What if I Don’t Pass the Means Test?

The means test was introduced to the Bankruptcy Code in 2005. It is designed to limit those individuals eligible to file for Chapter 7 bankruptcy. The Chapter 7 bankruptcy means test compares your current monthly income against the median income for households similar in size. The means test looks at the average household income over the six months prior to filing. However, not all income is considered in the means test. Social security income, social security disability, veteran’s disability benefits, and child support payments are not considered. Conversely  income from; employment, gifts, financial assistance from others, and income from a non-filing spouse are included in the calculation.

If you household income exceeds the median income for households of a similar size in your state you still may be able to qualify for a Chapter 7.  This is because certain expenses are deducted from your current monthly income in order to determine your net monthly income. Now not all expenses are qualifying expenses, however, the following kinds of costs can be deducted: child support, alimony, tax withholding costs, health savings account, garnishments, certain utilities and several other types of expenses.

However, if you still do not qualify for a Chapter 7 even after deducting the qualified expenses you can still file bankruptcy. For most people who do not qualify for Chapter 7 bankruptcy because of their high income file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a reorganization of your debts. The bankruptcy lasts for 3 to 5 years during which time you make payments to your creditors. At the end of the bankruptcy whatever balances are left over will be discharged.

Bankruptcy Credit Counseling Course

Who Must Complete the Credit Counseling Course?

Generally speaking all individuals filing for bankruptcy must complete the credit counseling course. Whether you are filing for bankruptcy under chapter 7 or chapter 13 the course is still required. Additionally, if you are married, both you and your spouse must complete the credit counseling. If you do not take the class prior to filing the bankruptcy your case will be dismissed.

How is the credit counseling class completed?

Most people complete the course online. However, it can also be completed over the phone if that is more convenient for you–though it costs a few dollars more. The credit counseling course itself takes about 90 minutes to complete, depending on your personal speed. Typically the class ranges from $15 to $25 depending on whether it is done online or over the phone.

Debtor CC Online Bankruptcy Credit Counseling Course is a company who we have had good experiences with.

After completing the credit counseling course the company will generate a certificate as proof of you having taken the course. This certificate will be filed along with your Petition and Schedules.

When does the credit counseling class need to be completed?

The credit counseling course must be completed BEFORE the bankruptcy is filed, however, it cannot be completed more than a 180-days before the bankruptcy is filed.

If you have questions about whether bankruptcy can benefit you then contact an experienced Arizona bankruptcy attorney at the Dunaway Law Group at 480-389-6529 or at

Served With a Court Summons?

If you receive a summons from a creditor this means that the creditor is now using the legal system to try and collect on the money that is allegedly owed to them. You need to take this matter seriously and formulate a plan of action for how to deal with it.

Generally speaking, the minute you file bankruptcy the lawsuit will completely disappear. The automatic stay of bankruptcy goes into effect and it becomes illegal for the creditor to continue harassing you. However, if for one reason or another you cannot immediately file bankruptcy then you basically have two options.

Option 1: Ignore the Summons

Option one, is to just ignore the Summons altogether. It’s your God-given right to just ignore the Summons, you don’t have to file an Answer with the court. However, if you don’t file an Answer with the court then the judge will grant them a Default Judgment. A Default Judgment basically means that the creditor wins by default.

Once a creditor has a Judgment against you things can get very sticky. With this new Judgment a creditor will be able to go back into court and ask to enforce it. The creditor will be able to ask for things like a Writ of Garnishment or a Levy. So, once a creditor has a Judgment against you either you will pay them in full or you will file bankruptcy.

Option 2: Answer the Summons

Your second option to handling the Summons is to file an Answer with the court. Currently, the filing fee in the Superior Court is $237 and $65 in the Justice Court. In addition to the fee, once you file an Answer you are required to comply with a long list of court rules.

In 99% of the instances if you try and fight a Summons you’ll end up losing the case and the creditor will receive a Judgment against you anyway. Again, once the creditor receives a Judgment against you either you’re going to pay them or you’re going to file bankruptcy.

Call us at: 480-415-0982, with questions about how to handle your Summons and bankruptcy.

Unsecured Debt vs. Secured Debt

Unsecured Debt

Unsecured debt is debt that is not guaranteed or “backed” by any collateral. Essentially this means that if you default on an unsecured debt there is nothing that the creditor can take from you to recoup their losses. Interest rates tend to be higher on unsecured debt because there is no collateral for the creditor to seize. Credit cards fall into the category of unsecured debt. Because credit cards are unsecured they cannot seize any of your possessions if you do not pay off the balance. Creditors attempting to collect on a delinquent unsecured debt typically turn the account over to a collection agency. These collection agencies will often use a law firm to sue you in an attempt to collect on the unsecured debt. If these creditors obtain a Judgment against you they will be able to garnish your wages or levy your bank accounts.

Secured Debt

Secured debt is debt that is backed by some type of collateral. Mortgages and vehicle loans are two examples of secured debts. With a secured loan if you allow the loan to become delinquent, the lender can foreclose on your home or repossess your vehicle. Interest rates are often lower for these types of loans because in the event of a default they can potentially recoup their loss by take back the collateral.

What happens to different types of debts in a Chapter 7 bankruptcy?

Generally speaking all unsecured debts are discharged in a Chapter 7 bankruptcy. This means you will not be responsible for repaying any money to creditors for; credit cards, medical bills, dental bills or a cell phone bill. However, with secured debt you must either continuing paying on the debt or risk losing the collateral. For example, if you have a car that you want to keep and you file for Chapter 7 bankruptcy, then you must keep paying on the car or else you will it.

How Long to Vacate After Foreclosure?

How long you have to vacate your house after it has been foreclosed depends on two main variables: 1) the state you live in; and 2) whether you are the owner or just renting. For this article let’s assume that you are living in Arizona. First, let’s look at how long a home owner has before they must vacate after their home has been foreclosed.

In Arizona ownership interest passes to the new buyer at the foreclosure auction! Technically this means that as soon as the house is sold you are trespassing.  At that point the new buyer might start the eviction process and very soon you might have the sheriff knocking on your door to remove you and all your property from the premises. My advice is not to risk it, and try to vacate by the auction date. That is one of the reasons why, by law, the owner receives a 90 day notice of trustee’s sale. Anything on the property after the auction becomes the property of the new owner and you may have no rights to remove them. However, you may be able to work out some kind of a deal with the bank to stay in the house after the foreclosure date. But remember the new owner isn’t required to allow you to keep living on the property once they’ve purchased the house.

Secondly, let’s take a look at what happens to a renter in a home that is foreclosed in Arizona. If you are renting a home that is foreclosed then you’re given special protection under the Protecting Tenants at Foreclosure Act (PTFA). The PTFA, originally went into effect May 20, 2009, and does not expire until December 31, 2014. The PTFA, substantially alters the treatment of tenants after foreclosure of a residence. The scope of the Act is broad, applying to any residential real property and any person who acquires the property, whether a lender who acquires it via a credit bid or a third party investor at a foreclosure sale.

The PTFA guarantees the following:

  1. Renters who have valid month-to-month leases may remain in their rented homes for 90 days from the date the property changes ownership—specifically, from the date when the title to the property is transferred to a new owner.
  2. Renters who have valid leases that terminate after the date when a foreclosed property’s title transfers to a new owner may remain in their rented homes until the end of the lease term. For example, if a renter has a lease that ends September 30, 2012, and a new owner takes possession of the property May 1, 2012, the renter may remain in the home until September 30, 2012. The exception to this provision is when the new owner intends to move into the property. In that case, the renter may live in his or her rented home for 90 days from the date the property changes ownership. In the above example, that would be July 30, 2012.

The PTFA does not protect tenants when renters are not current on rental payments at the time their rented property is auctioned at a sheriff sale, when renters have fraudulent leases, and when renters enter into lease agreements after the sheriff sale.