Planning Your Exemptions In Bankruptcy
Bankruptcy laws provide for you to exempt property from the bankruptcy process that is necessary for you to get a fresh start. 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.
Some states will allow you to use the federal exemptions or choose that state’s exemptions. If you’ve lived in Arizona for over two years when we file bankruptcy, you will use the Arizona bankruptcy exemptions. If you’ve lived in Arizona under two years, we will use the state’s laws that you moved from, or if an option under that state, choose 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, or if there are other timing considerations we will balance all of pros and cons of waiting or filing more quickly.
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. This process is similar to tax planning, to ensure you pay the least amount of taxes possible under 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 accounts once you file bankruptcy. You can however purchase food, household goods, or other things that fall under the exemption categories as long as what you purchase is under a certain dollar amount. Or, another example is if you decide to purchase insurance as part of your exemption planning.
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 of fraud or illegal action. Each case will have specific 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.
Paying a Creditor Before Filing Bankruptcy
Some of our clients have borrowed money from friends or family as they attempted to do the best they could during times of financial stress. It may be important for those clients to pay back loans from friends and family. Perhaps a client also wants to retain a particular credit card in order maintain a relationship or credit with that particular bank or company.
Depending on the circumstances, it may make sense to pay back the favored creditor. If the payment is more than $600 and within a certain amount of time before filing bankruptcy, the payment could be invalidated by the bankruptcy trustee. If you want to make sure the creditor is able to keep the payment, then you will need to consider delaying filing your bankruptcy.
It may be better to consider paying that 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 to pay that creditor. 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.
Facing Foreclosure or Eviction
If you are facing eviction or foreclosure, we might consider the timing of your bankruptcy filing. By waiting we increase the amount of time you are able to stay in your home (or apartment) and 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, again, 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.
It is not uncommon for clients to come to our office who 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 payed 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.
Means Test and Monthly Income
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. In both of these, the last 6 months of income will be used to determine if you are eligible for chapter 7 or to determine how much disposable income is available to you for a chapter 13 payment plan.
If your income has increased or decreased in the last 6 months, we will want to look closely at the numbers to ensure that fall under the income limits for chapter 7 bankruptcy. For example, if you had a significant pay cut in the last month that will continue in 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.
If you had a previous bankruptcy dismissed within one 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.
As you can see from all of the considerations above, working with experienced bankruptcy attorneys allows you to take maximum advantage of the law and avoid possible illegal and fraudulent actions. We know that each case is unique and requires personalized attention to detail. If you are considering bankruptcy, we encourage to call our friendly office staff and set up an appointment today for a free consultation.