As a bankruptcy attorney, I am used to counseling individuals and families who are struggling with debt. But what I still cannot get used to seeing is how well-meaning people, who want to do what they can to pay off their debts, end up making their debt problems much worse by using incorrect debt management methods. And this is almost always avoidable.

I’ll give you a few examples. Say you have $20,000 in credit card debt. You can’t afford to pay this debt and pay your other bills, and the credit card company keeps calling you, and possibly even threatening to sue you. You know you have some equity in your home, so you decide to refinance your home, or take out a home equity line of credit, to pay off the credit cards. Your credit cards are now paid off, but your mortgage payments have gone up. If you weren’t able to make your credit card payments, you are likely to have difficulty making the increased mortgage payments as well. You start falling behind on your mortgage, and the mortgage company starts foreclosure proceedings. You are now in danger of losing your home.

Or, as often happens, you get so inundated with the credit card company’s collection calls and letters, that you are willing to pay them just to make it stop. So you skip a mortgage or car payment to pay the credit card company, hoping that you’ll catch up later. If you can’t catch up, or fall even further behind, you now stand to lose your house or car. And because of accruing interest, you probably still owe the credit card company as much as you did to begin with.

Yet another possibility is that you pull money out of your retirement account or 401(k) to pay off your credit cards. However, unless the situation that caused the debt in the first place has been remedied, the same type of scenario is likely to be repeated. Eventually, you deplete your retirement account, but still have debt to deal with.

So, what should you do? Well, when dealing with debt problems, there are a few simple rules that you can follow to make sure you do not make your situation any worse than it is. First, you must properly prioritize your obligations. Put simply, there are certain bills that you need to pay before paying other bills. The basic order is as follows: 1) pay your living expenses—being current on your mortgage or having a low credit card balance is not that helpful when you are going hungry or don’t have electricity, so make sure to take care first of the necessities; 2) after your living expenses are covered, pay your secured debts, like a mortgage or car payment—not paying a secured debt may result in the loss of the collateral (i.e. the house or the car), so secured debts should take priority over unsecured debts like credit cards; 3) pay unsecured debts, like credit cards or personal loans, only if you have money left over after paying your living expenses and secured debts.

Second, you want to protect your exempt assets. Exempt assets are those that your unsecured creditors cannot touch, regardless of how much you owe them. What assets are exempt varies from state to state. Arizona law provides many different exemptions, including an exemption for your car and an exemption for many items of your household goods and furniture. However, most people’s biggest exempt asset is a retirement or 401(k) account (although a house in which a person lives can also be claimed exempt, in most cases the house will be encumbered by a mortgage). If you are struggling with debt, there is a natural tendency to want to use your retirement account or other exempt assets to pay down the debt. Unfortunately, oftentimes this tactic will not resolve your debt problems but only prolong them. Ultimately, you may still end up having to seek debt relief through bankruptcy, but if you deplete your exempt assets before filing for bankruptcy, you will make your road to financial recovery that much more difficult.

Third, do not incur secured debt to pay off unsecured debt. Secured debt is debt that, if not paid, will result in the loss of the collateral that you pledged to secure the debt. On the other hand, unsecured debt, if not paid, does not automatically result in the loss of any property. More importantly, unsecured debt is dischargeable in bankruptcy. So, to use the example from earlier in this article, if you take out a home equity line of credit (“HELOC”) to pay off a credit card, you have converted what was an unsecured debt (credit card) into a secured debt (home equity loan). If you had difficulty paying the credit card, you will probably have difficulty paying the HELOC. But now that the debt is secured, if you are unable to pay it, you are likely to lose the property securing the debt, i.e. your home in our example. In addition, if you end up seeking debt relief through bankruptcy, you can, with some exceptions, eliminate unsecured debt. However, in most cases, you cannot eliminate secured debt unless you are willing to get rid of the property securing the debt.

To summarize, although financial problems are often a result of many different factors, proper planning and debt management will help you maintain control of your situation, and will give you greater flexibility in resolving your financial difficulties and getting your life back on track. Just remember to prioritize your obligations, protect your exempt assets, and not convert unsecured debt into secured debt.

The short answer is yes. I see this situation all the time: parents co-sign loans for their children, family members co-sign for each other, and friends co-sign for friends. Then, when the primary debtor stops paying, the creditor tries to collect from the co-signer. At that point, there are four basic ways for the co-signer to handle the debt: (1) dispute it (e.g. because the debt is too old, or because it is unenforceable for some other reason), (2) try to settle with the creditor, (3) file for bankruptcy, or (4) not do anything. The last option should only be used after careful consideration of all alternatives, and generally only if the co-signer is judgment-proof (meaning the co-signer does not have assets that could be taken by the creditor). Of course, there is also a fifth option—to get the primary debtor to pay the debt—but oftentimes the primary debtor simply does not have the resources to pay. Afterall, the likelihood of non-payment by the primary debtor is probably why the creditor required a co-signer in the first place.

Does this mean that you should never co-sign for somebody else’s debt? Of course not. In some circumstances co-signing is quite understandable and may even be necessary (e.g. a parent co-signing for a child’s first credit card to allow the child to build up a credit history). But you should be aware of the risks involved and of the liability that you are incurring by co-signing. Put simply, when you co-sign for a debt, you are responsible for it. Are you comfortable being responsible for this debt? If you answer yes, then it may be appropriate for you to co-sign. But if you answer no, then steer clear of co-signing.

If you are considering bankruptcy, your finances are probably already very tight, so paying for a bankruptcy attorney can seem almost counterintuitive--afterall,if you had the money to pay for a lawyer, you would not need a bankruptcy, right?  Why should you hire one then?  If you are filing for personal bankruptcy (as opposed to a bankruptcy for a business that you own) you don't need to have a lawyer, you can file for bankruptcy on your own.  It is not impossible to do, and people have successfully done it before.  However, if you are going to file for bankruptcy on your own, you need to make sure you know what you are doing.  This means that you will have to spend some time learning how the process works, and what specific steps you need to take to successfully navigate through bankruptcy.  

The relative complexity of a bankruptcy will differ depending on whether it is a Chapter 7, Chapter 13, or Chapter 11 bankruptcy (chapter 7 cases tend to be simpler than the other two), and the type of assets and debts you have.  Still, bankruptcy by its nature is a complicated process, where a small mistake can have significant negative consequences.  For example, not completing the required credit counseling before filing will cause your case to be dismissed.  As another example, if you have non-exempt property that you don't realize is non-exempt, you may lose that property in bankruptcy.  If you are not willing or able to dedicate the time and resources necessary to learn how bankruptcy works, you are better off hiring a lawyer.  Moreover, a lawyer can usually suggest strategies for protecting your assets or eliminating debt that you would not think of on your own. The need for a good bankruptcy lawyer also increases if you are filing under Chapter 13 or Chapter 11, as these types of bankruptcy are usually too complex for a non-lawyer to handle on his/her own.  Ultimately, the cost of hiring a lawyer is very small compared to the amount of debt most people discharge through bankruptcy.

That being said, if you are going to hire a lawyer, you should consult with several, and choose the one with whom you feel the most comfortable--afterall, you will be dealing with your lawyer for several months to several years, depending on the case.

I get contacted almost every week by people who were attempting to do a mortgage modification (also known as loan modification) through their mortgage company, but ended up losing their house to foreclosure.

It’s a similar situation in every case: the homeowner is behind on his or her mortgage payments, and the mortgage company threatens or even starts foreclosure proceedings. In an effort to save the house, the homeowner contacts the mortgage company, and is told that he or she may qualify for a mortgage modification, but that she needs to complete an application, provide financial information, and then wait for this information to be reviewed by the mortgage company.

The mortgage company rep will even tell the homeowner that the foreclosure proceedings will stop while the mortgage modification application is being reviewed. Several months later, the homeowner will be informed that the modification was not approved. Shortly thereafter, sometimes as soon as the next day, the house is foreclosed upon (the actual procedure used in almost all cases in Arizona is called a “trustee’s sale”). And once the trustee’s sale takes place, nothing can be done, as a general matter, to reverse it and to allow the homeowner to keep the house.

So, can you try to do a mortgage modification if you are behind on your mortgage payments or facing foreclosure? The answer is yes, but there are several things you need to keep in mind.

First, and most importantly, remember that whatever you are told over the phone by the representatives of the mortgage company means nothing unless you get it in writing. Even if you are told that your mortgage modification has been approved, or is about to be approved, don’t believe it until you see it in writing.  Make sure to request verification in writing for any such statements made by the mortgage company’s representatives. If they refuse to provide the verification, the safest approach is to assume that whatever you were told is false.

Second, you should assume that any foreclosure that has been previously scheduled will take place. This is why it is very important to keep track of the foreclosure date. You can and should contact the trustee (the individual or company handling the foreclosure) periodically to check on the status of the foreclosure.  They will usually give you much more accurate information than the mortgage company’s customer service department, because they are the ones who will hold the foreclosure sale if it takes place.

Third, if you want to assure that you can keep your house, you must be proactive and plan ahead. If you are waiting on a mortgage modification while a foreclosure is pending, and the foreclosure sale is not cancelled or postponed in writing, the primary way to assure that the foreclosure sale does not take place is through bankruptcy. However, if you wait until the day before the foreclosure to contact an attorney, it may be too late—you may not find an attorney able to do a last-minute bankruptcy filing; you may not have time to complete your pre-bankruptcy requirements, like the credit counseling course; or you may not be able to come up with the costs and fees that need to be paid in order to file for bankruptcy.

Because of this, if you are facing a foreclosure, it is best to consult an attorney well in advance (at least two months before the scheduled foreclosure date). That way, you will know what your options are and what you will need to do if the mortgage modification doesn’t go through before the foreclosure. If you mortgage later is modified, then great. But if it isn’t, then you will know exactly what steps to take in order to prevent the foreclosure.

Almost all of us own property.  When the term “property” is mentioned, most people think of land or a house.  However, property includes any item or thing that a person may own or possess.  So, land or a house are property, but so is a car, a couch, a computer, a wedding ring, a book collection, or a set of tools.  In addition, intangible things (i.e. things that you cannot hold in your hands) can also be property.  For example, if you have a checking account, that checking account is property.  If you are a part owner of a business, your interest in the business is also property, and so on.

A question that inevitably arises for anyone considering bankruptcy is “what happens to my property if I file for bankruptcy?”  In other words, what happens to all the things that we’ve accumulated over our lifetimes when a bankruptcy comes into the picture—can we keep our property, or do we have to give it up?  The answer to this question can get fairly complex, and there are a number of factors that can determine what happens to a particular item of property in a particular situation.  However, in a simplified form, to determine what will happen to a piece of property as a result of bankruptcy, you need to answer three questions.


The first question is: What kind of bankruptcy is being filed—a Chapter 7 bankruptcy, or a Chapter 13 or Chapter 11 bankruptcy?  If you are filing a Chapter 13 or Chapter 11 bankruptcy (which are commonly referred to as “debt adjustment” and“reorganization”), then you can generally keep all of your property.  However, you may have to pay your creditors all or a portion of the value of the property in question.  To determine how much you will have to pay your creditors, you will need to answer the second and third questions you see below.  If you are filing a Chapter 7 bankruptcy, then you will need to answer questions two and three to determine whether you can keep the property. 


The second question that you will need to answer is: Is there a lien on my property, or, in other words, does my property serve as security for a debt?  If there is a lien, and you gave your creditor that lien voluntarily (e.g. it is a mortgage), then you generally can only keep the property if you continue paying this secured debt.  In a Chapter 7 bankruptcy, your ability to keep the property is, with some minor exceptions, the same as it is outside of bankruptcy. So, for example,if you are late on your payments and as a result your creditor can take and sell your property, a Chapter 7 bankruptcy will not alter that result. In a Chapter 13 bankruptcy, on the other hand, you can generally keep your property and force your creditor to accept late payments, as long as you can make the regular payments going forward.

Another possibility is that there is a lien on your property, but the lien was not voluntary. Such non-voluntary liens can be broken down into statutory liens (e.g. a tax lien) and judgment liens (i.e. liens imposed as a result of court judgments against you).   In the case of statutory liens, you can usually keep your property if you pay off the lien after you file for bankruptcy.   In some instances, you may also eliminate a statutory lien.  In the case of judicial liens, you can often get rid of such liens on your home, vehicle, or personal property.

To sum up, when it comes to liens, in order to keep property you must either pay the liens or get rid of them (if permitted by law).  If your property is not covered by a lien, or only partially covered by a lien (e.g. there is a $50,000 mortgage on a $100,000 house), or the lien was eliminated, then you need to answer question three below to determine what will happen to your property.


The third question is: Is my property exempt?  The term “exempt” refers to property that state or federal law determines to be necessary to provide a minimum standard of living for a person.  It is property that cannot be reached by most of your creditors without your permission.  As an example, in Arizona you have a $150,000 exemption for a residence that you own.  You also have a $150 exemption for funds in a bank account. If a piece of property is exempt, then you can keep it, regardless of whether you file a Chapter 7, Chapter 13, or Chapter 11 bankruptcy.  If a piece of property is not exempt, then you usually cannot keep it in a Chapter 7 bankruptcy—it will be liquidated (sold), and the proceeds paid to your creditors. In Chapter 13 or Chapter 11, on the other hand, you can keep the property, but you will have to pay your creditors the value of the property through your debt repayment plan.  So, to use one of the above examples, let’s say you live in Arizona and own a $200,000 house with no mortgage.   If you file a Chapter 7 bankruptcy, the house will be sold, you will get $150,000, and the remainder ($50,000) will be paid to your creditors.   If you have the same house when you file a Chapter 13 or Chapter 11 bankruptcy, you can keep the house, but you will have to pay your creditors $50,000 over the term of your plan. 


Please remember that the above is intended for general informational purposes only, and you should always seek advice from a bankruptcy attorney in your area if you have a question about your particular situation.  Moreover, I am a Tucson bankruptcy attorney, and therefore the above information is based on the law applicable in Arizona.  If you are outside Arizona, the law applicable in your jurisdiction may be different.

Today I want to talk about an issue that is important to every married couple considering bankruptcy—whether both spouses should file.  The question comes up particularly often with families who arrange their finances so that most or all of their property is registered in the name of only one spouse.  The answer in Arizona is that it is usually better for both spouses to file together.  Although in most cases it may be sufficient for only one spouse to file, there are generally no benefits to be gained from doing so. Here’s why.

Arizona is a “community property” state.  This means that all property acquired during marriage is presumed to be jointly owned by both spouses (the exception to this rule is property acquired by gift or inheritance).  Similarly, all debts acquired during marriage are presumed to be a joint liability of the spouses.  This presumption of joint ownership or joint liability applies even if only one spouse’s name is on the title to the property, or only one spouse signed the loan documents.  For example, let’s say you buy a car, obtain a loan for the purchase price, and put the title and the loan in your name only.  If you are married, the presumption is still that both the car and the loan are jointly held by you and your spouse.  To overcome this presumption, you would have to produce specific evidence showing that the property or debt belongs only to you, for example because you purchased the property with your separate assets, or because the debt did not benefit the marital community.  There is an exception to this rule as well—real estate (land) normally does not become community property, and debts related to real estate do not become community debts, unless the relevant documents are signed by both spouses.  The bottom line, however, is that most assets and debts acquired during marriage belong to the marital community, and both spouses own them jointly (in the case of property), or are jointly liable for them(in the case of debts). 

So, what does all of this have to do with filing for bankruptcy?  Well, under the Bankruptcy Code, when only one spouse files for bankruptcy, all of the community property and community debt (property and debt held by the spouses jointly) is brought into the bankruptcy proceeding.  This means that spouses cannot protect community property from bankruptcy by having only one spouse file.  In addition, in most cases the non-filing spouse’s income will have to be included in the various bankruptcy tests related to income, and if the bankruptcy requires payments to creditors from future income (i.e. it’s a Chapter 13 or Chapter 11 bankruptcy), then the non-filing spouse’s income will usually be included in determining the payment amount.  Thus, having only one spouse file will not usually protect the other spouse’s income from being included in the bankruptcy.

On the other hand, if one spouse files for bankruptcy, and receives a discharge at the conclusion of the case, the discharge applies to all community debts, even if the other spouse did not file.  This means that none of the spouses’ community property will be liable for these community debts, even if the property is acquired after bankruptcy.  However, if the spouse who did not file for bankruptcy is separately responsible for a debt, that responsibility will not be removed by the bankruptcy.  So, to provide an example, let’s say that you obtain a credit card in your name only—your spouse does not sign any of the documents.  You use the credit card to make various purchases.  If you then file for bankruptcy and obtain a discharge, neither you nor your marital community is any longer liable for this debt, and your spouse was never separately liable because he/she didn’t sign any of the documents.  That means the creditor cannot collect the debt from any property owned by you, your spouse, or the two of you jointly.

Now, let’s say that you sign up for the same credit card, but instead of you filing for bankruptcy, your spouse files, and you don’t.  In this case, if your spouse obtains a discharge, your and your spouse’s community property is no longer liable for the credit card debt, and the creditor cannot collect the debt from any property you own jointly with your spouse.  However, your personal liability continues, and if you later acquire separate property (e.g. through a gift, inheritance, or because of a divorce), the creditor will be able to collect the debt from your separate property.

To sum up, while it may be possible for only one spouse to file for bankruptcy, it is not advantageous to do so if the non-filing spouse may have personal liability for any debts.  Because it is often difficult to determine in advance whether there may be personal liability for a debt, and because in most cases there is no benefit to be gained from one spouse not filing, it is generally better for both spouses to file together. 

Are there any situations when having only one spouse file for bankruptcy is beneficial?  Yes.  For example, if one spouse has significant separate property (e.g. property acquired before marriage, or by gift or inheritance), and this property would not be exempt in bankruptcy, that spouse may decide not to file in order to protect this property.  Another example is if one of the spouses doesn’t qualify for bankruptcy because of a previous bankruptcy filing, or would not be able to receive a discharge.  Yet another example involves cases where the spouses had signed a premarital agreement dividing their property and debt between themselves and reversing the presumption of joint ownership, and where a joint bankruptcy filing would make the spouses ineligible for the desired type of bankruptcy because either their combined income or their combined debts are too high.  Of course, this list is not exhaustive, and there may be other circumstances when a separate filing by only one spouse may be useful.

Remember, every situation is different.  The above is intended only as a general overview of the law at the time of this writing, and not as legal advice with respect to your particular situation.  If you reside in Southern Arizona and would like to find out whether a joint or separate bankruptcy filing is advisable, please contact a Tucson bankruptcy attorney at Yusufov Law Firm PLLC for a consultation.

A question I am often asked by clients is "When do I file for bankruptcy?"  If you are considering bankruptcy, it is important to time the bankruptcy filing so that you can take the most advantage of the benefits of bankruptcy, and avoid the pitfalls created by filing too early or too late.  There are many reasons why delaying or accelerating filing for bankruptcy may be beneficial.  For example, if you are expecting to incur necessary expenses that would be dischargeable in bankruptcy, such as medical bills, then it is advisable to delay the filing until after you incur these expenses.  That way, you can discharge these expenses through the bankruptcy.

Another common reason to delay filing is if a presumption of non-dischargeability applies to a certain debt you owe because it was recently incurred.  For example, under the Bankruptcy Code, consumer debts over $550 for "luxury goods or services" are presumed non-dischargeable if incurred within 90 days before the bankruptcy filing.  Delaying bankruptcy in such cases may make it easier to show that the debt is dischargeable.

On the other hand, a bankruptcy filing may need to be accelerated if you are trying to protect your interest in property that may be taken away by a creditor.  The most common example of this is if you are trying to protect your home from a foreclosure.  While bankruptcy can help you save your home from a foreclosure, in most cases it will only work if you file before the foreclosure takes place.  If you file too late, after the foreclosure already took place (even if you file later on the same day), you will not be able to keep your home in almost every case.

Ultimately, however, you will need to consult with an experienced bankruptcy attorney to determine when you should file (If you are in Southern Arizona, you will need a Tucson bankruptcy attorney, as your case will need to be filed in Tucson).  The biggest mistake most people make is trying to deal with their debt problems on their own until the very last moment.  They usually only seek professional advice when they are faced with an imminent and cataclysmic threat, such as a foreclosure or a collection action by a creditor.  Unfortunately, at that point it is often too late to fully take advantage of the benefits bankruptcy can offer, and in extreme cases bankruptcy may no longer offer any benefits at all.  Keep in mind also that in most cases an attorney will need time to prepare the necessary documents for filing bankruptcy, so you want to make sure that you start the process early enough to give your attorney the time to properly prepare your case.  Therefore, my best recommendation is to seek professional advice as soon as your debt problems begin, so that you know all your options and can plan ahead.  Most bankruptcy attorneys offer a free consultation. 

Filing for bankruptcy is never an easy choice, but in the right circumstances it can be the best way to protect your assets and get a fresh start. Bankruptcy can stop collector harassment, prevent home foreclosure, and help you get back on the right financial path. If you are considering bankruptcy and would like expert consultation and help understanding the process, Yusufov Law Firm is here to help.    

At Yusufov Law Firm, our foremost goal is to help you resolve your financial difficulties and get your life back on track. We know that getting quality information and advice about the bankruptcy process is essential to making the right decision about your financial future. We will lay out your options, clearly explain bankruptcy laws relevant to your situation, and help you ensure that the bankruptcy process goes smoothly.