Bankruptcy

Help Me! I Can't Lose My House and My Car! What Will a Bankruptcy Do to Help Me?

By Joseph McDaniel, Esq.

If your first mortgage is $800,000 and the house is worth $400,000, you have a problem.

If the house payment for the first mortgage (the one most likely to start a trustee's sale in Arizona) is $2,400 per month, and your income is zero, you have a problem.

If you have a car that's worth $25,000 and you want to file a bankruptcy in Arizona, you have a problem.

All of the above problems have solutions, depending on the rest of the facts that are presented.

But none of this stuff is easy, and not all of the solutions are happy, smiley solutions.

On the other hand, what I want to achieve in my cases is that the bankruptcy client ("debtor" or "bankrupt", although that term is a bit archaic) gets rid of most of his dischargeable debt, keeps most of his exempt property, spends money that's coming to him (tax refunds, for instance) on his family prior to filing, and gets to move on into his or her or their fresh start with darn near zero historic debt.

I like it best, in fact, when the debtor has a car that's exempt, and is owned free and clear; but cars are the most bizarre, complicated issue among all those that get dealt with in bankruptcy cases in Arizona.

So here's the deal: sometimes you get to keep the house, if you can afford to make some of the payments. Sometimes you get to keep the car, if it's exempt, or if it's overencumbered (although the Judges don't like reaffirmations on those cars any more than I do), and sometimes you don't.

It depends.

But most people with overwhelming debt who decide to file a bankruptcy in Arizona (and the vast majority of those I file are Chapter 7 cases, because I think those are by far the best bang for the buck for the debtor client; much better than the awful five year Chapter 13 bankruptcy cases) wind up, on balance, happier and less anxious after they get that overwhelming debt scraped off by their bankruptcy discharge.

And if there's zero equity in the house, or negative equity, there may be good economic reasons to rent for four years instead of paying $4,500 per month to stay in a very nice house. Which the bank, really, owns.

On the other, other hand, the ultimate decision points with my clients are theirs, not mine. If a client wants to stay in a house that's massively underwater, with huge monthly payments, and can't afford to do it without sucking money out of a 401(k), that's a decision for the client.

I will, of course, tell the client that he's been smoking wacky tabacky if he thinks he's making a great business decision, but if I were a business genius, I wouldn't be a simple back-country bankruptcy lawyer in Arizona!

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on July 15, 2010 (boomark / email).