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Credit Cards After Bankruptcy

Am I allowed to keep any credit cards after I file for bankruptcy in Arizona?

The short answer is, probably not. Generally once you file bankruptcy your credit cards will be closed by the card issuer.

Can I exclude a credit card with zero balance from my bankruptcy?

If a credit card has a balance then it must be listed in the bankruptcy. The credit card company will then be notified that you filed for bankruptcy and close down that account. However, if there is a zero balance on a specific credit card then you do not have to list it in the bankruptcy. Credit card companies periodically check your credit and if they find out that you’ve filed bankruptcy they will most likely close out the credit card.

As soon as a bankruptcy is filed the Automatic Stay of Protection is created. This Automatic Stay prevents creditors from ever attempting to collect from you again. The penalties for violating the Automatic Stay are very harsh and this is why your credit card company will close out your account—they don’t want to be accused of attempting to collect money from you after filing bankruptcy.

But don’t worry; for good and bad you will be able to get credit card after filing for bankruptcy. Most clients report that they are inundated with credit offers soon after filing. If you are struggling with credit card debt and need to speak with a bankruptcy attorney then call us at 480-389-6529 or email at clint@dunawaylg.com.

Bankruptcy and “Underwater” Cars

Bankruptcy can absolutely help if you owe more on your car than it is worth.

Chapter 7 Bankruptcy – 722 Redemption:

Filing for Chapter 7 bankruptcy can allow you to reduce the amount you owe on your vehicle. Through a “722 redemption” you can seek a court order that allows you to pay your car loan company a lump sum payment equal to the market value of your vehicle. Most people going through bankruptcy don’t have a lump sum amount to pay off their vehicle, however, there are several companies that do 722 redemptions and who will finance the lump sum payment. They will pay off your original loan and then you will make monthly payments to them.

car in bankruptcy

How does the § 722 Redemption work?

Under 11 U.S.C. § 722 of the Bankruptcy Code you may redeem tangible personal property from a lien through paying the secured creditor a lump sum in a Chapter 7 Bankruptcy. In order to be eligible for a 722 redemption the property must be:

          1) Tangible personal property intended primarily for personal, family or household use;

          2) The secured claim must be paid a lump sum; and

          3) The lump sum payment must be based on the current retail value.

If you wish to redeem your vehicle in a Chapter 7 bankruptcy then you need to apply for a § 722 redemption loan. We closely work with several banks that can assist you in applying for one of these special loans. Typically, the interest rate is higher than normal due to the risk involved for the lender. Once you have received a 722 redemption loan and are in a Chapter 7 bankruptcy, a motion will be filed to redeem the vehicle. If the motion is granted by the court then the secured creditor will be paid a lump sum amount based on the current retail value of the vehicle. The secured creditor will then release the lien held on the vehicle.

Chapter 13 Bankruptcy and Car Cramdown:

If the amount of your car loan is greater than the value of your car, you might be able to reduce the amount of your loan and the interest rate in a Chapter 13 bankruptcy through a cramdown. Cramdown is a funny word that basically means you can reduce the amount you owe to equal the current value of the car. Whatever is left becomes unsecured debt, and is treated like your other unsecured debts.

Cramdowns are available in Chapter 13 bankruptcy only — you cannot cram down a car loan in Chapter 7 bankruptcy.  In a Chapter 13 bankruptcy, you propose a repayment plan to pay back your creditors over a three to five year period. In your plan, your attorney has the ability to propose that your car lender receive only the current value of your car instead of the current balance owed.

The unpaid portion of your loan is then treated as an unsecured debt. Other types of unsecured debt include credit cards and medical bills. Since most Chapter 13 plans pay little or nothing to these creditors, this means that your car lender will likely receive nothing or pennies on the dollar on the remaining balance of your loan. Upon completion of your bankruptcy, any unpaid balance on the car loan will be completely discharged and you will own the vehicle free and clear.

When you cram down a car loan in Chapter 13 bankruptcy, the law also allows you to lower your interest rate on the loan! In Arizona the interest rate will be determined by the current prime rate plus a little extra. Almost always this new interest rate is lower than your original car loan rate.

Additionally, the bankruptcy code has placed an important restriction on when you are allowed to cram down your car loan. In order to cram down a car loan, you must have purchased your vehicle at least 910 days (about 2 ½ years) prior to filing your bankruptcy.

If you are underwater on one or more of your vehicles and would like to speak with an experienced Arizona Bankruptcy Attorney then contact the Dunaway Law Group at 480-389-6529 or message us HERE.

Debt Collection

There is a multi-billion dollar debt-buying industry in this country. Debt collectors purchase literally hundreds of thousands of old debts for pennies on the dollar that the original creditors have written off. These debt collectors receive minimal information on each account, and then begin attempting to collect.

The debt buying business model is to cast a wide net without properly verifying whether the consumer owes the money, or even that they are suing the right consumer, and see what money is recovered. This litigation strategy is effective because very few consumers obtain legal representation, and the overwhelming majority of consumer defendants default in the collection action. Quite often, the debt buyer does not have sufficient evidence to prove its case, but relies on junk evidence improperly admitted.

Many Arizonans do not answer the complaint (lawsuit) and guess what? The debt collectors win by default, this is called a “Default Judgment”! This is what they are hoping happens—that you don’t seek legal representation—and that they will win without having to prove their case. In fact, many debt collectors will not even pursue a case once they know the Arizonan consumer has legal representation.

Reason #1: Because You May Not Owe This Debt

Debt buyers rely on credit reports to locate consumers, but the credit reports themselves are filled with errors, including “mismerged” information that mixes the credit reports of two or more people with similar names and other identifying information that results in the collector suing the wrong person. Also, debt collectors will bring actions against spouses and other parties knowing these defendants do not owe the debt, but hoping to either pressure them into payment or obtain a default judgment against them. Examples include, suits against authorized user not liable on the account and against family members of a deceased debtor. Additionally, the statute of limitations may make it possible for you to avoid a judgment.

Reason #2: Protect Your Assets and Income

A judgment against you can have serious financial consequences. Once a judgment is entered against you, your assets and income may be at risk. Your wages could be garnished. Once a debt collector obtains a Writ of Garnishment they can begin taking 25% of your gross paycheck (that’s approximately 40 – 45% of your take home pay!) directly from your paycheck.

Additionally, bank accounts, may be frozen for days or even weeks, and may eventually be seized unless exemptions are properly pursued. Defeating this collection action eliminates those threats. Even if a default judgment has already been entered, contact us immediately because we may succeed in setting aside the default judgment or in minimizing the impact of these creditor remedies.

Reason #3: You May Have your own Claims

Often we discover that our clients have separate affirmative actions under the Fair Debt Collections Practice Act (FDCPA), Fair Credit Reporting Act (FCRA), and other federal and Arizona statutes, resulting in significant actual and statutory damages and attorney fees. Investigating the facts relating to your specific situation will often uncover various creditor violations.

Reason #4: Debt Collector May Have to Pay Your Attorney’s Fees

Often Arizona Debtors wonder how they may be able to pay for an attorney. However, there are a several ways that we may be able to recover our legal fees from the debt collector. Fees are also available to the consumer for prevailing on certain counterclaims, or as a result of the collector’s bringing an action without adequate facts.

Reason #5: Prevailing in the Collection Action Can Improve Your Credit Rating

If your case is dismissed, you can take action to ensure that credit reports indicate that the current balance of that debt is now reported as zero. If the Arizona judge also rules that you never owed the money (for example, because the collector sued the wrong person), then you can seek to delete information showing that you had been in default in the past. Additionally, you may have a cause of action under the Fair Credit Reporting Act (FCRA) if that information is not properly corrected.

Furthermore, in addition to fighting debt collectors, the Dunaway Law Group, assists Arizonans in seeking debt relief through bankruptcy. So if your debts have grown to an unmanageable level let’s see what we can do to help.

Time is not on your side, if you do nothing, a judgment will be entered against you. Arizona Consumers fare much better in court when they obtain legal representation. Know your rights, know your options, and have someone in your corner to fight for you. Contact the Dunaway Law Group at 480-389-6529 or by messaging us HERE, we may be able to help.

What is an Adversary Proceeding?

An Adversary proceeding is a lawsuit that takes place within a bankruptcy. The adversary proceeding begins by when a complaint is filed with the bankruptcy court. A trial then takes place within the context of the bankruptcy. Typically an adversary proceeding is filed by a creditor; however, your trustee may also file one on behalf of the bankruptcy estate.

adversary proceeding filed by a creditor

When a creditor files an adversary proceeding, it is typically because the creditor believes that a specific debt owed to them should not be discharged in the bankruptcy. The creditor may argue that the debt falls within one of the exceptions to discharge, such as a debt created through fraud, willful or malicious injury, or a personal injury caused by drunk driving.

adversary proceeding filed by a trustee

Additionally, a trustee may file an adversary proceeding if he or she believes that you intentionally tried to hide assets. The trustee would then liquidate any non-exempt assets to collect money back from a creditor who received funds or property from a debtor. A trustee may also file an adversary proceeding to undo a transfer of real property. The U.S. Trustee may file an adversarial proceeding to try and force a debtor to move from Chapter 7 to Chapter 13; if he or she believes that the filing of the bankruptcy petition was done in bad faith.

Adversary proceedings are very rare, they are filed in less than 1% of all bankruptcy filings. So unless you are trying to commit some type of fraud the chances of an adversary proceeding being filed in your case are very small. Typically, prior to even filing the bankruptcy we have a good idea if an adversary proceeding is going to be filed.

If you have questions about whether an adversary proceeding will be filed in your bankruptcy case then call us at 480-389-6529 or message us HERE.

* These blog posts are not intended, nor shall they be deemed to render legal advice. Reading these blog post does not create an attorney-client relationship, nor shall it impose an obligation on the part of the law firm to respond to further inquiry.

Unfiled Taxes and Bankruptcy

In order to file for personal bankruptcy, you must be current on your tax filings. Meaning, if you have not filed a tax return in the last five years you need to file those tax returns prior to filing the bankruptcy.

However, even if you owe the IRS $100,000 but have filed all required tax returns then you are permitted to file for bankruptcy. And while the general rule is that tax debts are not discharge in bankruptcy you may qualify for the exception and your tax debt may actually be discharged. Usually, you can discharge income tax obligations where a return was due at least three years ago, you actually filed the return over two years ago, and the IRS assessed the tax at least 240 days ago.

Even if your tax debts are not dischargeable you are still permitted to file bankruptcy. Schedule a free consultation with one of our attorneys today to see if your tax debt can be discharged.

benefits of filing bankruptcy with tax debt

There are many benefits to filing bankruptcy if you have tax debt. For instance, all penalties and interest subside during the bankruptcy. Additionally, if you file a Chapter 13 bankruptcy you will be able to pay on your tax debt through one single payment sent to a trustee each month.

Taxes and how they are affected by bankruptcy can be a very complex issue. So if you are struggling with debt and owe the IRS money, speak to an experienced bankruptcy attorney at the Dunaway Law Group by calling us at 480-389-6529 or send us a message HERE.

These blog posts are not intended, nor shall they be deemed to be the rendering of legal advice. Reading these blog posts does not create an attorney-client relationship, nor shall it impose an obligation on the part of the attorney to respond to further inquiry.