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.

BANKRUPTCY EXEMPTION PLANNING TO AVOID LOSING TAX REFUNDS:

Bankruptcy trustees can take the next tax refund you receive after your bankruptcy case was filed. Do you like to use tax withholdings as a savings account?  Some people like to save with Uncle Sam at the bank of IRS.  Perhaps these people like this method of saving because it is automatic.  While it is true that you don’t have an option when it comes to paying taxes, you could be creating some undesirable consequences if you instruct your employer to withhold more than is necessary to pay your tax liability.

The most obvious negative consequence is that you will have less money to spend each month because you send more cash than is necessary to the IRS.  Remember, the government does not pay you interest for using your funds.  Another negative consequence is that you cannot simply withdraw that extra cash when you need it.  You can only withdraw it after completing a somewhat burdensome form once a year.

For bankruptcy filers the negative consequences associated with over withholding taxes can be much worse.  Tax refunds are not exempt.  Bankruptcy trustees love the tax payers who over withhold taxes from their paycheck.  The tax refund checks which might have been sent to the person filing bankruptcy will, instead, be sent to the trustee in the bankruptcy case and used to pay the trustee who gets a 25% commission on the funds collected and the balance will be used to distribute to the creditors.

 WHAT CAN YOU DO TO PROTECT AGAINST THIS POTENTIAL LOSS?

As soon as possible, adjust your withholdings so you will break even at tax time.  If you have been over withholding for more than half of the year, you need to compensate by withholding less during the remaining months in the year.

If your bankruptcy case was filed on August 11, 2011, 222 days have passed since January 1, 2011.  The tax refund you might have received in 2012 will be divided between you and the bankruptcy estate with 61% of the refund going to the trustee unless you take appropriate action now.

If necessary, get help now to evaluate whether you are withholding too much from your pay check for taxes.  The sooner you take action in reducing your withholdings, the less you will lose to the bankruptcy trustee.

Protect your bank account in bankruptcy through exemption planning:

Most people filing bankruptcy, even in chapter 7 cases, don’t lose their stuff if they have prepared before filing bankruptcy so that on the date they file bankruptcy, they don’t own any non-exempt assets.  Some states, like Arizona, do not have a wildcard exemption.  Therefore, the exemption laws may only protect a certain amount on deposit in a bank account.  In Arizona, the amount which can be exempted is only $150 per debtor in a single bank account.

Most people have their paychecks automatically deposited into their bank account and pay their bills with either paper checks or with pre-arranged automatic debits from the account by those who provide regular services to the account holder.  The amount on deposit in the bank account will fluctuate greatly throughout the month and careful planning is necessary to avoid loss of money to the trustee in bankruptcy.

Below are some good practices to avoid loss of money in your bank account to the trustee:

1.  Don’t file bankruptcy on the day of or soon after your paycheck is deposited to your bank account.
2. Stop writing checks to pay bills approximately 2 weeks before filing bankruptcy and make sure your outstanding checks have all cleared your account before filing bankruptcy.
3. Use cashier’s checks or money orders to pay bills.  This will immediately deduct the money from your account.  However, be certain you actually deliver the cashier’s check or money order prior to filing bankruptcy.  Some courts have ruled that the mailing rule does not apply here.  Because a person could stop payment on a cashier’s check or money order, the debtor still owns the money until the check or money order is in the hands of the payee.
4. Debit card transactions can be better than a cashier’s check if there is a problem delivering the cashier’s check or money order.  However, make sure the debit transaction actually clears your bank and is not just “pending” at the time your bankruptcy case is filed.
5. If you have multiple bank accounts close all but one account for each debtor or alternatively deplete the extra accounts down to a level that is below what you are willing to lose to the trustee.
6. If you receive Social Security benefits use a separate bank account which you should have the bank label as your Social Security account and don’t comingle the Social Security funds with any other funds.  There is no limit to the amount of money you can have on deposit in a bank account which is entirely money from Social Security benefits.

Bankruptcy Exemption Planning Could Save Your Car:

Most people don’t lose their car when they file bankruptcy because the applicable exemption laws of the state usually allow the debtor to exempt one car per debtor up to a certain dollar amount of equity.  However, if the amount of equity (Fair Market Value minus all valid liens) is more than the exemption amount, the trustee may choose to sell the car, pay the person who is filing bankruptcy the exemption amount, and use the balance to pay creditors.

WHAT CAN BE DONE TO PREVENT THE POSSIBLE LOSS OF YOUR CAR?

The equity in the car can be reduced by a valid lien perfected prior to filing bankruptcy.  This practice is legal and will usually not cause any problems for the debtor filing bankruptcy if the debtor takes care to avoid certain situations which will cause problems. Below are some good practices to follow and also some traps to avoid:

Was the granting of the lien supported by consideration?

• You cannot just give away your property to keep the creditors from benefiting from the sale of your assets.  Likewise, you cannot just grant someone a lien on your car without receiving valuable consideration in exchange for the granting of the lien. If that happens, the trustee, at best, will avoid (reverse) the transaction and take the car anyway.  In every case I have seen the valuable consideration exchanged was money.

Was the lien recorded (perfected) within 30 days of receiving the money?

• Avoid the trap of not perfecting the lien within 30 days of the receipt of the money and prior to the filing of the bankruptcy.  Failure to complete perfection in time could result in loss of the car.

Was the money received actually spent before filing bankruptcy?

• Remember, the money received is also non-exempt.  Unless the money was spent to pay living expenses or to purchase exempt assets, the trustee will require the money to be turned over to the trustee.  It is wise to keep receipts to show how the money was spent.

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We are on track for another great seminar on Saturday, July 23rd from 10-11 A.M.  The seminar will take place at our offices in Chandler on Cooper and Ray.

This will be a great time for anyone in debt and not sure what to do.  Click on the link for more info.  Free Bankruptcy Seminar in Chandler.

Being in debt and dealing with the stresses that come with it can be painful.  Whether it’s creditors calling and harassing you, overdraft fees in your bank account, being sued or a late mortgage.  It’s a recipe for getting overwhelmed and sometimes trying to avoid even thinking about it.  Well, that doesn’t help.  Getting some control back into your life is the way to go.  Knowing your options will help you get a clear picture of how to move your life forward and get past the hard times.  We are putting on a seminar on Thursday, May 26th to help the local community.  This seminar will be about bankruptcy and how you can legally get a fresh start and stop the craziness.  Click here for more information about the seminar in Chandler.

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.

Bankruptcy timing is one of the most common issues I see this time of year.  As many people are anxious to file their bankruptcy, there are drawbacks to filing too early.  If you plan to receive a tax refund, you should wait to file your bankruptcy and spend the money.  Your tax refund is a non-exempt asset in the state of Arizona.  This means that the refund is treated much like money in your bank account and can be taken from you by the trustee.  You need to make sure that you spend the tax refund you receive on things that are exempt.  Here is a list of Arizona Exemptions. Spending your tax refund on things that are not exempt is dangerous and the trustee can take those assets from you.  Spending money on living expenses like: Food, electricity bills and home supplies is a good idea.  Make sure you keep the receipts for everything you have bought with your tax return money.  Paying your bankruptcy fees is one of the safest and most legitimate ways to spend the money and will get you a fresh start sooner.

Filing for bankruptcy is without question one of the most stressful periods of time in a person’s life. Unfortunately, society attaches a number of negative stigmas to personal bankruptcy leaving many debtors feeling insecure and devalued. Most people going through bankruptcy would rather keep it secret from their friends and family, and many debtors even experience severe emotional reactions to the stresses of bankruptcy.

But bankruptcy can be a good thing too. Not only for your wallet, but your emotions and health as well. All of the stress that comes with piles of debt and harassing creditors can cause serious health concerns for many people. Filing bankruptcy provides much needed financial and emotional relief. Most people feel a heavy burden lifted from their shoulders after filing their bankruptcy paperwork. And the day you receive your discharge paperwork, it can feel like a second chance at creating a debt free and financially healthy life.

Without question there are a lot of different emotions one goes through during a bankruptcy, but it’s important to keep your emotions separate from the bankruptcy process. Too many times people make emotional decisions regarding filing bankruptcy. Its all too common for homeowners to come to attorneys seeking bankruptcy information in an effort to save their home, the same house they have two mortgages on, owe more than the home is worth, and have all around negative equity in. Why do they even want to keep this house? It’s usually because of an emotional attachment to the home they can’t seem to shake. Often times they even know reaffirming their mortgage is a bad idea. I only share this story to illustrate how important it is to separate your emotions from the business of bankruptcy.

It’s also important to understand that millions of Americans go through the same process each year. Chances are, at least one of those friends or family members you don’t want to know about your financial troubles has gone through a bankruptcy themselves. But there is one person who you should never hide any aspect of your financial affairs from, your bankruptcy attorney. Your bankruptcy lawyer has been there before and it’s important to share everything with your attorney about your financial affairs. Talk with your attorney about your feelings and concerns, and listen to his input, as seasoned professionals who understand the bankruptcy process and how to get you back to a financially manageable life (after all that is the main goal of any bankruptcy) he will know what works and what doesn’t.

And most of all, remember there is a light at the end of the tunnel. Filing bankruptcy can help reduce all that stress and helplessness that comes with uncontrollable debt, putting you on the track to financial freedom.