Rosenstein Law Group

Tax time has just recently passed, but many people have filed for extensions, giving themselves a little extra time to work out how they plan to pay their taxes. It is very common for tax time to roll around, and have to scramble to come up with the money to pay the government.

For individuals that are currently experiencing financial difficulties, and are considering bankruptcy, it is common for the following question to arise: Can I pay my taxes with my credit card, and have that debt discharged when I file for bankruptcy later on?

Unfortunately, that is not allowed. The Bankruptcy Code specifically prevents any and all tax payments to be discharged with your other unsecured (credit card) debt in bankruptcy filing, unless the tax itself is dischargeable.

Problems arise when tax payments are made with credit cards, and bankruptcy is not filed for months afterwards. Who is to say that the portion of the credit card debt that was for taxes wasn’t paid off in those few months? This can cause some serious confusion.

For example, say that on the tax deadline, you paid $9,000 in tax debt to the government. Over the next few months, you make payments to that credit card totaling $7,000. You also use the card for normal purchases, like gas, food, electricity bills, internet/cable bills, etc. You end up filing for Chapter 7 bankruptcy in September, and that card now has a balance of $11,000. Is any of that amount still from the taxes you paid? If so, how much? Per Bankruptcy Code Section 523(a)(14) or (14a), how much is non-dischargeable?

There are answers to some questions like these, but there are as often not. Definitely do not wait until the bankruptcy filing is already in progress to ask these questions, though. As an attorney these questions as far ahead of the actual filing as you possibly can. Sometimes emergency expenses come up that force people into bankruptcy, but often the writing is on the wall, and bankruptcy can be seen in the distance. If you find yourself in any of these situations, please do not hesitate to contact a bankruptcy attorney and ask. They will be able to provide you with legal advice as to how you should proceed.

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In the previous post, we talked about the troubling trend of trustees raising objections on Chapter 13 plans that they wouldn’t have raised any objections on in years previous. In this entry, we will cover some of the more problematic effects of this trend.

The net result of the trustee’s actions is that middle class families (households with incomes between $80,000 and $120,000 per year) feel the squeeze. Typically, such households will file for Chapter 7, since they qualify for it under the Means Test. Generally, middle class lifestyles end up producing roughly $20,000 in unsecured (usually credit card) debt, but average monthly expenses prevent them from having much extra that could be used for paying off the unsecured debts. Further exacerbating the issue, these households usually do not file until it is the last option, putting them in even trickier financial situations.

Another major issue that absolutely cannot be ignored is that trustees’ budgets don’t include any money for emergencies or unexpected expenses that will arise over the course of the next 5 years. Put in layman’s terms, the plans that trustees have been starting to outline lately seem doomed to fail. The whole point of bankruptcy is to allow both sides to come to a mutually beneficial arrangement, but that whole purpose is defeated when debtors are forced into agreements that are difficult or even impossible to follow through on.

General policy among bankruptcy courts is to try to discourage Chapter 7 bankruptcy, and get people to file Chapter 13, where the debts will be repaid over time. However, these restrictive trustee plans that have been coming out recently are pushing more people into filing for Chapter 7. It’s not uncommon for attorneys to be asked if the debtor can quit their job and wait until they qualify for Chapter 7 under the Means Test, rather than struggle for years to pay back an oppressive Chapter 13 plan. This can be considered “income suppression,” but it is not impossible to think that some people will be inclined to take the risk anyway.

Hopefully this trend will not continue into the future, but in the meantime, it is even more important to hire the services of an experienced bankruptcy attorney if you are experiencing financial hardship with no end in sight. They will be able to review your case, and advise you as to whether bankruptcy is a good option for you and your loved ones.

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There has been a disturbing trend developing in recent years for Chapter 13 cases. Trustees across the country are starting to analyze budgets that get submitted to them line-by-line, and are filing objections for small budget items, all in order to make filers increase their payments to the trustee. Sometimes, objections are even raised on the total expenses claimed in the filing.

For example, say an individual gets through planning and formulating their bankruptcy plan, and submits it to the court. The trustee will come back and file a supplemental objection within a week of confirmation, saying that the monthly expenses that the debtor claims are too high. When asked, the trustee will provide documentation outlining all of the items that they are referencing.

Now, your attorney will bring this to your attention, and you will come back and say that you are having difficulty literally only buying food, which your attorney will then tell to the trustee. They may accept your response, but refuse to back down with their objection because the payout to unsecured debtors is less than $0.50 on the dollar. At this point, the options are fairly limited, so your attorney may opt to reset the confirmation date until after the date when all claims are due. This may work, since some of the unsecured creditors are likely to not file a claim, so those that do will receive a higher payment amount.

Making this situation even more baffling, not a single creditor has filed an objection, and you may be paying far above $1,000 a month to the trustee. What seems to be happening is that trustees are starting to expect that debtors should pay half, at an absolute minimum, to all unsecured creditors. This is unlikely the trustees’ fault, since they are probably just acting out orders they received from the U.S. Attorney’s Office and other offices in the Executive Branch.

In our next post, we will go over some of the issues that this recent development can, and most likely will, cause.

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Bankruptcy is an extremely common legal process. While the image that comes to a few people’s minds is that of a low-income individual living well beyond their means, the reality is that bankruptcy is something that affects everyone, even the rich and famous.

It doesn’t take very long of searching for bankruptcy news to see that actors/actresses, musicians, and sports icons can all get into financial troubles. The economy has been rough for everyone for several years now, and lately there have been more bankruptcy filings than ever before. Chances are, you even know someone who is going through the bankruptcy process, or who has recently gone through it.

When it comes to famous individuals, any money troubles they may be experiencing tend to be much more extravagant, and are much more likely to be front page news. It is common knowledge that even millionaires, like MC Hammer was in the 90s, can run into hardships, and suddenly find their fortunes gone.

Among the more notable recent bankruptcy cases is the filing by Warren Sapp, well-known former football player. For him, the trouble that led to his eventual bankruptcy was one of the most common: Too many unwise large purchases. Sapp loved collecting well-known paintings, which can easily be the most expensive items that any millionaire owns. Add that to a string of bad real-estate purchases that he made, and he was forced to file for bankruptcy protection.

No one is immune from financial hardship, and if you are undergoing financial hardships, bankruptcy could be the answer to your problems. If you are considering bankruptcy, please contact an experienced bankruptcy attorney right away to discuss your options.

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At the Arizona Small Business Development Center Network in late March, 3 Phoenix businesses were honored, one of whom was specifically mentioned for its help in other businesses’ Chapter 11 bankruptcy filings.

The 3 businesses honored were Community Tire Pros & Auto Repair at 123 E. Durango St in Phoenix, Kinetic Muscle Inc. at 1800 W. Broadway Road in Tempe, and Drug Valet at 1505 E. Weber Drive in Tempe. All received Success Awards during the luncheon, which took place on the Arizona Capitol building’s lawn.

The hosts of the event, the Arizona Small Business Development Centers, are spread all across the valley, with 11 locations (mostly at Maricopa County Community College grounds), and are affiliated with the U.S. Small Business Administration. They offer business expertise and no-charge counseling services to small businesses.

The event, which took place on Thursday the 29^th, is an annual event that provides owners of local small businesses and people from the SBDCs to get together and celebrate their successful relationships, and all of the positive things that have arisen as a result.

CEO of Kinetic Muscle, Ed Koeneman, said “we have gotten a lot of networking opportunities and they keep their eyes out for programs and opportunities.” Him and his company have been working in conjunction with the SBDC for over a decade now, and when asked about their relationship, Koeneman said that he was able to successfully navigate through the recession with the SBDC’s input and insight.

Dominic Dividio, co-owner of Drug Valet said pretty much the same thing, saying that his company was experiencing financial hardship that they were unable to manage in their current state, and the SBDC helped them get through Chapter 11 bankruptcy restructuring without any difficulties. Speaking directly about one SBDC counselor who helped him, Dividio said “our plan went through the first time. John Henry Smith was instrumental in getting our (bankruptcy) plan approved.”

According to the owner of Community Tire Pros and Auto Repair, Howard Fleischmann, he and his company were introduced to the SBDC by the Academy for the Advancement of Small, Minority-and-Women-owned Enterprises, which is a 2-year program that the Arizona Public Service Co. sponsors.

Fleischmann says that those 2 programs have been influential in the daily operation of his business, and that “you have to be open to new ideas. You have to want help.”

Among the state leaders in attendance at the awards ceremony, Arizona Secretary of State Ken Bennett was there. He spoke of how important small business ownership is after singing a song while playing guitar for the audience.

According to Bennett, he is “a big supporter of small business,” since his family has been owning and running businesses in Arizona for years.

Governor Jan Brewer was also at the event, and commented “Arizona small businesses are the engine of economic development and innovation in our state. Cultivating these small businesses has been a priority of mine as governor, and I’m committed to fighting for the fundamentals they need to succeed: a ready workforce, lean regulations and competitive tax policies.”

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When people think about being sued for a debt, they generally imagine a debt amount to the tune of thousands and thousands of dollars. What is being seen lately, though, is debt purchasing companies taking individuals to court for smaller and smaller amounts.

If you have ever been handed a promissory note from not having cash to pay a parking attendant or anything of the like, the fine print states that they are able to take you to court for your outstanding balance, and if they win, you are responsible for all of their costs and attorney’s fees as well. Now, chances are you won’t be taken to court for a $2 parking fee, but there have been some shockingly small lawsuits filed in recent months. In California, for example, just a few weeks ago, a debt purchasing company has been purchasing Hollywood Video rental accounts, and attempting to collect. One account was for only $24, from back in 2009.

While many people are disputing that they owe the charges, the overwhelmingly vast majority of people will not have any rental receipts from that far back, so proving they do not owe the debt will not be easy. What happens more often is that people will simply pay the debt rather than deal with the hassle.

The same thing is happening here in Arizona, but usually on a larger scale. Nothing as small as $24 has been reported in Arizona yet.

If you have a lawsuit pending against you from a debt collection agency, do not hesitate to get an attorney on your side today. They will be able to look at the documents and provide you with legal advice as to how you should proceed.

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Back in January, legislation was passed in California that directly challenges debt purchasing companies such as LVNV Funding, Portfolio Recovery, and Midland Funding, who have been increasingly suing individuals over debts without providing documentation to show that the individual ever owed the debt in the first place.

This new legislation would require any debt purchasing company to prove numerous things before judgment can be obtained. Some of these things they are required to prove are: The individual owns the debt, the balance of the debt, the last payment or default date, the name and address of the original record, and they must have the original contract signed back when the account was still active.

This may seem like a significant step forward, but all of this was already required by courts. The problem was that when people were served with lawsuit papers, they tended to ignore them, leading to an overwhelming majority of default judgments placed against individuals simply because they did not reply. Sometimes, judges have ignored rules and granted judgments knowingly without documentation, but such cases are extremely rare.

Unfortunately, the story is not the same in all states. Arizona, for example, has no similar protections in law, and you are left to your own defense. Fortunately, there are still plenty of valid defenses you can employ. As long as you respond to the lawsuit and you get a good bankruptcy attorney on your side, you can usually successfully defend yourself against these lawsuits.

In the past, when a debt lawsuit was brought up in court, the popular assumption was that the person owed the debt. With the recent surge in lawsuits brought on by LVNV and Midland, most judges are looking at debt lawsuits with a skeptical eye, which is always a good thing.

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When it comes to debt collection, a company called Midland Funding, LLC is at the forefront. They are notorious for buying old debts for pennies on the dollar, and then turning around and issuing lawsuits to the owners of those debts. Most people never respond to the lawsuits, so the courts issue a default judgment, giving Midland Funding LLC everything they asked for. This includes the ability to clear an individual’s bank account, and garnish their wages. Many times, this has led people to filing for bankruptcy.

Recently, West Virginia has filed a suit against them, stating that Midland is filing lawsuits with false and mass-produced affidavits. They are not the only state to do so, either. Minnesota has also filed a similar suit against Midland.

In Arizona, however, the opposite is true. Recent laws have been proposed that will allow all debt purchasers, Midland included, much easier access to obtaining judgments. The verbiage of the laws is very complicated, but the effect of it is that the burden of determining whether the debt is owed or not will shift to the individual, instead of with the debt purchasing company.

Normally, when a case is brought against someone, the plaintiff is required to prove their case. Innocent until proven guilty. This recent law will shift that burden to the defendant to prove their innocence. In effect, guilty until proven innocent.

The good news is that there are currently a good number of consumer lawyers fighting the legislation, so hopefully it does not pass.

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Countless times in bankruptcy proceedings, an attorney has been asked “How will they know?” to which the attorney always has to reply “Because you just told me.”

There is no getting around it, if you are filing Chapter 7 bankruptcy, you are liquidating your assets. That means that if your assets are not protected by Arizona exemption laws, you can (and probably will) lose them.

When speaking with your attorney, they will undoubtedly cover all your assets, and what will and won’t be protected during the process. This is the point where many people will be tempted to ask their attorney how the bankruptcy court will ever know. Bankruptcy trustees are extremely busy people, reviewing between 50-90 different cases every 2 weeks, so they will almost never be able to go to an individual’s home to review their possessions.

It is for that reason that the law explicitly states that you are required to voluntarily disclose all of your assets. Every single one. Your attorney is also required to outline all of your assets, and to accurately report them to the court. Not only will you be in danger if you knowingly do not disclose an asset (it is a felony), but your attorney will also be responsible, and can wind up losing their ability to practice. Do not even risk that outcome. Many different types of property can be protected anyway, and the sooner you tell your attorney about it, the better.

The worst possible thing you can do is wait until the paperwork is about to be filed to tell your attorney about an asset. At that point, the entire plan will be formulated, and there will most likely not be any room in the plan to protect this newly disclosed property. If it had been brought up from the beginning, it could potentially have been protected, but will not be forfeit.

Bankruptcy is not an easy process to go through, especially when it seems like you’re giving up all your earthly possessions. Remember, though, that your attorney is there specifically to help you, and the only way they can do that is if you are 100% honest with them. Disclose everything, and you may just be able to save the things you love.

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US Airways has been all over the news recently, amid talks of airline mergers and other industry developments. They recently hosted a US Airways “media day,” where the airline executives had some rather frank talks with the audience.

They started the meeting off with an obvious touting of their recent success, which started with them pulling the company out of bankruptcy in 2005, and converting a horrendous $808 million budget deficit in 2008 into profit in 2010. They also mentioned how they have drastically reduced damage to aircraft and passengers’ bags. In addition, US Airways CEO Doug Parker hinted to reporters that they may not try to acquire American Airlines.

The official released word from Parker is that there is a team currently studying issues related to a merger with American Airlines. However, he began his remarks to the journalists by saying that industry consolidation has already happened, and is not a current imperative. Therefore, it goes without saying that if they do not pursue American Airlines, they will see little difference in their business model.

He went on to say “it is a more rational industry now. We don’t need to merge. Our results prove that we’re doing quite well. We have a model that works in a consolidated industry.”

The secret to US Airways success is not a secret at all. They have been doing exactly what industry experts have been saying was necessary for years: Fill more seats, raise fares, sell add-on services, and be more selective with routes. Such ideas are not popular with passengers at all, but according to Parker, are all being implemented, and have apparently worked very well so far.

While many people will be upset at being told these things, it is abundantly clear that most of the hostility between customers and airlines is due to the separation between what is expected and what is provided.

If you have been on a US Airways flight recently, then you may be able to relate to some of these changes; there is no in-flight entertainment, meals cost extra money, and you have to pay to request any seat but the middle one. However, you may have also noticed that the planes are cleaner, flight crews are more courteous, and departures and arrivals are far more likely to be on-time.

Hopefully US Airways’ success will be adopted by other airlines as well, and will end up saving the long-struggling airline market.

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