HOA CHARGES CAN BE ELIMINATED UP TO THE DATE OF FILING

Many people are facing foreclosure on their homes.  Some are being pursued by Home Owner Associations for dues, assessments and fines in connection with their property.  So, it is not surprising that bankruptcy and real estate attorneys are frequently asked about what happens to the claim by an HOA while waiting for the bank to complete the foreclosure process and take title to the home.  Also what happens to the HOA claim if the owner files bankruptcy.

The HOA has both a lien right against the property and a personal claim against the homeowner for the HOA dues, assessments and fines incurred while the person owns or occupies the property.  The HOA can foreclose on the property and sue the owner for unpaid HOA charges.

 BANKRUPTCY CAN WIPE OUT HOA DUES INCURRED PRIOR TO BANKRUPTCY

If a home owner has stopped paying the mortgage payments, the chances are good that the HOA dues are also not being paid.  Over an extended period of time the dues can mount to a substantial sum.  The individual debtor can discharge the dues and assessments incurred prior to the date of filing bankruptcy.  However, unless the title to the property passes to another before the bankruptcy case is filed or at the same time, the HOA can continue to charge the owner for new HOA dues, assessments and fines incurred after the bankruptcy filing date.

Before the mortgage debacle and the home value meltdown, HOA claims were never a real big problem.  If the homeowner stopped paying the mortgage payments, the bank was anxious to foreclose quickly and sell the property to recover its loss.  However, two significant changes have occurred.

1. In 2005 with the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) the Bankruptcy Code was amended to except from discharge the HOA fees or assessments incurred after the order for relief “…for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, …. or … lot…”  See 11 U.S.C. §523(a)(16).
2. Because of the difficulty involved in selling the depressed property for more than the amount owed on the promissory note, banks are less anxious to take ownership of the property.  Once the property is on the bank’s books as bank owned property, the bank has some negative bookkeeping changes regarding the bank’s assets.  In addition, the bank becomes legally responsible to pay the HOA dues after foreclosure.

Here are the options to consider:

1. If you have stopped paying the house payments and will be filing bankruptcy, consider staying in the home as long as possible right up to the date of the foreclosure and file bankruptcy on the eve of the date for the trustee sale.
2. After filing bankruptcy, either pay the HOA dues each month or set the money aside in a separate bank account.  Perhaps the foreclosure will occur in a short time after filing bankruptcy and the money owed to the HOA will be paid out of the proceeds of the money paid at the trustee sale.  If not, the debtor can use the money in the separate account to pay the HOA and avoid any legal action.
3. Consider a short sale of the property which may extend the time for the debtor to occupy the property without having to pay the mortgage payment.

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Whether due to job loss, or just victims of circumstance, thousands of Arizonans face the trauma of losing their homes, cars, and other valuables, not to mention their peace of mind. And for most, it’s not their fault! Loan modifications and short sales are a tantalizing hope, but only the lucky few are finding such solutions.

With so many people facing foreclosure, the banks have no sympathy for “just another sob story.” Arizona home owners’ rights are not being met, and the banks are taking advantage of a flawed system during this crisis.

So where does a person turn?

At the forefront of the battle against large banks stands Moak Law Firm. As quoted in Bloomberg.com, http://www.bloomberg.com/news/2011-02-23/arizona-bill-would-void-home-foreclosures-without-complete-title-history.html Walter “Pete” Moak said, “servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors. The person who has decision-making power is not the servicer, it’s the investors.”

It’s time to change that! Moak Law Firm is committed to representing the homeowner’s interests by fighting to help Arizonans, a commitment recognized by other legal professionals in the state. We are working to adopt a new bill already passed in the Sentate requiring banks to disclose the mortgage owner and to prove it, which would prevent nonjudicial foreclosures, meaning property can be seized without a court order, a practice currently legal in Arizona.

And it happens all too often.

Many homeowners are fighting to save their homes by trying to restructure their homes—and they should be allowed to. Afterall, it’s their home! If this new bill passes, more people will be able to do just that. Moak Law Firm is a trusted legal firm in the valley with proven results.

At Moak Law Firm, we’ll continue to fight for your rights to make life better for all Arizonans. Our staff is professional, sympathetic, and knowledgeable, and Attorney Pete Moak has over 30 years of legal experience in Arizona. To read the complete Bloomberg article, go here.

Contact Moak Law Firm here.

Last week I touched on the details of an Order of Relief and Automatic Stay as they related to freezing the foreclosure process during a bankruptcy. This week I’d like to touch on an issue that affects nearly everyone considering filing for bankruptcy protection; creditor harassment.

Perhaps the most uncomfortable aspect of overwhelming debt is the harassing phone calls and threatening letters that accompany late payments and overdue balances. Collection agencies are relentless and it’s highly unlikely they will listen to or care about your unique financial situation. Because these collectors are compensated by commission, meaning they keep a predetermined percentage of the amount collected they have zero incentive to work with the debtor or to ensure that the debt they are attempting to collect is valid. Repetitive calls from aggressive collectors can be extremely stressful and overwhelming during times of severe financial burden. Not to mention many of the activities conducted by some collections agents are downright illegal.

If you are considering filing for bankruptcy you’ve probably already encountered your fair share of unscrupulous debt collectors. The constant harassment and threats may have even contributed to your decision to file bankruptcy. The bad news is, as the old cliché goes, it gets worse before it gets better.

Once collection agents catch wind of your intention to file bankruptcy the harassing calls and letters will intensify. Their goal is to get you to pay some, if not all, of the collection amount before you are able to file your bankruptcy. A person in the process of preparing a bankruptcy can expect collection companies to use just about every trick up their sleeve to get you to pay. Some of their threats and tactics are even illegal but many collections companies persist on the assumption that you, the debtor, won’t have the time or financial resources to challenge their actions in court. However, there are a few things you can do to stop creditor harassment prior to filing.

Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) protects consumers against unfair collections practices. Under the FDCPA you have the right demand collectors stop calling you by writing what’s called a “cease communication” letter. A cease communication letter will tell the creditor you are no longer willing to discuss the debt with them and under the FDCPA they are no longer legally allowed to contact you except to inform you of actions they are taking to collect the debt or to cease collecting the debt. However, they can not contact you daily to threaten or harass you into paying them money. The letter must in written form, must be dated and it is a good idea to mail it certified to ensure confirmation of delivery.

Some unethical or just unconcerned collection agents might still attempt to contact you after receiving a “cease communications” letter. If the collections attempts persist, you have the right to demand the creditor validates the debt. The FDCPA provides that no debt is automatically considered valid, and therefore gives the consumer the right to obtain proof of said debt and dispute the amount, etc.  If a debtor disputes a collection attempt and requests validation the creditor has five days after the initial conversation to send a letter to the debtor with the amount of the debt; the name of the creditor; and a statement that provides the consumer 30 days to dispute the debt before it will be considered valid. If the debtor disputes the debt or amount within the 30 day period the collector is then obligated to obtain verification of the debt. If the creditor refuses and persists in collection attempts the consumer has a right to sue and/or the debt could be excused by a court.

Collections Attempts After Filing Bankruptcy

Once you have filed for Chapter 7 or Chapter 13 bankruptcy protection collection activity should stop. The Automatic Stay provides that all collections activity cease while your case is in bankruptcy. This includes phone calls, letters, lawsuits, and wage garnishments. Occasionally a stray collections agent will call attempting to collect on a debt. You simply need to inform them you have filed for bankruptcy protection, provide them with your case number and attorney’s contact information and hang up the phone. You do not need to answer any collection agent’s questions or discuss the debt with any person other than your attorney.

There 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.

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Bankruptcy can be very beneficial to debtors but a debtor has to remember that bankruptcy does have some long term effects.  According to http://www.bankruptcy-courts.net/bk-long-term.html, filing puts the world on notice about the debtor’s personal financial affairs.  Since it’s a civil court proceeding, it becomes a matter of public record.  In some cases, such as Chapter 13 proceeding, even a debtor’s employer can be involved because this chapter requires deductions from a debtor’s paycheck. 

            Another long term effect of bankruptcy is that the bankruptcy stays on a person’s credit report for up to 10 years and this could hinder a person’s ability to get a job, establish new credit, get insurance and even securing a place to live.  Also a debtor will have to pay for their attorney, court fees and filing fees upfront. 

            According to http://www.bankruptcylawinformation.com/index.cfm, bankruptcy is listed in the top five life-altering negative events that a person can go through, along with divorce, severe illness, disability, and loss of a loved one.  Very few people that have gone through bankruptcy would say that it is just a painless cleaning of your debts, where afterwards you can easily begin a new life. 

            According to http://bankruptcy-reports.info/long-term-effects-bankruptcy-finances/, the rule of law states that a bankruptcy may remain on your record for ten years, and while that may technically be true, the effects of the bankruptcy can start to diminish within minutes after the proceedings end.  Choosing bankruptcy is never an easy decision, and the sure and certain knowledge that your credit will be affected in a major way for many years afterward is true but sometimes this is truly the only option available to some.     

            Deciding whether or not to file bankruptcy can be difficult.  A debtor should weigh the pros and cons before deciding whether or not to file bankruptcy.  If a debtor is truly uncertain about their decision than they should contact an attorney.

The right time to file a Chapter 7 bankruptcy in Chandler, Arizona depends on the specific person’s dischargeable debts, the status and nature of the person’s nonexempt assets, and the actions threatened by or taken by creditors of the person filing bankruptcy.

A person should not file a Chapter 7 bankruptcy in Arizona until all anticipated debts have been incurred.  This is because only debts that have been incurred when the case is filed are dischargeable.  If the debts have not been incurred, a person will have to wait eight years before they become eligible for another Chapter 7 discharge.  According to www.doney.net/timeline.htm, a debtor cannot receive a discharge under Chapter 7 if the debtor received a discharge in a Chapter 7 or 11 bankruptcy which was filed within 8 years prior to the present Chapter 7 proceeding.

A person should not file a Chapter 7 bankruptcy in Arizona until the person filing has received all nonexempt assets to which they are entitled.  If a person does not wait until they receive all their nonexempt assets then the asset will have to be turned over to the trustee.

According to www.bankruptcy.findlaw.com/bankruptcy/bankruptcy-chapter-7/exempt-vs-nonexempt-property.html, nonexempt property includes but is not limited to: expensive musical instruments, unless the debtor is a professional musician; collections of stamps, coins, and other valuable items; family heirlooms; cash, bank accounts, stocks, bonds, and other investments; a second car or truck; and a second or vacation home.

A person should not file a Chapter 7 bankruptcy in Arizona if that person is expecting to acquire nonexempt property through a life insurance policy, divorce, or inheritance, in the next 180 days, otherwise the property may have to be turned over to the trustee.

A person should file a Chapter 7 bankruptcy in Arizona if that person is dealing with an aggressive creditor who has threatened to attach or garnish a person’s assets or income.  A person would want to file immediately to take advantage of the automatic stay that accompanies the filing of a Chapter 7 bankruptcy in Arizona.  It may also be necessary to file the Chapter 7 bankruptcy immediately to protect the debtor’s interest in property if a foreclosure action has been filed against the debtor.

Chapter 7 or Chapter 13 bankruptcy in Arizona, which is right for me?  Most debtors must choose between a liquidation proceeding under Chapter 7 of the Bankruptcy Code and a debt adjustment proceeding under Chapter 13 of the Bankruptcy Code.  There are 6 important factors that should be considered.

First, a debtor must consider the dischargeability of debts.  There are many classes of debts that are not dischargeable under a Chapter 7 bankruptcy.  Some types of debts that are not dischargeable under a Chapter 7 bankruptcy may be dischargeable under a Chapter 13 bankruptcy.  A person who has received a discharge through a bankruptcy proceeding in the last 8 years is not eligible for a Chapter 7 discharge but may be eligible for a Chapter 13 discharge.

The second thing a debtor should consider is retaining secured property.  A debtor who is in default on a secured obligation is usually permitted to cure the default within a reasonable period under Chapter 13 and thereby retain the secured property.  The curing of defaults in secured obligations is not usually feasible in a Chapter 7 bankruptcy.  However, in a Chapter 7 bankruptcy, liens against certain exempt personal property may be redeemed or set aside by the debtor.

The third thing a debtor should consider is retaining nonexempt assets.  In a Chapter 7 bankruptcy a debtor must turn over all nonexempt property to its trustee.  However, in a Chapter 13 bankruptcy a debtor is usually permitted to retain their nonexempt property, so long as meaningful payments are made to unsecured creditors.  Therefore, Chapter 13 may be preferable if a debtor has a large equity in his or her home or other important nonexempt assets.  According to www.ezinearticles.com/?The-Differences-Between-Chapter-7-and-Chapter-13-Bankruptcies&id=2631055, filing Chapter 13 also helps to prevent losing assets that people may not wish to part with such as family mementos and other items.

The fourth thing to consider is income.  A debtor must have “regular income” in order to qualify under a Chapter 13 bankruptcy.  “Regular Income” is defined as income sufficiently stable and regular to enable a debtor to make payments under a Chapter 13 plan.  A Chapter 13 bankruptcy may not be feasible if the debtor is unemployed or otherwise devoid of regular income.

The fifth thing a debtor should consider is the attitude toward debts.  According to http://www.bankruptcyaction.com/chapter13.htm, a Chapter 13 bankruptcy may be preferable to a debtor, if a debtor has a sincere and realistic desire to repay all or most of the debtors’ unsecured debts.  The best practice is to file a Chapter 7 bankruptcy if the debtor only desires to repay one or two debts.

The sixth thing a debtor should consider is the time and expense.  According to http://www.totalbankruptcy.com/chapter-13/process-timeline.aspx, a Chapter 13 bankruptcy proceeding normally lasts from 3 to 5 years, with the discharge being granted at the close of the case.  On the other hand, Chapter 7 cases typically last about 6 months with the discharge being granted about four months after the case is filed.  Chapter 13 bankruptcies are significantly more expensive than in Chapter 7 bankruptcies.  If a debtor is not willing to comply with the Chapter 13 plan during the entire duration of the plan and to bear the additional expenses involved, Chapter 13 is not advisable for that debtor.

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.

You can’t just say it…