guess what? You just became half owner of that new debt! For this reason most couples in Arizona file for bankruptcy jointly. Also, if you were to go down to the Chevy dealership and pay cash for a shiny new Corvette—and only title it in your name—your spouse just became half owner of your new car!

 

Additionally, all assets of the non-filing spouse must also be included in the bankruptcy. Why does this matter? Well your spouse may own non-exempt assets and they may be subject to confiscation by the bankruptcy court. Non-exempt assets can be a wide variety of “things” both tangible and intangible. A non-exempt asset could be a second home, land, time-share, stocks, bonds, certificate of deposits, motorcycle, or something else. Non-filing spouses and un-exempt assets can be very complex, so come in for a free consultation with one of our bankruptcy attorneys today!

Considering bankruptcy and divorce?

 

Are you married and considering bankruptcy and divorce? Then you may be wondering if it is better to file bankruptcy and then divorce OR if it is better to file for divorce and then file for bankruptcy. Generally, we recommend that our clients file for bankruptcy and then file for divorce. Why?

One of the benefits to filing for bankruptcy while still married is the cost. The cost for a married to file bankruptcy is the same as it is for a single person. Meaning that if you wait until you are divorced to file bankruptcy, both you and your ex-spouse will have to pay the full cost of the bankruptcy plus separate ($306) filing fees to the bankruptcy court.

 

Another benefit to filing bankruptcy while you are still married is that you will have a clean slate once you are divorced. If you file bankruptcy first, then all of your debts will be discharged. Then when you file for divorce there won’t be any debts that the judge has to split between you and your ex-spouse. Alternatively, if you and your spouse decide to get a divorce and then file for bankruptcy the family court judge will have to split the debts between you two. And what if after the bankruptcy your ex-spouse stops paying on their portion of the debt and doesn’t file for bankruptcy? It just makes a cleaner break if you file bankruptcy and then file for divorce.

 

 

Can I include my student loans in my bankruptcy?

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Generally speaking student loans are not dischargeable in bankruptcy. The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans. However, student loans may be discharged if you can show that payment of the debt “will impose an undue hardship on you and your dependents”.Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. But a common test is the “Brunner test” which requires a showing the following:

 

1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans;

 

2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

 

3) the debtor has made good faith efforts to repay the loans.

 

The second element of the Brunner test is the most difficult hurdle for most people. The difficulty lies is proving to the court that you won’t be able to pay off the loan in the future. The burden is on you to prove that you’ll never be in a better financial situation—one where you could pay on the student loan. Unless a person has experienced some type of permanent disability it’s tough to prove that there’s no way you could find yourself in a situation to pay off your student loans. Because it’s theoretically possible that next month you’ll get a job at FaceBook making a million dollars a year.

 

Come speak with one of our attorneys during a free consultation to see if your student loans may be dischargeable in bankruptcy.

Federal Tax Exemption for Mortgage Debt Forgiveness Extended Through 2013

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According to an azcentral.com article, recent news coverage of worries over the “fiscal cliff” have included concerns about the Mortgage Forgiveness Debt Relief Act of 2007, which was set to expire on January 7, 2013. This law originally was passed in 2007 to provide relief to homeowners experiencing financial distress in mortgage foreclosure proceedings through the end of 2009. Under the Debt Relief Act, homeowners were exempt from federal income taxes on mortgage debt forgiven by lenders through foreclosures, short sales, or mortgage loan modifications. In 2008, the Debt Relief Act was extended to provide relief to homeowners for a six year-period rather than the original two-year period.

With the last-minute passage by Congress of the American Taxpayer Relief Act of 2012, which President Obama is expected to sign this week, relief in the form of this federal tax exemption is extended through the end of 2013. Fortunately for Arizona homeowners, however, they are already protected by the state’s “non-recourse” law. In Arizona, mortgage loans generally are designated non-recourse loans, which means that homeowners cannot be sued for remaining mortgage debt that is owed after a foreclosure action. Under federal tax law, the forgiveness of non-recourse loans results in no tax liability to homeowners. Nonetheless, it is debatable whether Arizona law extends similar protections to homeowners who sell their homes in short sales, so the American Taxpayer Relief Act of 2012 will provide protection for those homeowners, at least through the end of 2013.

Mortgage foreclosures, short sales, and loan modifications are all events that may occur when a homeowner can no longer afford to pay his or her mortgage payments. Depending on the income of the homeowner, the desire of the homeowner to remain in the home, and other facts and circumstances surrounding the particular situation, bankruptcy also may be a legitimate and useful option for dealing with an impending foreclosure. Whether the goal is to simply delay or ultimately prevent the loss of one’s home to foreclosure, Chapter 13 bankruptcy proceedings may be a way to cure any past-due mortgage payments and remain in the home. Contact your Arizona and Las Vegas bankruptcy attorneys today for additional information about how a Chapter 13 bankruptcy might benefit you and your family.

How am I going to be able to afford an attorney?

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Stop paying debts that will be discharged in the bankruptcy.

 

Many people contemplating bankruptcy are currently paying debts that will be discharged in their bankruptcy. Typically all unsecured debts are discharged. Unsecured debts include things like: credit cards, pay-day loans, medical and dental bills. By no longer paying on these unsecured debts people are often able to pay off their attorney’s fees in a month or two. From the moment you decide to file for bankruptcy is no longer makes sense to continue paying on your credit cards. Because whether you’re current on a credit card or haven’t made a payment in a year it doesn’t matter. All of the principal, interest, late fees, penalties, over-limit fees, and whatever else fee the credit card company can think of is going to be erased. Whether you have $30,000 in credit card debt or $130,000 it doesn’t matter because it is all going to be eliminated in the bankruptcy. From the moment you decide that you want to file for bankruptcy consider no longer making payments because any money you give your credit card company or other unsecured creditor is just throwing good money after bad money.

 

Giving up your house? Can’t afford your underwater house and know that you want to surrender it in the bankruptcy? Then you may want to consider no longer paying the mortgage. You can stop paying on the house and live in it free until after it has been foreclosed.

 

Tax Refund: Are you among the millions of Americans that receive tax refunds each year? If so, you can put that tax refund to good use by paying attorney’s fees with it.

 

Gift from a family member or friend. Do you have a rich uncle who would be more than happy lending you a few bucks for a worthy cause?

 

401(k) Loan. Do you have a 401(k) with your employer? Then you should be able to borrow against it. Speak with someone in your HR department to find out the details.

 

Life Insurance Loan: If you have a “Whole” life insurance policy—a policy with a cash value—then you should be able to borrow against. Speak with your insurance agent to learn all the details.

 

More hours at work? Are you one of the lucky few who can pick up more hours at your job? Or what about picking up a second job? Is there a non-working spouse who could get a temporary job? Do you have working age kids who could get temporary jobs?

 

Roommate? Could you move in with someone else to cut down on living expenses? Not only will this cut down on rent but also cut down on other things like: electricity, gas, cable, internet, and insurance. Or what about getting a roommate? Do you have an extra room in your house that not currently being used?

 

Sell something? The client(s) will try to sell the some items of property to get money for the filing. Yard sale. Pawn shop.

 

Put off paying the mortgage or vehicle payment for a month (Chapter 13 filers only): If you know that you will be filing a Chapter 13 bankruptcy then maybe you want to consider making a mortgage or vehicle payment late. The arrearages will then be repaid through the Chapter 13 plan.

 

Cut out or cut on unnecessary monthly expenses: Take a close look at your monthly bills and see what can be reduced or eliminated. Can you live without cable TV, pest control, alarm system, or your home phone?

 

Title Loan: As a last resort, if you own your vehicle you could get a title loan. Make sure you understand how much the loan would really cost and that you can pay it back.

The cost of an attorney is often offset from the cost of errors made by someone who doesn’t use an attorney. Bankruptcy laws are very complex and the process can be very harsh on those who go it alone.

Will I Lose my Car if I file for Bankruptcy?

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Will you lose your car if you file for bankruptcy? Generally no, however, there are some exceptions that you should be aware of. Section 362 of the U.S. Bankruptcy Code provides an “Automatic Stay” to protect consumers from their creditor’s collection activities during bankruptcy. Unless a creditor files a Motion to Lift the Automatic Stay they cannot repossess a vehicle during the bankruptcy. A Motion to Lift the Automatic Stay is nothing more than a creditor asking the bankruptcy court for permission to pursue its collection activities. A creditor must have a legitimate legal reason for why the Automatic Stay should be lifted otherwise their request will be denied. But the most common reason for allowing a creditor to pursue its collection activities is if the debtor is behind on payments. So in order to keep your car safe from the bank during the bankruptcy you need to be on time and stay on time with your payments.
Additionally, vehicles are protected from creditors and the bankruptcy court by law. A.R.S. § 33-1125(8) provides that Arizonians who are single can have up to $5,000 of equity in their vehicle. Married couples have a $10,000 exemption. The $10,000 can be used entirely on one vehicle or can be split equally between two cars. Also, people who have a handicap license plate receive a $10,000 exemption. So for example, if you are single and own a vehicle that is worth $4,999, the bankruptcy court cannot touch it. However, if you are single and own a vehicle that is worth $7,000 then you are over the exemption amount by $2,000 and the court is going to ask for $2,000 in order for you to keep it.
Bankruptcy laws and how they pertain to vehicles can be confusing however, during a free consultation you can speak with one of our skilled attorneys and see how your vehicle can be protected in bankruptcy.

Families of Olympic Athletes Often near Financial Disaster

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Gabby Douglas may have won the team all-around gold medal at the 2012 Summer Olympics, but her mother is broke. Natalie Hawkins, Douglas’s mother, filed for Chapter 13 bankruptcy in 2012 in the state of Virginia. The bankruptcy filing will allow her to pay down her debts that total about $80,000. The single mother of four had almost no income at all for six months. Douglas is likely to make millions of dollars a year in endorsements, which may save the financially troubled family, but what caused the family to get so broke in the first place?

Investing in a future Olympian may not necessarily be smart money wise. It may cost over $1,000 a month for a professional gymnast to train properly. The most promising young athletes start training seriously when they are 12 or 13 which means at least six years of many hours at the gym. Travel costs and entry fees are not exactly free either. While the team might pay for the athlete’s training and travel, there are no free rides for family members who would like to tag along.

Likewise, the Olympic medalist Ryan Lochte’s parents are facing foreclosure. The Lochtes have been sued for not making mortgage payment since February 2011. They own almost $250,000 on the home, and what’s more, if the sale of their home does not satisfy the entire debt, the family has to pay the difference to the bank. As with Douglas, Lochte’s endorsement deals could not have come at a better time.

If you are faced with serious financial difficulties, filing for bankruptcy may be the best option for you. Contact a seasoned bankruptcy lawyer in Arizona at your earliest convenience.

 

Image courtesy of FreeDigitalPhotos.net

Do you have a great credit score? Can you keep it?

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How your credit score looks after bankruptcy depends in large part to what your credit score looked like before you filed for bankruptcy.

 

For most bankruptcy filers they don’t see their credit score drop much. Why? Because their credit score is already so low it has nowhere to go but up! Almost always, a person filing for bankruptcy has repayment problems such as late payments, missed payments, maxed-out credit cards, charged-off accounts, collection accounts, and judgments. Each of these problems has a devastating impact on credit scores.

 

Many see a slight boost in their credit score from filing bankruptcy. Why? Because they are no longer responsible for the debts discharged in the bankruptcy. High balances are removed as are any late payments or records of unpaid debts. Instead, accounts will read “included in Bankruptcy.” Therefore, you become a better credit risk after having filed bankruptcy because you no longer have unpaid obligations.

Your credit score alone shouldn’t be the deciding factor in whether you file for bankruptcy. Look at all options before making a decision. So, speak with one of our knowledgeable bankruptcy attorneys to see how bankruptcy will affect your credit score.