Planning Your Bankruptcy Strategy
If you have decided that bankruptcy is the right choice for you, there are a number of decisions that need to be made before you file. As your Arizona bankruptcy attorneys, we will discuss with you the strategies that will be of the most benefit to you and your family.
Should My Spouse File Bankruptcy, Too?
If you are married, one of the things to consider is whether both spouses should file. The fee to file is the same for an individual or a joint case, so costs are not necessarily an issue. Because many spouses obtain credit and owe debt as a couple, if only one spouse files, the other spouse will still be liable to creditors. The automatic stay that keeps creditors from harassing debtors will only be in effect for the one spouse who files.
Married filers can take advantage of joint paperwork and schedules. As a result, the amount of paperwork needed to file jointly is less than if the spouses filed two individual bankruptcy cases. Once the joint case is filed, the court makes a decision as to whether to “consolidate” the cases. Consolidation means that the property and debts of both spouses (whether jointly owned or not) are handled together by the court and the trustee.
Sometimes, if one spouse owns more nonexempt property that would be sold off to pay creditors, those creditors might object to the consolidation. Under consolidation, the creditors share the money that is distributed from the sale of assets of both spouses. If one spouse has a lot more nonexempt property than the other, that spouse’s creditors might end up with less money under a consolidated case.
It is best for the spouses to make the decision about joint filing at the beginning of the case. If, for some reason, one spouse decides not to file at the beginning of the case, but then wants to file shortly after the other spouse filed, he or she can consider filing individually and then request the court jointly administer the two individual cases.
When Not to File Jointly
The most common reason to file separately is that one spouse does not want to be involved in the bankruptcy case. When this happens, the other spouse can still move forward and file an individual bankruptcy case.
Sometimes a spouse might not be able to file jointly because he or she has a prior bankruptcy that makes them ineligible makes them not want to join the current bankruptcy petition because of the possibility that it would be dismissed for abuse. Also, if one spouse has a large, priority debt that will have to be paid, it may be advantageous to file separately.
Because Arizona is a community property state, even if one spouse decides not to be a part of the bankruptcy, most or all of the spouse’s debts and property could be affected.
When Should I File?
You may be ready to file bankruptcy right away, to get the process started and put in place the automatic stay to end the harassment of your creditors. However, there may be reasons to delay filing. This is an important part of the strategy that we will discuss before we file your bankruptcy. Often there will be many pros and cons to both filing immediately and waiting to file. We will work with you to weigh all the issues and determine the optimal strategy for your case.
In some cases, we will want to file immediately to delay actions such as utility shut-off, repossession, foreclosure, or eviction. It might also be necessary to file immediately, such as to make sure you avoid the time limits imposed in the statute of limitations if you need to file a lawsuit.
Another reason to file quickly would be if you are expecting to receive nonexempt property in the near future that would not be included in the bankruptcy process if filing occurs first. It is important to note, however, that some property acquired within 180 days of filing bankruptcy is automatically included in the bankruptcy estate, such as an inheritance.
Reasons to Consider Delaying Your Filing
One reason to delay the filing of bankruptcy would be to handle the impact of transferring property before filing. For example, in a Chapter 7 bankruptcy your creditors can claim that you intended to defraud them by transferring property within 1 year of filing bankruptcy. So it may be better to wait until a year has passed to avoid this issue.
If you are facing eviction or foreclosure, we might be able to delay your filing to increase the amount of time you are able to stay in your home (or apartment). Then, when we file, the automatic stay keeps your creditor from continuing eviction and foreclosure proceedings. This allows you more time to find another place to live. Our goal is to allow you to take full advantage of the bankruptcy laws, but not to abuse the automatic stay just for the sake of delay.
Sometimes a client wants to pay back a particular creditor before filing bankruptcy. Perhaps it is a friend or relative. One of the purposes of bankruptcy is to ensure that unsecured creditors have equal access to the money that is available for distribution in the bankruptcy process. In this case, the client is not intending to fraudulently transfer the money. But the client may want to wait to ensure that the trustee doesn’t reverse the payment and include the friend or relative among all the other creditors.
Note that it may be better to pay a favored creditor after you file. You can pay them using exempt assets that you are able to legally keep in the bankruptcy process. Or you can use income you make after filing. Again, these are strategies that should be discussed with us as plan your exemption strategy and the timing of your bankruptcy filing. If you are filing a Chapter 13 bankruptcy, where you make monthly payments, we will need to carefully consider additional payments you make to a specific creditor to ensure this payment does not raise the issue of having more disposable income than was indicated in your plan.
Another timing issue to consider is if you have had property taken away by a creditor that would be exempt from the bankruptcy process. If you did not voluntarily transfer the property, you did not conceal the property, and it would have been exempt, you may be able to get the property back by filing within a year of the date that the property was taken away.
If you bought any luxury items or luxury services (totaling more than $550) within the last 90 days or if you took cash advances totaling more than $825, we will discuss with you how these issues will affect the timing of your bankruptcy filing. These purchases and cash advances might be considered fraudulent and you might be better delaying filing bankruptcy until 90 days have passed. It is still possible for a creditor to challenge the discharge of this kind of debt if the creditor can show fraud on your part, however.
If you had a previous bankruptcy dismissed within the past year, we may need to delay filing in order to ensure that the automatic stay normally available in bankruptcy is still available to you. Because the bankruptcy laws are written to avoid abuse of the automatic stay, we will need to determine how we can avoid limits on the automatic stay.
I Moved to Arizona Recently – Does That Matter?
Yes. In handling your bankruptcy case, we will need to take into consideration how long you have lived in Arizona to effectively plan your property exemptions. If you’ve lived in Arizona for over two years at the time of your bankruptcy filing, you will use the Arizona bankruptcy exemptions. If you have lived in Arizona for less than two years, you may have the option of using the exemptions from the state that you moved from or the federal property exemptions.
Because of the two-year residency requirement to use a state’s exemptions, if you are coming up on the two-year period we may decide to wait until the two years have passed or to file more quickly before the two years expire. This decision will be made based on which states’ laws are more favorable for you, weighed against all the other timing considerations in your case.
What If I am Behind on My Income Taxes?
It is not uncommon for our clients to tell us they haven’t filed income taxes for a period of time because of financial duress. Sometimes it is helpful to file previous years’ tax returns and to file bankruptcy more quickly. If you are filing Chapter 13 bankruptcy, these taxes owed will become priority debts that are paid first, before unsecured creditors. Since tax debts are not dischargeable, this gives you the opportunity to pay them down during the payment period of your Chapter 13 bankruptcy.
What If My Income Has Changed or Will Change Soon?
Another consideration in timing your bankruptcy filing has to do with the means test in Chapter 7 and the disposable income calculation in Chapter 13. Both of these use the last 6 months of income. The means test uses this information to determine whether you are eligible for Chapter 7; the disposable income calculation in Chapter 13 uses it to determine how much disposable income should be available to you during your repayment period.
If your income has increased or decreased in the last 6 months, we will want to look closely at those numbers. For example, if you had a significant pay cut in the last month that will continue for the foreseeable future, we may want to delay filing Chapter 13 so that your lower income is the basis for your payment plan. Under a Chapter 7 filing, it may be that we need to consider filing more quickly or slowing down filing depending on how your income is or has changed within the last couple of months.
As we prepare you for bankruptcy, we will also advise you of any steps you can take that might improve your ability to keep property through the bankruptcy process. Planning these property exemptions by arranging your financial affairs before filing can help you to legally take full advantage of the bankruptcy laws. Working with us in this process will also help you avoid the possibility of being accused of fraud by ensuring any steps you take fall within the law.
Let’s look at some examples of exemption planning that can help you legally retain as much as you can during the bankruptcy process. For example, you are only allowed to keep a certain amount of cash in your accounts once you file bankruptcy. You can, however, purchase food, household goods, or other things that fall under the exemption categories, such as insurance, as long as what you purchase is under a certain dollar amount.
The critical part of this exemption planning is to work with us. Because of our experience in filing bankruptcy cases, we are fully versed in all the Arizona court cases and both federal and Arizona laws. We understand what the impact will be of any conversion of assets and work to ensure that there is no concern about fraud or illegal action.
Every bankruptcy case has unique issues and concerns, so our discussion here is to give you an idea of the kind of planning necessary to take full advantage of the exemptions in Arizona bankruptcy. As you can see, planning a bankruptcy case can be complicated. Working with experienced bankruptcy attorneys allows you to take maximum advantage of the law and avoid illegal and fraudulent actions.
We encourage you to come into our office to for a free consultation as you consider your bankruptcy options. At Trezza & Associates our representation of thousands of clients gives us the experience you can count on to ensure that you take full advantage of when and how to file your bankruptcy case. We will take the time to educate you on the information you need to make the best decisions to get your fresh financial start. Contact us today in Tucson or Phoenix to learn more about how the bankruptcy process can help you and your family out of financial distress.