Sunday, November 3, 2013

Bankruptcy Explained by State



Borrowers throughout Arizona have not been immune to the economic difficulties crippling households across the United States, and the need for strict management of credit accounts has never been greater for American families. At the same point, even as debtors across Arizona and the southwest turn their eyes to various debt relief approaches mentioned by the media or recommended by friends or relatives, too many consumers let things slide until they believe that there's nothing left to do with their ever more depressing finances than declare bankruptcy. The authors of this article have personally worked with dozens of Arizona borrowers over the past few years that, after a lifetime of taking pride in their responsibilities, have suddenly been forced to consider the notion that they will not be able to satisfy the debts they have taken out through traditional means. We understand how hard this may be for borrowers to suddenly acknowledge the need to simply start over once accumulated debts have risen to a certain tipping point, and, for many Americans, the desire to abolish their burdens lies hand in hand with a certain level of guilt. As it happens, bankruptcy - both practically and by dint of reputation - sadly fulfills both of these requirements, and an unfortunately large segment of Arizona households puts off debt management until there's no other option remaining.

There isn't any simple equation to extinguish debt loads that have already risen to the point where borrowers need even think about utilizing external authorities licensed in the state of Arizona to liquidate their burdens of consumer debt. All the same, whenever debtors look upon their amassed accounts and find that they cannot reasonably calculate a budget that would eliminate their revolving debt load within a decade, something must be done. Whether from medical emergencies or lingering unemployment or those unexpected setbacks and responsibilities that every Arizona household shall inevitably come across (or, to be honest, even from an extended period of thoughtless spending), once borrowers finds themselves facing the prospect of foreclosure upon their primary residence or once they realize that they are going to be unable to meet their minimum credit card payments, they must examine debt relief alternatives. Chapter 7 debt elimination bankruptcies may be the most obvious solution for consumers in Arizona and across the United States, but there are more than a few problems with bankruptcy protection as it currently stands.

It is true, should you qualify for the Chapter 7 bankruptcy program under Arizona law, many of your unsecured loans would be wiped clean, but you should not make the mistake of believing that all of your debts will simply vanish. While most every citizen understands that tax liens, criminal penalties, and familial obligations (alimony or child support) remain on the books, did you know that student loans - even if held through private companies - are no longer eligible for bankruptcy discharge? Even in regards to credit card debts or other unsecured and revolving accounts, purchases above five hundred and fifty dollars for so called luxury goods and cash advances larger than eight hundred dollars made in the months before filing could be considered fraud and punishable by law. There's much more to bankruptcy than is generally understood by the Arizona citizenry, and aspects of the laws change every day. The bankruptcy your brother or boss or past roommate may have successfully declared just four years ago likely no longer exists - at least, no longer in a recognizable form.

Spring of 2005, the United States Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act after incessant pushing by lobbyists funded by the credit card companies. In the years following BAPCA, as it became known, the subsequent changes to the bankruptcy code ruined the chances of many borrowers in Arizona and across America to take advantage of the Chapter 7 program and purposefully worsened the living conditions and financial potential of all debtors' who would seek protection from whatever obligations they were unable to satisfy. Chapter 7 bankruptcies, also known as debt liquidation bankruptcies, are certainly the most well known form of governmental protections against debts they are unable to pay. Indeed, many consumers in Arizona (and, for that matter, around the United States) would be surprised to learn that there are forms of bankruptcy beyond the Chapter 7. In many ways, the debt liquidation procedure does work in the same way as we all originally imagined bankruptcy would from board games and cartoons. Financial obligations (of a specific kind, to be sure) are forever erased and the player declaring personal bankruptcy does (in most cases, considering the effects upon credit ratings and assets) lose at least the next few rounds. It's still certainly the easiest and quickest type of bankruptcy protection, and it will eliminate the majority of credit card bills and unsecured accounts: though, it's important to recognize, not nearly all of them.

Under the changes to the federal bankruptcy code in the years after BAPCA, citizens now must pass what has been called a means test in which every borrower's gross annual income - as based upon their earnings six months prior to filing bankruptcy paperwork - will be compared to the average earnings of individuals and families within the state. As things now stand, in order to be eligible for Chapter 7 debt liquidation bankruptcy protection as a resident of Arizona, you will have to make less than forty thousand dollars a year (add a member to the household, the number grows to fifty three thousand; add another, it grows to fifty nine thousand; add another, it grows to sixty six thousand; for every additional individual, there's another seven thousand dollars) from the officials guidelines of February, 2008.

These levels of income, extrapolated from numbers compiled throughout Arizona by the national census bureau, are due to change, of course, and there's still some wiggle room as regards expenses. When whichever trustee chosen by the Arizona courts examines the initial bankruptcy paperwork, they also take notice of payments owed upon home mortgages, vehicle loans, delinquent taxes, child support alongside other familial obligations, and higher education loans amounting to less than fifteen hundred dollars a year. If, once all of the preceding monthly bills (and the day to day expenses for an individual or family in Arizona as determined by the Internal Revenue Service) have been deducted from the gross income of whomever intends to declare bankruptcy, the courts still calculate that the filers should still be able to pay at least one hundred dollars a month toward their various debts over the next five years, the current governmental and Arizona state statutes insist that the borrowers attempting bankruptcy be switched over to the Chapter 13 debt restructure program.

Traditionally, Chapter 7 bankruptcies were considered 'no asset' and borrowers, presuming they had no significant investments, would not necessarily fear any dangers from the process beyond a still prevalent social stigma and the sudden destruction of their credit rating, but, after the 2005 alterations to the bankruptcy code, a host of stipulations specifically intended to weaken the protections involved and harass those borrowers that attempt to find solace in governmental safety nets wreaked havoc upon the last chance generations had depended upon. After the new laws took effect, borrowers must have their tax returns in order to even approach the bankruptcy courts, and they will have to complete a credit counseling course from a governmentally approved debt management firm before filing the initial paperwork. There are several such companies in Arizona, debtors within the state of Arizona should consider themselves lucky compared to their countrymen who hail from less populated regions, but the substantial costs are still far beyond what many of the most desperate borrowers who've fallen to such straits would be able to pay (these credit counseling firms, of course, require payment up front).

As you probably already know, one of the greatest drawbacks from Chapter 7 bankruptcy - and, perhaps, along with the damage done to credit reports and FICO scores, the signal reason that more consumers do not attempt debt elimination - is the likelihood that your assets (which, for the purposes of the Internal Revenue Service, could mean anything from your stock portfolio to your bed sheets) will be seized by agents of the court for an eventual auction intended to partially remunerate past creditors whose loans have been discharged through bankruptcy. Depending upon the whim of the arbitrarily chosen court trustee, families could lose nearly everything they own to be sold for pennies on the dollar. In past years, before the 2005 legislation altered the national bankruptcy code, households filing for Chapter 7 were made to list their personal property in terms of the value of the objects upon resale which, for anyone who's ever held a garage sale, is virtually nonexistent for most items. Now, however, the Chapter 7 documents insist upon a description of all possessions that records their theoretical REPLACEMENT value, and replenishing a household in this fashion could cripple many families.

Fortunately, for borrowers who've been living in Arizona, the state bankruptcy law is much more generous to those filing bankruptcy than what would be granted by the federal guidelines. Given the space this sort of cursory summary permits, there's no way to list all of the potential exemptions allowed through Arizona bankruptcy statutes, but we'd at least like to try to outline some idea of what borrowers may expect from the proceedings. In terms of real property, the homestead exemption covers any apartment or mobile home owned to the amount of a hundred thousand dollars AND this also exempts any proceeds from the sale of same for either eighteen months after closing or until a new residence has been bought. For those borrowers who do not own property, security deposits are fully protected and prepaid rent would be let alone up to a thousand dollars or one and a half months' value, whichever is greater. In terms of the homestead statute, a husband and wife jointly declaring Chapter 7 bankruptcy must share the same exemption, but, it's important to remember, for personal property, the husband and wife are allowed to double what's allowed by Arizona law which can make a great difference in terms of protecting possessions from potential seizure.

Again, within the breadth of this article, we cannot list every exemption, but those filing in Arizona should know that most of their household furniture should be protected. Each consumer successfully declaring Chapter 7 bankruptcy (and, again, double all of this for husbands and wives jointly filing) may keep two beds and associated linens, one dresser, one bedroom table, one living room chair, four lamps, one kitchen table, one dining room table and four associated chairs, one carpet, one couch, three end tables, one television OR stereo system, one alarm clock, one washer, one dryer, one vacuum cleaner, one fridge, and one oven. These furnishings, along with any family portraits or paintings/photographs done by the individual declaring bankruptcy, shall be protected through Arizona statutes as long as the combined value does not exceed four thousand dollars - or, once more, for couples, eight thousand dollars.

As well, each person filing bankruptcy in Arizona may keep a hundred and fifty dollars in a single bank account as well as their sewing machine, their typewriter, their burial plot, and a wheelchair or prosthesis. The family bible will be safeguarded regardless of value and all other books are protected up to a total of two hundred and fifty dollars. You may keep five hundred dollars worth of clothes, wedding/engagement rings valuing up to a thousand dollars, and one watch less than one hundred dollars. Pets, which for the purposes of bankruptcy include cows and poultry and horses, are allowed up to a total value of five hundred dollars. Musical instruments are protected up until two hundred and fifty dollars and firearms (rifle, handguns, etc) up to five hundred dollars. Automobiles are protected up to a value of fifteen hundred dollars - the rules are somewhat different for filers with medical disability - and bicycles are protected regardless of value.

Any arms or clothing or associated materials that Arizona military personnel are obligated to maintain cannot be touched by bankruptcy court trustees in any fashion, and the tools of trade for farmers (seed, machinery, animals, etcetera) and teachers (arguably everything aside from motor vehicles however necessary) should be similarly excepted up until twenty five hundred dollars value. Any stores of fuel or food are exempt provided that they are not judged to last longer than six months for the households' needs. The guarded cash value of life insurance policies ranges between one to twenty thousand dollars depending upon the familial relations of the beneficiaries, pension exemptions vary along with the debtors' former careers with Arizona public servants (social workers, firefighters, policemen, park rangers, and other state employees) granted the most lenience by far, and the benefits from health insurance and fraternal societies remain property of the debtors regardless of amount. At least three quarters of the wages earned in Arizona but not yet paid to the newly bankrupt are protected, but the actual sums that those declaring bankruptcy shall receive depends upon their household needs and potential income as determined by the judgment of the Arizona state trustee.

This is, once again, only the briefest summation of the exemptions available under Arizona law, and, for anyone seriously considering bankruptcy, it's pretty much necessary these days to enlist the services of a bankruptcy attorney to aid the borrowers in not only the eventual court hearing but also the reams of paperwork now required. As statutes change both from the federal government and from Arizona state law, the documents get ever more complex and the verbiage purposefully confusing. Frankly, for ordinary consumers untrained in finance - or even for lawyers who are not specifically experienced with the details of the Arizona bankruptcy code - it's more than difficult to accurately prepare the filing papers with any degree of certainty. In terms of assets (which, as we have shown, can be considered almost anything), borrowers are almost sure to forget one item or misinterpret the meaning of what was asked, and, whether intentional or otherwise, even the slightest lapse may result in your case being thrown out even days before discharge (and after you have spent thousands of dollars which will never be returned) or, in the worst possible eventuality, lead to charge of fraud punishable by imprisonment. In terms of their debts, borrowers are equally likely to miss one or two of their obligations when submitting their creditor matrix, and, while that shan't probably lead to time in an Arizona jail, debts that aren't submitted to the trustee will also not be discharged through bankruptcy and the creditors have all legal authority to file suits of their own for garnishment or seizure.

While it is still possible for Arizona residents to attempt a bankruptcy debt liquidation on their own, this is inevitably a false economy that flirts with grave danger on all fronts. Bankruptcy attorneys have become a necessary evil of the Chapter 7 process, and, with our national financial system crumbling and more and more Arizona workers laid off every week, they're in short supply especially within our state. Of course, never one to miss a chance to raise fees, one consequence of the sudden demand for bankruptcy attorneys around Arizona has been exponential jumps in lawyer fees for what should be (for what, more to the point, the original legislators meant to be) a remarkably simple process. Combined with the administrative costs due to the courts for attempting to declare bankruptcy and the fees for the essentially worthless credit counseling courses that borrowers are now forced to pass before they can even file paperwork, many of the lower income debtors that would be best served and most likely to be deemed eligible for the Chapter 7 program have absolutely no way to afford the procedure. (and, if needs be repeated, neither the attorneys nor the government shall work on credit when bankruptcy is involved) Much as they say it takes money to make money, it apparently now takes money to lose money as well.

Because of these costs as well as the aforementioned hardships built into the bankruptcy laws following the 2005 alterations of the national statutes, many borrowers in Arizona and elsewhere have started to investigate other alternatives for solutions to their mounting debt crisis. Many of these supposed debt relief solutions, however, have flaws nearly as dramatic as those affecting today's Chapter 7 protection, and Arizona borrowers would be well advised to do their own research about any potential debt relief strategy no matter how convincing their promotional materials or company salesmen may be. The Consumer Credit Counseling approach has been largely discredited due to their own costs, negligible effects, and destructive impact upon FICO scores - plus the growing realization that the industry has long been supported by credit card companies eager to steer borrowers away from attempts toward bankruptcy protection. Debt consolidation based upon secured loans such as the refinancing of primary residences helped bring our economy to its current state, and, even if one could find a mortgage lender still open and available, the real estate market has plummeted to such a degree (especially in the Arizona area) that equity loans would no longer work. While it surely makes sense to try and find an alternative to bankruptcy, some debt relief methods may even be worse over the long run.

To be honest, when speaking with debtors in Arizona, the only approach about which we have heard universally positive comments has been debt settlement. Relatively few of our correspondents have gone through debt settlement themselves, of course. It remains a fairly new industry, and, not accepting money from creditors, debt settlement firms haven't nearly the money for advertising enjoyed by the Consumer Credit Counseling giants. In fact, many of our correspondents in outlying regions of Arizona were forced to seek help on-line from one of the debt settlement internet sites because they couldn't find a settlement specialist working in their area. Turns out, as long as they're certified by the national board and maintain a good and verifiable reputation, there's not a great deal of difference to be found from quality companies whether or not you work with your debt settlement professional in person or over the phone, and the Arizona borrowers that we spoke with found success from both sorts of companies.

The thrust of debt settlement isn't that far removed from the Consumer Credit Counseling approach, trained debt analysts work out a household budget that would ensure continual payment of existing debts while requesting a waiver of past fees and lowered interest rates from representatives of the lenders, but, since they're not also paid by the lenders, they ask for rather more. Essentially, after binding together the various debts of an eligible borrower, the program uses the threat of bankruptcy and promise of a sped up schedule of payments to negotiate a reduction - sometimes as much as half of the original - of the borrowers' balances and interest rates. Because of the many variables surrounding each Arizona consumer's specific debt ledger (not all creditors are on board with the plan) and viability (income and past payment history will play a part in determining entrance to the settlement program), we should not pretend that every problem debtor could avoid bankruptcy through the debt settlement program, but it bears analysis for anyone that wishes to safeguard their possessions and maintain a credit rating the years after all debts have been erased.

Personal bankruptcy protection still may be the only path toward financial freedom for some particularly desperate Arizona borrowers, but it's recently become a long and winding road with no clear end in sight. For those debtors who are simply not qualified to attempt debt settlement or any other program, bankruptcy protection yet means something in Arizona and, in some version, it will always be around, but there's no harm to examining the other avenues that have recently opened up.

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