Answers from our Legal Team.

Should I File Bankruptcy During the Pandemic?

The timing of filing a bankruptcy case is always an issue because it sets a magical date for discharge of pre-existing debts while at the same time prevents creditors from receiving all of your future assets. But none of us has ever seen a pandemic before, wreaking havoc on health (of course), but also income, job security and business operations. The effects of the pandemic have already begun to cause a tidal wave of bankruptcy filings for large and small businesses alike. We have already seen some of these large bankruptcies like J. Crew, Neiman Marcus, Hertz and others. Some predict the large and mega bankruptcies will challenge the record set in 2009 during the last economic crisis.

But what about small businesses—the small and family owned and operated ones that are sadly too far gone to be saved through reorganization? The buck usually stops at the owners of those businesses, as they typically have guaranteed all of their business debt. Without viable ongoing business operations, many businesses have closed and will close, their owners feeling desperate and exposed.

Payroll Protection Program loans have certainly bought some time for many small businesses. Some businesses have already shut down, never to re-open. Some small struggling businesses will choose to wait, and work with their creditors and suppliers to buy even more time.

But as was the case during the last financial crisis, individuals must be very careful about depleting personal savings, retirement accounts (which would be safe and protected in bankruptcy) and using equity they may be enjoying in their homes (also protected in bankruptcy with limitations) to save a failing business or to satisfy aggressive creditors.

Now more than ever, it is important to plan for the unexpected. Although unanticipated only months ago, filing bankruptcy could become a necessary choice. The United States Bankruptcy Code is complicated. Even if you don’t have any reason to file bankruptcy today, now is a good time to learn about what options are available to help a struggling business owner.

Should I File for Bankruptcy?

This is the most common question we get. The answer, of course, depends on your specific circumstances. We recognize that the decision to file for bankruptcy is seldom going to be easy. But there are some common signs that may indicate it is time to at least consult with one of our experienced bankruptcy lawyers.

Your Debt Equals Half of Your Income

If your consumer debt reaches half of your income – or even close to half of your income – it is time to seriously consider whether it can be fully repaid in a reasonable time. The truth is that a debt burden of half of your income will be very challenging to repay, and you may consider the need to file for bankruptcy.

You Use Credit Cards to Pay Bills

If you cannot afford to pay your monthly living expenses without resorting to a credit card, it is time to talk with a bankruptcy attorney. Paying rent, utilities, food, medication, or other expenses on a credit card with no realistic hope of paying the ever-increasing balance is a never-ending cycle. No matter the reason, delaying is only digging the hole deeper with every credit card charge.

You Took a Home Equity Line of Credit to Pay Bills

Using a HELOC to pay down debt is only trading one problem for another. While you may feel relief at lowering the credit card balances or medical bills, you have raised your mortgage obligation, turned unsecured debts into a debt secured by your home, and thereby created a longer-term problem. If you qualify to file for bankruptcy, you may still be able to keep your home and, in certain instances, you may be able to remove the lien created by the HELOC from your home.

You are Considering Using Your Retirement Savings to Pay Bills

Stop. Using your qualified retirement savings plan funds to pay bills robs your future of the very stability that retirement savings, 401Ks and IRAs were meant to provide. Before you consider liquidating your future financial security, consult with one of our experienced bankruptcy lawyers instead, as soon as possible. Many retirement accounts are completely protected in bankruptcy.

No one wants to file for bankruptcy. But there are many times when doing so will be one of the best decisions you ever make. You will feel relief, you will gain control, and you will emerge from bankruptcy with a fresh start.

Should I File Bankruptcy Only as a Last Resort?

There is an old-school rule of debt management that states that filing bankruptcy should be a last resort. However, with the numerous, world-wide financial and health events over the past two decades, that way of thinking needs to be reconsidered.

Health Considerations of Bankruptcy

Putting off filing for bankruptcy could mean prolonging emotional and physical discomfort. Long term financial stress can affect your physical health by exacerbating sleeplessness, depression, and chronic illnesses.

Dollars and Sense of Bankruptcy

Delaying a bankruptcy filing might mean throwing good money after bad, causing you additional financial loss. This is especially true if you are tempted to cash out long term or retirement savings or to continue paying an unaffordable mortgage or credit card debt.

A New Life after Bankruptcy

Staying your course of paying insurmountable debt keeps you from seeing the hope of a better life without a heavy financial burden. Bankruptcy is designed to give you a fresh start and engage in healthier financial management moving forward.

Whether you file for Chapter 7 bankruptcy, Chapter 11 bankruptcy, or Chapter 13 bankruptcy – or ultimately decide not to file for bankruptcy at all – we will counsel you to assist with easing much of the physical, emotional and financial burden of overwhelming debt

Is Filing Bankruptcy “Wrong”?

No. Bankruptcy laws were designed to help you get past financial hardships in order to come out of it a more financially productive member of society.

We recognize, of course, that filing bankruptcy takes an emotional toll that is different for each person; there are so many different reasons to file bankruptcy. Although the reasons may be different, many emotions will be shared including shame, fear, and anger. Most people experience all of these feelings. We are here to help, not to judge.

And there is good news. Many people who file for bankruptcy also experience relief, hope, and a lessening of anxiety that had plagued them for months and even years. One of the best ways to help quell the negative emotions and move through to the positive emotions is to actively work on the problem. Choosing to take action is the first step of your new financial journey.

Contacting one of our experienced bankruptcy attorneys is the perfect first step. With knowledge, reason, and patience, we can help you decide the:

  • Type of bankruptcy to file — Chapter 7, Chapter 11 or Chapter 13.
  • Timing of filing for bankruptcy.
  • Important steps to take before and after your bankruptcy filing.

We will help you understand and navigate the bankruptcy process. We understand the strong emotions you may experience. By taking an active role in your financial future, you should not only feel better, but you will be protected from creditor harassment and will begin to get back on your feet with a financial fresh start.

Is There a “Right Time” to File for Bankruptcy?

There is no one correct answer to this question.

When you file for bankruptcy in Arizona, the main objective is to relieve an unreasonable debt burden and get back on your financial feet as quickly as possible. While it can be true that sooner is better than later, that is not always the case. The right timing to file for bankruptcy takes into consideration many factors.

So should you file now or later?

Filing for Bankruptcy Now

To stop a garnishment, trustee sale, eviction, collection activities, or disconnection of utilities, file for bankruptcy quickly. The bankruptcy filing results in an automatic stay that will stop these proceedings. The automatic stay will also freeze collection harassment and repossession attempts.

Particularly for Chapter 7 bankruptcy, if your income recently increased significantly, you may want to file sooner than later to preserve your eligibility to file. The longer you maintain the higher income, the more likely it will affect your ability to pass the chapter 7 means test, which is a concern unless more than 50% of your total debt is business related.

File for Bankruptcy Later

You might delay your bankruptcy filing if you need to engage in legitimate pre-bankruptcy planning to optimize exempt assets. In this situation it is especially important to consult with a Discreet BK lawyer, because exemption laws are complex and while some prebankruptcy planning is proper, any action taken close in time to filing may be closely examined and scrutinized by a trustee or the court.

Certain older tax debt is dischargeable. But the rules for dischargeability of tax debt are also complex. Sometimes waiting to file bankruptcy can allow certain tax debt to become dischargeable. Likewise, if you expect a tax refund you might want to receive and spend it before you file for bankruptcy so that it does not have to be distributed to your creditors in bankruptcy. But even in this scenario, you should only use the tax refund for reasonable and necessary expenses such as food, housing, and paying the costs associated with filing bankruptcy. Do not use the tax refund to pay creditors or buy items that will not be exempt in a bankruptcy.

In short, there are advantages and disadvantages to filing bankruptcy sooner or later. Since each case is different, there is no substitute for legal advice during the bankruptcy process. If you need answers to your specific situation, the attorneys at Discreet BK are here to help.

What is an Automatic Stay?

The automatic stay is a special legal provision that is activated when you file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. This stay immediately stops all creditors’ attempts to collect a debt during your case. This stay will immediately stop a wage garnishment – or keep one from being started in the first place. There are some exclusions, such as garnishments for child support.

The automatic stay stops:

  • Garnishment or levies of wages or bank accounts
  • Collection attempts through harassing phone calls or letters
  • Starting or continuing any lawsuits
  • Repossession of assets
  • Foreclosure on property

The purpose of an automatic stay is to provide time and protection for you while your bankruptcy filing is reviewed by the bankruptcy court to determine the rights of all of the creditors.

Since the automatic stay has an immediate effect, it is important to consult with an experienced bankruptcy attorney if your wages have been or will be garnished. Garnishment itself may not be the only determining factor for filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, and we can help you through the process of making an informed decision.

Should I Liquidate My Retirement Savings to Try to Avoid Filing Bankruptcy?

No. If you find yourself in extreme financial difficulties, you should first contact the Discreet BK attorneys in order to better understand all your options are.

During the Great Recession, we saw a great many financially stressed people, many of whom would liquidate their retirement accounts, or borrow against their house, or take other extreme steps before they met with us. By that time, it is often too late to protect a client’s most valuable assets. Most qualified retirement plan accounts are protected from creditors in bankruptcy. Thus, in most circumstances, it would not make sense to liquidate such accounts before filing for bankruptcy. There can be a path ahead for you, debt free and financially secure, while maintaining funds for your retirement years. The first step is to contact Discreet BK, before you start resorting to extraordinary measures.

If I File for Bankruptcy Protection Will My House Be Foreclosed On?

Bankruptcy and foreclosure are separate legal actions under Federal and Arizona law. You do not have to file bankruptcy if your home is foreclosed on, and you will not be foreclosed on just because you file for bankruptcy. It is possible to keep your home in a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, and a Chapter 13 bankruptcy.

You might find that bankruptcy and foreclosure are linked together if your mortgage is underwater and you choose to default on your monthly mortgage payments. Deficiencies, fees, penalties, and taxes might be charged on the original loan amount causing you to file bankruptcy on the outstanding debt.

If your mortgage payments are current and manageable in your budget, then there is no need to let the home fall into foreclosure just because you file for bankruptcy. Every mortgage situation is different, and it is best to consult with a knowledgeable bankruptcy lawyer such as those at Discreet BK to determine the best outcome for you.

Should I Pay Off Some Creditors Right Before Filing Bankruptcy?

No, at least not before consulting with a bankruptcy attorney.

If you are considering filing for Chapter 7 bankruptcy it is important to consult with a qualified bankruptcy attorney before you make any irregular, unscheduled, or large payments to creditors. Any payments made prior to a bankruptcy filing will be reviewed by the bankruptcy trustee assigned to your case.

Paying just some of your debts means showing preference for one creditor over another. Since all creditors within the same category must be treated equally, any payments made within 90 days of filing that appear to show favoritism can be “clawed back” by the bankruptcy trustee in a Chapter 7 bankruptcy filing.

That preference period extends to one year for payments made to an “insider,” such as a relative. This standard does not apply to regular expense payments such as car payments, house payments, rent, and utilities.

When you need help navigating these waters, we are here for you.

What is the Means Test for Bankruptcy in Arizona?

To file for consumer Chapter 7 bankruptcy protection in Arizona, there is a qualifying test known as a Means Test. It is a straight-forward determination of who qualifies for bankruptcy protection under the Chapter 7 bankruptcy statutes.

The Arizona Bankruptcy Code Means Test is based on a debtor’s household size and income amounts that adjust periodically. In short, the test considers your income and assets as well as your debts to confirm that you meet the qualifications for Chapter 7 bankruptcy. If you do not, then there are forms of Chapter 13 bankruptcy or individual Chapter 11 bankruptcy that might better fit your circumstances.

Discreet BK attorneys have decades of experience in helping Arizona residents navigate the bankruptcy laws to aid them through their financial difficulties.

Are there “Red Flags” that I Should Try to Avoid When Filing for Bankruptcy?

Yes, there are. That is why before you file for bankruptcy, you should seek the advice of one of our experienced bankruptcy attorneys. Examples of these “red flags” actions might be:

Running up balances on credit cards prior to filing for bankruptcy.

The card issuer has the right to review your purchasing habits and may request that any unusual or suspicious charges made before the filing not be discharged in the bankruptcy – meaning you still owe that balance.

Repaying some creditors but not others or repaying family members but not creditors

In bankruptcy all unsecured debts are equal. You cannot choose to pay one debt over others, or the trustee may invalidate those payments in favor of an even distribution. This can be especially true of payments made to repay family members prior to a bankruptcy filing.

Giving away, selling at an unreasonably low price, or transferring assets to someone else before the bankruptcy filing.

All assets must be considered during bankruptcy, and pre-bankruptcy transfers must always be evaluated. The trustee has the power to invalidate gifts, sales, or transfers if they appear to be motivated by shielding assets from the bankruptcy proceedings.

Not listing pending lawsuits against others as potential assets

The bankruptcy trustee must be fully aware of any lawsuits you have filed against someone else at the time of filing, as any money received from those claims you have probably are property of your bankruptcy estate. With pending lawsuits, or other claims for which you may expect to receive money, it is especially important to consult with a skilled bankruptcy lawyer prior to filing.

These examples of red flags are just the tip of the iceberg. That is why Discreet BK attorneys are here to try to protect you prior to and throughout the bankruptcy filing process.

What Needs to be in the Bankruptcy Filing?

When filing for bankruptcy, all of your assets and all of your liabilities must be listed in what is called the bankruptcy Petition. There is no picking and choosing. All sources of income, all assets, all debts, and all liabilities must be accounted for. Whether accidentally or not, some bankruptcy petitioners may leave out important pieces of information. Below are some guidelines.

Sources of Income

You must list all sources of income for yourself, your spouse, your dependent children if applicable, and any other household members if applicable. That means that you must list all full-time employment, all part-time employment, all children’s jobs, and all hobby income, caretaker income, passive income or any other type of income.

Assets

It is important to list every asset, including homes, cars, personal belongings, musical instruments, tools, jewelry, or any item of value. The bankruptcy laws allow you to exempt a portion of these assets, but you must list everything.

Liabilities

Any car or other vehicle that is secured by a loan must be listed, as must any other item on which you have a loan such as orthodontia or home improvements. Even if you do not want to have your car loan discharged, for example, because you want to retain it and keep paying for it, you still must disclose it among your liabilities.

We work with you throughout the entire process, to help make sure it gets done fast and, more importantly, right.

Is It OK to Fudge the Numbers a Little Bit to Qualify for Bankruptcy?

No. Never.

You may have read about something called “the means test”. The purpose of it is to determine if you have the means to pay for at least some of your debts through a Chapter 13 payment plan or whether you are entitled to file a Chapter 7. While the means test uses a straightforward mathematical formula, it is a relatively complicated task to correctly complete it, and to apply all allowable deductions to your income.

Income and Assets

In a bankruptcy filing it is important to list all of the income and assets that you have. Some may fear that they will not qualify and are tempted to leave out assets or income to meet the thresholds. This is not a good idea for two important reasons:

First, you will have to swear an oath in court that you provided true, accurate, timely information in the paperwork. To knowingly lie is to commit perjury.

Second, if it is determined that the information in the bankruptcy filing is not true and accurate, the case can be dismissed, and you will not receive the discharge of your debts.

Debts and Losses

You will also be required to fully explain all of your debts and to account for all assets and money before you file for bankruptcy. Some may be tempted to give away assets or money to friends and relatives, or to conceal losses such as gambling. But if this information is not disclosed, you will endanger your case. Most people do not intentionally omit information, but instead are simply unaware, or are trying to rush through an uncomfortable task.

Filing for bankruptcy if you do not meet the qualifications can have complicated consequences. We have bankruptcy attorneys with decades of experience in helping Arizona residents resolve their financial difficulties. We can help you, too.

What Is a “341 Hearing”?

When filing for voluntary bankruptcy protection in Arizona of any kind, including Chapter 7 bankruptcy, Chapter 11 bankruptcy, and Chapter 13 bankruptcy, a “341 Hearing,” or “341 Meeting,” is held. The 341 Meeting is also called a “Meeting of the Creditors,” and is named after the section of the bankruptcy code that mandates the meeting. Your bankruptcy attorney will accompany you to the 341 Hearing, which is scheduled with a bankruptcy trustee, not a judge, and is an official record to document facts and to prove that your financial circumstances truly warrant a bankruptcy filing. Going to a courthouse can seem intimidating and it is natural to be nervous. But the 341 Hearing is standard, simple and typically will not take much time.

Prior to the hearing the trustee will send a letter requesting specific documents be mailed to the trustee in advance of the hearing or brought to the hearing with you. These may include:

  • Most recent pay stubs
  • Bank statements for several months
  • Tax documents for up to 2 years
  • Proof of insurance for your car and home

The court requires that you bring to the 341 Hearing:

  • Photo ID issued by a government entity
  • Social Security card

In the vast majority of cases the 341 Hearing is a formality, and it will not be adversarial or contentious. The hearing will be recorded, and you will be asked to swear an oath that all of your answers are true. You will be seated at a table where the trustee will ask questions about your financial situation. It is important to answer all of the questions accurately and in a clear voice. Creditors rarely attend a 341 Hearing, but if they are present, then they also have the right to ask you questions. An example of standard questions that might be asked include:

  • Did you read and understand the petition before you signed it?
  • Did you list all of your assets and all of your debts?
  • Has anything changed since the paperwork was filed?
  • Are you involved in any other lawsuits?
  • How long have you lived in Arizona?

You will probably spend less than 5-10 minutes on the recorded portion of the 341 Hearing. And if we are your attorneys, we will be right there with you through it all.

What is a Bankruptcy Trustee?

A bankruptcy trustee is a person appointed by the United States Trustee, an officer of the Department of Justice, to represent the debtor’s estate in a bankruptcy proceeding. Bankruptcy trustees are federally appointed professionals – usually attorneys familiar with financial matters or accountants – charged with overseeing all aspects of cases assigned to them.  In a Chapter 7 case, the trustee oversees the liquidation of any non-exempt property and the distribution of payments to creditors in their order of priority set by law. In a Chapter 13 case, a trustee is normally not involved in any liquidation activity, but rather functions to oversee the confirmation of a Chapter 13 plan proposed by a debtor to ensure the creditors are paid what the debtor is fairly able to pay over the duration of the plan. In Chapter 11 cases, a trustee is not usually appointed. Instead, the debtor continues to operate its business or its day-to-day activities as usual as the “debtor in possession” (or “DIP”). The bankruptcy court can appoint a trustee to take over operations from the debtor if it finds sufficient cause. Cause for appointing a trustee includes fraud, dishonesty, incompetence, and gross mismanagement of the debtor’s affairs.

Will the Bankruptcy Trustee Come to My Home?

This is a common concern and a common question before filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy. While it is possible for the bankruptcy trustee to visit your residence to verify the accuracy of your petition, it is not common. The trustee is not permitted to search your house without your permission or court order, and it is a truly rare occurrence.

The most important thing to understand in a bankruptcy filing is that your petition and all of the supporting information must be complete, accurate, and honest. You will be asked to swear an oath regarding the accuracy and truthfulness in a court of law. As with any legal proceeding, swearing to false information is a felony and will be prosecuted.

Can I File on My Own or with Help from a Document Preparation Service?

In Arizona, it is possible to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy without legal representation. Is it advisable for everyone? No. Petitioners hire bankruptcy attorneys for peace of mind and as an investment in their financial future. For these reasons, experience and qualifications matter.

A document preparation service provides non-lawyer personnel to prepare bankruptcy documents for you. There is a flat preparation fee which is usually limited to $200, and the service cannot accept the bankruptcy filing fee itself. Since there is no special bankruptcy governing body to oversee these services, there is no way to identify the competent services from the fly-by-night companies. Such services may provide inadequate work with no recourse for you to remedy a problem. And since they lack legal training, document preparation services are not supposed to give advice about how to complete your papers.

At the self-service counter at the bankruptcy court, anyone filing for bankruptcy must wait for an opportunity to speak with the volunteer attorney limited to a specific date and time. This attorney may advise on the process of bankruptcy, but will likely not have the time or resources to help evaluate your individual circumstances.

Discreet BK’s experienced bankruptcy attorneys are trained legal representatives looking out for your best interests. When filing for Chapter 7 or Chapter 13 bankruptcy, a large number of details vary according to individual circumstances. These may include the timing of filing, the items included in the filing, and the items exempted from the filing. There is no substitute for the guidance of a law firm that works regularly with the bankruptcy courts in Arizona.

Should I Reaffirm Some Debt during Bankruptcy?

The answer to this depends on several factors. Reaffirming a debt during bankruptcy means that you will continue to make payments on a loan in order to keep the asset. Typically this is done with a home mortgage or car loan. While it is possible to reaffirm debt during a Chapter 7 bankruptcy filing, it is also common to simply retain items and continue to pay secured debt with a Chapter 13 bankruptcy filing. By reaffirming a debt, you are promising to pay the entire amount, and the debt will not be discharged. There also may be specific steps to take to accomplish a reaffirmation.

In Chapter 7 bankruptcy a debt can be reaffirmed only if it is deemed to be truly necessary. A typical example would be a car loan for an automobile that is the only viable means of transportation to and from work.

In Chapter 13 bankruptcy a secured debt can be repaid only if the court is shown that the payments can be managed in the overall scheme of the repayment plan. An example would be keeping a home when the mortgage payments can still be made together with the total payment for the Chapter 13 repayment plan.

Reaffirmed debts are not discharged at the end of the bankruptcy filing, and could be subject to collection, repossession or foreclosure if the payments are not kept current.

Can I Keep My Business if I File for Bankruptcy?

The answer to this question depends on two things: the type of bankruptcy that you file and the type of the business you own. When filing for Chapter 13 bankruptcy, any business that produces income is a reasonable option for making the Chapter 13 plan payments. It is unlikely that the business would be in jeopardy unless the business is the cause of the bankruptcy.

Filing Chapter 7 bankruptcy, however, is different. In Chapter 7 bankruptcy, any asset can be sold for debt repayment, and your business could be considered an asset. It is possible that all or part of your business could be exempted from the Chapter 7 bankruptcy filing. Arizona allows for some exemption of tools and equipment related to a business, and some business inventory might fit within the other allowable exemptions in a Chapter 7 bankruptcy, but only if the business is a sole proprietorship or general partnership. There are no bankruptcy exemptions for corporations or LLCs.

Filing bankruptcy when you own a business is complicated. Discreet BK can make sure it gets done right.

Does a Tax Refund Affect My Bankruptcy?

If you are expecting to receive a tax refund, you will want to consult with one of our bankruptcy lawyers before you file for bankruptcy. The size of the refund and timing of your tax filing should be considered prior to any bankruptcy filing.

Handling a Tax Refund before Chapter 7 Bankruptcy

A tax refund in a Chapter 7 bankruptcy filing is considered an asset that is being held by another party but owed to you. The right to the tax refund is part of the bankruptcy estate just as if it were a savings account or investment account, and it needs to be listed among your assets.

If you receive a tax refund prior to filing for bankruptcy, the money should be spent on reasonable and necessary expenses such as food and housing. It is also acceptable to use the refund to pay for the bankruptcy costs. If you purchase an asset with the refund, that asset could be available to the trustee for debt repayment depending on the type of asset and available exemptions.

To ensure the best outcome when filing for bankruptcy, advise your bankruptcy attorneys of an anticipated tax refund or recently received tax refund.

Handling Tax Debt with a Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy may be the best way to handle unpaid taxes or back taxes. If you have a current dispute with the IRS or the Arizona Department of Revenue over recent unpaid taxes, a Chapter 13 case can sometimes resolve the issues because your plan will provide for the payment in full of non-dischargeable tax debts. These debts are paid before any unsecured debts like credit cards. And if those unsecured debts cannot be paid in full by the Chapter 13 plan, they are discharged. Older income tax debt can usually be discharged entirely. But tax discharge is one of the most complex issues in bankruptcy and conferring with an experienced bankruptcy attorney is recommended.

Recent tax debt (but not interest and penalties) will be repaid in a Chapter 13 bankruptcy, not discharged. The bankruptcy court will make sure that the repayment plan is reasonable for you. While the IRS is technically a creditor alongside all of the other creditors, some types of taxes take a priority position in the distribution process. The trustee in Chapter 13 bankruptcy will be directed, based on the law and your Chapter 13 plan, which creditors are repaid, at what amounts, and at what priority.

There are some conditions to having the Chapter 13 repayment plan confirmed, such as being current on tax return filings. And any tax debt or penalties acquired after the bankruptcy filing would generally not be included as part of your Chapter 13 Plan.

What Debts Are Not Discharged during Bankruptcy?

Not all debt is seen as equal in bankruptcy. Some debts cannot be routinely discharged. The most common types of debt that cannot be discharged are alimony, child support, student loans, and certain tax debt.

Alimony, child support and back child support will not be discharged through bankruptcy, and those debts will not ever be forgiven. If you owe alimony, child support or back child support it must be paid in full. Filing for bankruptcy is considered a viable way to deal with other overwhelming debts so that you can successfully satisfy domestic support obligations.

Most student loans are guaranteed by the government and will not be discharged in bankruptcy unless the special circumstances of undue hardship can be proven. Undue hardship goes beyond the scope of a typical bankruptcy filing and requires an adversary proceeding. An experienced bankruptcy law firm should be consulted since that process can be complicated.

Tax debt owed to the state or federal government may be dischargeable if it is old enough and if many other complex conditions are satisfied. Some people are quite surprised to find out that certain income tax debt can be successfully discharged in bankruptcy, even if the liabilities are enormous.  We will advise you on how to proceed if you have significant tax debt, student loans or domestic support debt. These issues are some of the most challenging, but we are dedicated to assist you in finding your best options.

Are Student Loans Dischargeable through Bankruptcy?

Only under the most extreme circumstances.

National student loan debt is said to be at crises levels. We’ve all heard and many of us have experienced to stories of students graduating with overwhelming student loan debt. Sometime, during national emergencies, student loan processing companies and lenders may extend payment dates or waive interest. But these are short-term fixes. Unfortunately, there rarely are long term fixes to student loan debt through a bankruptcy proceeding. Simply, most student loan debt is not dischargeable in bankruptcy. However, that does not mean that a bankruptcy wouldn’t provide financial relief in your specific situation. It may be that other of your debt can be discharged, freeing up funds to repay your student loans. There also are rare circumstances where student loans can be discharged, but only in extreme hardship situations and under other certain conditions. But you probably won’t know for sure, until you check with our experienced attorneys.

Can I Discharge Child and Spousal Support Debts in Bankruptcy?

Debts such as child support, spousal support, student loans and newer income tax debts generally cannot be discharged in bankruptcy. However, Chapter 13 bankruptcy  provides a way to get caught up and to repay the debts in full. Furthermore, Chapter 13 bankruptcy protection will stop any harassment or garnishment and will provide time to restructure the debt and complete a repayment plan. And although these types of debts cannot be discharged in Chapter 7, sometimes the discharge of significant other debt (such as credit cards, medical debt and unsecured loans) will make it possible to handle the debts that will not be discharged.

We can weigh your situation and help you decide if bankruptcy is a financial tool that will help you regain your financial stability.

Can I Discharge HOA Dues through Bankruptcy?

Typically, no. However, as with all rules, there may be exceptions.

A primary reason Arizona residents seek bankruptcy protection is to allow them to protect their ability to remain in their homes. At the same time, their homes can be a source of their financial difficulties. Whether people are trying to get out from under mortgage liabilities through Chapter 7 bankruptcy or looking to save their home by filing a Chapter 13 bankruptcy payment plan, a home is a significant part of the decision about which bankruptcy chapter to file.

Most homes in the Valley of the Sun have homeowners’ associations (“HOAs”).  Monthly, quarterly, and annual HOA dues are necessary to maintain an HOA’s community facilities, landscaping, security, and other features. Such due, however, can be substantial, and when a homeowner falls behind, it can then be tough to get caught up. These dues typically are secured by assessment liens, but only if they predate the filing within six years. Penalties, fines and interest are not generally secured and may be dischargeable.

It can be challenging to navigate this area of law without the assistance of a qualified bankruptcy attorney. That is why the Discreet BK attorneys are here to help.

Can Credit Card Discharge be Challenged in Bankruptcy?

Though it does not happen often, there are circumstances that could cause a credit card issuer to challenge whether the credit card debt should be discharged in a bankruptcy case. These challenges may be triggered when fraud is suspected or red flags are found in the credit card usage history. Unfortunately, some people seeking bankruptcy debt relief may have unintentionally triggered these fraud warnings in one of two possible ways:

  1. The credit card application was inaccurately filled out, and incorrect information was provided such as social security number, address, or phone number.
  2. The credit card activity suggests that there was no reasonable intention of repayment. This might include:
    • Increased card usage before the bankruptcy filing
    • New card issued shortly before the bankruptcy filing
    • More than usual number of cash advances before the bankruptcy filing
    • Large cash advances before the bankruptcy filing
    • Use of card for travel or luxury items before the bankruptcy filing
    • Stopping payments on one card while continuing to use another card
    • Charges made after consulting with a bankruptcy attorney

To contest specific charges or all of the credit card balance, the card issuer will file an adversary proceeding. If this should happen in your bankruptcy case, it is important to have an experienced bankruptcy lawyer represent you.

But even more important, BEFORE filing for bankruptcy you should consult with one of our qualified bankruptcy attorneys to review the possible scenarios above and discuss whether any of them may apply to you.

Can I Start a Business After I File for Bankruptcy?

If you have filed for Chapter 7 bankruptcy, you should consult with a qualified bankruptcy attorney before you begin any new business.

Once a Chapter 7 bankruptcy is filed you can start a new business without the worry of your future earnings being seized. The problem will be finding financing and suppliers for your business. Since your Chapter 7 bankruptcy filing was truthfully executed, you will have very few remaining assets of your own. Securing new credit, property, tools, and supplies will be difficult working on a cash-only basis.

When possible, try to establish credit in the name of the new business. You will certainly have to pay higher interest rates, but after a time you may be able to renegotiate the terms. Consider involving a partner or other co-signer and established credit holder to help get your business off the ground.

Can My Credit Score Improve After Filing for Bankruptcy?

When you file any kind of bankruptcy you can expect your credit score to drop. But the extent of the damage might be mitigated by other factors. Many clients find that their score will significantly improve within a reasonable period after filing for bankruptcy.

Credit Score Damage Before You File for Bankruptcy 

It is likely that if you are considering bankruptcy, your credit score may already have been affected by late or missed payments such as mortgage payments, car payments, credit card payments, or payments on other bills.  While filing for bankruptcy will further lower your credit score, this factor must be weighed against the benefits of a bankruptcy discharge and your ability to emerge from bankruptcy with a fresh start. You will want to speak with an experienced bankruptcy attorney as soon as possible.

If you are considering bankruptcy and have not yet missed payments, you should seek legal advice as a bankruptcy lawyer can help you determine the best course of action for your individual circumstances.

Long-Term Benefits When You File for Bankruptcy 

Filing for bankruptcy might be the best thing you can do for your credit score in the long term. A discharged bankruptcy – whether you file Chapter 7, Chapter 11 or Chapter 13 – will allow you to rebuild your credit. You can then add positive credit activity, such as mortgage payments, car payments, and credit card payments all made on time. This positive credit activity will help rebuild your credit score more quickly than you might think.

If you do not file for bankruptcy, it might take years or decades for you to fully pay off the outstanding debts. Your credit score will most likely remain low throughout all of that time.

An experienced bankruptcy law firm such as Discreet BK can help you see the positive and negative implications of filing a bankruptcy and can also discuss other non-bankruptcy options.

How Do I Rebuild Credit After Bankruptcy?

After any bankruptcy,  your credit score will be damaged and will be reset. Living on a cash-only (debit card) basis is necessary for some time. In fact, one of the best lessons from bankruptcy is that if you are unable to afford something, save for it. Do not incur new debt. But, eventually you will want to reestablish credit to qualify for better loan rates for a major purchase such as a car or home. To do that, you will need to rebuild your creditworthiness.

Rebuilding credit is a process that takes time and there is no shortcut. Avoid credit repair fraud schemes and payday loans; they are not an easy way out. Worse, these options often cause more harm to your credit score in the long run.

The first step is to pay your ordinary and necessary bills on time,  every month without fail. Avoiding any late payment reports is crucial to successfully reestablishing credit.

The next step is to apply for new credit after your bankruptcy discharge. You will be invited to do so by credit card companies, but expect to pay high interest rates. It is important to moderate the amount of credit as well as the period between applications. Take care so that you do not again risk too much debt, and balance the time between applications so that your credit report does not look overly active.

  • Apply for a credit card from the bank where you have established checking and savings accounts. It may be more flexible to in-house customers.
  • Use your credit card regularly up to about 1/3 of the available credit. Pay the balance off in full each month; there is no advantage to carrying over a balance from month to month.
  • Get an installment loan, such as an auto loan, even though you will pay a higher interest rate. Buy a used vehicle to avoid the steep depreciation of a new car during the critical first few years before you can refinance to a better rate.

The final step is to regularly check your credit report to make sure that discharged accounts are shown as “closed” or “discharged in bankruptcy.” If the old accounts still show as “open” or “delinquent,” it will be more difficult to rebuild and improve your credit standing.

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