What you need to know about bankruptcy in Arizona, Interview with Pete Moak

Katherine:

Hello everyone. We are here with Attorney Pete. He’s going to share with us some much needed answers to questions about bankruptcy.

I want to welcome him to This Needs To Be Said. I want to let you know also you’re going to hear from him every month. As you have questions, let me know so that I can get them over to him and he’ll be happy to answer those questions as they pertain to bankruptcy. Attorney Pete, welcome to the This Needs To Be Said. How are you today?

Attorney Pete:

I’m doing great. Thank you, Katherine. I’m looking forward to talking to you.

Katherine:

All right. We’re going to get right into our questions. I got my printed paper out and I’m looking for your answers.

Our first question for today is what are the most common misconceptions people have which cause some fear about filing bankruptcy?

Attorney Pete:

I’ve given a lot of thought to this. These are things that have been recurring concerns that people have brought to my attention as I interview them when they’re faced with debts that they can’t pay.

Some types of people are concerned that bankruptcy relief is no longer available after the Bankruptcy Abuse Prevention and Consumer Protection Act. It’s been 10 years and bankruptcies are up again since then. Most people, I think, are aware now that bankruptcy is still available.

Another concern that people have is that everybody’s going to know that they have filed bankruptcy which, of course, is not a big concern because unless somebody is a celebrity, or they have a big company that’s going to go bankrupt, it isn’t newsworthy is what I’m saying.

Somebody probably isn’t going to find out about their filing bankruptcy unless they’re looking specifically for that person and they have information about that person such as their Social Security number. A creditor, of course, would be able to check that, but most people wouldn’t.

Sometimes people are concerned that they’re going to lose everything that they own. That certainly isn’t true. That’s not true in either a Chapter 7, or in a Chapter 13 type bankruptcy.

I would say about 95% of the cases that I file that are chapter 7 cases, in which there is the opportunity if you have assets that are not protected, or exempt, that those things could be lost.

The truth is that 95% or more of the cases that I file, people don’t lose their assets because everything that they own is protected by exemption laws in the state and also because the value of the items that they own that are not exempt are just not significant enough to cause the trustee to be willing to take the effort, or the expense of recovering those items and selling them for the benefit of creditors.

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Katherine:

Yeah, then they’re not in the business of selling stuff, so yeah, they’re not necessarily looking to collect your stuff and see what they can get for it. I see what you’re saying.

Attorney Pete:

A lot of people are concerned about the negative impact that it might have on their credit. In other words, people are aware that credit scores are important. The truth is that if a person is in debt and they’re not able to pay their debts, their credit score is being damaged every single month as time goes by.

Filing bankruptcy is actually a way to reverse this situation, although filing a bankruptcy is going to show up on a person’s credit report and can remain on the credit report for up to 10 years. That credit report is not as significant as one’s credit score.

Credit scores have been around for many years now, but there was a time that the only thing that a creditor would be able to do is to look at a person’s credit report. Today, that’s not the case.

Universally, creditors who are considering whether or not to extend credit to somebody, they’re going to be interested in that credit score. The credit score is something that can be rehabilitated in a very short period of time after filing bankruptcy.

We have a wonderful program that assists people in rehabilitating their credit. I explain that to anybody that I’m able to interview regarding their debt. Credit score is the most important thing. It can be recovered in a period of time. Probably within a year or so after the bankruptcy, I can help someone get their credit score back up to over 720.

Katherine:

That’s good news.

Attorney Pete:

That is good news, yeah. It’s somewhat amazing. Most people file, “Wow, that’s amazing.” Other people are concerned about whether or not they have the opportunity, if they have to file bankruptcy, does their spouse have to file bankruptcy also?

The answer is that no, they don’t. A person can file a joint bankruptcy with their spouse, which may be advisable in most situations, but they don’t have to both file bankruptcy. It is possible for only 1 to file. Of course, we’re going to have to take into consideration the income of both of the spouses who contribute money to the household income. It is not true that both spouses have to file bankruptcy.

Katherine:

Let me stop you there. If I’m married and I’m filing bankruptcy, I do not have to file with my spouse, however, you will consider their money with my money.

Attorney Pete:

Yes. Yeah, both spouses are typically contributing money into the household income. In other words, that’s money that’s available to pay your household living expenses, and available to pay the debts that are incurred. This is especially true in the community property state, which Arizona is.

We have to consider the income from both spouses in determining the eligibility for filing bankruptcy, but it is not necessary for both spouses to file a bankruptcy even though both can file together. The cases are administered as 1 particular case with 1 case number, 1 filing fee, 1 attorney’s fees. It saves money from the standpoint of having filed jointly. It is not necessary for them to file jointly.

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Katherine:

Got you. Back up and tell me the difference between Chapter 7 and Chapter 13. Which of the 2 is the most common choice that people file?

Attorney Pete:

There are actually 5 different types of bankruptcies in the bankruptcy code, but most people don’t qualify for the 3 that are not relevant. That is there’s a Chapter 7, Chapter 9, Chapter 11, Chapter 12, and Chapter 13. 9 is for municipalities, cities, towns, and counties. 11 is for corporations. 12 is for family farmers, or fishermen.

Most of my clients, in fact all of the people I represent are either going to file under Chapter 7, or Chapter 13. Chapter 7 is the one that is most popular because it has certain advantages. That is that a person can eliminate pretty much all of their debts.

There are some debts that are not allowed to be discharged in bankruptcy. A chapter 7 will give people a fresh start. They don’t have to use any of their future income to pay anything toward the creditors that they own money to. That’s the reason that Chapter 7 is most popular.

It’s also quicker. That is it takes much less time to complete a Chapter 7. It only takes about 3 and a half months from the time the case is filed until the time that the debtor receives a discharge.

Once the discharge is obtained, then, of course, they begin to rebuild their credit. There is a permanent order put in place that prevents any of the creditors from doing anything to collect any of those debts that were discharged in the bankruptcy.

A Chapter 7 also has the benefit that it’s less expensive than a Chapter 13. The attorney’s fees are typically about half as much as what a person would have to pay for a Chapter 13 bankruptcy. Largely, that has to do with the fact that in a Chapter 13, because it takes from 3 to 5 years to get to the point where you get a discharge in a chapter 13, the attorney is working on that case for a much, much longer period of time. That’s the reason it costs more.

A chapter 7 has the benefit of being less expensive, and quicker, and they don’t have to use any of their future income to pay anything toward the debts. Also, though, Chapter 7 has the disadvantage that if they own any assets that are not exempt, then it is possible that those assets have to be turned over to the trustee, who then liquidates, or sells those, coverts the assets to cash and then distributes that money to the various creditors.

A Chapter 13 does not have the risk that a person is going to lose their assets. In other words, even if they do own assets that are not exempt, there’s not any risk that those assets are going to be taken away from them. However, the value of the non-exempt portion of those assets is taken into consideration in terms of how much money the debtor is going to being paying through their Chapter 13 trustee.

In a Chapter 13, it’s more like a consolidation of the various debts. I would say even in a Chapter 13, the debtor only pays a portion. In about 95% of the cases, they only pay a small portion of the debts that are owed. They do pay, to a trustee, each month during the life of the plan.

A plan is prepared that indicates how every debtor is going to be treated in the bankruptcy, in the Chapter 13 bankruptcy. Some creditors are going to receive a payment based upon the amount that’s owed in the secured claim; that is where there’s collateral associated with the loan. In order to keep the collateral, they have to pay that particular creditor according to the value of that asset, or it may be that they have to pay the creditor according to the terms of the agreement.

All of the different creditors are not going to be paid directly by the debtor anymore. They’re going to be paid by the trustee. There’s money from the debtor paid to the trustee and then the trustee distributes that money to those creditors.

If there’s a creditor that’s owed money that’s on a installment payment that’s going to extend beyond 5 years, then the debtor makes that payment directly to that creditor rather than through the bankruptcy trustee.

A Chapter 13 has the benefit of allowing somebody who is behind on their payments to a secured creditor. Let’s say they’re behind on their payments to their mortgage company that has the lien on their house. Maybe that mortgage company has given them notice that they’re going to foreclose on the house and take it away from them.

In a Chapter 13, they can file a Chapter 13 bankruptcy and use 5 years of time to catch up on those past due payments that haven’t been made to the mortgage company. The debtor continues to make the monthly mortgage payments going forward, but catches up on all of the past due payments in the Chapter 13 plan.

They may also be behind on their HOA dues. The HOA dues become a lien on the property as well. Those have to be caught up based on the amount that’s owed at the time the case is filed. The debtor continues to pay the HOA dues going forward, but can catch up on all of the past due payments inside the Chapter 13 plan.

If a person has a car debt that they’re behind on, maybe the lender is threatening to pick up the car to repossess it. The person filing bankruptcy can go ahead and file the Chapter 13 and use the next 5 years to make up, or catch up on the past due payments. In fact, in a Chapter 13, the amount of the total debt that’s owed on the car that has to be paid during the next 5 years is figured into the Chapter 13 plan payments.

Often times, people will benefit from a Chapter 13 because instead of paying the full amount that they owe, they may be able to cram down the amount to only the value of the collateral instead of having to pay the full amount. Also, they can cram down the interest rate.

Many times I see people, in a loan on a car, that’s 20 plus percent, but if they file a Chapter 13, they’re only going to be paying something in the neighborhood of 5 to 6%.

Those are the basic differences. Chapter 7 is quicker and cheaper. Chapter 13 offers some benefits especially for people who are behind on their mortgage payments, or their car payments.

Maybe they even have large tax debts that they need to get taken care of. Chapter 13 can give them the opportunity to pay tax debts that are priority and get those paid off during the next 5 years without interest. That’s another benefit.

Maybe they’re behind on child support, or spousal maintenance. They can use a Chapter 13 to catch up on, or pay those past due child support, or spousal maintenance debts.

Katherine:

This is a lot. I know we’re going to have you on again. In the meantime, I’m going to ask you to let people know how to get in touch with you outside of This Needs To Be Said.

I was like, “Okay. I have never heard about the last thing you said as far as the spousal support and child support getting caught up.” I’m like stick a pin right there. I wanted to dig into that one a little bit more as well.

Knowing some of the differences can empower people. Knowing that bankruptcy is still an option and knowing that bankruptcy is not a negative, but it’s a way to reset your life. All of this has been excellent.

Attorney Pete, tell people how they can get in touch with you to even ask questions we didn’t even address during this time together.

Attorney Pete:

The law firm name is themoaklawfirm.com, or LLC. The Moak Law Firm. That’s spelled M-O-A-K like oak tree with an M in front. My name is Walter, but my nick name is Pete, so most people call me Pete when they address me.

My office is located at 1820 East Ray Road in Chandler, Arizona at the northwest corner of Cooper and Ray Road in the southeast valley of Maricopa County.

They can contact me at my phone number, 480-755-8000, extension number 1. That’ll put them in touch with the person who schedules my appointments. The law firm’s web site is www.themoaklawfirm.com.

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Katherine:

All right. Attorney Pete, until next month have a wonderful day.

Attorney Pete:

Thank you very much, Katherine.

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