Category Archives: Automobiles

Saving Pennies, Losing Dollars: Tales of Bankruptcy Filings Without Legal Advice

Mounting bills, calls from creditors and declining funds leads to a maddening level of desperation. People often feel that they are too broke to hire an attorney to file their bankruptcy. You are between a rock and a hard place, you need to get rid of the stress of your debts and it seems like the best thing to do is to file a bankruptcy on your own.

You are not alone in this thought. Between 25% and 33% of all bankruptcies filed in Arizona are filed by people who have either attempted to prepare their own bankruptcy documents or hired a paralegal service to prepare them.

Many of those people end up having an unpleasant and expensive experience with the bankruptcy court. Many will have assets confiscated. Many will lose the only decent sum of money they receive all year – their tax returns. Yes, the bankruptcy court will take your tax returns! This is why you need to plan for a bankruptcy with an attorney.

Here’s an example what can happen if you choose to file a bankruptcy without the assistance of an attorney.

I met with a woman about a year ago who was unaware that her tax refund, which was substantial, would be confiscated by the Bankruptcy Court Trustee. She ending up losing nearly $8,000 in her tax return money that she desperately needed to the bankruptcy system. Because she didn’t have an attorney at her side. That money could have been used to purchase a vehicle, pay for an attorney, and help with utilities. With careful disclosure of that spending, she would have survived her bankruptcy without losing other assets. She thought she had to be in a rush to file the bankruptcy, and didn’t get the advice she needed to plan accordingly.

This can be avoided with experienced representation. 

I stress that this planning must be done appropriately, by competent attorneys with an intimate knowledge of what is allowable in pre-bankruptcy planning and what is not. Pre-bankruptcy planning is intricate and can take time. But it is extremely valuable.

Another classic scenario involves a person who has been sued, and is consequently highly motivated to file a bankruptcy before a wage garnishment starts, but may also have a large tax refund coming, or perhaps a reimbursement for some work expense, or a personal injury claim, or an inheritance.

Again, they rush in with no legal advice, get a paralegal service to type up what they think they need to file, and then lose assets unnecessarily.

Recently, my office assisted a bankruptcy client with pre-bankruptcy planning on how to purchase a home for their family by using a personal injury recovery as a down payment. We were able to help them to keep that home.

Saving pennies can cost significant dollars. The main ally you have is an experienced attorney who can offer sound advice and good knowledge. Document preparers, and, sadly, lawyers who charge cut rates and who will only provide cut-rate legal advice, are not in your best interest.

Don’t be penny-wise and dollar foolish!

If you have questions about your bankruptcy eligibility, or ways to avoid bankruptcy through other means, schedule a free initial consultation with Daniel Rylander by calling (520) 299-4922. Upon hire, we provide sustained support throughout your bankruptcy process.

Positive Proposed Changes to Arizona Bankruptcy Rules/Statutes

One of the fundamental issues facing Arizonans forced by unfortunate circumstances to consider bankruptcy are the interactions of what are called “personal property exemptions” with their possessions. In its simplest description, what do Arizonans’ forced to file bankruptcy get to keep and what don’t they get to keep?

This question is asked by our clients on a regular basis. The answers are complicated and in some instances, frankly ridiculous. Arizona State Representative Eddie Farnsworth, District 12 (R) Gilbert, is proposing to update some of the Arizona statutes that affect Debtors seeking bankruptcy protection through House Bill 2325. This bill is a great start to providing a more level playing field for Arizonans facing financial difficulty.

First, what is an exemption? An exemption is a state statute that excludes certain categories of personal property from being taken and sold to pay creditors. Links to the current Arizona personal property exemptions that Rep. Farnsworth is seeking to amend are: (click on the titles) Household furniture/appliances (A.R.S. 33-1123), Personal items (A.R.S. 33-1125), Money benefits or proceeds (A.R.S. 33-1126), Tools of the trade (A.R.S. 33-1130).

Even a cursory review of them will cause some head scratching. For example, the Arizona homestead (house, mobile home, condo, etc., where one resides) exemption, (A.R.S. 33-1101) is $150,000. But the vehicle exemption  (A.R.S. 33-1125(8)) is only $5,000. There is an exemption for a typewriter (A.R.S. 33-1125 (7)). But there is no exemption for a computer. There is an exemption for a 401(k) plan. But  there is no exemption for a small business’ list of customers.

For individuals forced to use bankruptcy (Debtors) to keep creditors from taking needed income, these exemptions matter. The reason they matter is that, whether the Debtors must use Chapter 7 (liquidation bankruptcy), or Chapter 13 (reorganization bankruptcy), what is exempt and what isn’t exempt determines what you pay for or lose in the bankruptcy.

In the case of reorganization bankruptcy (Chapter 13), what isn’t exempt partially determines what the Debtor’s creditors get paid. This can increase the monthly payment amount a Debtor pays over several years, regardless of actual income. The Debtor using liquidation bankruptcy (Chapter 7) might have to give up personal property to a bankruptcy trustee so the trustee can sell it. Some trustees will require the Debtor to buy back their own property.

This state of affairs where the personal property can be seized to pay debts makes sense when individuals owing lawful debts own substantial assets that can be liquidated. But most Debtors in Arizona who have to deal with this issue are dealing with relatively low value assets. This office has handled many small asset liquidation bankruptcies for Debtors, and in the vast majority of those cases, the asset is excess equity in the vehicle our clients need to get to work. Or, it is their wedding and engagement bands. And, the trustees are generally collecting less than $5,000, before auction costs and trustee’s fees.

Does this seem a little unfair?

A formerly well off Debtor with a car valued at private party sale at $10,000, and using the current exemption, will likely have to pay the trustee at least $4,000 to keep their vehicle. A Debtor with a $2,000 wedding band will have to pay the trustee at least $500 to keep it. In fact, these low exemptions are actually a problem for liquidating trustees. They know that a retail value of a wedding ring is not what it will sell for. The trustee solution, is once again, to burden the Debtor with the cost of a written appraisal of value. This cost may be worth it for the Debtor, but the information about its ‘real sale value’ may be frankly depressing.

In our experience, the disclosure of this fact – that personal property can be confiscated or Debtors can be forced to pay for it – leads Debtors to often conclude that the solution is filing their case and “leaving off” some of their personal property. Sounds like a simple fix, right?

Wrong.

Under the federal law that controls bankruptcy, “leaving information off” is a federal crime. It is perjury. Our office will not and cannot counsel our Debtors to perjure themselves. So, we often counsel our clients to sell property. Again, a depressing burden heaped on already financially stressed individuals.

Considering that the exemptions were created to protect the personal property of Debtors from creditors with lawful debts, why are they so uneven and arbitrary? The reason is that our Arizona state exemptions are outdated.  In 2004, the homestead exemption and the vehicle exemption was increased. But the main personal property exemptions – Household furniture/appliances (A.R.S. 33-1123) and Personal items (A.R.S. 33-1125) – have been in place since 1976! They have not kept up with the times.

Now, Arizonans – by contacting their state representatives – have an opportunity to change this.

State Representative Eddie Farnsworth of Gilbert has proposed House Bill 2325. This bill is a great start to providing a more level playing field for Arizonans facing financial difficulty. Please read it. It will take less than 5 minutes. Most notably, it increases the dollar amount of exempt personal property values, and updates the statutes to modern times.

This bill will not only help Debtors facing bankruptcy, but Debtors with judgments against them.  Imagine facing a sheriff’s auction of your one valuable item that is free and clear, a pickup truck, and the auction of your work tools. This can happen under the current law.

Arizona House Bill 2325 will reduce that threat. These small changes in dollar amounts on state statutes that are obscure, but operate to tilt the bankruptcy and collections playing field in favor of humiliating loss of assets, will make a big difference in the bankruptcy outcomes of stressed Arizonans. It will also reduce the desire on the part of honest but unfortunate state residents to commit bankruptcy perjury because they are worried about their wife’s wedding ring, or their tool box, or their customer list, or their armoire that came down from family over one hundred years ago.

This office supports House Bill 2325. Contact Representative Farnsworth’s office at (602) 926-5735  or by email at efarnsworth@azleg.gov. Contact your own state senator or representative and tell them you would recommend they support Arizona House Bill 2325.  The time is now to make this contact.  This bill is in committee (judiciary – contact the members), and it will take support, and continued support, to make it law.

Find what District you are in by clicking here. Click here to find your Arizona State Legislators and their contact information. Please do contact them with your support of this bill and the much needed changes it can help to provide. Read the Arizona Daily Star article here.

– Daniel J. Rylander

What About My Car (scooter, motorcycle, etc) Loan?

If you are filing a Chapter 13 (reorganization of your debt), your vehicle’s loan payments can be put into your monthly payment plan.

If you are filing a Chapter 7, where your debts are wiped out, you have a couple of choices.
1) You can either turn your vehicle over to the financial institution that financed you.
– or –
2)  You can work out a reaffirmation agreement. A reaffirmation agreement means you will keep that loan and will pay the monthly payments.