Arizona Bankruptcy Attorney Blog: Blogging About Bankruptcy in Arizona, by Joseph McDaniel

Hiro Nakamura Should Be a Bankruptcy Lawyer

2010-02-28T20:23:00.000-08:00

Hiro Nakamura is a character on the TV show Heroes who possesses the ability of space-time manipulation.

Why should he be a bankruptcy lawyer?

Because, as I indicated recently, I get emails that look a lot like this:

"I've not had full time work for a year and a half. My bills are current for the month of February; however, I've exhausted my savings and will not be able to pay my bills in March. I need assistance and guidance."

Now, the only problem is that my super power is super-boredom; that is, I'm boring at levels usually only attained by beings from Krypton when they've turned on their super-boring. And that is useful when I'm talking to angry creditors.

But if Hiro Nakamura were a bankruptcy lawyer, he could go back in time and give advice to folks to see a bankruptcy lawyer BEFORE they had exhausted their savings.

That would greatly improve the benefits that a bankruptcy lawyer could provide to his clients.

Oh, well.

You work with what God gave you.

PLEASE DON'T WAIT UNTIL ALL YOUR ASSETS ARE GONE BEFORE YOU TALK TO A BANKRUPTCY LAWYER IN ARIZONA, OR ANYWHERE ELSE!

2010-02-26T20:34:00.000-08:00

Guys,

There are some people who really, actually break my heart.

They are the nice, sweet, hard-working people who make America the great Country that it is, and who spend their very last dollar trying to do the right thing.

So stop it! Do not spend that last dollar! Do not beggar yourselves for credit card companies and banks that have already made money off of you for all your lives.

Here's part of a letter from a very sweet woman.

LEARN FROM HER SITUATION, AND DO NOT SPEND YOUR LAST DOLLAR PAYING THE BANK OR MAKING CREDIT CARD PAYMENTS. PLEASE, I WANT YOUR GOLDEN YEARS TO BE, YOU KNOW, GOLDEN!!

Dear Mr McDaniel,

I am 61 years old. My husband passed away in November 2006 - after
three years of valiantly fighting a brain tumor. During that battle,
he could not work. I kept up with our bills and commitments as well
as over $100,000 out of pocket hospital and doctor bills.

Then in June 2008, the company for which I had worked for the past
seven years went out of business. I did not have a job. I continued
to pay all my bills but eventually ran out of money or other
assistance.

I refinanced the townhouse where we had been living in _________ so
now make mortgage payments of $1,381 per month.

However, after two years of unsuccessfully trying to sell the new
house my husband and I had been building, I quit making the payments
to _________ Bank (__________). The house eventually went into
foreclosure.

I continued to make payments on two pieces of land (one in _______ and
one in ___________) until January 2009. I then let _ & _ Bank know
that I had no more money and so stopped making those payments. Both
pieces of land also went into foreclosure.

I now have a lawsuit filed against me from _ & _ Bank for the land in
____________. _ & __ purchased the land themselves from the Trustee Sale
and say that now I owe the $104,000 remaining from the mortgage.

I am sure I will receive a lawsuit from them for the __________ land as well.

Is it too late to file for bankruptcy? What are my options?

------------------------------------------------------------------

Okay, now I'm without words.

If You Were A Zillion Dollar Credit Card Company, Would You WANT to Drive People into my Office?

2010-02-26T19:22:00.001-08:00

Traditionally, lawyers have exchanged a bottle of scotch or champagne with attorneys who referred them cases over the years. Or sent out baskets of fruit. Or cigars and blonds. Depended on the state.

I'm torn. I am not happy with the behavior of credit card companies, but they're sending me so much business, I almost feel compelled to find out if they prefer gift baskets with fruit and chocolates or with nuts and gourmet coffee.

I was talking to YET ANOTHER hardworking, do-the-right-thing kinda potential client today, who said, YET AGAIN, that she had worked two jobs to keep all her credit cards up to date.

And then, with a credit card company she'd been with for twenty years, she was ONE HOUR LATE making a payment. And her interest rate instantly went up from 2% to 29%.

Then the big rock she was pushing up that steep hill got bigger, and then bigger, and then bigger, and then it rolled back over her hardworking, try-to-do-the-right-thing back, and when she regained consciousness, she realized that the companies she had worked so hard to make happy for so very long didn't care if she lived or died, and apparently wanted her to file a bankruptcy so she could shop someplace other than Walmart.

She has four kids, by the way.

So I listened to her talking, and I said, you know, sounds to me as though you'd sleep a lot better if you didn't have a hundred thousand in credit card debt (it used to be a lot less, before the credit card companies piled on massive interest rates and penalties).

She agreed.

So we're going to talk some more about it, and she's ultimately going to have a little more money to spend on the four kids.

And by the way, can you spell corporate stupidity?

Can I Keep Money in my Bank Account So I Can Pay the Trustee for the Preference so he doesn't Sue Mom?

2010-02-25T14:06:00.000-08:00

Nope!

It makes sense that you'd want to do so, but you'll just lose that money to the trustee, because it's a non-exempt chunk of dough in a bank account on the instant of the Chapter 7 bankruptcy filing.

So the trustee has an absolute right to have and grab and take it, for the benefit of creditors in your case.

And then the trustee would STILL say, politely, would you rather pay me the amount of the preference which was paid to mom, or would you rather I sue her?

And usually, here in Arizona, they'll permit a stream of payments, rather than a onesie.

And perhaps, after the date for objecting has come and gone, you'll sell an exempt asset to get money to pay the trustee so he doesn't sue mom. Because that would make Thanksgiving Dinner a little...strained.

The Stupidest Consumer Protection EVER? Cute Post by Another Bankruptcy Lawyer

2010-02-25T07:25:00.000-08:00

Apparently, some other lawyers have also failed to see the benefits to consumers (or the humor) in the BARF Act.

So I interrupt your normally scheduled blog to provide a rant from someone else, just for variation in rants.

Why Do Credit Card Companies Call It a "Repricing Event" When They Increase Your Interest Rate by 30%?

2010-02-24T19:35:00.000-08:00

Because non-consensual sex is too hard to spell.

Sorry, I had to do it. A client told me this one today, and I'm still trying to get the coffee out of my keyboard.

One Ring to Rule Them All, And In the Darkeness Bind Them!

2010-02-24T08:54:00.000-08:00

Okay, wrong ring.

But wedding and engagement rings continue to be issues in cases, and it may get a little worse over time before it gets better.

But don't stop breathing; I have written two different blog entries about wedding rings, and this is just an update. Read the other two so you'll understand this one.

And bear in mind that we're talking about only one issue: do you keep the ring or not? In every case where a client of mine wanted to keep the ring, they kept the ring.

Therefore, the only issue is, do you have to pay anything to the trustee for the ring?

There is a fiendishly smart (actually, he's a nice guy, trying to do a good job for his clients) trustee's lawyer in town named Terry Dake.

Terry has formulated an opinion that, while you can stack every other exemption in Arizona except the homestead exemption, you can't stack the wedding ring exemption.

The reason you can't stack the homesteads is that the homestead exemption statute is designed to prevent that.

The reason, Terry believes, that you might not be able to stack the wedding ring exemption and put both the husband's and wife's wedding ring exemption on her ring is simple. Terry believes that the wife's ring is not community property, because it was a gift.

What does that mean to a couple contemplating a Chapter 7 bankruptcy in Arizona, when she has a ring that cost $10,000 when new? Well, that all depends.

But she'll get to keep it, whether or not it's fully or partially exempt, depending on the valuation and the willingness of the couple to pay any overage and appear at an auction, to deal with overbids.

Do you begin to understand why I'm only 20 years old, and yet have this full head of silver hair, with a silver beard? I used to be six-four, two hundred fifty pounds of muscle, with GIGANTIC biceps; blond hair, blue eyes!

Then I became a bankruptcy lawyer in Arizona, and look at me now!

p.s. as to the ring, if it's not paid off, there's a huge chance that the jewelry store has a security interest in the ring. The good news is that it reduces the equity in the ring, so you won't have to pay the trustee to keep the ring. But you would need to pay the jewelry store what they are owed to keep the ring! And then there's the thought of redemption, but it seldom has application with debtors who can't pay their credit card debts.

p.p.s. if I wrote the laws, this whole process would be very, very simple. I'd simply look at the value of all the exemptions. Then there would be one and only one exemption: the debtors can exempt property with a fair market value as of the date of the filing of a buncha dollars.

Done! Eezy-peezy!

But I didn't write the exemption laws, so we get to work with the laws we have. And Arizona has fairly generous exemption laws, although they're uneven as all get out!

Am I an Arizona Bankruptcy Law Expert in Phoenix? Well, Let's Go to the Dictionary!

2010-02-22T12:22:00.000-08:00

I heard this from a potential client this morning, and couldn't resist passing it on.

You know what an expert is, right?

Well, an "ex" is a has-been.

And a "spurt" is just a drip under pressure.

So I guess if the shoe fits....

Unexpected Compassion in Bankruptcy Court. Vacating Reaffirmation Hearings on Cars!

2010-02-22T07:53:00.001-08:00

I have written before that Bankruptcy Court is one of the few Courts in the United States where the Pity Pitch doesn't work very well.

The reason is obvious. Everybody there has an excellent reason to make a Pity Pitch, and if everybody can make the same sort of argument, that specific argument will mean less to the people at whom it is directed. They develop a resistance when they've heard it all before.

In addition, the system has been re-designed, after the 2005 Amendments (the "BARF" Act), to eliminate the risk that a human might feel or manifest compassion ("my job is only to calculate ____________: after that it goes to Jerry, for action. I have no discretion in deciding a result at all. It's all numbers.").

But they forgot the Judges! And apparently there is compassion left buried there.

I went to a reaffirmation hearing recently for unrepresented debtors. I must have taken a wrong turn, or I was disoriented because of my advanced age. For whatever reason, I was there.

And I got to watch a remarkable demonstration of compassion from a Bankruptcy Judge I won't embarrass by name.

But he heard about thirty motions for reaffirmation on automobiles in bankruptcy cases involving unrepresented debtors, and he vacated all of them.

Here's what I think is going on in the area of automobile reaffirmations in Arizona.

There's a nifty opinion entitled In re Moustafi, Ch. 7 Case No. 4-07-00407-EWH, 2007 Bankr. LEXIS 1925 (Bankr. D. Ariz. June 4, 2007), and in that opinion, the Judge said, more or less, the debtor tried to get a reaffirmation approved. That's good enough. So even though the reaffirmation wasn't approved, the debtor gets to keep the car as long as payments are current.

Are you confused? Well, you certainly should be!

Here's some history that may help.

Prior to the "BARF ACT" 2005 Amendments to the Bankruptcy Code, a debtor in Arizona could keep a car simply by making payments.

But BARF modified section 521(a) of the Code so that Section 521(a) of the Bankruptcy Code merely requires the debtor to "take steps to act on an intention to either retain or surrender."

So IF a debtor wants to keep a car, and IF the debtor files a reaffirmation agreement timely, and IF the Bankruptcy Judge, FOR WHATEVER REASON, vacates or denies the hearing on the reaffirmation agreement, THEN PROBABLY the debtor gets to keep the car IF the debtor stays current, MAYBE.

Got it?

Yeah, I know. Confusing.

Here's another discussion of the cases and the doctrines and the outcomes, which is in a nifty Georgia Bankruptcy Law Blog.

Yet Another Way to Keep a Business in a Chapter 7 Bankruptcy Case

2010-02-11T01:26:00.000-08:00

My guess is that this is going to provide more fodder for blogs than most topics, because there are a lot of different patterns in businesses.

Let's do a quick recap; bankruptcy is critical to job-formation in the United States because entrepreneurs need to be able to learn their jobs, because no school teaches you how to be an entrepreneur. That's partly because the job description changes daily.

It's also because running any particular business requires a learning curve.

So for any particular biz, all you need to do is to work on it like crazy for five years. And then experience the heartbreak of massive failure.

And then the humiliation of bankruptcy, a public failure. That's public record.

But by then, Grasshopper, you will have learned the answer to the Koan!

Not the ever-popular "What is the sound of one hand clapping?"

But one that's more useful in the business world: how do I run this business without ANY overhead, just by subcontracting the elements of the business, and overseeing the process?

Okay, the first Koan is much more elegant.

But finding the answer to the second Koan makes you very, very happy indeed.

Note: this is a post-graduate issue. If you have a brick-and-mortar business, and you want to keep and improve that by way of your bankruptcy, don't be embarrassed. The trick with the loaves and fishes is not so easy, Grasshopper!

Why Do I Ask Clients, "Is there Anything Else You Think I Ought to Know?"

2010-02-10T20:03:00.000-08:00

A cleanup question is a useful tool.

Remember that they call it the practice of law.

There's a reason for that. You learn as you go. Every single day.

About twenty-eight years ago a nice young man called me on the phone about a possible bankruptcy filing.

I asked him a ton of questions. He answered; he was well-spoken, well-mannered, and well-organized.

I figured he was an ideal client on the hoof.

At the end of the discussion, he asked if there were going to be any law enforcement officers at the first meeting of creditors.

I responded that it was in the Federal Building, so yeah, there were going to be Feds.

I asked why he had asked the question. He answered that he had recently become aware of a warrant for his arrest.

For murder.

I told him he didn't need me. I gave him the name of three board-certified criminal defense lawyers here in Phoenix, and suggest that he not pay me, and instead pay them.

Whatever they wanted.

And I also pointed out that credit cards were the least of his worries.

Why There Are No Jobs, But Plenty of Bankruptcy Cases to go Around!

2010-02-09T08:19:00.000-08:00

Clients, you can skip this one; it's just an observation on the reasons that there are too few decent jobs to go around in the United States.

And this isn't a blog about macro-economics, because I'm just a bankruptcy lawyer, and I'm not smart enough for all that theory.

But my understanding is that the middle class has not gotten a raise in real income for several decades, for a lot of reasons.

One of those reasons is that production of goods has been outsourced by a large number of large corporations.

I was reminded of the plight of the middle class in the United States when I heard a satirical song when I was looking for some old guy rock and roll.

Seems to me that there are countries that have decided that they want to produce their own energy instead of importing it, and they therefore pay less for their energy. And there are countries that decided it would be good to make it easy for manufacturers of goods, and they have jobs coming out of their ears. Kinda like the United States when it was the arsenal of democracy, and when it could produce its own tanks, entirely in the United States.

And then there were very few bankruptcy cases.

So maybe we ought to figure out what makes it hard for manufacturers to produce in the United States, and make those barriers go away.

Or we can always just keep mass-producing bankruptcy cases.

Your call, of course. I just sit here chained to the desk, trying to help some poor devil who tried all his life to work as an engineer, only to find that we don't need engineers in the United States anymore.

So maybe he can go back to school and become a hair-cutter, or learn to give therapeutic massage.

And we can watch how well an economy works when we all trade haircuts for back-rubs for car washes. You know, an economy that is entirely based on services to one another, instead of production of anything whatsoever.

One nice side-effect of no production of any actual products at all is that the air will be very, very clean indeed.

Bankruptcy: The Most Important Job-Creation Tool

2010-02-06T06:23:00.000-08:00

How do I get there?

Simple.

Jobs are created in the private sector, not the public (government) sector. If somebody has a government job, the money to pay for that position came from the private sector. No private sector at all, no jobs at all. Except under socialism and communism, and the problem with socialism, according to Margaret Thatcher, is that eventually you run out of other people's money.

Therefore, if you have a job and you can feed your family, thank an entrepreneur. And thank bankruptcy.

Because an entrepreneur, the guy who assembles the assets and the employees of a business, isn't totally stupid.

He will take risks; his risk is failure. And if you're running a business and you guess wrong, or the business environment changes, you get to FIRE a bunch of people, and many entrepreneurs would rather drink molten lava.

Our economic system is driven by a profit motive, and it provides the highest standard of living in the world for the largest number of people.

All that could change overnight, of course.

But back to the topic: an entrepreneur is the guy who decides that the world needs a better juice drink. So he assembles the lease for the juice bar location. He interviews the potential employees. He begs Aunt Martha for the seed money, and then the SBA, and puts up his house for security. He works 20 hours a day for the first year, because he can't afford enough employees during that rough, rough first year.

Then he loses the farm. He guesses wrong. The business tanks. Remember, the average self-made American millionaire goes broke FOUR TIMES before he gets to keep it.

What would happen if people went to jail if they didn't pay their debts?

That's not a crazy suggestion, since for much of history, there have been prisons for debtors, and there still are in some countries.

Those countries typically don't have a vibrant economy.

Because an entrepreneur is smart. And if the risk of building a business is that he's going to get to go to jail if it doesn't work well, that will reduce the number of businesses being built very quickly, and also the number of jobs that businesses build.

So let's track it again: while banks may believe that bankruptcy is bad, it's really very good for the economy. Because it's hard to put together a business (no school does a good job of teaching you how to start and run a tiny business; sorry, Harvard). Therefore, an entrepreneur has to learn on the job. And risk a business failure every single time.

Because there are big risks in running a business (the SBA and the bank foreclose on your house, sue you for big bucks, and you get to tell all the friends you hired over twenty years that they have to go find somebody smart to work for), your third wife leaves you because she only liked your jet ski, and a bad time is had by all.

But a clever entrepreneur understands that if he files a bankruptcy, and can then assemble the seed money, and find employees and train them better, and find a better location, and advertise on the internet this time, and work 23 hours a day instead of 20, HE CAN MAKE IT WORK THIS TIME!

And he's right. Eventually he'll get it to work, and there will be more productive jobs creating widgets, or giving better haircuts, or building better mousetraps, or serving more and better crayfish etouffee, or teaching speed reading.

But he won't do it unless there's some way to get out from under and start over. And you really, really want an entrepreneur to be able to start over, after he's learned some of the lessons about running a business that they don't teach in school.

If you want your kid to find a job.

Yes, this is still a depression; Unemployment is officially 9.7%; Bankruptcy cases will continue to increase

2010-02-05T16:48:00.000-08:00

You heard it here first, folks.

p.s. Wait until commercial real estate tanks.

p.p.s. Wait until hyper-inflation hits.

p.p.p.s. Maybe you think this makes me happy, because I'm a bankruptcy lawyer. And nothing could be further from the truth.

What Happens When Only One Spouse Files a Bankruptcy?

2010-02-05T13:57:00.000-08:00

It's never good to make waves in bankruptcy cases. The trustees are used to seeing a particular set of facts, and they are trained to be curious about non-standard sets of facts.

So, for instance, when I was at a first meeting of creditors today in Casa Grande, I got to hear the filing spouse sputter when asked 1)WHY his wife didn't file, and 2)was his wife getting a tax refund, because if so, the trustee wanted it, even if the wife wasn't filing a bankruptcy, and 3)WHAT ASSETS did his wife own, even if she wasn't filing?

You just KNOW that debtor will be sleeping on the couch for several decades after the trustee takes his wife's car and tax refund, and whatever else looks like fun, when his wife had told him she wanted nothing to do a bankruptcy.

But wait! There's more! He'll be sleeping in the doghouse when his wife gets sued for debts that he has discharged in his Chapter 7 case, because creditors do that sort of thing. Darn creditors. But his discharge won't keep creditors from suing his wife, and they will sue her, working on the very strong presumption that debts incurred during marriage are community debts.

I've filed singleton bankruptcy cases for married folks, and gotten decent results in the past.

But it's always a bumpier road than a twofer.

Also note that the trustee wants to count the spouse's income for means test purposes.

Still, guys hate the idea of putting their wives through the process of a bankruptcy.

I always tell 'em, sure, I PREFER it if your wife doesn't file right now. And that's because I'll get paid to file your bankruptcy case, and then I can get paid to file your wife's bankruptcy case when she gets sued!

Of course, I don't prefer it. I prefer a good result for the client. So nobody has to sleep in the doghouse for several decades.

Go Get 'Em, Tiger! Lawyer Sues: Unrelenting Calls on his Overdue Student Loans

2010-02-05T05:57:00.001-08:00

This is a just for fun post.

I always like to see somebody going after those folks who make a lot of phone calls.

And student loan lenders are remarkably aggressive in collecting their money.

The ABA Journal recently ran this article:

A Seattle lawyer who says Sallie Mae harassed him with “unrelenting” automated collection calls is suing for at least $500 in damages for each unwanted contact.

Lawyer Mark Arthur is seeking class action status for the suit, filed in federal district court in Seattle, according to the Puget Sound Business Journal. The alleged calls to his cell phone were made after Arthur fell behind on loans for his education at the Seattle University School of Law.

Arthur claims the calls made on behalf of the SLM Corp., also known as Sallie Mae, violated the Telephone Consumer Protection Act. The suit (PDF posted by the Puget Sound Business Journal) estimates the number of potential class members to be in the tens of thousands. The action seeks damages of $500 for each unwanted call, trebled to $1,500 because the alleged violations were knowing and willful.

“Sallie Mae harassed me with dozens of unwanted calls on my cell phone, including calls that woke me up at all hours of the night and often within hours of each other,” Arthur said in a statement published by the Business Journal. “These unrelenting calls unfortunately corresponded with a time in my life that required great attention to family issues.”

The Super-duper Money-Back Bankruptcy Guarantee!

2010-02-04T10:34:00.000-08:00

Puh-leeeze!

Generally, if something looks too good to be true, it is.

I've talked a little about docu-prep services previously.

But there's one step lower, or perhaps sideways, in the bankruptcy universe. That would be the online-computerized bankruptcy .

Recently I've read advertisements flogging their incredible, amazing, money-back guarantee if the Court doesn't accept the filing!

Well, duhhh.

The Court will accept a filing if it's written in crayon on butcher paper, as long as the filing fee is paid (that's an exaggeration, but not much).

On the other hand, I noticed that the super-duper money back guarantee said nothing about whether the Court (either the Clerk of the Court or the Judge, and remember to worry about the U.S. Trustee's Office and the U.S. Attorney's Office, and also the creditors themselves) would DISMISS the case after it was filed, or whether the U.S. Trustee would file a Notice of Presumption of Abuse, or whether a creditor would file to dismiss the case, or object to the discharge, or otherwise make a nuisance of itself.

It's almost as though a doctor's office would GUARANTEE that after they did a heart-bypass, the artery would be clear, and say nothing about whether the patient would live, or the frequency of infections, or the length of the recovery.

You know?

What's Going to Happen to My Time-Share in my Chapter 7 Bankruptcy in Arizona?

2010-02-04T10:22:00.000-08:00

As with most things, that depends.

A time share is an asset. It's also not one of the assets listed as exempt under the laws of Arizona.

But it's a funny kind of asset. Maybe it's not transferable under the terms of the contract. Maybe there's a transfer fee. Maybe the timeshare agreement is fifty pages long and nobody in their right mind wants to read it!

And one timeshare is not the same as another timeshare.

Consider a timeshare in Haiti right now, you know? Or in New Orleans right after the flood.

Some timeshares are easy to sell, and debtors often sell them prior to filing in order to buy food, fuel, and provisions prior to filing a Chapter 7; that's probably just fine, as long as they sell it for close to fair market value to a non-insider. It's not a fatal problem if they sell it, for fair market value, and receive that value, prior to filing, and spend it on food, fuel, provisions, and so on.

But any transaction with an insider (which includes but is not limited to an insider) will be subject to much more scrutiny than a transaction with a non-insider.

So what happens if the time-share can't be sold by the debtor prior to filing?

Well, the trustee will probably try to sell it at auction, as trustees do, about once a month.

Or the trustee may, in the exercise of his or her business judgment, decide that it's not worth anything at all, and may abandon it out of the estate (and back to the debtor).

The debtor, if he or she wants to keep a timeshare, will sometimes make a lowball offer to the trustee; and sometimes a lowball offer will be the winning bid at the trustees auction, and then the debtor gets to keep the beloved timeshare.

But you can never tell about auctions. There are always those pesky Other Bidders!

Keeping a Business in a Chapter 7 Bankruptcy in Arizona, Part II

2010-02-03T13:14:00.001-08:00

This issue will provide a ton of sequels, because every small business situation is totally different.

Kinda like snowflakes.

Today's lesson, however, will be brief.

In today's variation, the small business owner, still a haircutter, has a tiny sub S corporation, and owns 100% of the stock in that corporation. No employees except the debtor.

So if she wants to continue cutting hair at the same place, under the same corporate umbrella, with the same phone number, and the same name, that MIGHT be a doable project. Here's how: the minute the filing happens, the debtor, though counsel, files an application to abandon the stock in her tiny business as being burdensome and worthless to the bankruptcy estate.

Now, if there's a debt load of $10,000 in the corporation, mostly from the lease, the trustee should (no guarantee) take a look at the $300 replacement value of combs, mirrors, telephones, signage, carpets, and half-empty cans of hair spray, balance that against the $10,000 owed by the corporation, and then agree that there's no reason to object to the abandonment of the stock from the estate.

The stock then flies out of the estate, into the waiting hands of the debtor, and the debtor now gets to run the corporation just as though she (the individual debtor) never filed a bankruptcy.

Sounds simple.

If only it were.

First, this works much, much, MUCH better if the corporation has gone dark (no business being done, at all) prior to the filing of the individual bankruptcy. It muddies the water no end if the business is being run after the filing, because then the poor trustee has to consider going concern values, and who owns the money being generated inside the corporation, and a lot of other arcane legal issues.

If the corporation has cooperated by going dark, the analysis is much simpler for the trustee.

And we don't want, ever, to confuse or anger the trustee. A happy trustee is a beautiful thing.

Note: if the trustee objects to the abandonment of the stock, everybody gets to talk. Then the debtor may or may not decide to make some offer to purchase the stock.

Or the debtor will decide to set up shop down the street, with a new set of combs and clippers that she bought with dough from dad.

See? It's all simple, but it's never easy.

And worse, there's no way to predict which way the trustee will jump on the application for abandonment.

That's why there has to be a plan "B", and a plan "C", and a plan "D", fully formed and ready to go PRIOR to any bankruptcy filing.

Because all of the trustees are actual, factual humans; and as different as snowflakes. Ditto the Bankruptcy Judges.

And Judges differ in their opinions. You heard it here first.

And that brings us to my next area of interest: when Judges don't agree, what's the right answer?

Arizona Bankruptcy Judge Talks About Reaffirmations, Redemptions in Her Bankruptcy Cases in a Video Published on the Arizona Bankruptcy Court Website

2010-02-03T07:58:00.000-08:00

Bankruptcy Judge Hollowell sits primarily in Tucson, so she presides over my cases less frequently than some other Arizona Bankruptcy Judges.

But she's always been smart, even before she got the robes.

She also gives a care about debtors moving through her Court, and she's generated a video discussing reaffirmation and redemption which is published on the Arizona Bankruptcy Court Website.

Whether your case is in Phoenix or in Tucson, it's a smart thing to listen to a Bankruptcy Judge who took the time to explain how she looks at reaffirmations.

You will all recall from my prior blog entries on the point that I share her concerns about reaffirming on automobile loans. In fact, I like reaffirmations the same way I like root canals.

If you listen to the entirety of Judge Hollowell's reaffirmation and redemption video, you'll understand why I feel that way. Or read my older posts on the subject; I was traumatized by a client who asked me to help her reaffirm, who subsequently defaulted on the expensive car loan.

That's why they call it the practice of law; you get to learn a lot of ways NOT to do things.

If You're Gonna Be a Bankrupt, Don't Be a Banker!

2010-02-02T19:42:00.000-08:00

Ordinary people of all sorts just plain like to help.

And during a depression, it's hard to resist when a family member wants a loan, or wants you to pay back a loan. Or asks you to park money in your account, because some creditor is chasing the relative or friend.

If you have issues yourself, and might need to file a bankruptcy, find it in your heart to resist. Don't give a loan to a relative. Don't pay back a loan to a relative. And don't let a friend, relative, or lover park money in your account.

The reasons are pretty simple. If you repay an unsecured debt to an insider within a year of filing your bankruptcy, the trustee will simply rub his hands together and say, "Yummy!" You have unwittingly exposed your beloved mother, grandmother, dada, or memu to a lawsuit.

The polite trustees always ask if you want to pay them the amount of the preference, or if you'd rather they simply let slip the dogs of war on Grams.

If you loan money to a relative, and you don't receive that amount back prior to filing your bankruptcy, it's an ordinary account receivable. And the polite trustees will ask if you want them to sue your sister with cancer, or if you'd rather pony up that amount.

And DO NOT let somebody park dough in your bank account. It's just bad business. What if one of your creditors garnishes that dough out of your account?

Your friend becomes your former friend.

And what if you give that amount back to your soon-to-be-former friend just prior to filing? It looks just like a preference, or a fraudulent transfer.

So unless you want to learn the rules of tracing and co-mingling money, just say no!

Document Preparation Services (Docu-preps) and Bankruptcy in Arizona

2010-02-02T12:47:00.000-08:00

Here in Arizona there is no unauthorized practice of law statute.

There are, therefore, document preparation services that will word-process wills, bankruptcy petitions and schedules, and divorce packages.

The prices for those services will vary. The prices for word processing a bankruptcy package is apparently held to a ceiling of $200, because the docu-prep services are permitted to provide typing and clerical services, but not legal advice to a potential debtor.

Have I ever referred anybody over to a typing service for a bankruptcy? No.

Would I ever do so? Ever is a long time, I suppose.

But a "no advice" service would make me nervous if I were filing a bankruptcy.

There is, after all, so much to go wrong. go wrong. go wrong.

At a Flagstaff first meeting of creditors in a Chapter 7 Bankruptcy case, I watched a debtor couple lose three vehicles that were not exempt. And that made me sad.

I knew if they had gone to somebody who knew what they were doing, and who was permitted to give advice, the couple would have sold the vehicles prior to filing and at least been ahead of the game for six months worth of food, fuel and provisions, whatever provisions are.

But it made me sad.

Gambling and Bankruptcy

2010-02-02T09:04:00.000-08:00

Every now and then somebody drops in and discusses how much they don't like themselves, because they just bet their way into the poorhouse.

Even worse, I sometimes get a chance to talk to some poor devil who's dishonored a gambling marker from Las Vegas, and now has an ARREST WARRENT out for him, and is looking at the probability of being EXTRADITED to stand trial in Vegas for what they suggest is like passing a hot check (the Vegas view of dishonoring a gambling marker).

That's the kind of corporate stupidity that comes from being run by a publicly traded company that has to report quarterly gains.

The Mob was much smarter. They wouldn't let a schlub run up a $200,000 marker, and if he didn't pay, they just WOULDN'T LET HIM PLAY AGAIN until he made good. Or just work him over a little.

Now lemmie ask you: are you more likely to use a marker (gamble on credit at the casino) if the consequence is that they might sue you, or refuse to let you keep playing, OR if the consequence is that you'll GO TO JAIL FOR TEN OR TWENTY YEARS for failure to pay?

Yeah, that's what I thought.

So I have a very strong suggestion for you.

Do not ruin your life with compulsive gambling. Find a different, less expensive compulsion with fewer bad side effects.

Compulsive swimming, maybe. Compulsive blogging. Compulsive fingerpainting.

But compulsive gambling is now plain out, especially if you're asked to sign a marker at the casino so you can keep going.

Just say no.

How Can You file a Chapter 7 Bankruptcy and Keep Your Small Business?

2010-02-02T07:58:00.000-08:00

Well, you can't. It's absolutely impossible.

Except when you can.

I'm going to write about this topic and start with the very smallest and simplest business, and work up to more complex and larger businesses.

Our first example in this topic area is the haircutter/dog groomer. Same business, different species. But we'll stick with the haircutter to keep it simple.

She's cut hair in a tiny little place that is her pride and joy; she came here from a different country, and loves having the freedom to own a business, which she didn't have back in East Mumbledy-mumble. The government there was too big, and had too many regulations to make it possible for an ordinary person to open a business and thrive.

Like many legal immigrants from East Mumbledy-mumble, she's willing to work sixteen hour days, nine days a week, because that was common in the state run factory that was formerly her boss back in the old country.

She's had a ten-year great run cutting hair, and now she's hit a rough spot on the pavement. And that's for three reasons.

One is that she doesn't know how to advertise on the internet, so she's invisible to customers. But she still has almost all her old customers, because she does such good work.

One is that her customers, one and all, are also affected by the economic depression currently gripping the United States. Therefore, while she's lost very few customers, they now come in for cuts only every other month, rather than every month.

For the numerically challenged, that means that her gross income has been cut in HALF, through no fault of her own; BUT HER OVERHEAD IS THE SAME AS IT WAS BEFORE THE INCOME WAS CUT IN HALF.

The final reason that her income is down is simple, brute competition. There are now haircutters who'll work for very little indeed, just to keep their doors open.

So how does she get to dump the debt and keep the business?

Watch!

First, the business sort of exists, and sort of doesn't, depending on your perspective.

She didn't incorporate her business. It's a dba ("doing business as...").

Therefore the physical plant, her chairs, and her clippers, and her stuff, all belongs to her, rather than to some other legal entity, like a corporation.

Here in Arizona, there's a "tools of the trade" exemption. It's only $2,500 or so, but we can aggregate her tools of the trade exemption with her husband's (he brings in no money, and cooks well and keeps the house clean. That's to keep the example simple).

And the tools are going to be valued at replacement value, and since they're all old and used, and used tools are a drug on the market right now, all of her stuff (clippers, brooms, bins, half-empty hair spray cans, mirrors, combs, and so on) are going to be exempt, or worthless, which is almost as good.

Now, you'd think that just filing for her would be good enough. But no. Because the trustee in her case will quite reasonably ask about the good-will value of her tiny business if it's open on the day that she files a Chapter 7, and the trustee will attempt to obtain payment from her to buy back her own tiny business, where she works many hours a day, on her feet, with no help. Because a going concern has value over and above it's asset value.

Fact.

So she closes the business, because under the best of all possible worlds, she would not have money to "buy back" her own business, nor would she even be able to survive the process of evaluation of the value, or fight with the trustee's very smart and aggressive lawyer when he or she decides on a value that the trustee DEMANDS.

Because if the debtor doesn't cough up the dough, the trustee, as a fiduciary, must sell the business, along with the client list, minus the tools of the trade.

Fact.

But now there's no business. Our heroine has decided that she needs a mental health break, because she's close to a breakdown because of creditor phone calls and letters and threats, so she closes her business.

Now she inventories her tools and all her other assets, and she lists her debts.

Now she files her bankruptcy.

And then she rents a much smaller, much nicer place down the street. For no money down. Because this is a depression.

And she puts up a sign with a different name for the business, because the old name is property of the bankruptcy estate (although it has exactly zero value).

And she has a new telephone number, because the old telephone number was property of the bankruptcy estate.

And she lets her old clients know about the new place by sending them invitations to her not-so-grand opening of the brand NEW business, and she'll also tell them about it when she goes to her five Church services on Sunday, at five different churches, because she may not know how to market using the internet, but she sure knows how to shake hands at the pancake breakfast!

And now she's back cutting hair, minus a lot of debt, and has kept everything she wanted to keep.

And my next discussion of the topic will be the same haircutter, plus the complication of a pre-existing corporate shell drenched in debt.

Stay tuned!

Apparently, the Best Bankruptcy Lawyer in Phoenix, Arizona Doesn't Work at that Pre-Paid Legal Services Firm

2010-01-31T17:01:00.000-08:00

So there I sat, like you do when you're a bankruptcy lawyer in Phoenix, Arizona, and this nice couple sat down.

I said, "So how can I fix all your problems?" Because I always want to fix all their problems. And sometimes I can.

She said, we were a little uncomfortable with the advice we got before, so we thought we'd shop bankruptcy lawyers. I said that I was happy that I was on her shopping list.

I also asked what advice made her uncomfortable.

She said that the last bankruptcy lawyer she'd talked to hadn't been board-certified.

I said, no biggie. There are several very good lawyers in the area who are not board-certified in bankruptcy law, and I was still happy to refer them cases appropriate to their skills.

She said she had $20,000 worth of non-exempt real property, and his advice had been "Sell the non-exempt piece of real property to your daughter for $1,000, then wait for six months and file your Chapter 7 Bankruptcy."

I said that was a remarkably, incredibly, seriously bad piece of advice for everybody in sight. Your daughter would get in trouble. You'd get in trouble. You might actually go to jail. At a very minimum it would have been a fraudulent transfer, just as though you had sold a car to your daughter for a dollar prior to filing.

And I also pointed out that I was mystified by the suggestion that waiting to file for six months would somehow help. There are two relevant fraudulent transfer statutes that jumped out of my head when I heard the story, and one has a one-year reach back, and one has a four-year reach back.

So no matter what the nice couple decides to do, at least they aren't going to be committing bankruptcy fraud on my watch, because they're waay too nice for orange jumpsuits.

And I still need to find out what pre-paid plan that was, and what amazingly bad Arizona bankruptcy lawyer that was, so I never refer a client to him by mistake.