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.