480-420-3165There isn’t a day that goes by where you hear about the current state of the economy. I meet people everyday that are considering or just “going through” foreclosure. I am putting on a seminar to help anybody considering foreclosure.
In Arizona, you have 20 days to file an Answer to the Complaint in the Court where the lawsuit was filed. Consult with an attorney who is knowledgeable in Consumer Rights Litigation and Bankruptcy as early as possible to give yourself time to plan ahead. Maricopa County Justice Court Flowchart.
So, don’t ignore a lawsuit.
You do not want to allow a creditor to obtain a judgment against you; however, the impact of a judgment can be minimized by filing bankruptcy. Consult with a knowledgeable attorney as early as possible even before you are served with a lawsuit.
The Federal Trade Commission insists on the importance of filing an answer to preserve your rights (FTC). If you fail to file an Answer which denies the allegations and raises legal defenses to the Complaint, the Court will grant the creditor a judgment which will include interest, costs and attorney fees. Even if you owe the creditor money, you may have a dispute over the amount owed or the amount of its claim for interest, costs or attorney fees. Filing a properly worded Answer will slow down the process and give you some additional time to prepare for filing bankruptcy or minimizing the exposure to your assets before the creditor obtains a judgment. Court Forms.
Pre-bankruptcy estate planning is the most valuable benefit from consulting with an attorney before filing bankruptcy. Once the creditor has a judgment the creditor will attempt to find your assets and execute the judgment. Perhaps the creditor already knows where you work and where you bank. Has your creditor called you at work to request payment before a lawsuit is filed? Have you used a check on your bank account to pay the creditor in the past? If so, then the creditor knows where to go to get your money. Move your bank account. If the creditor does not know this information, you may be ordered to appear at a “judgment debtor examination” which is a deposition conducted by the creditor’s attorney to ask you questions under oath about what you own and where you keep your assets, including bank accounts. After the judgment debtor examination, during which you must testify truthfully, you might think it wise to move your account or stop making deposits into the bank account. Use a check cashing service to cash your paycheck and use money orders to pay your bills.
A bank cannot turn over to the creditor a bank account which is exempt. If you receive funds which are exempt, such as Social Security or Worker’s Compensation Benefits, those funds must not be co-mingled with other non-exempt funds. Keep those funds in a totally separate account which the bank has labeled as your “Social Security Account” or “Worker’s Compensation Account” and the bank will not touch those funds in responding to the writ of garnishment. However, if these funds are co-mingled with non-exempt funds, the entire amount is non-exempt.
We are putting on a seminar next week about Chapter 7 Bankruptcy. Everyone really enjoys the Q & A portion. Here’s some things we will cover.
Click below to register:
Think of the refund as money you gave to your “uncle” to hold for you until after your bankruptcy was filed. Here is how it works:
When your employer pays you, the employer is required to withhold a portion of your earnings for payment of various taxes including the state and federal income tax. These withholdings are sent to the federal IRS and state Department of revenue but the money still belongs to you until the amount of your tax liability is determined from the tax return you filed. If the amount withheld by your employer exceeds the tax liability, you are owed a refund.
Income taxes for a given year are generally due by April 15 of the following year. If you filed your tax return early in the year during which you filed bankruptcy, you may have received your tax refund and spent the money before you filed bankruptcy. This is the best practice and that is why we routinely advise our clients to file their tax return and spend the tax refund before filing bankruptcy. If you are not going to receive a tax refund, there is no refund for the trustee to claim.
If you are owed a refund or if you have received the refund and not spent the money before you filed bankruptcy, the trustee will claim that money as a non-exempt asset which is part of the debtor’s estate to be administered by the trustee for the benefit of the creditors. So, even though you have already filed bankruptcy, if you receive a refund that was from tax withholdings on earnings prior to the date you filed bankruptcy, the refund is going to be claimed by the trustee.
The trustee, for the benefit of your creditors, is entitled to any of your money which the government (your “uncle”), or anyone else, was holding for you as of the date you filed bankruptcy. One exception is that you have an exemption for up to $150 per debtor for money in one bank account. You can also exempt money held for you in a qualified retirement account. The tax refund is not exempt.
If your tax liability for 2009 was determined prior to the date you filed bankruptcy, and you were not entitled to a refund, or if the refund check was already sent to you and spent by you prior to the date you filed bankruptcy, the trustee is not going to get anything because, as of the date you filed bankruptcy, the government was not holding any of your money.
As for the trustee’s claim to any tax refund owed to your from over-withholdings paid to the government during the same year you filed bankruptcy, that claim is limited to a pro-rata share of any refund attributable to the money withheld from your earnings prior to the date you filed bankruptcy. If you filed bankruptcy half way through the year, the trustee will claim ½ of the refund you receive the next year.
If you typically get a refund each year, you are over-withholding. You are depriving yourself of the use of some of the money you earn each pay period and sending that money off to the government to hold until it is time to calculate your tax liability. You may need the help of some tax advisers to calculate the amount you should withhold or you may just need to speak with someone in your employer’s HR department. The best practice is to end up with no surprises when tax time rolls around each year. Remember, in the context of bankruptcy planning, over-withholding can result in losing some of your money to the trustee for the benefit of your creditors.
Many trustees will not claim a small refund for the estate because the amount involved is too small to justify their time and expense. This is especially true if the tax refund is the only non-exempt asset to be administered. If you send your tax refund check to the trustee, the trustee will calculate the amount that can b be claimed by the estate and may decide to abandon that claim and return the check to you.
Every chapter 7 bankruptcy case and every chapter 13 bankruptcy case is assigned to a trustee who will administer the bankruptcy case. They are called panel trustees and are not employees of the Court of or the U.S. Government. However, they are independent contractors appointed by the U.S. Department of Justice and are paid a small sum (approximately $60) per case assigned plus they receive a percentage of the value of the assets administered. There are approximately 20 of them in Arizona.
Primarily the “trustee” protects the interest of the creditors. They are acting in such a way to maximize the amount of money that can be paid to the creditors from the assets being administered. They also has the duty of reviewing the bankruptcy papers (petition, schedules and statements) and the relevant supporting documents such as bank statements, tax returns, pay stubs, etc. searching for assets, income and expenses. The law requires that they examine the debtor under oath primarily to determine that the debtor is eligible to file bankruptcy and to insure that the debtor has knowledge of the information filed and that the debtor is on record as attesting to the accuracy of that information.
In a chapter 7 case, often referred to as a “liquidation” type of bankruptcy, the trustee is focusing on those assets which might be liquidated (sold at auction usually) and then distributed to the creditors. They may question whether the claim of an “exemption” for an asset is appropriate and will also be interested to know whether the debtor has failed to disclose assets or has undervalued assets at the expense of the creditors.
In a chapter 13 case, the debtor is not required to liquidate non-exempt assets. However, the trustee is interested in maximizing the available funds for payment to creditors from the future income of the debtor. That available amount (net disposable income) is collected on a monthly basis from the debtor and is distributed to the creditors in accordance with the plan prepared by your attorney and approved by the trustee, the creditors and ultimately by the Court. The chapter 13 trustee is paid a percentage, not to exceed 10%, of the amount they collect and distribute. At this time (July 2010) there are two chapter 13 trustees in Phoenix which share those cases filed in Maricopa County and those areas to the North of Phoenix and one chapter 13 case in Tucson who is assigned cases in Pinal County and those areas to the South of Maricopa County.
If you are going through foreclosure and considering bankruptcy, paying your HOA dues is probably not on the top of your list of things to pay. You need to know how your HOA dues are handled before and after your bankruptcy. When you file bankruptcy the debt owed to the HOA for dues and assessments incurred prior to the date of the bankruptcy will be discharged in the bankruptcy. However, if the property is still in your name on the date you file bankruptcy, it is likely that you will incur additional charges from the HOA for that period of time after the date your bankruptcy case was filed. Those HOA fees and assessments incurred post-bankruptcy are debts you will be responsible to pay. There is a no way to know for sure when the property will actually be transferred out of your name during the process in which the lender exercises its right to sell the property in a trustee sale. You cannot rely on the home being sold on the date indicated in the Notice of Trustee Sale. Often the date of the sale is postponed and it may be postponed more than once.
Because you will likely have some HOA debts which will be incurred after you file bankruptcy, it may be wise to remain current on your HOA dues until after your home is sold in the trustee sale. If you are maximizing the rent free housing you are able to enjoy, remain in your home for as long as you can and after the home has been sold at the trustee sale, prepare to move on short notice.
There is some degree of choice but there are limits. The limitation of choice is based upon income. If your income is below the median income for the same size household, you may have some power to choose either a chapter 7 or a chapter 13. If your income is above the median you may have less power to choose and will probably have to file under chapter 13 if you file bankruptcy. However, some people with income above the median may still file under chapter 7, if they have a sufficient level of the right types of debt and whose living expenses conform to those favored by Congress as per 11 USC §707(b)
Although I do not offer tax advice and will refer questions regarding tax liability associated with any transactions to a CPA or tax attorney, it is well known that a short sale of one’s personal residence does not result in taxes on the forgiven debt. The Mortgage Debt Relief Act of 2007 [PL 110-142 (Dec. 20, 2007)] would probably apply. The IRS web-site (http://www.irs.gov/individuals/article/0,,id=179414,00.html) indicates there is no debt forgiveness on a “non-recourse” loan (see IRS Publication 4681, p.11 updated Dec. 11, 2008). In Arizona a purchase money loan for a residence, even if it is not your residence but is used as a residence by a tenant you rent to, is a non-recourse debt because of the Arizona anti-deficiency statutes (see A.R.S. Sec. 33-729(A). Remember that this information is not a substitute for competent legal advice after an attorney is able to review your entire financial situation.
We are having a free bankruptcy seminar in Chandler next Thursday (the 29th). Anyone can come as long as they register. If you are going through hard financial times, you should come. The registration is free. This is a great opportunity for Chandler residents that need help. Knowing your legal options is very important.
We will have a short presentation with time for the attorney to answer questions.
Please visit http://azbankruptcyhelp.com/free-bankruptcy-seminar/ for more information.
