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How to Use Bankruptcy to Stop an Eviction

How filing for bankruptcy can help you avoid eviction

Do you rent your residence?  Is your landlord threatening to evict you?  If so, bankruptcy may help you avoid eviction.  In this article, I will discuss how bankruptcy affects eviction proceedings, how to determine if bankruptcy will be of benefit to you in stopping an eviction, and the requirements for stopping an eviction through bankruptcy.

How does bankruptcy stop an eviction?

In Arizona, a residential landlord cannot evict you without filing an eviction lawsuit in court, unless you voluntarily surrender the premises, or abandon the premises.  When you file for bankruptcy, the automatic stay immediately goes into effect.  The automatic stay prevents any action to collect on a debt that you owe, and also prevents most legal proceedings against you.  This means that once a bankruptcy is filed, a residential landlord cannot sue you for past-due rent.  It also means that once a bankruptcy is filed, the landlord cannot file an eviction lawsuit against you.  If an eviction lawsuit was filed before the bankruptcy, the automatic stay will halt the eviction lawsuit.  In short, as long as the eviction lawsuit is not yet completed when the bankruptcy is filed, the bankruptcy automatic stay will stop the eviction process.

Are there situations in which bankruptcy will not stop an eviction?

There are two situations in which bankruptcy will not stop an eviction.  The first is where the landlord obtained a judgment for possession of the property before the bankruptcy was filed.  A judgment for possession is a court order entitling the landlord to take possession of the property.  If the landlord gets this order before the bankruptcy is filed, then bankruptcy will not normally prevent the landlord from doing whatever is necessary to evict you.

The second situation is where the landlord claims you are endangering the property or illegally using drugs on the property.  In such cases, the landlord is also not prevented from evicting you after you file for bankruptcy.  However, in order to use this exception, the landlord must file a certification with the court swearing to the truth of such allegations.  Furthermore, if you disagree with the landlord’s allegations, you are able to dispute the landlord’s right to evict you under this exception.

For how long will bankruptcy stop an eviction?

The answer depends on what kind of bankruptcy you are filing.  If you are filing a Chapter 7 bankruptcy, then the automatic stay will terminate as soon as you get your discharge, which is usually about 4-5 months after the bankruptcy is filed.  In addition, the landlord can ask for permission to evict you sooner, and the court will normally grant that request.  So, in a Chapter 7 bankruptcy, you may delay the eviction by anywhere from a few weeks to a few months.  This may be sufficient if you just need time to find a new place to live.  However, if your goal is to stop an eviction for a longer term, then Chapter 7 may not be the right option.

If you file a Chapter 13 bankruptcy, you can stop the eviction for the remainder of your lease term, so long as you are able to provide adequate assurance that you will comply with the rental agreement, which includes paying any rent that you owe.  In Chapter 13, the landlord can also ask for permission to evict you, but that request is much less likely to be granted, especially if you pay your rent regularly after the bankruptcy is filed. (For more information on Chapter 13 bankruptcy, read our article on Common Questions About Chapter 13 Bankruptcy).

What happens to back rent after bankruptcy is filed?

If you are behind on your rent when the bankruptcy is filed, you will have to pay the back rent if you want to stay in the rental long term.  However, if you are getting only a temporary delay of the eviction, normally you will not have to pay the back rent.  In simple terms, this means that if you file a Chapter 7 bankruptcy, you will not have to pay back rent.  But if you file Chapter 13 bankruptcy, and request to stay in your apartment or house long term, you will need to pay the back rent in order to do so.  However, in most cases, you can catch up on the back rent over a period of several months or even years by paying it through your Chapter 13 bankruptcy plan.

Is the landlord required to renew my lease when I am in bankruptcy?

No, the landlord is not required to renew your lease.  So, if your lease expires six months after bankruptcy is filed, and the landlord chooses not to renew it, you would be required to leave the property, even if you are current on your payments at that point.  However, if the reason the landlord was trying to evict you is because you were behind on rent, and you catch up on the rent in bankruptcy before the lease expires, the landlord may be more willing to renew your lease.

Is bankruptcy the right solution to stop my eviction?

As you can probably tell by now, the answer to this question depends on several different factors.  To determine if bankruptcy will help you avoid an eviction and stay in your apartment or home long term, you should ask yourself the following:

  • Can you afford to pay the rent going forward?  If the answer is no, then bankruptcy will not help you avoid eviction, and you are better off finding a cheaper place to rent.  This is because you still have to pay your rent in bankruptcy.  If the answer is yes, then Chapter 13 bankruptcy could be the solution.
  • Has your lease already expired?  If your lease term has already expired, bankruptcy will not be of much help, because the landlord is not required to enter into a new lease agreement with you.
  • How long is left on the lease agreement?  If there are only a couple months left on the lease agreement, and you are not sure that the landlord will renew the lease, filing for bankruptcy to save the lease may not be worthwhile.  On the other hand, if there are many months or even years left on the lease, then bankruptcy would be of a much greater benefit.
  • Are there alternative living arrangements available?  If you can easily find another place to live, then incurring the cost of bankruptcy to avoid an eviction and save the lease may not be justified.  On the other hand, if you cannot easily find another place to live, either because of poor credit or because you require a home with unique features, then bankruptcy may be a good option.
  • Do you have other debt?  Although this issue is not dispositive, generally speaking, the more debt you have, the greater the benefit you can get from filing for bankruptcy.  So, if you have debt other than your rent, then bankruptcy will have a greater benefit, because you can resolve this other debt as well.

If staying in your home long term is not in your interest, but you need a few weeks to find a new place, and the landlord is not willing to give you that time, then Chapter 7 may be a solution, provided that you have debt justifying a bankruptcy.

How to stop an eviction through bankruptcy.

In order to stop an eviction through bankruptcy, the most important thing to remember is that the bankruptcy must be filed before the landlord obtains a judgment of possession against you.  Furthermore, if your intent is to stay in your home long term, it is best to file for bankruptcy before the landlord files the eviction lawsuit.  The reason is that, as discussed above, in order to retain your lease, you will have to comply with the lease terms.  Most leases require the tenant to pay the expenses of an eviction action that the landlord would win if no bankruptcy was filed.  Therefore, by filing for bankruptcy before the landlord files the eviction lawsuit, you save yourself from having to pay the landlord’s expenses in bringing the eviction lawsuit. 

In short, if you are facing an eviction, and are considering bankruptcy as a way to avoid the eviction, you should consult with a bankruptcy attorney as early as possible.

To learn more about bankruptcy, you may also be interested in these articles: 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Personal Bankruptcy Information | Leave a comment

Common Questions About Chapter 13 Bankruptcy

Arizona Chapter 13 bankruptcy questions

These are answers to some of the most frequent questions I hear from my Tucson and Mesa clients considering Chapter 13 bankruptcy.  For a general overview of the Chapter 13 process, see our Chapter 13 Overview page.

1. When should I choose a Chapter 13 bankruptcy?

As with any bankruptcy, you should choose Chapter 13 if it will help resolve your debt problems.  Chapter 13 is most beneficial in the following situations:

  • You are behind on your mortgage payments and need time to catch up.
  • You are behind on your car loan payments and need time to catch up.
  • You want to eliminate the second mortgage or HELOC on your home.
  • The loan balance on your car is significantly more than the car’s value—the loan balance can be reduced to the value of the car in Chapter 13 bankruptcy.
  • The interest rate on your car loan is too high—it can be reduced in Chapter 13.
  • The mortgage balance on your real estate (other than your home) is higher than the value of the real estate—the mortgage balance can be reduced in Chapter 13.  The new lower balance will need to be refinanced at the conclusion of the bankruptcy.
  • Your income is too high to qualify for Chapter 7 bankruptcy, and you have debt that you are not able to pay.
  • You filed for Chapter 7 bankruptcy within the last 8 years, but have debt that you are not able to pay.
  • You have debts that cannot be discharged in Chapter 7 but can be discharged in Chapter 13.

2. How is Chapter 13 bankruptcy different from Chapter 7 bankruptcy?

There are a few major differences.  The biggest difference is that in Chapter 13, you have a payment plan, and you have to pay all of your disposable income into the bankruptcy for three to five years.  The second difference is that in Chapter 13, you get to keep all your property, including non-exempt property that you could lose in Chapter 7 bankruptcy.  The third difference is that there are certain types of debts that are not dischargeable in Chapter 7, but dischargeable in Chapter 13.  The fourth difference is that Chapter 13 allows you to modify most secured debt, but Chapter 7 does not.  The fifth difference is that you can file for Chapter 13 if you make too much money to file for Chapter 7. 

3. How is Chapter 13 different from debt settlement or debt consolidation?

Debt settlement or debt consolidation are voluntary processes and require cooperation from the creditor.  For example, if you want to settle a credit card debt, the credit card company will have to agree to a settlement, and will also have to agree to the amount.  If the credit card company does not want to settle, or does not want to accept what you can offer, there is nothing you can do.  Also, with most settlements, if you are able to negotiate a reduction of the amount owed, you will have to pay the settlement amount in a lump sum, or over 2-4 months.

Chapter 13 bankruptcy is different because your creditors’ approval is not required.  As long as you comply with the requirements of the Bankruptcy Code, the creditors have to accept whatever they are being paid under plan.  In most cases, this results in significant savings to you when compared with a debt settlement.  In addition, Chapter 13 stretches the repayment period over at least 3 years.  This means that you don’t have to make any lump sum payments or try to pay off your debt in a short period of time.

4. Who is eligible to file for Chapter 13 bankruptcy?

To qualify for Chapter 13 bankruptcy, your debts cannot be more than $394,725 in unsecured debt and $1,184,200 in secured debt (these numbers are current as of 2019, and get adjusted periodically).  In addition, you cannot be a stockbroker or a commodity broker.  Only people can file for Chapter 13 bankruptcy, business entities cannot.  However, if you are married, you and your spouse can file together.  The debt limits are the same for married couples as they are for a single person.

To file for Chapter 13, you must have regular income.  Your income can be from any source, such as a regular job, self-employment, or operation of a business.  Your income can also be from social security or other governmental assistance.  The income does not have to be paid weekly, bi-weekly, or even monthly.  However, it has to be sufficiently stable and regular to allow you to make the payments under your Chapter 13 plan.

These are the only requirements specific to Chapter 13.  In addition, before you can file any type of bankruptcy, you must also complete a credit counseling course.  Also, if you had previously filed for bankruptcy and that case was dismissed, you may be ineligible to file another bankruptcy for 180 days from the date of dismissal.

5. Can people file Chapter 13 bankruptcy jointly?

If you are married, you and your spouse can file for bankruptcy jointly.  In all other cases, joint bankruptcy is not allowed.  So, if you and your partner live together and share all expenses, you cannot file for bankruptcy jointly, unless you are officially married.

6. Will Chapter 13 affect my credit score?

Any bankruptcy will have an impact on your credit rating.  How much of an impact it will have depends on what your credit rating was before bankruptcy.  If your credit score was already low, bankruptcy will likely not impact it very much, if at all.  Also, because bankruptcy will wipe out most or all of your debt, that debt will no longer be reported as outstanding on your credit report.  This should make it easier to rebuild your credit after bankruptcy (Read How to Restore Your Credit After Bankruptcy in Arizona).

7. I already filed for Chapter 7 bankruptcy.  Can I convert to Chapter 13?

Yes, you can convert a Chapter 7 bankruptcy to Chapter 13.

8. Can I file for Chapter 13 bankruptcy if I have a business?

You can file for Chapter 13 if you have a business.  If your business is operated as a corporation or a limited liability company (or some other legal entity), then your business cannot file for Chapter 13.  However, with most small businesses, the owners are personally liable for all of the business debt, so it is the owners that really need to file for bankruptcy.

9. What will happen to my business if I file Chapter 13?

You can continue operating your business while in Chapter 13 bankruptcy. 

In some cases, if you have business debt and both you and the company are liable for the debt, it may also make sense to shut down the company and start a new company.  This can avoid the need to file for bankruptcy for the company.  However, this type of business restructuring has to be done very carefully and in a way that does not violate fraudulent transfer laws.  Otherwise, the debts of the old company can be transferred to the new company.

10. Will I lose my property if I file Chapter 13?

No.  One of the benefits of Chapter 13 bankruptcy is that you get to keep all your property, even non-exempt property.  In return for being able to keep your property, you make monthly payments under your Chapter 13 plan.  Keep in mind that if there’s a mortgage or loan on your property, you will still have to make payments on the loan or mortgage, but the amount you have to pay may be reduced. (For an overview of how property is treated in bankruptcy, read What Happens To My Property When I File For Bankruptcy?).

11. Can I get rid of my mortgage in a Chapter 13 bankruptcy?

If you want to keep the house or property that secures the mortgage, then in most cases you cannot get rid of the mortgage.  There is one exception.  If you have a second mortgage or a home equity line of credit (HELOC), and the value of the property is less than the balance of the first mortgage, then you can “strip” the second mortgage or HELOC.  Basically, this means that you make it unsecured, like a credit card.  Depending on your income and expenses, you may have to pay a portion of the second mortgage/HELOC through your Chapter 13 plan.  However, in many cases, you can end up paying very little on the second mortgage/HELOC, and the majority of the balance will be eliminated.  Keep in mind that in order to get rid of a second mortgage this way, you will have to complete the Chapter 13 bankruptcy and get a discharge.

12. Can I modify my mortgage in a Chapter 13?

There are three ways to modify a mortgage in Chapter 13 bankruptcy.  (1) You can modify a mortgage on a property that is not your home.  (2) You can modify a second mortgage or HELOC on your home if the value of your home is less than the balance of the first mortgage—the second mortgage can be “stripped” and eliminated at the conclusion of the bankruptcy.  (3) You can modify a mortgage on your home through the Mortgage Modification Mediation Program that is available in Arizona.

13. What debts can I discharge only in Chapter 13?

A unique feature of Chapter 13 is that it allows you to discharge debts that cannot be discharged in other types of bankruptcy.  This is often called the Chapter 13 super-discharge.  The following are the most common debts that can be discharged only in Chapter 13:

  • Debts for willful and malicious injury to property.
  • Fines and penalties payable to the government (for example, traffic tickets).  Fines imposed as part of a criminal conviction are not discharged.
  • Debt incurred to pay taxes.
  • Debt incurred through a property settlement agreement in a divorce.  Child support and alimony cannot be discharged.
  • Debts from a prior Chapter 7 bankruptcy where you were denied discharge.
  • Homeowner association or condominium fees that became due after you filed for bankruptcy.  Keep in mind that if you want to keep the condo/house, you will normally want to continue paying the HOA fees.
  • Retirement account loans.

14. When will my Chapter 13 payments start?

Your first payment will be due within 30 days after the bankruptcy is filed.  However, your payments do not have to be the same every month, so we can make them lower for the first few months to give you time to adjust your financial affairs.

15. Will I have to go to court?

Most Chapter 13 debtors will only need to attend one meeting with the Chapter 13 trustee.  This meeting usually takes place in a courthouse, usually in a conference room, but there is no judge at the meeting.  In almost all cases, the debtor will never need to go to a court hearing or see the judge.

16. What if the court does not approve my Chapter 13 plan?

If the court does not approve your plan, your plan can be amended to correct any issues that caused the court to not approve it.  However, normally, the court will approve the plan if the Chapter 13 trustee approves it.  An experienced Chapter 13 lawyer will know how to work with the Chapter 13 trustee to obtain the trustee’s approval of the plan.

17. What if I am unable to make my Chapter 13 plan payments?

If you are unable to make your Chapter 13 payments, there are a couple options.  Your Chapter 13 plan can be amended to modify your payment schedule.  The payments can be lowered temporarily or paused altogether.  To compensate for that, later payments will be increased.  Alternatively if your plan is shorter than five years, the length of the plan can be increased to minimize the increase in monthly payments.

If you are unable to make payment due to a decrease in income, your case can be converted to Chapter 7.

18. Can I change my mind and dismiss a Chapter 13 case?

Yes, you can dismiss your Chapter 13 bankruptcy case at any time.

19. Why do I need a bankruptcy attorney to file Chapter 13?

Chapter 13 bankruptcy is very complex, and successfully navigating it without a lawyer is almost impossible.  A Chapter 13 attorney will ensure that you comply with all legal requirements, and do not have your case dismissed on a technicality.  In addition, a good Chapter 13 attorney will do the following: properly prepare all the required bankruptcy documents, prepare your bankruptcy plan, object to improper claims, resolve objections filed by creditors, and work with the Chapter 13 trustee to obtain approval of your plan without the need for you to go to court.  By having a good Chapter 13 lawyer, you can maximize your chances that your bankruptcy will go smoothly, and that you will not pay more than what is required.

You may also be interested in these articles: 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Personal Bankruptcy Information | Leave a comment

7 Mistakes to Avoid When Filing for Bankruptcy in Arizona

7 Mistakes When Filing For Bankruptcy In Arizona

Bankruptcy can be very effective in eliminating debt and getting your life back on track.  But for those trying to file for bankruptcy without a lawyer, mistakes can be costly (Read Should I Hire a Bankruptcy Attorney?).  Unfortunately, once the bankruptcy is filed, mistakes become very difficult to fix.  Here are the most common mistakes I’ve seen made by people filing for bankruptcy without a lawyer, and how to avoid them.

1. Money in your bank account

Having too much money when you file for bankruptcy can be very costly.  When you file for bankruptcy, you can exempt (protect) a small amount of money in your bank account.  In Arizona, you can protect up to $300 in one bank account.  If you are married, then you and your spouse can each protect up to $300 in one bank account.  Any money in your bank accounts in excess of that amount is not protected, and the bankruptcy trustee can and will take it. 

So, if your paycheck was deposited into your bank account the day before you filed for bankruptcy, the bankruptcy trustee will take most of that money.  You may think, well, I’ll just withdraw the money from my account.  But that is even worse.  Money you are holding in cash is not protected at all, so the trustee will get all of it.  You will be required to provide your bank statements to the bankruptcy trustee, so she will know if you withdrew any money from your bank account.  Money you are holding in the form of a check is also not protected.  So, if you receive a paycheck in paper form and don’t cash it before the bankruptcy is filed, the trustee will still take all of that money.  On top of this, if the trustee believes you were trying to conceal assets, she may request that your discharge be denied.  In worst cases, concealing assets can also result in criminal charges.

2. Payments to friends or relatives

If you owe money to friends or relatives, it is natural to want to pay off the debt before filing bankruptcy.  But doing this is a huge mistake.  Any payments you make to friends or relatives within 1 year before bankruptcy will be undone by the trustee.  Basically, the trustee will be able to get the amount you paid from the person that you paid.  So, the friend or relative you paid will end up with nothing.  Obviously, that could make your next meeting a bit awkward.

The same rule applies if you don’t owe anything to your friend or relative, but just give them money to help them out.  The trustee can get that money back, unless you have a legal obligation to support the friend or relative.

In some situations, the trustee will be able to go back 2 years from the date of the bankruptcy and get back the money you paid your friends or relatives.

There are some exceptions, and some payments will not be undone.  If you pay a friend/relative a small amount, say give them $100 as a birthday gift, the bankruptcy trustee is unlikely to undo the payment.  Also, if you get something of equal value in exchange for your payment, then the payment will not be undone.  For example, if you reside with your relative and pay him rent for the current month, that payment cannot be undone.  But, if you haven’t paid rent to your relative for the last year, and decide to pay the backrent before filing bankruptcy, that payment will be undone. 

If you did make a prohibited payment before filing bankruptcy, the bankruptcy trustee may give you an option to pay the money directly.  Your friend gets to keep the money, but you have to pay the trustee what you paid the friend.  This may help avoid an awkward situation the next time you see your friend.  But, you end up paying twice.  So, it is really not a good option. 

In short, avoid making payments to friends or relatives before filing for bankruptcy.

3. Property transfers to friends or family

This is an extension of mistake No. 2.  If you give anything to friends or relatives within 1 year (or sometimes 2 years) before filing bankruptcy, that transfer will be undone.  So, for example, if you transfer your car to your child, or buy your child a car, the bankruptcy trustee will be able to get that car, sell it, and pay the money to your creditors.

You can sell property to friends or relatives before bankruptcy.  But, the sale has to be for market value, and there must be proof that you actually received payment.  So, if you have a car worth $5,000, and sell it to your friend for $4,900, you have nothing to worry about.  But if you sell the same car for $2,000, then you did not get market value, and the bankruptcy trustee can get the car from your friend.  The trustee would have to pay your friend the $2,000 though.

4. Tax refunds

Tax refunds for the year in which the bankruptcy is filed, and for all prior years, can be taken by the bankruptcy trustee.  So, if you file for bankruptcy in 2019, and then get a tax refund for 2018 or any prior year, the bankruptcy trustee will take the entire refund.  If you file your tax returns on time, then you will only have to worry about one prior year—for example, in 2019, you have to worry only about the 2018 tax refund.  To avoid losing this tax refund, you will have to get it and spend it on appropriate expenses before you file for bankruptcy.

You can also lose a part of your refund for the year in which you file for bankruptcy.  So, if you file for bankruptcy in 2019, in 2020 the bankruptcy trustee can take part of your 2019 tax refund.  How much the trustee will take depends on when during the year you filed for bankruptcy, and how much of your total income for the year you earned prior to that date.  So, if you work the entire 2019 at about the same income, and file for bankruptcy in July of 2019, you’ll lose about half of your 2019 tax refund.  If you file for bankruptcy in September 2019, you’ll lose about three quarters (3/4) of your 2019 tax refund.  If you get a tax refund every year, losing a part of your refund for just one year may be unavoidable.  But, properly timing the bankruptcy may help you minimize how much you will lose.

5. Real estate that is not your home

Any real estate that you own, but in which you do not reside, is not exempt (not protected) in bankruptcy.  This would include rentals, summer homes, or parcels of land.  You have to determine if you have equity—if the value of the real estate is more than the mortgages on it.  If the answer is yes, the bankruptcy trustee can take the real estate, sell it, and pay the money to your creditors.  If you do not have equity, i.e. the mortgages are about the same or more than the value of the property, then you should not lose the property in bankruptcy.

6. Personal injury claims

If you are injured before the bankruptcy is filed, the bankruptcy trustee will get all money you may receive for your injury.  The exception is any money you get before you file for bankruptcy.  This comes up most often with car accidents.  Often, the injured person will need medical care, and may not be able to work.  The injured person will file a claim against the other driver’s insurance company, and may file a claim with his own insurance company.  But, it can take many months or even years to get payment from the insurance company.  In the meantime, the medical bills are mounting, and there may be other bills as well.  The injured person may need to file bankruptcy to deal with the bills.  But if the insurance company has not yet paid when the bankruptcy is filed, the injured person will never get any of the money.  Instead, the bankruptcy trustee will get whatever the insurance company pays, and will use the money to pay creditors.

If there is even a small possibility that you have a personal injury claim, you need to evaluate it very carefully before filing for bankruptcy.

7. Inheritance received after bankruptcy

If you become entitled to an inheritance within 180 days after the bankruptcy is filed, the bankruptcy trustee will get your entire inheritance, or as much of it as needed to pay off your creditors.  Two things are important to note.  First, it doesn’t matter if you knew about the inheritance—even if you did not know about it, you would still lose it.  Second, it doesn’t matter when you actually get the money, as long as you become entitled to get it within 180 days of the date the bankruptcy is filed.  So, if the person who leaves you an inheritance dies 100 days after you file for bankruptcy, then you will lose the inheritance, even if the money is not distributed until years later. 

So, before filing for bankruptcy, it’s important to know if you may be entitled to an inheritance.

Bonus issue: Wages earned but not received before bankruptcy is filed

               This is not so much a mistake, as something that can happen, and so you should be aware of it.  In Arizona, 25% of the wages you get are not exempt (not protected).  This means that if you work before bankruptcy is filed, but do not get paid for that work until after you file for bankruptcy, you can lose 25% of the wages for this work.  Most people get paid on a 1- or 2-week delay.  So, no matter when you file for bankruptcy, there will always be some wages you get after bankruptcy for work done before bankruptcy.  Most of the time the bankruptcy trustees in Arizona will ignore these non-exempt wages.  However, every now and then, they will ask for the non-exempt portion of these wages, especially if the amount is more than a couple hundred dollars.

Can these bankruptcy mistakes be corrected?

The short answer is yes.  How you can correct them depends on whether you caught them before or after filing for bankruptcy.  If you caught them before filing for bankruptcy, then you can simply make the necessary adjustments.  For example, if you have too much money in your bank account, you should wait to file for bankruptcy until after that money is spent.

But what if the mistake cannot be corrected?  For example, say you have a rental property that you want to keep.  Or you realize that you will get an inheritance after you file for bankruptcy.  In such cases, Chapter 13 bankruptcy may be a solution.  In Chapter 13 bankruptcy, the trustee will not take any of your property, and you can make payments on some of your debt.  For more, see Common Question About Chapter 13 Bankruptcy. Chapter 13 bankruptcy can get complicated, so it’s best to talk to a bankruptcy lawyer about it.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Personal Bankruptcy Information | Leave a comment

Will Arizona Bankruptcy Affect My Security Clearance?

Effect of Arizona Bankruptcy on Security Clearance

A common question I receive from military clients, and clients working in security-sensitive areas, is whether filing for bankruptcy will affect their security clearance. The short answer is that bankruptcy does not automatically disqualify someone from having a security clearance. In fact, in many cases I’ve handled, my client was required to file for bankruptcy in order to retain the security clearance. The reason for this is that bankruptcy wipes out almost all debt. This removes the concern that the person, having too much debt, may engage in illegal activities in order to generate funds to pay the debt. There are, however, multiple factors that affect a security clearance. Below I discuss these factors, and specifically how the “financial considerations” factor impacts and is impacted by the filing of a bankruptcy.

Factors that Determine Security Clearance Decisions

All federal agencies follow established guidelines to determine whether someone qualifies for a security clearance. The primary guidelines are called Adjudicative Guidelines for Determining Eligibility for Access to Classified Information (32 CFR Part 147), and set out thirteen factors to be considered. These are:

(1) Allegiance to the United States
(2) Foreign Influence
(3) Foreign Preference
(4) Sexual Behavior
(5) Personal Conduct
(6) Financial Considerations
(7) Alcohol Consumption
(8) Drug Involvement
(9) Psychological Conditions
(10) Criminal Conduct
(11) Handling Protected Information
(12) Outside Activities
(13) Use of Information Technology Systems

The evaluation process requires the careful weighing of all these factors. In other words, no one factor is necessarily decisive. A single factor could be decisive if the negative conduct is serious enough.  But, on the other hand, multiple small infractions could also cause denial of security clearance. Where unfavorable conduct is found, the agency making the decision must determine its relevance based on: (a) the nature, extent, and seriousness of the conduct; (b) the circumstances surrounding the conduct, to include knowledgeable participation; (c) the frequency and recency of the conduct; (d) the individual’s age and maturity at the time of the conduct; (e) the extent to which participation is voluntary; (f) the presence or absence of rehabilitation and other permanent behavioral changes; (g) the motivation for the conduct; (h) the potential for pressure, coercion, exploitation, or duress; and (i) the likelihood of continuation or recurrence.

When it comes to bankruptcy, the primary factor that will be affected is Financial Considerations. We will look at that next.

The “Financial Considerations” Factor in Security Clearance Decisions

The purpose of the Financial Considerations factor in evaluating a security clearance is to weed out individuals who lack the self-control and judgment to be trusted with classified information. The intent is also to avoid the risk of someone who is financially overextended engaging in illegal acts to generate funds. Potentially disqualifying conditions include: inability or unwillingness to satisfy debt, indebtedness caused by frivolous or irresponsible spending, history of not meeting financial obligations, deceptive or illegal practices like theft or embezzlement, failure to file required tax returns, and financial problems linked to addiction.

However, it is important to note that there are a number of mitigating conditions that are considered, including: whether the events happened long ago or were infrequent, whether the financial problems were largely outside the person’s control (such as loss of employment, medical problems, divorce, etc.), whether the person initiated good faith efforts to repay creditors or otherwise resolve the debt, and whether the debt can be reasonably disputed.

How Bankruptcy Applies to Security Clearance Decisions

Bankruptcy is a legal process authorized by the United States Constitution and federal law. Because of this, it is considered a good faith effort to deal with debt and to resolve financial problems. In other words, in and of itself, bankruptcy is a mitigating condition under the Financial Considerations factor.

How Will Bankruptcy Affect My Security Clearance?

Bankruptcy is just one factor in determining eligibility for security clearance. By itself, bankruptcy will neither disqualify you from getting a security clearance, nor make you eligible for it. What is more important is how the financial problems came about, whether they are recurring, and how they have been handled. For example, if the debt causing the bankruptcy resulted from medical bills or a divorce, it is much less likely to disqualify you from getting a security clearance. On the other hand, if the debt was caused by gambling or careless spending, then that fact itself may disqualify you from getting a security clearance, whether or not you file for bankruptcy. Similarly, repeat bankruptcies (that are not a result of unforeseen events like health problems, divorce, or loss of employment) can be disqualifying, because filing for bankruptcy repeatedly can indicate inability to manage your finances.

What Should I Do If I Have Debt and Need to Apply for a Security Clearance?

The most important thing is to be honest and fully disclose your debt. Remember, Financial Considerations is only one factor in determining your eligibility for a security clearance. Another factor is Personal Conduct, and under this factor, deliberate omission or concealment of relevant facts is likely to disqualify you from getting a security clearance. In other words, you could be disqualified from getting a security clearance by failing to disclose your debt, even if having the debt would not itself disqualify you. Therefore, when filling out any personnel security questionnaire (such as the SF86 form), make sure to truthfully and accurately disclose your financial condition.

In addition, if you intend to file for bankruptcy, make sure to let your facility security officer know before you file, so as not to make it appear like you are hiding anything. In fact, if you have concerns that your debt will affect your security clearance, it is a good idea to communicate about this with your security officer. The security officer may actually end up telling you that you need to file for bankruptcy to resolve your debt.  See our Bankruptcy Overview to learn about the different bankruptcy options

To learn more about properly timing your bankruptcy, read When Should You File for Bankruptcy?

To learn about common bankruptcy mistakes, read 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona.

For a discussion of debts that are not discharged, read Debts not discharged in Chapter 7 Bankruptcy.

To learn about managing your debt without bankruptcy, read 4 Steps to Avoiding Bankruptcy in Arizona.

Will bankruptcy affect my security clearance in Arizona?

Bankruptcy does not automatically disqualify someone from having a security clearance. For those with significant debt, bankruptcy may actually be a way to retain the security clearance. The reason for this is that bankruptcy wipes out almost all debt. This removes the concern that the person, having too much debt, may engage in illegal activities in order to generate funds to pay the debt.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Personal Bankruptcy Information | Leave a comment

Form 1099-C and Debt Forgiveness in Arizona

How to avoid tax liability on Arizona debt forgiveness.

One of the ways to deal with excessive debt is to negotiate a debt forgiveness or debt reduction agreement.  However, most people are surprised to learn that the IRS can impose a tax on the amount forgiven or reduced.  This article discusses the tax consequences of debt forgiveness and the options to deal with it.

What is Form 1099-C?

Form 1099-C is an IRS form that is used to report “cancellation of debt,” or debt forgiveness.  It is filled out by the lender or creditor and submitted to the IRS.  It identifies the individual who received the debt forgiveness and reports of amount of the forgiven debt.  A copy should be provided to the person identified on the form.

In what situations will Form 1099-C be issued?

Form 1099-C can be issued when a debt you owe is reduced or forgiven.  This includes credit card debt, personal loans, and other types of unsecured debt.  In addition, if you own property subject to a debt, cancellation of the debt may happen because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification. 

It is important to understand that cancellation of debt may occur not only when you sign an agreement, but also if you owe money and the creditor simply can’t collect, or gives up on collecting.  This type of debt forgiveness is more difficult to plan for, because you do not know when the creditor will decide to give up collecting a debt you owe and issue a 1099-C.

There are some limitations on when a 1099-C must be issued.  First, the amount forgiven must be $600 or more.  Second, issuance of a 1099-C is only required from financial institutions, credit unions, government agencies, and organizations whose significant business is the lending of money.  Other types of creditors are permitted, but not required, to issue a 1099-C.  There are also some costs to the creditor in issuing these forms.  Therefore, it should not be common for 1099-C forms to be issued for small amounts or by creditors that are not banks, credit unions, professional lenders, or a government agency.

What is the significance of receiving Form 1099-C?

The amount reported on Form 1099-C is treated as income by the IRS, and you will have to pay taxes on this income, unless one of the exceptions (discussed below) applies.

Why do I get taxed on money I can’t pay?

Having to pay taxes on money you couldn’t afford to pay in the first place seems unfair, and in a way it is.  The IRS, however, considers cancelled debt to be income, because you received a payment that you do not have to return.  In other words, if you borrowed $1,000 on a credit card, and the credit card company forgave that debt and you do not have to pay it back, it is the same as the credit card company paying you $1,000.  Because this is additional income to you, the IRS considers it taxable.  However, there are ways to protect yourself from this tax liability.

How can I avoid paying taxes on forgiven debt?

There are several ways to avoid being taxed on forgiven debt.  Some of them have to do with the type of debt at issue, and others look at the circumstances of the debt forgiveness.  The main ones are listed below.

Insolvency.  If you were insolvent immediately before the debt was forgiven, the debt forgiveness will not be considered income.  “Insolvent” means that the total amount of your debts was greater than the total value of your assets.

Bankruptcy.  Any debt forgiven in bankruptcy does not constitute income and will not be taxed.  This is one of the major benefits offered by bankruptcy protection.  However, it is important to note that if a debt is forgiven or cancelled before bankruptcy, then filing for bankruptcy later may not eliminate the tax liability, because tax debts are generally much more difficult to eliminate in bankruptcy.  Determining the point at which a debt is forgiven or cancelled can get very complex and will often depend on the specific facts of the situation.  Because of this, if there is a concern that debt forgiveness will give rise to tax liability, it is best to determine early on if bankruptcy should be filed, and to file for bankruptcy well in advance of any debt forgiveness outside of bankruptcy.  

Mortgage Forgiveness Debt Relief Act.  This law provided for excluded from your taxable income up to $2 million in forgiven mortgage debt that you took out to buy or improve your main home.  Unfortunately, this law expired at the end of 2016.  However, if you signed a loan modification or debt forgiveness agreement in 2016, you can still get the benefit of this law even if the debt forgiveness happens later.

Other exceptions.  There are several other exceptions or exclusions that are not as generally applicable.  These include: student loan forgiveness through government programs that encourage work in certain professions; qualified farm indebtedness; and qualified real property business indebtedness.  If you have cancelled debt that may fall into any of these categories, it is best to consult with an attorney or an accountant to determine if you will have to pay taxes.

If you are in Tucson or Mesa and have questions about your specific debt situation, you you can contact Arizona debt forgiveness attorneys at Yusufov Law Firm to discuss the best way to avoid tax liability on debt forgiveness.

How to avoid being taxed on debt forgiveness?

There are several options to avoid taxes on settled or forgiven debt: show that you are insolvent, file for bankruptcy before the settlement, or qualify for another exception. Before entering into a debt settlement, it is best to consult an attorney.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Personal Bankruptcy Information, Finances and Debt | Leave a comment

New Mortgage Modification Program Coming to Arizona

For those struggling to make their mortgage payments, and having even more difficulty getting their mortgage company to respond to their mortgage modification requests, a new mortgage modification mediation program administered through the bankruptcy courts can offer a solution. The new program provides a streamlined and transparent process, under the supervision of the bankruptcy court, for negotiating and getting approval for a mortgage modification. This program, which has operated in other states for several years, resolves many of the problems that homeowners have faced under the current process for mortgage modifications.

The Current Mortgage Modification Process

The current process is very complicated, time-consuming, and far from transparent. For one, there are numerous mortgage modification programs. These include HAMP, HARP, standard loan modification, streamlined loan modification, and other government-sponsored programs. In addition, private lenders have their own loan modification programs, the requirements of which vary widely.

For most borrowers, the first difficulty arises in timely completing all forms required for applying for a mortgage modification, and providing the company managing the mortgage (called the “servicer”) with all the required supporting documents. There are federal regulations in place to ensure that homeowners are given an opportunity to supplement an improperly completed application (for example 12 C.F.R. 1024.21). Still, it is not uncommon for homeowners to fail to complete their applications. It is also unfortunately not uncommon for mortgage servicers to “lose” documents, or to claim that they were never received. In addition, if a complete application for modification is not submitted on time (usually at least 37 days before the scheduled foreclosure), then the mortgage company does not have to stop the foreclosure.

Many mortgage modification programs require a trial period plan, usually 3 to 6 months long, during which the homeowner must make so-called trial payments to establish that he or she can make payments on a regular basis. If the homeowner makes all trial payments as scheduled, he or she receives a permanent modification. In numerous cases the mortgage servicers have claimed to have not received payments, or to have not received them timely, resulting in the denial of the permanent modification and foreclosure of the home. In some cases, the homeowner does not find out about this until after the foreclosure takes place.

The mortgage modification programs that have been put in place since the real estate crisis began have been beneficial, and have helped many homeowners keep their homes. However, many other homeowners have lost their homes even when they were eligible for a modification, primarily because of mistakes and carelessness of mortgage servicers in managing the modification programs.

How the Mortgage Modification Mediation Program Will Work in Arizona

The new mortgage modification program is expected to go into effect in Arizona in January 2017. The program is handled through a Chapter 13 bankruptcy. You can read more about Chapter 13 bankruptcy here, but, in general this type of bankruptcy is designed to allow individuals to adjust and restructure their debt, including mortgages and car loans. Unfortunately, many years ago mortgage companies got Congress to pass a law that prevented homeowners from modifying the primary mortgage on their residence (and sometimes the secondary mortgage as well). This probably exacerbated the housing crisis, and is the reason why a mortgage modification requires the mortgage company’s agreement.

The process of using the Mortgage Modification Mediation program begins with the homeowner filing for Chapter 13 bankruptcy (see also Common Questions About Chapter 13 Bankruptcy). The homeowner will immediately begin making payments toward the mortgage that do not exceed 31% of the homeowner’s gross monthly income. These payments will be held by the Chapter 13 trustee, and will be applied to the mortgage (if a modification agreement is reached), or to homeowner’s other debt (if a modification agreement is not reached and the homeowner wants to apply this money to other debt), or refunded to the homeowner (if the homeowner decides to get out of the bankruptcy).

Mortgage Modification Program in Arizona

The homeowner will then use an online portal (called Documods), to submit all the information that will be needed for the mortgage modification. After that’s done, the homeowner will ask the bankruptcy judge to refer them to the Mortgage Modification Mediation program. All of this will be done within 90 days after the bankruptcy is filed. The mortgage company (lender) will then have 14 days to request to be excused from the modification program—if the lender does not do this, or if the judge denies the request, then the judge will order the mediation.

In the next step, the homeowner and the mortgage company will together choose a mediator, and will meet with the mediator in order to work out the terms of the mortgage modification. If an agreement is reached, then the bankruptcy judge will sign an order approving the agreement. All the mortgage payments are then handled through the Chapter 13 bankruptcy for as long as the bankruptcy is ongoing (3 to 5 years).

The modification process is intended to be very expeditious, and can take as little as 30 days from the initial request to be referred to the Mortgage Modification Mediation Program until a modification agreement is reached. It can take longer if information is not submitted timely or if both sides agree that they need more time, but there are clear-cut deadlines in place.

If a modification agreement cannot be reached for any reason, then the homeowner can get out of the bankruptcy, or can stay in bankruptcy if it offers any other benefits in the homeowner’s circumstances. These could include removing (or stripping) a second mortgage, having extra time to catch up on the original mortgage payments, or modifying other debts like car loans.

If the homeowner has a lawyer, then most of the work relating to the mortgage modification process will be done by the lawyer.

Benefits of the Mortgage Modification Mediation Program

The mortgage modification program offers several benefits over the conventional mortgage modification process.

  • There is no need for the homeowner to fill out paper forms. Everything is done online, and can be edited or supplemented as needed.

  • Both the homeowner and the mortgage company always have access to all the documents submitted.

  • The homeowner can check the status of the case and the loan modification at any time.

  • All communications between the homeowner and the mortgage company through the portal are tracked, which prevents disputes about what was said by whom or what information was or was not provided.

  • A trained mediator assists the homeowner and the mortgage company in reaching an agreement.

  • All payments are made through the Chapter 13 bankruptcy trustee, so the mortgage company cannot “lose” your payment, as often happens during the trial period in conventional modification programs.

  • The homeowner can take advantage of other benefits of Chapter 13 bankruptcy, like elimination of second mortgages and home equity lines of credit, and elimination of credit card debt and other unsecured debt.

  • This can all be done with the help of an attorney, who can do most of the work for the homeowner, and will represent the homeowner during the mediation. The attorney fees can be rolled into the monthly bankruptcy payments, often resulting in no additional cost to the homeowner on top of what would already have to be paid for the Chapter 13 bankruptcy.

Costs of Mortgage Modification Mediation Program

The mortgage modification program does involve some costs. These include $300 for the mediator’s time (the mortgage company pays the same amount), and the costs of the online portal used to prepare and submit the modification documents, which is estimated to be under $100. In addition, if the homeowner uses an attorney, there will be the attorney’s fees, which can often be included into the regular Chapter 13 bankruptcy payments. Lastly, there will be the regular costs and fees associated with a Chapter 13 bankruptcy.

Possible Drawbacks of Mortgage Modification Mediation

The primary drawback of the Mortgage Modification Mediation program is that it is completely voluntary. That is, both the homeowner and the mortgage company have to agree to participate in it. In addition, the mortgage company is not required to grant a modification, unless modification is required under one of the government-sponsored programs that are then in effect.

On the other hand, once a homeowner requests the mortgage modification mediation, the mortgage company will have to request to be excluded from it within 14 days, and if it does not make the request, then will be required to participate. And if a mortgage company participates, it is usually doing so because it is interested in reaching a modification agreement. This is likely one of the reasons why the approval rate for modifications under the Mortgage Modification Mediation program in other states has been in the range of 60%, compared to 4% for modifications attempted through state courts.

It is also worth noting that if the mortgage company declines to participate in the program, or if the modification is unsuccessful, then the homeowner can get out of the Chapter 13 bankruptcy. Or, the homeowner has the choice of staying in Chapter 13 in order to take advantage of its other benefits, like eliminating a second mortgage or eliminating credit cards and other unsecured debt.

What if I am facing a foreclosure and cannot wait until 2017?

The good news is that those already in a Chapter 13 bankruptcy when the new modification program goes into effect will be able to take advantage of it. What this means is that if you are facing an impending foreclosure, but cannot afford your current mortgage payments, you can file a Chapter 13 bankruptcy and stop the foreclosure. Then, when the mortgage modification program goes into effect, you can apply to participate in the program, and if the modification is successful, it should result in the elimination of all mortgage arrears, leaving you with only a reduced monthly mortgage payment to make.

Posted in Mortgages and Foreclosure Prevention in Arizona | Leave a comment

How to Restore Your Credit After Bankruptcy in Arizona

Restoring Credit After Bankruptcy in Tucson, AZ

It is a common misconception that bankruptcy will destroy a person’s credit for several year. Many of my Arizona bankruptcy clients think that restoring credit after bankruptcy is difficult or impossible.  In fact, while bankruptcy may reduce a person’s credit score (depending on how high it is before bankruptcy), the credit score can be improved shortly after bankruptcy.

When we talk about restoring credit after bankruptcy, we need to distinguish two very different approaches. The first approach involves reviewing your credit report to make sure that all reported items are accurate, and disputing any inaccuracies. The second approach involves re-establishing a positive credit history.

Dispute inaccuracies on your credit report

To start, you should pull your credit report. Each legal resident of the U.S. is entitled to a free copy once every twelve months under the Fair and Accurate Credit Transactions Act. You can get this free report at If there are any inaccuracies on the report, you can and should dispute those inaccuracies with the credit reporting agency. The law that gives you the right to do this, and establishes the procedure for disputes, is the Fair Credit Reporting Act (15 U.S.C. § 1681). Generally, your dispute should be in writing, and provide sufficient information to explain why the information you are disputing is inaccurate. Under 15 U.S.C. § 1681i, the credit reporting agency generally has 30 days to investigate the disputed information, and if the information is found to be inaccurate or cannot be verified, then it must be deleted from your credit report. This dispute procedure can be used by anyone, not just those who have filed for bankruptcy.

Re-establish positive credit history

There is only one way to re-establish a positive credit history, and that is to borrow money (i.e. use credit) and to timely make payments on the borrowed money. Of course, you have to borrow from someone who will report the transaction and your payments to the credit reporting agencies (so borrowing from your family members won’t help). The simplest way to do this is to obtain a credit card. While it may seem like it would be impossible to get a credit card after bankruptcy, the opposite is usually the case. In fact, many, if not most, debtors start receiving credit card offers almost immediately after their bankruptcy is over. These credit cards may come with a high interest rate, but remember, the purpose of using a credit card after bankruptcy is not to finance your purchases or living expenses, but simply to establish a credit history. So, you should use your credit card to pay for several small purchases over any given month (e.g. gas, groceries), and pay off the balance in full every month. Do not max out your credit card. In fact, keep your balance low relative to your overall credit limit. Do this consistently and without missing any payment deadlines.

What if you are one of the people who cannot qualify for a regular (unsecured) credit card? You still have options. You can apply for a secured credit card, which basically means that you must deposit cash in the bank in order to obtain the credit card. Another option would be to become an authorized user on a family member’s credit card. If you choose either one of these options, make sure that the bank reports the secured card or authorized user activity to the credit reporting agencies.

The bottom line on rebuilding credit after bankruptcy

Sometimes bankruptcy is unavoidable, or is the simplest and most cost-effective way to deal with mounting financial difficulties. Filing for bankruptcy, however, does not mean that your credit will be ruined for the next seven or ten years. Your credit score may not improve overnight.  But if you take the steps discussed above to correct your credit report and re-establish your credit history, you should see an improvement in your credit score much sooner than you expect.

How to restore your credit after bankruptcy.

  1. Dispute inaccuracies on your credit report.

    You can dispute inaccuracies on your credit report by submitting a dispute letter under the Fair Credit Reporting Act.

  2. Re-establish positive credit history.

    The easiest way to re-establish positive credit history is to use a credit card for everyday purchases like gas or groceries, and to pay off the balance in full at the end of the month.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Life After Bankruptcy | Leave a comment

Can Business Bankruptcy in Tucson Help You Stay in Business?

Business Bankruptcy in Tucson, AZ

A common misconception is that filing for bankruptcy means financial failure. This could not be further from the truth, especially when it comes to businesses. Most businesses that file for bankruptcy do so in order to be able to continue operating. Business bankruptcy is simply a tool that allows a business to restructure its operations and finances in order to become profitable. In fact, bankruptcy is often a more effective tool than non-bankruptcy alternatives, because the Bankruptcy Code provides mechanisms for restructuring debt, and obtaining new financing, that are not available outside of bankruptcy.

Naturally, not every business can be saved through bankruptcy or reorganization. A full analysis of a business’s financial situation and eligibility for bankruptcy reorganization can get very complicated. But, in simple terms, to determine whether bankruptcy is a good option, the business owner must answer two simple questions.

The first question is: does the business generate revenue or have a potential to generate revenue? In other words, does the business have value as a “going concern?” Why is this important? The goal of the reorganization process is to save the business and to allow it to continue operating. In order to do that, there must be something to save. If the business has no value as an existing operation, or a “going concern,” there may not be anything to save. Another way to look at this is to ask whether it would be of any financial benefit to try to save the existing business, as opposed to shutting down the existing business and starting a brand new business doing the exact same thing. If there is no financial benefit, then reorganization probably does not make sense.

Of course, a business may be currently struggling to generate revenue, but have a potential to generate revenue with changes in its operations, or with changes in external factors. For example, a business may have a large customer list that it can utilize to increase its revenue with better management. Or, in the case of a retail business, the drop in revenue may have been caused by external factors, such as road construction restricting access to the business’s storefront, which are temporary. In such cases, bankruptcy can provide the business the opportunity and breathing room to institute the necessary operational and management changes, or to weather the impact of the construction, as the case may be.

The second question to be asked is: is the business’s debt service, or its contractual obligations, preventing the business from being profitable? If the answer is yes, then bankruptcy could be the solution. Let’s delve into this a little more. Any business will have a number of different ongoing expenses. Some of these are tied to the size of the operation and are, for all practical purposes, unavoidable. These include utilities and employee wages. Wages, for example, can be managed by reducing the number of employees, or by reducing the rate of compensation. But any business will require a certain minimum number of workers without which it cannot function, and in order to obtain those workers the business will have to provide a certain minimum level of compensation that is generally determined by the market. This minimum expense cannot be avoided.

There are other expenses, however, that may be fixed, but are not unavoidable in the sense that they are not required for the successful operation of the business, and may in fact impede the business’s success. For example, in a common scenario, a newly-formed business may enter into a long-term contract with a vendor or a supplier on unfavorable terms. The business may be forced to accept these terms because it is new and lacks negotiating leverage. As time goes on, better options for the service or product become available, but because there is no easy way to get out of the unfavorable contract, the business is forced to continue using an inferior product or service, or to overpay for it, or both. Bankruptcy addresses this problem by allowing the business to reject unfavorable contracts and leases.

In another example, a business may purchase a significant asset like real estate or an expensive piece of equipment, and finance it through a loan. As time goes on and the business’s circumstances change, the original payment terms may become impractical. However, as is often the case, the lender may not be willing to renegotiate the payment terms. If the real estate or equipment is necessary for the business’s operation, the business is then facing not only the loss of the asset, but the termination of its operations. In such cases, bankruptcy can also provide the solution, because bankruptcy allows for modification of payment terms on secured debt, even without the lender’s consent.

These are just two examples, and there are a number of other situations commonly encountered by businesses for which bankruptcy can provide the most efficient solution. The best approach, of course, is to promptly consult a competent business bankruptcy lawyer as soon as the business begins experiencing financial difficulties. Even if bankruptcy ends up not being the right solution for the business’s difficulties, a good lawyer can suggest strategies on dealing with the financial problems.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Arizona Business Bankruptcy Information | Leave a comment

Do I Need a Bankruptcy Lawyer? – A Judge’s View

For those struggling with debt, hiring a bankruptcy lawyer can seem like yet another expense that they can’t afford.  In the video below, bankruptcy judge Case from the District of Arizona Bankruptcy Court discusses the bankruptcy process and the implications of filing without a lawyer.  This video should be watched by anyone considering bankruptcy, whether or not they ultimately decide to hire a lawyer.  For more information, you can also read: 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona.

Posted in Arizona Personal Bankruptcy Information | Leave a comment

How to Avoid Debt Collection Scams in Arizona

Avoiding Debt Collection Scams in Tucson, AZ

In recent months, I have been contacted by a number of people who have fallen victim to debt collection scams.  The essence of the scam is as follows: the victim gets contacted by a “debt collector,” who claims that the victim owes money, and must pay immediately.  The request for payment is usually accompanied by threats, including threats of criminal charges or arrest.  The scammers use different methods of communication, including phone, letters, and email.  Unfortunately, many people fall for these threats and pay up, only to find out later (e.g. after talking to a lawyer) that they were scammed.  What is even worse is that if the person really owes the debt, he or she will still owe that debt after paying the scammer.  In order to avoid being taken in by a scammer, keep the following things in mind when dealing with debt collectors.

How do the debt collection scammers choose their victims?

Debt collection scammers can choose their victims randomly, or without consideration of whether the person actually owes any debt.  However, in my experience, many victims of collection scams in fact have outstanding debt.  People with outstanding debt already feel under pressure, often feel bad about not being able to pay their debts, and are therefore easier to take advantage of.  Many people with a number of different debts may not remember the name of each of their creditors, especially if the debts are old or have been transferred, which again makes it easier for the scammers to perpetrate their scams.  However, keep in mind that some scammers will claim that they are collecting on behalf of a legitimate creditor to which the victim owes money, even though in fact they have no relationship with that creditor.

How can I tell if I am being scammed by a debt collector?

There are a few things to look out for when you are contacted by a debt collector.  Look especially for the following:

  • Are you familiar with the alleged debt? If you’ve never heard of the debt that the debt collector claims you owe, and you are generally familiar with your debts, then chances are you are being scammed.  At a minimum, you need to request supporting documentation for the alleged debt.

  • Are you being threatened with arrest, criminal charges, or the police being called? If the answer is yes, then you are almost certainly being scammed.  You cannot be arrested for not paying a debt, and there are no debtors’ prisons in the United States.  A debt collector cannot file criminal charges against you (only the government can file criminal charges), and simply not paying a debt is not a crime.  And police cannot be called on you for non-payment of debt.  More importantly, threats like those described in this paragraph likely constitute a violation of the Fair Debt Collection Practices Act and other laws, and give you a right to sue the debt collector for damages, which means it is unlikely that legitimate debt collectors will use such tactics.  This being said, you should keep in mind that if a court enters a judgment against you for a debt, that judgment can be collected by, among other things, seizing your property.  Therefore, you should never ignore any documents that come from a court.

  • Are you being contacted by email? While technology is always advancing and things may change in the future, I have so far never seen a legitimate debt collector trying to collect the debt by email.

  • Are there grammatical errors or awkward phrasing in the written collection notices (letters and emails)? If you receive a collection letter or email that contains numerous grammatical errors, awkward phrasing, improper usage of common words, or generally looks like it was not written by a native English speaker, chances are very good that you are being scammed.  Most scammers are not located in the US (because if they were they would likely be prosecuted for numerous criminal violations), and their collection notices usually make this very apparent.

  • Does the debt collector refuse or avoid answering your questions about the alleged debt? If you are being contacted by phone, you should always get as much information as possible about the alleged debt.  If the debt collector refuses to give you information, or tells you that they don’t have to give you any information, or avoids answering your questions, then it is likely that you are being scammed.  Legitimate debt collectors will provide information about the debt, and will provide it in writing as well.

What do I do if I think I am being scammed by a debt collector?

If you think you are being scammed, you need to get as much information as possible, so that you can either verify what you are being told, or determine that it in fact is a scam.  If you are contacted by phone, get, at a minimum, the caller’s name, company, company address, and phone number (the caller ID number is not always correct).  Also request written documentation of the debt.  However, be careful about giving out your address, as a legitimate debt collector should already have it.

If you are contacted by letter or email, request written verification of the debt.  If you are not familiar with the debt collector, also request written information on who was the original creditor, as well as written proof that the debt collector purchased or otherwise acquired the debt.

Don’t pay any alleged debt if you are not certain that you owe it, and if you are not sure that the debt collector who contacted you has authority to collect it.

Of course, the best way to determine whether a particular alleged debt should be paid is to consult a qualified attorney in your area.

The above is provided for general informational purposes only.  It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship.  If you need legal advice for your specific situation, you should contact a qualified attorney in your area.

Posted in Finances and Debt | Leave a comment

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Yusufov Law Firm PLLC
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Tucson, AZ 85711

Phone: (520) 745-4429

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Yusufov Law Firm PLLC
2266 South Dobson Road, Suite 200
Mesa, AZ 85202
Phone: (480) 788-0098

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To discuss your financial situation and learn more about your debt relief options, give us a call at (520) 745-4429 or (480) 788-0098 or contact us via our website to schedule a free consultation.

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