Chapter 13 Bankruptcy vs. Debt Consolidation

Written by Alethia Scipione

In my Chandler, Arizona office, I’ve sat with many people with questions about Chapter 13 bankruptcy.  A Chapter 13 bankruptcy is sometimes referred to as a “reorganization plan”.  With that type of name, it begs the question, “What’s the difference between a Chapter 13 bankruptcy and a debt consolidation company?”

The most important difference between the two is THE AUTOMATIC STAY.  Once your bankruptcy case is filed, the Automatic Stay is, well… AUTOMATIC.  It is protection from creditors, prohibiting any creditor from suing you, obtaining a judgment, garnishing wages, foreclosing on your house, repossessing your car or other personal property and protects you from their overwhelming phone calls. THIS is why you see, “STOP FORECLOSURE, STOP WAGE GARNISHMENT, STOP CREDITOR PHONE CALLS”, when you read about bankruptcy.  The Automatic Stay is such an important and basic right of a debtor (YOU) and is not available outside of bankruptcy.  Debt companies do not tell you this and so, here’s how I’ve seen those type of debt companies work:

John is drowning in debt, but he wants to pay it back.  He thinks that doing so will be better for his credit report and conscience.  So he calls one of those phone numbers he hears on a radio commercial (you know the ones: “Don’t file for bankruptcy, call us! We have secrets creditors don’t want you to know”).  Well, it sounds so promising; John thinks he’ll give it a try.  He talks to a super nice representative at the debt company – we’ll call it “Company” for now.  John is supposed to pay monthly fees to “Company” which will be automatically withdrawn from his checking account.  “Company” has promised that once enough money is collected from John, “Company” will begin making settlement offers and his debt will be paid off in a couple of years.  This sounds great to John, and he signs the papers, gives his checking account number and his money starts flowing to “Company”.  Creditors are supposed to be notified, but there is nothing obligating the creditors to agree to be part of “Company’s” plan.  Eventually, (usually after thousands of dollars have been paid into John’s consolidation plan – yes, after a year or two) a creditor decides they’ve waited long enough, and they sue John. The creditor gets a judgment and starts wage garnishment proceedings.  John calls “Company” to cancel his service, stop automatic withdrawals from his checking account, and get a refund of any money that wasn’t used to settle with creditors.  This is difficult.  Now, John can’t find that original super nice representative.  Instead, he talks to people who are often rude and unsympathetic to what is happening to him.  They often make it very difficult to cancel, sometimes even failing to stop their automatic withdrawals.  Worst of all, the clever folks at “Company”, drafted their contract to require “Company’s” fees be paid first – meaning most (if not all) of the money paid by John over the months or years, is non-refundable.  That’s when John calls me and files for bankruptcy.

Bankruptcy, on the other hand, is a legal process, set in place for people just like John (and you).  It’s a legal right to discharge debt that has become too overwhelming.  When you file for chapter 13 bankruptcy:

  • You will have an attorney, bound by ethical rules to be YOUR advocate, and keep YOUR best interests in mind at all times.
  • Your attorney is also required, by bankruptcy law and state ethical rules, to set forth a written contract specifying what the attorney will do for you and how much it will cost.
  • You will have TRUE legal protection from all of your creditors through the “Automatic Stay.”
  • If any creditor crosses the line, you have your advocate working for you to stop those creditors, and you have the law on your side.
  • You will have someone working to protect your assets and ensure an affordable and realistic payment.
  • At the end of your Chapter 13 Plan, any unpaid unsecured debt, is discharged.

Contact me to get started.

Bankruptcy in Arizona: Why is there so much paperwork?

Written by Alethia Scipione

You’re already dealing with the emotional stress of bill collectors and now you have to fill out a whole bunch of paperwork before you can file your bankruptcy case!?! Why?

In order to receive a discharge of your debts in a chapter 7 or a chapter 13 in Arizona, the law requires that your bankruptcy petition is complete, accurate and truthful. This means that you have to list everything you own that has value (assets) such as real estate, personal items, anything with wheels, money, jewelry, furniture, tools, guns, pictures (etc.) along with its replacement value. The listed value has to be determined by you, the debtor, as being your best estimate of what it would take to replace the item with another in the same or similar condition. You have to list all of your income from employment, rental income, retirement benefits, etc. A complete list of your expenses is also needed to show your monthly budget which is then compared with your income. If you sold or transferred anything in the last two years or if you have a pending lawsuit, it needs to be listed. You also have to list everything you owe, all of your debts, so that each creditor receives notice of your bankruptcy.

The law is filled with rules that must be followed in order to receive bankruptcy protection. The initial paperwork you complete may be time consuming, but it allows your attorney to see your true financial picture in order to get you the best legal protection for your assets. Only you can fill out this paperwork, because only you know your true financial picture. Only you have been receiving the bills or checks. If you hide things from the bankruptcy court, your case could be dismissed, or worse, you could face criminal prosecution and be subjected to fines, imprisonment, or both.   So be honest. Talk to your attorney about everything.

Chandler Bankruptcy – How long will bankruptcy be on my credit?

Written by Alethia Scipione

Every person I’ve met has asked, “what will bankruptcy do to my credit?”  If you are considering chapter 7 or Chapter 13 bankruptcy, chances are that late payments, charge-offs, judgments, garnishments, and foreclosures may have already taken a significant hit to your credit.  Bankruptcy is often a more productive tool at increasing your credit score than trying to make arrangements with creditors.

Let me back up.  Bankruptcy will be on your credit for 10 years.  The time begins from the day of filing your bankruptcy case.  Other negative items (for instance, late payments) stay on your credit for 7 years.  That looks better, right?  7 years instead of 10 years?  But, if you take a closer look you will see that negative reporting that lasts for 7 years is usually staggered on your credit report.  Let’s say that you have a credit card with Big Bank.  You stop paying the credit card.  After 3 months, Big Bank sends your account to collections.  You now have a new negative item on your report.  This goes on for a long period of time – passing your account along to new collections agencies, until finally one of them files a law suit against you.  This will be true for most of your credit cards with all of the other Big Banks.  When bankruptcy is listed on your credit report, it envelops those other debts.  There is now a “last day” to begin counting the 10 years.

I know, that sounds like a long time.  The good news is, you will be able to begin reestablishing your credit almost immediately.   Even before you are out of bankruptcy, you can sign a reaffirmation agreement with your car lender.  Your monthly payments will then be reported on your credit report. So make sure to make those payments on time.  The debts discharged in your bankruptcy will no longer be part of your debt-to-income ratio.  Therefore, your debt-to-income ratio will improve dramatically – a positive thing for your credit score.  After your discharge, you can obtain a secured line of credit from your bank.  It’s essentially a savings account that you borrow against.  Be conservative, and gradually increase your credit score.

Bankruptcy and Guilt

Written by Alethia Scipione

Filing for Chapter 7  or Chapter 13 bankruptcy doesn’t mean you are “giving up”.  Almost every person I see in my office opens up to me about the guilt they are feeling.  They struggle with a constant battle between their debt and their desire to be responsible.  Your struggle is not uncommon.  This never-ending battle has to end at some point.  It’s time to stop wondering what went wrong.  Start thinking about how you can pull yourself up and out from under the debt.  You deserve to feel free. 

I want to help you feel differently about bankruptcy. Bankruptcy is not bad and neither are the people who file for bankruptcy.  Bankruptcy laws exist to relieve you from debt that you can no longer afford to pay.  It’s a light at the end of a tunnel.  It’s a fresh start and a chance to get back on your feet.   It IS being responsible for the sake of yourself and your family.  Think of your stress level.  Think of the impact stress has on your relationships.  Think of what life can be like once you make the decision.  Sometimes the hardest thing to do is admit that you can’t afford to pay your bills.  That you’re drowning.  But once you do, you will see that filing for bankruptcy will cut the stress, cut the sleepless nights, and end the creditor phone calls.  You won’t lose everything. 

I love to hear from my clients after their cases are over.  After a chapter 7 discharge they are relieved.  They are so thankful, and wonder why they waited so long to file in the first place.  There is life after bankruptcy – a better life, free from guilt, stress, and debt. 

Filing for bankruptcy is the responsible thing to do.  It’s your chance to start over.  There’s nothing wrong with that, right?

Consumers Are Suing Debt Collectors

Written by Alethia Scipione

Yes, you read that correctly. Consumers are suing debt collectors for violations of the Fair Debt Collections Practices Act and getting protection (and remedies) from harassing and abusive behavior by debt collectors. The Fair Credit Reporting Act ensures that information is reported accurately to credit agencies, and violations raise cause of action against the debt collector AND the credit reporting agency.

See the article at Debt Law Network.

Finally! Limits on Credit Card Companies

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In May of 2009, The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the Credit CARD Act of 2009 was signed by President Obama. The bill becomes effective in February of 2010 and will include protection for credit card holders such as limits on fees and interest charges, use of terms clarified, requirements for how payments must be applied, and protection of young consumers.

I personally, received my first credit card at age 18. It resulted in my first negative credit rating. Honestly, I wasn’t mature enough to handle the responsibility – but even more importantly, I didn’t have the income to take on any debt. The new bill gives special protections for people under the age of 21. They either need a co-signer or proof that there is sufficient income to repay credit. If there is a co-signer involved, there can be no credit limit increases without the co-signers approval.

Right now, credit card companies charge exorbitant amounts for over the limit fees. This often happens to consumers who didn’t even realize the last purchase brought them slightly over their credit limit. The new law will require that any over the limit fee is proportionate to the overage – there can’t be large rate increases for a small purchases that barely brings a consumer over their limit.

Some creditors have been mailing statements late, or changing due dates. Now, statements have to be mailed 21 days BEFORE the bill is due (it used to be 14 days) and there must be a 45 day notice of any change to fees or rates. It also requires that payments over the minimum be applied to the credit card balance with the highest rate of interest (instead of the lowest interest balances).

Consumers have fallen deeper into debt, when they make a late payment and their interest rate sky rockets. The new law requires that under these circumstances, the credit card company must review (AND DECREASE) the interest again after 6 months of paying the minimum balance on time. Also, full disclosure is required – including the true time and cost of paying only the minimum payment.

“Universal default” allowed credit card companies to review a consumer’s credit, and if a consumer was 30 days late on ANY payment (even to another creditor) the consumer’s interest rate could be increased. This bill prevents this from happening.

This is a great step in the right direction. Finally consumers are getting the protection they deserve.

Will I Lose Everything if I File for Bankruptcy?

Written by Alethia Scipione

I file cases for people in the Phoenix metro area out of my Chandler office.  One of the most common questions people have is whether or not they will lose everything if they file for bankruptcy.  People are usually most interested in knowing what will happen to their houses or cars.  Generally speaking, if you are current on your house and car payments you can keep those assets.  If they are paid off, they must be protected by “exemptions” (laws that protect your asset).

The point of a chapter 7 bankruptcy is to give you a fresh start.  The law is meant to protect people like you who have been inundated with overwhelming debt that you can no longer afford to pay.  It is a way to release you from being a slave to credit.  But, most importantly, it is not a method to leave you homeless and without transportation, instead it is supposed to be a way to leave you with the things you need to move forward with your life, financially.

Here’s how it works in a nutshell: When you file a Chapter 7 bankruptcy, most of your assets are put into “the bankruptcy estate” and entrusted to a duly appointed bankruptcy “trustee”.   It is the trustee’s job to find assets of value that can be sold (liquidated) and then use that money to pay something towards your debt.  However, not everything you own will be liquidated, because each state has “exemptions” that protect your assets from creditors.  Each state’s law varies significantly.  Here is a condensed  list of Arizona’s exemptions:

Total per case:

$150,000 Homestead (primary residence)

For each debtor:
$4,000 Household furnishings
$500 Clothes & shoes
$500 Musical instruments
$500 Domestic pets, horses, milk cows & poultry
$1,000 Wedding bands/rings
$250 Books
$500 Typewriter, bicycle, sewing machine, family bible, burial lot, rifle, shotgun or pistol
$100 Watch
$5,000 Vehicle
$1,000 Prepaid rent, security deposits
$20,000 Life insurance

The following are 100% exempt:

  • Food, fuel & “provisions” for 6 months
  • Earnings of minor child
  • Social Security
  • Unemployment compensation
  • Workers compensation
  • Welfare assistance
  • Health, accident or disability insurance
  • Child support
  • Firemen/Police relief/pension benefits
  • Teacher retirement
  • State employee retirement
  • Fraternal Benefit Society benefits
  • School equipment used to teach
  • Firefighting equipment

See Arizona Revised Statutes §9-931, §9-968, §20-881, §23-783, §23-1068, §§33-1101-02, §33-1104, §§33-1123-31, §38-792, §43-1201, §46-208, 42 U.S.C. 407(a), SEC 207

This list above is not all inclusive and certain limitations apply for some.  Contact me to find out more.

Bankruptcy Basics

Written by Alethia Scipione

Falling behind on our bills leaves us feeling embarrassed, stressed, scared, and out of control. You have sleepless nights and find that it affects every aspect of your life. It is happening all over America, people are filing for Bankruptcy like never before. In the fall of 2008, Bankruptcy filings in Arizona had increased 87.5% since the year before. It is unfortunate that bankruptcy clients are sometimes viewed as being irresponsible. The truth is, the majority of my clients were faced with unexpected circumstances that left them struggling to pay their debts. Many have lost jobs or had a significant decrease in income. Others have filed for divorce and find that two households are much more expensive than one. Still others have been faced with serious medical conditions and mounting medical bills, or even a death in the family. If you find yourself unable to make even minimum monthly payments on your credit cards, if creditors are harassing you, if you have been sued or your wages have been garnished – bankruptcy may be an option.

A Chapter 7 bankruptcy is often referred to as a “liquidation” bankruptcy. In the most basic of terms, when you file for bankruptcy all that you own is considered part of the “Bankruptcy Estate”. A trustee is assigned, and acts with the sole purpose of finding assets to liquidate in order to provide some payment to creditors. Many items are exempt from the Bankruptcy Estate, meaning – you get to keep them. Exemptions vary by state. In Arizona, the important things include: your house (up to $150,000 of equity); if you own a car free and clear $5,000 is exempt from the estate. Your household goods and furnishings, up to $8,000, are exempt. Essentially, in a Chapter 7 case, you get to keep everything you own, and all of your debt is discharged. Some common assets that are not exempt (meaning the trustee would sell) are rental property, timeshares, and land. Speak with an attorney to determine which of your assets would be exempt if you file for bankruptcy.

A Chapter 13 bankruptcy is commonly referred to as a “reorganization” of your debts. A trustee is assigned to your case, and a plan is created to make payments to your creditors. The plan payment will include priority debts such as mortgage arrears; past due taxes, child support, and alimony. The plan payment also will include a payment for your car(s), and administrative expense for your attorney, a trustee fee and finally a percentage of your unsecured debt. After the plan term of three to five years, any unsecured debt left over will be discharged. Current legislation, if passed, will allow judges to modify the mortgage on your primary residence. This will be especially beneficial to those of you whose houses are “upside down” and help you get out from under debt.

A Chapter 11 bankruptcy is commonly used by businesses to reorganize debt. Businesses are able to continue to operate and a plan (approved by creditors and the court) is implemented to repay debts. Certain types of debt are non-dischargeable in bankruptcy, including income taxes, student loans, domestic support obligations (child support/alimony), criminal fines, debts resulting from intoxicated driving, debts incurred fraudulently.

In 2005, The Bankruptcy Abuse Prevention and Consumer Protection Act was passed. Most notable is the new “means test” which was developed to determine if a debtor is eligible for a Chapter 7 or must file a chapter 13. Call an attorney for advice on whether or not filing for bankruptcy is the right choice for you. Other alternatives could include debt negotiation/settlement; and debt consolidation programs. Take the step to give yourself freedom from your worries and know that you are certainly not alone.

Mortgage Modification Bill Rejected

Written by Alethia Scipione

On April 30, 2009, the US Senate voted against Senate Bill 61. The bill proposed to allow judges the flexibility to modify mortgages for families going through a Chapter 13 Bankruptcy. The bill flew through the House with plenty of momentum, but that momentum failed to carry it through the Senate where it stood at a stand still for months and was finally rejected last Thursday.

Why did it fail? http://www.bankruptcylawnetwork.com/2009/05/02/why-did-cramdown-fail-insurance-and-principal/

Bankruptcy Cases on the Rise

Written by Alethia Scipione

Check out this article:

http://www.eastvalleytribune.com/story/137588

Bankruptcy filings increased almost 98% since this time last year! The stress and fear are still there, but you should know, you definitely aren

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    Law Offices of Alethia M. Scipione P.C. is a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We assist people with finding solutions to their debt problems, including, where appropriate, assisting them with the filing of petitions for relief under the United States Bankruptcy Code.

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