Year: 2013

Bankruptcy Basics: The Reaffirmation Agreement

Posted by Mike Zdancewicz on September 19, 2013

After filing for a bankruptcy, in some instances a debtor may choose voluntarily to enter into what is called a reaffirmation agreement. Reaffirmation is a promise to pay a specific debt, adhering to a specific payment plan, and waives the discharge of that particular debt. A reaffirmation of a debt does not impact the bankruptcy ruling or the actions of the bankruptcy trustee, and both the debtor and the creditor must agree to sign the reaffirmation agreement. Reaffirmation agreements are not required by law, and they may be cancelled at any time before the bankruptcy debt discharge deadline, or within 60 days after the agreement has been filed with the court.

Not all creditors or lenders will recognize or opt to participate in a reaffirmation agreement. Also, creditors may later need to seek legal remedy, such as a judgment, against a debtor who has signed a reaffirmation agreement and then fails to pay the debt. In the case of secured debts such as mortgages, the creditor may take action to recover any property secured by a lien.

The use of reaffirmation agreements in the District of Arizona is an intricate process. Creditors are best served by engaging experienced attorneys to assist with this course of action.

If you would like more information about reaffirmation agreements, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.

Bankruptcy Topics: The “Best Interests Of Creditors” Test

Posted by Mike Zdancewicz on September 17, 2013

The phrase “best interests of creditors” could describe the entire point of view of this blog. For example topics have included creditors’ rights, bankruptcy basics, and terminology for creditors. Taken specifically in the context of bankruptcy, though, the phrase “best interests of creditors” refers to a test utilized in bankruptcy cases to aid in the determination of payment amounts to creditors. The test is also known as the “liquidation” or “best efforts” test.

In a Chapter 7 bankruptcy, the debtor’s assets are liquidated and creditors are repaid from monies raised in the liquidation. However, in the more complex process associated with a Chapter 13 filing, the debtor must follow a payment plan that is approved by the Bankruptcy court. The “best interest of creditors” test is a means to assure that unsecured creditors receive at least as much in repayment (through the court-approved plan) as they would have received in a Chapter 7 filing (from liquidating assets).

Chapter 11 bankruptcies generally concern business debtors rather than individuals. However, the “best interests of creditors” test is also utilized to protect Chapter 11 creditors, whose repayment will be affected and determined by the specifics of the debtor’s plan of reorganization. In fact, the Bankruptcy court will not approve a Chapter 11 plan if the results of the test indicate that the debtor has not adequately addressed the needs of secured as well as unsecured creditors.

Protecting the rights and claims of creditors in bankruptcy is a complicated undertaking for the trustee as well as for all parties involved. Considerations such as the “best interests of creditors” test are not intended to serve as a guarantee of satisfaction, but more of an overall safeguard of fairness toward creditors.

If you would like more information about creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Less Common Types of Bankruptcies: Chapter 11, 12 and 15

Posted by Mike Zdancewicz on September 13, 2013

By now regular readers of this blog are fairly familiar with bankruptcy in general. Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh start. The right to file for bankruptcy is provided by federal law and all cases are handled in federal court. Though most people have heard of Chapter 7 and 13 bankruptcies, there are other types of bankruptcies of which creditors may want to have knowledge. This blog will discuss three less common but important types of bankruptcy filings.

Chapter 11, also known as a reorganization. It is similar to a Chapter 13 bankruptcy in that it allows the filer to draft a plan to repay some debt while retaining assets. Chapter 11 is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals. Unlike a Chapter 7 or 13 bankruptcy, a Chapter 11 bankruptcy does not automatically include a trustee to administer the case unless the court directs that one be appointed. Should that occur, the trustee proceeds as in other bankruptcies, taking charge of the debtor’s business and property in an attempt to satisfy creditor claims.

Chapter 12. This type of bankruptcy shares features of both Chapter 11 and 13 cases, but differs in that it is utilized mainly by family farmers and family fishermen. When a family farmer or fisherman files for a Chapter 12 bankruptcy, s/he will be allowed, as a debtor, to continue doing business while creating a plan of reorganization. When the plan is approved, the debtor will be required to make payments in a time frame similar to a Chapter 13, usually three to five years. Creditors with secured claims may be paid over an even longer specified period; unsecured claims are handled as they are in a Chapter 7 liquidation. The U.S. Bankruptcy Trustee will most likely appoint a “standing trustee” to preside over a Chapter 12 bankruptcy.

Chapter 15. This specialized type of bankruptcy involves corporate bankruptcy cases (also known as insolvency cases) occurring outside the United States. Section 304, Chapter 15 of The Federal Bankruptcy Code elaborates on these “Ancillary and Other Cross Border Cases”, enabling multi-jurisdictional cooperation between countries pertaining to corporate insolvency. Parties involved in foreign bankruptcy proceedings are able to accomplish more when information is shared, but it should be noted that a Chapter 15 bankruptcy is granted only at the discretion of the U.S. court. One major consideration is whether U.S. creditors involved in the case are treated fairly in the foreign court jurisdiction; another factor in the decision pertains to whether any U.S. laws have been infringed upon by the other court(s)’ proceedings.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing. If you would like more information about bankruptcy requirements, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Duties of Chapter 7 and Chapter13 Bankruptcy Trustees

Posted by Mike Zdancewicz on September 11, 2013

Along with the creditor and the debtor, the U.S. Chapter 7 or Chapter 13 Trustee is also a major party in a bankruptcy case. It is the trustee who determines what, why, when and how each aspect of the case works through the process.

Bankruptcy trustees are not government employees, though they are appointed by, and accountable to, the Office of the U.S. Trustee, which is a division of the U.S. Department of Justice. Besides their duties in bankruptcy cases, trustees often practice other professions such as law or accountancy.

Chapter 7 trustees are known as “panel” or “case” trustees, while Chapter 13 trustees are called “standing trustees.” Before assuming their duties in bankruptcy proceedings, all trustees must be vetted by the FBI and bonded.

Both Chapter 7 and 13 trustee duties include:

Reviewing all bankruptcy documentation, asset information, and other relevant information pertaining to the debtor
Conducting the Meeting of Creditors
Questioning the debtor about particulars of the bankruptcy filing
Addressing creditors’ proofs of claim
Determining the value of a debtor’s assets
Identifying/nullifying/objecting to improperly filed liens or fraudulent transfers

In a Chapter 7 case, the trustee’s duties may also include liquidating the debtor’s non-exempt assets to begin paying unsecured creditors. Chapter 13 trustees are responsible for reviewing and administering the bankruptcy repayment plan, which includes monitoring payments and accounting, for as long as the plan is in effect (generally, three to five years).

If you would like more information about the role of the trustee in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Bankruptcy Basics: The Chapter 13 Repayment Plan

Posted by Mike Zdancewicz on September 9, 2013

The repayment plan in a Chapter 13 bankruptcy filing is essential to both creditor and debtor. The debtor must present a plan in good faith; and, the creditor will be paid in accordance with the plan’s terms. The debtor submits the repayment plan as part of the bankruptcy petition filing.Basic elements of a Chapter 13 repayment plan include:

Basic elements of a Chapter 13 repayment plan include:

The duration of the plan (generally three to five years)
Value (total dollar amount) of the debtor’s assets and property
Proposed payment amounts for the following types of debts:

Priority Debts — alimony, child support, employee wages, some types of taxes. These must be paid in full by the end of the bankruptcy period.
Secured Debts — mortgages, vehicle loans. These debts may be addressed outside the bankruptcy plan via reaffirmation agreements, or even reduced by means of a negotiated “cramdown.”
Non-Priority Unsecured Debts — credit card debt, medical bills, personal loans. After priority and secured debts are given attention, the unsecured creditors in this category often only receive a percentage of what is owed them.

Before the case can proceed to the point at which any creditors will begin receiving payment, the repayment plan must be confirmed by the bankruptcy court.

If you would like more information about repayment plans or any other elements of Chapter 13 Bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Objections to a Discharge of Debt in Bankruptcy

Posted by Mike Zdancewicz on September 5, 2013

If a creditor in a bankruptcy disputes the discharge of certain debt(s), that creditor may file an adversary complaint with the bankruptcy court within 60 days after the Meeting of Creditors. Filing an adversary action to determine the dischargeability of a debt in bankruptcy is a case within the bankruptcy proceeding. The creditor will file the complaint, the debtor will file an answer, there will be discovery and then the case will proceed to trial. If the judge rules that the debts will not be discharged, repayment is required. Adversary proceedings may also be settled before they go to trial.

The Federal Bankruptcy Code details the circumstances under which some debts may not be discharged. Some common grounds for creditor objections include:

The debtor received a discharge in a Chapter 7 bankruptcy any time within the past eight years
The debt is a priority debt, such as court costs, alimony, child support, restitution, and government-issued fines
The debt consists of federal and/or state income taxes due for the past three years, or for taxes paid late in other years
The debtor intentionally falsified a tax return, loan application, or other financial statements
Certain credit card cash advances and charges made by the debtor within specific periods before a bankruptcy filing
Costs and damages relating to destructive or vindictive conduct by the debtor, such as damage to real property or DUI

The Bankruptcy Trustee may also file objections, for reasons including:

Failure of the debtor to keep and produce adequate financial records
The debtor does not fully disclose assets
The debtor destroys assets within a specified period before or during the bankruptcy filing or proceeding
Failure of the debtor to obey bankruptcy court orders

There are two types of objections to discharge:

1. Objection to Discharge of a Particular Debt (Section 523)

A creditor can object to the discharge of his or her particular debt, which may be granted despite all other debts in the bankruptcy being discharged.

2. Objection to the Discharge of All Debts (Section 727)

A creditor or the U.S. Bankruptcy Trustee can object to the debtor’s discharge of all debt in the bankruptcy. Usually, this objection is based on fraud committed by the debtor in connection with the case. If a debtor is convicted of bankruptcy fraud, not only will the court deny the discharge of debt, but the debtor may also face criminal charges and prison time.

If you would like more information about Objections to Discharge and other adversary proceedings in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Tax Refunds in an Arizona Bankruptcy: Where Does The Money Go?

Posted by Mike Zdancewicz on September 3, 2013

Generally, tax refunds are something people look forward to receiving. In bankruptcy cases, however, it is the creditors, the U.S. Trustee, and the bankruptcy estate that are watching for those much-anticipated checks to arrive.

In Arizona Chapter 7 or Chapter 13 cases, if the debtor receives the previous year’s tax refund after filing for bankruptcy, all or part of the refund will go to the bankruptcy estate. This applies to both state and federal tax refunds.

In a Chapter 13 bankruptcy, the entire amount of the tax refund must go to the bankruptcy estate each year for as long as the bankruptcy repayment plan remains in force.

If you would like more information about taxation issues in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

What is an adversary proceeding?

Posted by Mike Zdancewicz on August 30, 2013

An adversary proceeding in bankruptcy is a separate lawsuit filed within a bankruptcy case. Any party can file an adversary proceeding: the U.S. Bankruptcy Trustee, a creditor, or the debtor.

Not all bankruptcies include adversary proceedings; their purpose is to obtain some form of relief from the court. A contested matter in bankruptcy is different from an adversary action and is governed by the Federal Rules of Bankruptcy Procedure as well as by the Federal Rules of Civil Procedure.

Some of the common reasons for filing an adversary proceeding include:

Fraudulent transfers – The Trustee can file a fraudulent transfer adversary complaint if fraud is suspected in a transfer of money or property occurring before a bankruptcy filing.
Preferential transfers – The bankruptcy trustee can file a preferential transfer adversary complaint, also known as a preference adversary, if a debtor made pre-bankruptcy payments to creditors while insolvent, or in an attempt to avoid a Chapter 7 bankruptcy.
Lien stripping – A Chapter 13 debtor carrying more than one mortgage on a home may file to have these junior (additional) mortgages “stripped” away. The lien holders then become unsecured creditors.
Sale of debtor’s jointly-owned property – If the debtor owns property jointly with others, the Trustee can file an adversary complaint to sever (separate) the parties’ interests, thus forcing the other owner(s) to sell the property. That sale amount would go toward the benefit of creditors.
Discharge of debt – Generally, in Chapter 7 bankruptcy cases, most or all of the debtors’ debts are discharged at the end of the bankruptcy. However, a creditor can file an adversary complaint requesting that the court not discharge a particular debt. The creditor must prove that the debt was incurred by actual or constructive fraud.

If you would like more information about adversary proceedings in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Arizona Bankruptcy Basics: The Cash Exemption

Posted by Mike Zdancewicz on August 28, 2013

When a debtor files Chapter 7 or 13 Bankruptcy in Arizona, the Trustee will follow both federal and state laws that apply to the proceedings that apply. State regulations vary in the specifics of what property is exempt. There is an exemption for cash, which covers the debtor’s bank accounts as well as the ready cash the debtor brings to the bankruptcy proceedings.

Arizona’s cash exemption amount is $150 (one hundred and fifty dollars). That is the maximum amount a debtor will be allowed to have in any bank account, or to hold personally, on the day of the filing. In Arizona, if the total exceeds the $150 threshold, the Trustee is authorized to take the money and apply the proceeds toward paying creditors as dictated within the Federal Bankruptcy Code. Timing is very much an issue: any checks written by the debtor must clear before the bankruptcy filing, or the trustee may take that money.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing. If you would like more information about cash exemptions in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

Creditors’ Rights: Reverse Mortgages

Posted by Mike Zdancewicz on August 26, 2013

Reverse mortgages first became popular in the 1990s. They may regain their popularity as Baby Boomers reach retirement and seek out sources of ready cash to supplement their incomes.

In a reverse mortgage, a borrower has access to a line of credit based on the amount of the principal of the loan as well as on the unpaid interest of that loan. Borrowers can access money discretionally; however, once the maximum allowed for the line of credit has been reached, monthly payments are required and the unpaid amount is recapitalized and deducted from the total amount of available credit.

A lien on a reverse mortgaged property is often secured by a home or other real property, just as it is with a conventional mortgage. If a borrower cannot make regular payments, the mortgage lender may proceed to legal remedies such as foreclosure.

Occasionally, property increases in value after a reverse mortgage is issued, and second or even third reverse mortgages may subsequently be taken out. However, since the balance due in a reverse mortgage tends to increase over time, most lenders prefer not to make such loans or take such subordinated positions.

If you would like more information about reverse mortgages, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.