Fife & cesta's official and complete bankruptcy survival guide


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The Law Offices Of Fife & Cesta, PLC is a Mesa, Arizona bankruptcy law firm that provides bankruptcy services to clients around Arizona.

They have issued this over 60 page guide to getting through bankruptcy as a service for their bankruptcy clients and for anyone examining the options offered by filing for debt relief under the federal Bankruptcy code.

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Fife & cesta's official and complete bankruptcy survival guide

  2. 2. Bankruptcy FactsEverything You Wanted To Know About Bankruptcy But Were Afraid ToAskConsumer Education Series1st EditionAuthor: Thomas J. Cesta, Esq.Contributing Editor: William W. Fife III, Esq.For information, please contact:Law Offices of Fife & Cesta, PLC1811 S. Alma School Road, Suite 270Mesa, AZ 85210Main Number: (480) 850-6541Fax Number: (866) 352-7974www.FifeCestaLaw.comCopyright 2012All rights reserved. No part of this publication may be reproduced ortransmitted in any form or by any means, electronic or mechanical,including photocopy, recording, email, or any information storage andretrieval system, without the express written permission. LEGAL DISCLAIMERThis firm is a debt relief agency as prescribed by the U.S. BankruptcyCode. We also help people eliminate their debts.This book does not constitute legal advice. If you would like to obtainlegal advice you should meet with an attorney to review yourparticular facts and circumstances.2
  3. 3. ContentsContents 3Bankruptcy Myths 5 Myth 1 I will lose everything if I file for bankruptcy. 6 Myth 2 Bankruptcy will hurt my credit. 7 Myth 3 If I file for bankruptcy I will not be able to buy a home or car for 10 years. 7 Myth 4 No one will give me a credit card again. 8 Myth 5 Only bad people do not pay their bills. 9 Myth 6 I caused the problem, not the bank. 10 Myth 7 Banks only lend to people who can easily afford to pay back the loan. 11 Myth 8 Bankruptcy is bad for the country. 12 Myth 9 Bankruptcy is immoral. 12 Myth 10 Bankruptcy will hurt the banks. 14The Positive Credit Impact of Bankruptcy 15 How Much Does A Bankruptcy Hurt My Credit Score? 15 How Long Will It Take To Bring My Credit Score Back Up? 18 3
  4. 4. But What About Obtaining Credit? Will The Bankruptcy Affect My Ability To Get A Loan? 19 What Types Of Loans Will I Be Able To Get After Bankruptcy? 21When Will My Creditors Stop Harassing Me? 23Why File If I Can Still Scrape By? 25The Difference Between Chapter 7 And Chapter 13—Which One Is Right For Me? 32 Chapter 7 Bankruptcy 33 Chapter 13 Bankruptcy 35 WHAT TYPE DO I QUALIFY TO FILE? 38Will I Lose My Property? 40 Do I have to give up my car? 41 My house is upside down, do I have to give it up? Should I? 43How Much Will Bankruptcy Cost? 46Bankruptcy Dos And Donts 50Wrapping Up 53About the Authors 544
  5. 5. Bankruptcy MythsDo Not Let Assumptions Stop You FromLearning About Your Options In BankruptcyBankruptcy—the prospect sounds so much worse than itis. Most consumers fear bankruptcy, even to the point ofcomplete financial ruin. Businesses on the other handsee bankruptcy for what it really is—a financial tool toget back on track.Bankruptcy is an important decision, not to be takenlightly. However, many people have opinions aboutbankruptcy which are just not valid. The following are 10of the most common bankruptcy myths feared by ourclients. 5
  6. 6. Myth 1I will lose everything if I file forbankruptcy.Fact: In most cases you will keep your car and yourhousehold goods, and most other things you own; evenyour savings can be protected prior to filing. Every stateeither has exemptions or uses the federal exemptions.Exemptions are protections provided by law that protectassets from being taken by creditors or lost throughbankruptcy. These exemptions are fairly realistic andmost of your property will be protected. Anything that isnot protected you probably already sold to make endsmeet. And if you didn’t sell it yet, you still can prior tofiling for bankruptcy to use for fees, or to spend onsomething exempt.Your bankruptcy attorney can help you decide how tocover your assets.1 For more information on this topic,see Chapter 5: Will I Lose My Property?1 Only an attorney can advise you on your exemptions. If you prepare your caseon your own, or use a document preparer, you may lose more from missedexemptions, or by not properly protecting assets, than an attorney would havecost you. Penny-wise, but pound-foolish, as they say.6
  7. 7. Myth 2Bankruptcy will hurt my credit.Fact: Your credit is usually already bad because of latepayments, high balances, charged-off accounts,collections accounts a foreclosure, or repossession, etc.However, the average consumer that files bankruptcywill see their post-petition credit score increase 100 ormore points in one year or less after the bankruptcydischarge. And with good management, you could beback in the 700s in two years. For more information onthis topic, see Chapter 2: The Positive Credit Impact ofBankruptcy.Myth 3If I file for bankruptcy I will not be able tobuy a home or car for 10 years.Fact: You may qualify for an FHA home loan as early as 2years after your discharge.2 Car loans are frequentlyobtained while the bankruptcy is still pending. Earlier2 FHA has other limitations on loans that do not relate to the bankruptcy. Thisarticle does not purport to identify all of the FHA requirements. 7
  8. 8. loans may have a higher interest rate, but you can usuallyrefinance these in about a year. Often only about a yearafter the discharge you can get a loan with an interestrate at least comparable to what you would have gottenbefore filing, maybe better. For more information on thistopic, see Chapter 2: The Positive Credit Impact ofBankruptcy.Myth 4No one will give me a credit card again.Fact: Most filers get credit card offers within weeks offiling for bankruptcy protection. Think of it this way:when you get the discharge, you will not be able toobtain another Chapter 7 bankruptcy discharge for 8years, or Chapter 13 for 4 years. In short, you are abetter risk than someone who has not filed. For moreinformation on this topic, see Chapter 2: The PositiveCredit Impact of Bankruptcy.8
  9. 9. Myth 5Only bad people do not pay their bills.Fact: Many good people have found themselves unableto repay a debt, often because of a change in finances, orbecause of something the bank did to make it moredifficult. Some of your Heroes may well be on that list.Abraham Lincoln filed for bankruptcy long before hebecame our 16th President. So did Rembrandt, MarkTwain, Oscar Wilde, PT Barnum, Debbie Reynolds,Mickey Rooney, Dorothy Hamill, Johnny Unitas, BurtReynolds, Larry King, Donald Trump, and Dave Ramsey,to name a few. Most people who apply for bankruptcyprotection are simply drowning in debt. Most will neverneed to file bankruptcy again. For them, it is a choicebetween maximizing the bank’s bottom line, andproviding for their family. Bankruptcy is the solutionthey need. 9
  10. 10. Myth 6I caused the problem, not the bank.Fact: Most consumers blame themselves for havingfinancial difficulty, and most feel that they owe thecompanies that took a chance on lending them money.However, credit card companies, banks and otherfinancial institutions do not have your best interest atheart. They are in it for the money. Your difficultiesmaximize the profits for banks and financial institutions.Most consumers do not have a degree in finance. Thebanks exploit this. Banking policies and procedures areset by people who have graduate level degrees in financein order to maximize profit. For example, due dates areseldom the same day each month, which makes it harderto schedule the payment and results in more frequentlate payments, and late fees. It is not an even playingfield. It is a bit like playing poker where you only seeyour cards, but the other player gets to see your cardsand theirs.10
  11. 11. Myth 7Banks only lend to people who can easilyafford to pay back the loan.Fact: Most of us believe that a company will not lend usmoney unless we can afford to repay it. The truth is, themore difficult it is for us to repay the loan, the moremoney the companies will make from lending to us.Although the risk is higher, so is the reward.It makes perfect sense that banks make more money onpeople who have difficulty repaying the loan. Whenmoney is already tight borrowers are more likely to makea late payment; and the bank then charges late fees, andmay also raise the interest rate, often by double or triplethe introductory rate. Banks may also lower the creditlimit and then charge over-the-limit fees. Banks justifythis by saying you have proven to be a bad risk so thedecreased credit limit and increased interest rateprotects them. But in fact the increase in interest ratejust makes the loan harder to repay, and makes theminimum payment higher. This means more latepayments and more bank profits. 11
  12. 12. Myth 8Bankruptcy is bad for the country.Fact: Bankruptcy and Consumer Debt are neither goodnor bad. Consumers with debt make banks rich, but theconsumers cannot afford to buy new clothes and otherconsumables. Consumers who get a bankruptcydischarge are often able to afford to spend money withlocal companies: and local companies need to sellproduct in order to continue to retain employees. Theseconsumers can also better afford to send their kids tocollege, which means higher incomes for the kids, andmore money to spend in the economy.Myth 9Bankruptcy is immoral.Each consumer should seek their own guidance on thisone. Let’s face it, attorneys are not often thought of as asource for moral guidance. Seriously though, the bibleand the Koran both instruct on debt forgiveness.12
  13. 13. Bankruptcy is an important decision, not to be takenlightly. But financial questions are only moral issueswhen it is a choice between legal and illegal. After that,it is just a math problem. Businesses understand this;and intuitively, so do we as consumers, when it is abusiness filing for bankruptcy. A business is in businessto make money. If some of the business’ obligations arepreventing the business from turning a profit to benefitthe shareholders, then the business needs to address thesituation. Occasionally, bankruptcy is the best method.It is harder to see this as just math problem when it ispersonal, but individuals and families must also considerthe bottom line. When the household cannot make endsmeet, something will be left unpaid. Unlike businesses,real people cannot live without food and water; and inmodern society we also need electricity, gas,transportation, clothes, etc. Children need an educationand adults must plan for retirement. Some individualsand families need to do something extreme to restoretheir financial health. Sometimes the best solution isbankruptcy. 13
  14. 14. Myth 10Bankruptcy will hurt the banks.Fact: Most bankruptcy filers have been paying their debtsfor 5 years before even considering the bankruptcyoption. In the typical credit card situation, this will meanabout 25% interest, and minimum payments designed topay back the debt over a 25 to 30 year period. In suchcases the banks will have already recovered 109% of theoriginal principal before a bankruptcy is ever filed.3 Yourbankruptcy will only mean less profit to the bank, andalso a write-off.Rather than simply fearing the myths surroundingbankruptcy, schedule a free consultation today and learnthe truth about bankruptcy. Call now to schedule a free consultation. (480) 850-65413 See the following section, Bankruptcy, A Financial Option14
  15. 15. 4The Positive Credit Impactof BankruptcyHow Much Does A Bankruptcy Hurt MyCredit Score?Let’s face it, one of the biggest fears about bankruptcy isyour future access to credit. A quick Google Searchsuggests that bankruptcy is going to drop your creditscore by 100 to 300 points. But is that really true?4 Image courtesy of Nutdanai Apikhomboonwaroot / 15
  16. 16. The truth is that most people who are considering filingfor bankruptcy have already been struggling to pay theirbills, and many have been late on their paymentsmultiple times, or they have stopped paying some or allof their bills altogether. Payment history with multiplelate or unpaid accounts has already driven the creditscore down. The bankruptcy may be the latest negativemark, but it is only a part of the reason for the lowerscore.Also, the lower the score is, the less the bankruptcy canimpact it. FICO scores are from 300 to 850. But, a 300 isactually a very difficult score to get. There are 5categories FICO considers to determine your score. Youhave to bottom out in every category to get 300. Mostbankruptcy filers are already in the low 500s at the timeof filing. And while bankruptcy is a negative mark as anadverse public record, it is a positive mark in that it notonly reduces the amount owed, but it also stops thereporting of late payments.16
  17. 17. The Five FICO CategoriesIt is likely true that if you have a credit score of 800, thatyou can expect a 300 point drop; but someone with acredit score of 800 that is considering bankruptcy isprobably someone that has been robbing from theirretirement accounts and savings to pay the creditors.And most of the time this is money they would get tokeep in a bankruptcy. But if they do not file forbankruptcy, at some point the money will run out andthe late payments will happen. When that startshappening, the credit score will drop anyway.Even if there is an initial drop in your credit score, thefinancial companies want you to believe that it ispermanent. This ignores the element of time. In fact, 17
  18. 18. any initial drop will be quickly erased because of positivechanges, such as having less debt and no longer havinglate payments.Your credit score will not change overnight, but it willtake less time than you think. Once the discharge isrecorded, your credit score will begin to improve. Theimpact of the bankruptcy depends on how long it hasbeen since the discharge was entered. Over time yourcredit score will go up even without doing anything.How Long Will It Take To Bring My CreditScore Back Up?You can usually expect to have a score back in the mid600s within a year. It is even possible to get into the700s in two years, though it is more likely that you will bein the upper 600s in that timeframe. The bankruptcyfiling will stay on your credit for 7 to 10 years, dependingon which chapter you filed. However, the older theinformation is, the less impact it has on your score.18
  19. 19. But What About Obtaining Credit? WillThe Bankruptcy Affect My Ability To Get ALoan?Generally, the answer is no, though it will affect what theterms of the loan will be. Almost everyone who files getscredit card offers as soon as the discharge is entered.Some people even get offers before the discharge isentered. And most people get car loan offers before thedischarge is entered.The reason for this is that creditors treat credit like crack,and they see us as addicts. Someone enteringbankruptcy has chosen to enter a treatment programthat will get them off credit, and back onto solid financialground. But your creditors do not want you to recover.They want you addicted because it is how they earn aprofit. So even before you complete the treatmentprogram they will start plying you with a free taste ofcredit.And this tactic works, mostly because people filing forbankruptcy think they will never have credit again. So 19
  20. 20. when the creditors make their offers, many people feellucky to have the chance to use credit again.It is a good plan for your creditors. If you file a Chapter 7case, you will not be able to file another for 8 years.Because of this, if you default, the creditor can sue youand garnish wages, and there is little you can do to stopthem, so they have less risk. You will be able to file aChapter 13 in 4 years, but a Chapter 13 requires you tomake monthly payment through the bankruptcy court forthree to five years; so, a creditor may still get paid.Also, even though the bankruptcy makes you a betterrisk, because you have less debt to pay and few options ifyou cannot pay, the creditors will still be able to imposehigh interest rates. However, if you can wait a yearbefore getting a loan your credit will have improved sothat the interest rate you have to pay is not as high; andafter 6 months in the new loan you may even be able torefinance for a rate which is lower.20
  21. 21. One important note is that some lenders will try to dingyou twice for the same information. Your credit scoretakes the bankruptcy into account. If the lender is sayingthat it needs to consider the score AND the bankruptcy,you might want to try another lender.What Types Of Loans Will I Be Able To GetAfter Bankruptcy?Most loans will be available to you as soon as yourdischarge is entered. However, it will take a few yearsbefore you will be able to get a mortgage. For an FHAloan, you will need to wait two years after yourdischarge, and meet other eligibility requirements. Someconventional loans will take longer. However, as statedabove car loans and credit cards will usually be availableimmediately.A bankruptcy is not something anyone wants to need.But filing bankruptcy is the fresh start many people doneed. If you are struggling to pay your bills, then beforeyou dip into your savings, which are likely exempt, you 21
  22. 22. should consider whether you are going to truly be able tosolve the problem that way, or whether you are justpostponing the inevitable.Everyone’s situation is unique. At the very least youshould seek a consultation with a qualified bankruptcyattorney to learn about how a bankruptcy will affect youin your present condition. Call now to schedule a free consultation. (480) 850-654122
  23. 23. 5When Will My CreditorsStop Harassing Me?If you are being hounded by collection calls and letters,retaining an attorney is an important step to getting thepeace of mind you need. Upon retaining an attorney andnotifying the creditors that you have retained anattorney for the purpose of filing for bankruptcy, mostcreditors are barred by federal law from contacting youfurther to collect on the debt. Instead the collector has5 Image courtesy of Idea go / 23
  24. 24. to contact your attorney to discuss the matter. So, thenumerous calls you are receiving and are afraid toanswer, can stop right away.If a creditor knows you have retained an attorney for thepurpose of filing bankruptcy and has not yet filed a lawsuit against you, many creditors will opt to wait beforetaking any further litigation action. Upon retaining anattorney for bankruptcy, the goal should be to file yourcase within three months. Any longer than three monthsand you run the risk of the creditor pursuing litigationagainst you for the debt.If you are being sued or already are being garnished by acreditor who obtained a judgment against you, you needto act fast and get a bankruptcy filed. Retaining anattorney will not stop the law suit, nor will retaining anattorney stop a garnishment. Only filing for bankruptcy,with the power of the automatic stay, will prevent thelaw suit from continuing or stopping the garnishment.24
  25. 25. 6Why File If I Can Still ScrapeBy?Whether you should consider bankruptcy depends onmany factors, not the least of which is what chapter youwould need to file. Although there are six types of6 Image courtesy of scottchan / 25
  26. 26. bankruptcy under the US Bankruptcy Code, there areonly two types that most people will need to consider:Chapter 7 or Chapter 13.A Chapter 7 bankruptcy discharges debts, but no liens;and you may have to give up some assets. A Chapter 13bankruptcy also discharges debts, but it can extinguishsome liens, and reduce what you owe with some others.You can also usually keep all of your non-exempt assets.However, a Chapter 13 bankruptcy also requires you tomake periodic payments of your disposable income to abankruptcy trustee for a period of three to five years, buta Chapter 7 does not. Also, a Chapter 7 is essentiallycomplete in 3 to 6 months, but a Chapter 13 takes 3 to 5years.7In evaluating what chapter you are eligible to file, anattorney will conduct a means test calculation. Thiscalculation subtracts expenses from income, todetermine disposable income. If there is little or only a7 See the following section for a more complete discussion of the differencesbetween Chapter 7 and Chapter 13.26
  27. 27. minimal amount to pay the creditors, then you may wellqualify for a chapter 7 bankruptcy.However, what chapter you qualify to file is not the endof the question. It is also important to consider theamount of debt that will be discharged. If you only have$100 disposable income, but you also only have $5,000unsecured debt, you would probably be wise to attemptto negotiate the debt, or continue to make paymentsrather than file for bankruptcy.In contrast, if you have $500 disposable income, but$80,000 in general unsecured debt a bankruptcy mightbe the right option. In this case, you will usually be filinga chapter 13 which will require you to pay into a plan. Ifyou make 60 monthly payments of $500, you will pay$30,000, but you will then get a discharge of theremaining $50,000.00 of debt.It could also be true that you will have enough disposableincome and little enough unsecured debt and otherobligations to have a 100% plan—that is, a plan that pays 27
  28. 28. 100% of the unsecured creditor claims. However, thismay also be very beneficial to you.Consider these examples:A consumer, let’s call him Michael owes $40,000.00 incredit card debts. His credit cards have interest rates of25% (not unusual after a few late payments). At thisrate, in order to pay off the debt in just 10 short years, hewill need to pay $909.97 a month. The interest alone is$833.33 for the first month. That means that if Michaelpays $833.33 each month, the principal will never bereduced and he will owe the debt for the rest of his life.The average “minimum payment” required by credit cardcompanies is designed to require 25 to 30 years ofpayments. If Michael paid $833.83, it would be justenough to pay off the cards in 30 years. After 5 years ofpaying $833.83 a month Michael would have paid$50,029.81, but he would still owe $39,941.66. This is28
  29. 29. because $49,971.46 of what he paid would have beeninterest.Also, every time Michael was late with his payments hewould incur late fees on top of the regular payment; andevery late payment would hurt his credit.If Michael has little enough disposable income that hequalifies for a Chapter 7 bankruptcy, then he could file aChapter 7 and the debt would be discharged in about 3to 6 months. But if Michael had enough disposableincome that he needed to file a Chapter 13, Michaelwould still benefit from the bankruptcy.To pay off the debt in 30 years without filing bankruptcy,Michael would need to have at least $833.83 disposableincome a month. But 30 years is a long time to wait forsolvency. What if Michael had this amount, but insteadfiled bankruptcy. Assume that Michael will pay $2,500 inattorneys’ fees as part of his plan, and 8% to the Trusteefor administering the plan. 29
  30. 30. Michael has enough disposable income to be in a 100%plan. This is because interest is frozen for most of yourgeneral unsecured creditors. Michael would pay all of hisdisposable income each month, $833.83, and in about 55months he would pay off the general unsecured creditorsand get his discharge.8So Michael has a choice: pay his creditors $833.83 for 30years; or file a Chapter 13 bankruptcy and be done in lessthan 5.A bankruptcy discharge brings you back to “zero”; butfrom negative, zero looks pretty good. After thedischarge, you can save or invest any disposable incomeyou have, building your nest egg, rather than thebanker’s.Another important consideration is whether there areliens you would also like to strip, or secured debts youwould like to reduce. If Michael had a first and second8 There are many factors that affect how many payments will be required, toomany to cover in this example. However, no chapter 13 plan will be more than 60months in length before the discharge can be issued, even if the plan pays lessthan 100%.30
  31. 31. mortgage on his home, and he owed more for the firstmortgage than the home was worth, Michael could alsoremove the lien held by the second mortgage as part ofthe Chapter 13.And if Michael had a vehicle for which he owed morethan it was worth, he could also do a cramdown, in whichwhat he owes on the vehicle is reduced to the value ofthe vehicle.9 Even if Michael qualified for a Chapter 7, hemay still want to file a Chapter 13 just to take advantageof a lien strip and cramdown.Every jurisdiction has different filing guidelines andexemptions. To determine the pros and cons of filing,meet with an experience bankruptcy attorney today. Call now to schedule a free consultation. (480) 850-65419 There are important specifics to consider regarding lien strips and cramdowns.Be sure to discuss these options with your bankruptcy attorney. 31
  32. 32. 10The Difference BetweenChapter 7 And Chapter 13—Which One Is Right For Me?Although there are six types of bankruptcy under the USBankruptcy Code, there are only two types that mostconsumers will need to consider: Chapter 7 and Chapter13.A Chapter 7 bankruptcy discharges debts, but no liens;and you may have to give up some assets. A Chapter 1310 Image courtesy of Gregory Szarkiewicz / FreeDigitalPhotos.net32
  33. 33. bankruptcy also discharges debts, but it can extinguishsome liens, and reduce what you owe with some others.You can also usually keep all of your assets. However, aChapter 13 bankruptcy also requires you to makeperiodic payments of your disposable income to theTrustee, but a Chapter 7 does not. Also, a Chapter 7 isessentially complete in 3 to 6 months, but a Chapter 13takes 3 to 5 years.The following sections give more details of what toexpect in each bankruptcy chapter.Chapter 7 BankruptcyA Chapter 7 bankruptcy is a basic liquidation. This meansthat you discharge your debts 11 without needing to payinto a Plan. In order to get this discharge, you will haveto surrender any assets that are not exempt. However,every state has exemption laws; and most petitioners11 Not all debts are subject to discharge. Some debts, like child support, mosttaxes, and student loans automatically survive; whereas others can be declarednon-dischargeable, if the creditor actively opposes the discharge, though this is arare occurrence. 33
  34. 34. usually have few assets that are not exempt. You will getto keep any exempt assets.The Chapter 7 discharges personal liability, but not liens.So property which is secured will remain secured. Youcan surrender the security, a car with a loan against it forexample; but if you want to keep the car, you will have topay it off or continue to make payments to thatcreditor.12Once you complete your pre-filing class13 you will fileyour petition. About a week later you will get a letterfrom the Trustee asking you to complete a questionnaireand asking for copies of certain documents. You willthen attend a 341 hearing with the Trustee and us about4 weeks after filing. Besides completing a financialmanagement course, this is often the last thing you needto do in your case. Your discharge can be entered 6012 There are specific processes for each of these. Consult your attorney to discussthese options.13 The Consumer Credit Counseling course is required to be completed beforefiling for both a Chapter 7 and a Chapter 13 bankruptcy, and not more than 180days prior to filing. However, this course is available online, takes about 90minutes, and can be completed in your own home.34
  35. 35. days after the 341 hearing, and is usually issued within 60to 75 days.If the Trustee determined that you had no assets toliquidate, then the Trustee will issue a report and requestto be relieved from further obligations as trustee. Oncethis happens, your case will be closed. However, if theTrustee feels that there are assets that can be liquidated,like income tax refunds for the year in which thebankruptcy was filed or for any years prior that you havenot already received and spent the refund, then theTrustee will keep the case open until the funds arereceived and distributed. After the distribution, the casewill be closed.Chapter 13 BankruptcyA Chapter 13 will usually last for 3 to 5 years. Upon filing,you will also receive a questionnaire and documentrequest from the Trustee; and you will attend a 341hearing. 35
  36. 36. Your attorney and you will prepare a Plan. The Plan willspecify what payments you will make, and how often.Plans can be very simple, with the same amount dueeach month for a number of months, or very complex,with several periods, or even every month having adifferent payment amount due. However, the simplerthe Plan is, the easier it will be to get it confirmed.Once the Trustee receives the Plan, the Trustee willreview it and make recommendations. You will thendiscuss these with your attorney, and either addressesthese in the Stipulated Order of Confirmation, or with anAmended Plan. However, once your Plan is confirmed,you will generally simply complete its terms. However, ifyou have unexpected difficulties, you can file to modifyyour Plan.Your case will not be longer than 5 years, though it couldbe shorter if your plan is a 100% repayment plan.14 ThePlan requires you to commit all of your disposableincome for the Plan Period. However, there are pretty14 For a discussion of how a 100% payment plan is still a huge benefit for you, seethe section above titled Why File If I Can Still Scrape By.36
  37. 37. reasonable expense guidelines. You can also usuallykeep all or most of your assets, whether or not these areexempt. 15Keeping your assets is important, but there are moresignificant advantages to a Chapter 13 Plan. One is that ifyou have a vehicle and you owe more than it is worth,then if you entered into the loan more than 910 daysbefore your petition was filed, you can reduce what youowe for the vehicle down to its present value. If, forexample, you owe $25,000.00 for a vehicle, but it is onlyworth $15,000.00, then you can pay for it through thePlan and reduce your payments.Another significant advantage to a Chapter 13 is a lienstrip for a residence. With your residence, if you havemore than one mortgage, but the home is worth lessthan the first mortgage, you treat ALL junior mortgagesas unsecured debts. This will allow you to pay for your15 While this is an advantage, this is not usually the best reason to be in a Chapter13. This is because there are usually few assets that are not exempt, and alsobecause you will have to make plan payments for 3 to 5 years. 37
  38. 38. commitment period, and at the end of that time the lienwill also be discharged.16WHAT TYPE DO I QUALIFY TO FILE?We will perform a means test calculation to determinewhat your options are. The means test determines if youmust file a Chapter 13, or if you can take your pick ofeither a Chapter 7 or a Chapter 13.There are three ways to qualify under the test. The firstis to determine whether your income is less than orequal to the median for your size household, and if soyou can file either type of bankruptcy.17 This is statespecific, and the guidelines can change every six months.If your income is greater, then we subtract your allowedexpenses from your income to determine yourdisposable income. If this calculation leaves you in thenegative, or up to no more than $117.08 per month, then16 There are specific requirements to ensure that this is handled properly. Makesure you hire an attorney with experience handling this issue.17 This is a discussion of the Means test only. There may be other limitations toconsider, such as prior bankruptcy filings.38
  39. 39. you still qualify to file either. If the calculation leaves youwith more than $195.42, then you must file a Chapter 13.But if you are between these numbers you may stillqualify to file either, depending on how much generalunsecured debt will be discharged.There are many factors to consider, and the mostimportant things your attorney can do for you are to helpyou understand the pros and cons of filing bankruptcy,determine what chapters you can file under, and theimpact each chapter will have for you. Call now to schedule a free consultation. (480) 850-6541 39
  40. 40. 18Will I Lose My Property?Whether or not you will keep most things is largely up toyou. Every state has exemption laws so that you willretain many things following bankruptcy. Which lawsapply depends on how long you have been in thejurisdiction before filing, and where you were before. Aslong as you have been in Arizona for the last two years,Arizona’s laws apply. Some, if not all of your equity inyour vehicle will be protected, as well as your household18 Image courtesy of digitalart / FreeDigitalPhotos.net40
  41. 41. goods, your big screen t.v., business equipment,retirement accounts, etc.However, if some asset is not exempt or partiallyexempt, you may be able to prepare before filing yourpetition so that you protect the value of the asset.Perhaps you sell non-exempt assets, then buy exemptones. Or instead, you may choose to retain the non-exempt asset, and agree to pay the value of it to theTrustee.With prior planning, most of your assets can beprotected.Do I have to give up my car?In most cases, the answer is no.The exemption in an automobile is $5,000.00, or$10,000.00 if you are disabled and have handicap plates.Each petitioner gets one automobile exemption, but afiling couple can put the entire amount on one vehicle. 41
  42. 42. If yours is a joint filing, and you have two cars, and one isworth $2,000.00 and the other is worth $8,000.00, thenthe $2,000.00 vehicle will be fully protected, but theother will only be protected up to $5,000.00. However, ifyou have a $2,000.00 lien against the $2,000.00 vehicle,and no lien on the $8,000.00 vehicle, then you can fullyprotect it. Or if instead you have a $3,000.00 lien againstthe $8,000.00 vehicle and no lien on the other, then youcan fully protect both. And if both have liens, then bothwill be protected.Likewise, if you have a car worth $100,000.00, but youowe $95,000.00, then your $5,000.00 exemption fullyprotects your equity.Even if your vehicle is not fully protected, we cannegotiate with the Trustee to determine how you willpay for the non-exempt portion and keep theautomobile. But if you want to let the vehicle go, youcan choose to do that too.42
  43. 43. My house is upside down, do I have to giveit up? Should I? (Can I?)You do not have to give up your home either, but youmay want to. In the current housing market, manyhomes are worth substantially less than the mortgageremaining. Often, homeowners have a first and secondmortgage, but even the first is upside down. If you owemore for the first mortgage than the home is worth, youcan strip the second mortgage.But an important consideration is whether this is theright thing to do. This is a difficult issue. Often thedecision involves concerns of shame, what will theneighbors think when I let the house go, or concerns ofpride, I put umpteen thousand dollars into this home, soif I leave I wash it all down the drain, and even concernsof family, my kids are growing up here, I don’t want tomake it hard on them.These are all important concerns, but it is equallyimportant to consider the basis for buying the home inthe first place. The two things buying a home rather than 43
  44. 44. renting gives to us is security and equity. A home that isconsiderably upside down gives us neither of these. Youmight also want to revise your thinking. Are yourneighbors opinions worth more than your family’sfinancial future? Isn’t the money you spent alreadygone? Is moving harder than paying for college?Consider this: A family owns a home worth $150,000.00,but they owe $250,000.00. Their payments will reducethe principal of the loan over time. If equity increases at3% per year, the home will once again be worth whatthey owe in roughly 126 months, or 10.5 years.19 At thatpoint the home will be worth $206,000.00, and they willowe the same.If they need to borrow money, such as needing moneyfor their children’s college, they will not be able to usethe home as collateral in this period. And it will still take19 Historically, real estate is said to increase in value by 6% per year. This cannotactually be true or we would all be living in million dollar homes. As cities change,the equity increase slows, and may even stop or slide backward. The recenthousing bubble actually caused homes to lose more value than they gained.However, at some point most homes should start to gain back some of theselosses.44
  45. 45. another 4 years before they have sufficient equity toborrow enough for a year or two of college.If instead they surrendered the home in the bankruptcy,then they could buy another home two years after thedischarge. If we consider the same amount of growth,then two years from now the home will be worth$159,264.00. If we then looked ahead 8.5 years so thatwe are at the same point the home will be worth thesame $206,000.00, but they will only owe $138,000.00.Instead of being at the breakeven point, they will have$68,000.00 equity—enough to afford college.Another important consideration is the monthlypayment. At 6% the mortgage for $250,000.00 costs$1500 a month; while the mortgage for $159,264 costsjust $955 a month.Bankruptcy does not require you to give up your home, itjust gives you the option. Call now to schedule a free consultation. (480) 850-6541 45
  46. 46. 20How Much Will BankruptcyCost?There are different things that make up the cost ofbankruptcy. Your attorney will need to obtain a creditreport as part of the process. You will need to take apre-filing class, and a post-filing class. And while both ofthese can be completed online in the comfort of your20 Image courtesy of Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net46
  47. 47. home in less than two hours each, they do add to thecost.There is a filing fee charged by the Court, which variesdepending on the type of case filed, and the Courtperiodically changes the amount. There may also be acharge for reaffirmation agreements, lien strips,cramdowns, etc.You will also find that the price can vary significantlyfrom firm to firm. Surprisingly, you are likely to find thatthe high volume filing firms, which typically offer littledirect communication with your attorney, will often costmuch more than smaller firms.If the firm you are dealing with advertises that they havefiled some unbelievable number of cases, when theattorneys in the firm have only been practicing a fewyears, and/or the firm has only been around a few years,you might want to ask yourself if you are likely to get thekind of customer service you would like to have. Are youa client or a number to add to the advertising. 47
  48. 48. You should expect to pay for good representation. Youcould go to a certified document preparer and get yourbankruptcy case much cheaper. But a documentpreparer is not allowed to give you legal advice. So if youhave property which is not exempt, the documentpreparer cannot advise you on how to protect the value.You are likely to save money at the outset, but spend alot more by the time everything is complete.That said, good representation should not be thatexpensive. The total cost for everything, including thefiling fee, classes, credit report and attorney’s feesshould not be more than $2,100.00 for a Chapter 7bankruptcy. A Chapter 13 will cost more because there ismuch more involved. However, the attorney’s fees stillshould not usually be more than $4,000.00. If theattorney is suddenly willing to discount fees when youbring it up, how much is the attorney trying to profitfrom your misfortune? Is this an attorney that is tryingto help you, or himself?48
  49. 49. Some cases will cost more than this because of complexissues involved. However, having 10 creditors versus 5,or having a car loan and home loan, does not increasethe complexity of a case enough to justify higher rates.Unless you have a significant number of creditors (morethan 50), or pending lawsuits involving allegations offraud against you, you probably should not pay muchmore than the amounts stated above. Call today to schedule your Free Consultation. (480) 850-6541 49
  50. 50. Bankruptcy Dos And DontsBefore you file your bankruptcy, it is important toprepare. Remember, your attorney is there to minimizethe impact of filing, and your attorney will be able to giveyou the most help only if you do not hold anything back.Also, because of confidentiality rules, you should feelcomfortable being completely up front. With this inmind: DO disclose everything you own in your paperwork. DO tell your attorney if you are about to receive a taxreturn or an inheritance. DO tell your attorney about liens or judgments youmay have. DO tell your attorney about your small business,sole-proprietorship, or hobby. DO keep your attorney up-to date with your address,phone number & email address.50
  51. 51.  DO appear in court and bring your social security cardand drivers license.☒ DONT leave out Bank, Checking, Savings, Brokerage,Credit Union accounts.☒ DONT use your credit cards or do balance transfers.☒ DONT take Credit Card Cash Advances or useconvenience checks.☒ DONT pay money to Family or Friends☒ DONT tell a creditor that you intend to pay.☒ DONT give or gift property to anyone.☒ DONT pay more than $600 on any past due billwithin 90 days of filing.☒ DONT transfer property to anyone.☒ DONT cash out retirement plans or 401ks.☒ DONT take out a second mortgage, or borrowmoney.☒ DONT gamble. 51
  52. 52. ☒ DONT hide assets or debts.☒ DONT put your money in your kids bank accounts.☒ DONT omit or save a credit card for after yourbankruptcy.☒ DONT fail to list debt to family or other "insiders."☒ DONT write bad checks.☒ DONT make major financial decisions withouttalking to your attorney.☒ DONT misrepresent facts to your attorney.☒ DONT run up your credit cards in advance of filingbankruptcy.There are many more factors that go into preparing tofile for bankruptcy. For more in depth information, calltoday to schedule a free consultation. Call now to schedule a free consultation. (480) 850-654152
  53. 53. Wrapping UpSome final thoughts to take away are that bankruptcycan not only give you breathing room in the short term,but it can give you the freedom to build for the future.Once you discharge your debts, you can save forretirement, for your children’s education, or both.Bankruptcy can let you dump under-performing assets,like a home or car. And because you have very little timeto wait before buying a home that is worth what youowe, you will be able to see the value of a bankruptcyvery quickly.Our bankruptcy firm offers a free bankruptcyconsultation in which we will go over your situation indetail and cover all of the advantages and disadvantages. Call today to schedule your (480) 850-6541 Free Consultation. 53
  54. 54. About the AuthorsThomas Cesta and William Fife are both attorneys inArizona. Although they had worked elsewhere first, Tomand Will began working together in 2007, while workingfor a local respected firm in Phoenix.Tom and Will both have a background working in thecredit card and banking industries, where they learnedfirst-hand how credit card companies treat consumers.They each came away from this experience with a strongcommitment to communication and good customerservice, as well as a firm understanding of the help mostfamilies need.At the Law Offices of Fife & Cesta, PLC you will receivedirect customer care. We will not only return your callsand emails promptly, we encourage you to contact us sothat we can give you the best representation possible.54
  55. 55. Attorney Thomas J. Cesta Education: ASU, Tempe. B.A., 1996 Capital University Law School, J.D., 2001 Admissions and Memberships: Arizona Bar Association; All Arizona State Courts; U.S. District Court, Arizona; National Association of Consumer Bankruptcy Attorneys; Ohio Bar Association, (Inactive Membership); Arizona State Bar Fee Arbitration Committee.BiographyAlthough Tom was born in Columbus, Ohio, his familyeventually settled in Arizona when Tom was seven. Afterhigh school in Mesa, Tom was a medic/paratrooper inthe 82nd Airborne, US Army, from 1987 to 1990, heserved at Fort Letterman Army Medical Center in 1991during Operation Desert Storm, and he then joined theNavy and was assigned as a Marine Corps Corpsman.Tom was on the Dean’s list every year in Law School,earning two concentrations. Tom is an active member of 55
  56. 56. the Arizona State Bar Fee Arbitration Committee,arbitrating fee disputes between attorneys and theirclients.Before becoming an attorney Tom worked in customerservice. Tom recognizes that law is also a customerservice industry.Tom and his wife Rachel have four children.Email for Thomas: tcesta@fifecestalaw.com56
  57. 57. Attorney William W. Fife III Education: ASU, Tempe. B.S., Cum Laude, Major, Justice Studies, Minor, Political Science, 2001. Political Science Junior Fellow. ASU Law School, J.D., 2005 Admissions and Memberships:All Arizona state courts; U.S. District Court, Arizona;Arizona Bar Association; National Association ofConsumer Bankruptcy Attorneys; American BankruptcyInstitute; Association of Credit and CollectionProfessionals.BiographyWhile attending ASU for his undergraduate degree,William was selected as a Junior Fellow in the PoliticalScience Department, collecting data on military coupd’états in Sub-Saharan Africa and researching thestability of nations in that region. William attendedMississippi College on scholarship for his first year of lawschool, and earned the highest overall grade in his Torts 57
  58. 58. class. Upon completing his first year of law school,William returned to Arizona to complete his law degreeat Arizona State University.William is an Arizona native, born and raised in Mesa.Following high school, William served a mission for theLDS Church in Rostov-Na-Donu, Russia. In his free timeWilliam enjoys spending time with his wife and their twodaughters.Email for William: wfife@fifecestalaw.com58
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  60. 60. Law Offices of Fife & Cesta, PLC 1811 S. Alma School Road, Suite 270 Mesa, AZ 85210 www.FifeCestaLaw.com60