Probably half a dozen times per week I meet with someone who has been notified that their next check is going to be a quite a bit lighter – wage garnishment.  If you are living paycheck to paycheck finding out your wages are going to be garnished is terrifying.

Here in Arizona once a creditor obtains a judgment against you they can take up to 25% of your paycheck.

And what is most surprising is that for many of the people I meet with this is the first time they have heard anything about this judgment and often the creditor.

How can this be?  Isn’t this America where people are given their day in court?  How can someone get a judgment and start garnishing wages without so much as a letter notifying them that all this court stuff is going on?  How did this happen!

While it is true that a creditor must give you notice of their lawsuit against you, “notice” doesn’t always mean what you think it means.  Generally after a creditor files a lawsuit against you they hand off the lawsuit to a process server who is hired to come out to your house and “serve” you with a copy.

However, if they can’t find you – or at least tell the court they can’t find you – then the creditor can go back to the court and ask the judge to give them permission to serve you some other way than giving you a copy of the lawsuit in person.  This is called “alternative” service.

Here in Arizona alternative service is often done by putting a copy of the complaint and summons in the legal classified section of the local newspaper.  You are likely saying to yourself – but hey! No one reads the legal classified ads!  And you would be right.  No one does read them, and this means that you will likely not get actual notice of your lawsuit.

And even though you didn’t get actual notice of your lawsuit, the clock starts ticking for you to submit your written Answer to the court.  And if you don’t file an Answer the court will give the creditor/plaintiff every single penny they are asking for.

Once the judgment is entered, bam!  Now your wages are being garnished.  And that is how your wages can be garnished without you ever even knowing that you had a judgment entered against you.

Now What?

Now what do you do?  Once a judgment is entered against you there are really three options:

1)   Settle the debt - this is where you pay an amount less than what is owed and usually in a lump sum.

2)  File a Motion to Vacate the Judgment – this is often an uphill battle.  But if you can show some defects in the way that your default judgment was entered you may be able to get the judgment set aside and get a new trial.

3)  File bankruptcy.  If this is just the tip of the ice berg you can always file for bankruptcy and eliminate this debt completely.

I fully realize none of these are great options.  But as with all debt collection issues, if you are facing a debt collection lawsuit you need to act and act soon.  The longer you delay the less likely you are going to be successful.

If you have read my blog at all you have likely read my mantra that “no body wants to file for bankruptcy”.  Sometimes it is just flat out necessary.  But how do you know if bankruptcy is the right choice?

On more than one occasion I have met with families where they are bound and determined to file for bankruptcy when bankruptcy clearly is not a good option.  The opposite is also true.  Some people want to avoid bankruptcy at all costs when in reality there isn’t any other option for dealing with their debt problems.

So how do you know which way to go?  Here are three  factors that should go into your bankruptcy decision making process:

Do You Have the Ability to Pay Your Debts?

Most of us like to think that if we are given enough time that we could pay all we owe in full.  Sometimes this isn’t reality.  When deciding  between bankruptcy and debt settlement you need to take a real hard look at your current financial situation – including your income, your projected income in the near future, and the total amount of debt that you are carrying.

If you have been barely scraping by, paying only the minimum payment for years, there is a good chance that you don’t have the ability to actually pay your debts.  Look to your total debt as compared to your income.  High debt and low income is not a recipe for a successful debt settlement program.

On the other hand, if, after taking that hard look at your budget you realize that there are areas you could cut back, increase your payments on your debts, and be out of debt in the next few years, then maybe we need to give debt settlement a second look.

Likewise, if you have a lump sum of money that you can use to offer your creditors an immediate settlement then bankruptcy may not be the best option.

This is a hard exercise to do.  None of us wants to believe that we can’t dig out of the hole that we are in.  But many times our plan to get out of debt are just wishful thinking.

How Many Creditors Do You Have?

Another factor that will go into the bankruptcy v. debt settlement decision is the total number of creditors you have.  The reason why this is significant is because when attempting debt settlement it is important to try and get all your creditors on board.  If you have 10 credit cards and 5 agree to settle and the other 5 tell you to pound sand, that doesn’t really get you anywhere.

The fewer creditors you have the more likely it is that you will be able to achieve a successful debt settlement.  If, however, you are dealing with credit cards, medical bills, etc. that number in the dozens, bankruptcy may be the better option on achieving complete resolution of all your debts  at once.

Are You Being Sued or are Your Wages Being Garnished?

Lawsuits and garnishments have a way of making things become very real.  Before you get sued by your creditors typically it is pretty easy to avoid the situation.  Sure, they may call on the phone, but you can ignore that or even block their calls.

But once that lawsuit shows up on your door or when you lay your eyes on that first garnished paycheck you realize that they aren’t playing nice anymore.

If you are facing a lawsuit or if a judgment has already been entered and your wages are being garnished you have lost much of the leverage you had prior to the creditor taking these steps.  Not only that but any further delay is going to cost you serious money.

With that in mind, most often people who are dealing with legal issues end up filing bankruptcy.  As soon as the bankruptcy is filed the bankruptcy court will issue an order that will make all the pain of debt collection lawsuits and wage garnishments go away.

Regardless of which path you take, if you are dealing with debt problems – or maybe more appropriately not dealing with your debt problem – it is time to take action.  Educate yourself on both processes.  Seek out a consultation.  Most bankruptcy attorneys will meet with you for free.  And then act.

Today was a pretty exciting day…if you are a bankruptcy attorney in Arizona.  In fact, if you are needing to file bankruptcy and you live in the great state of Arizona you should be excited as well.  Or at a minimum slightly interested in what the Arizona legislature did.

They raised the exemption limits.  When we strip it all away what this means for people in Arizona who are going through the bankruptcy process is that they will be able to keep more of their stuff as they go through the Chapter 7 bankruptcy process.

Why You Need Exemptions

When you file a chapter 7 bankruptcy you are required to list not only all of your debts but all of your assets.  Chapter 7 is known as a ‘liquidating’ bankruptcy – meaning that if you have non-exempt property there is a real possibility in a chapter 7 bankruptcy that it could be seized and sold at auction with the money going to your creditors.

However, in Arizona there are laws known as exemptions that protect your property.  Most people have heard of the homestead exemption that protects your home, but most are unaware that there are numerous other exemptions in Arizona that protect everything from your car to your bible to your shotgun.

The Big Changes!

Each of the exemptions have a dollar limit.  For instance in Arizona the homestead exemption will allow you to keep a home with up to $150,000 in equity.  Recently the state legislature updated the exemption laws in Arizona and increased the limits on several of the exemptions.  Here are a few of the big changes:

Household Furniture & Appliances

The old law allowed you to keep various household items and even itemized what you could keep.  For instance the old law said you could have one couch, three lamps, one rug, etc.  Further, the old law said the value of all of your household items could be no more than $4,000 ($8,000 for couples).

The new law does away with the annoying breakdown of specific furniture items and refers generally to ‘household goods’ and even better now includes ‘consumer electronic devices’, so your iPad is safe!  Further, the exempt amount has been raised to $6,000 ($12,000 for couples) of value that is protected.

Wedding Rings

The old law protected your wedding or engagement ring so long as it was worth no more than $1,000.  The new law doubles this and protects up to $2,000 of value in your wedding ring.

Typewriter

How long as it been since the Arizona exemption laws where updated? Well, the old law specifically protects your typewriter (thank goodness…what would you do without your typewriter?).

The new law now protects not only your typewriter but your computer as well – with up to $1,000 in value.

Cars

For my clients and bankruptcy attorneys all over the state of Arizona, this is the big one.  One of the biggest issues in many chapter 7 bankruptcy cases is protecting your car.  Under the old law you could have one vehicle with a value of no more than $5,000 (two cars worth no more than $10,000 for couples).

With the passage of the new law you (and your spouse) each get an exemption of $6,000.  This may not seem like a big deal, but it is amazing how many cars are worth $5,250 bucks.

Horses, Cows, Chickens, and Your Beloved Fido

Arizona also has an exemption that will protect your animals.  The old law protected your critters so long as they weren’t worth more than $500.

I know what you are thinking…my dog is priceless.  Well, then you may have a problem with your bankruptcy filing in Arizona.

But if you have a normal mutt like most of us, the new law will protect up to $800 in value.

There are several other amendments.  You can check them out by clicking HERE.

In the end, this means that you will likely be able to keep more of your stuff and proceed through the chapter 7 bankruptcy more smoothly.

If you have been sued by one of the debt buyers, Midland Funding, Portfolio Recovery, LVNV Funding, you may have felt intimidated not only by the debt collection process but by the fact that you are dealing with a large company who is represented by an attorney.  Many people are so intimidated that they make agreements or accept liability on a debt even though the debt buyer hasn’t provided any proof that they actually own the debt they are suing you on.

There are a lot of websites that will tell you that the first thing you need to do if a debt buyer contacts you is demand that they authenticate the debt.  If you have done this you likely received back a stack of documents which may have included things like statements from the original creditor, terms of agreement, and maybe even an application.  Many people look at that big stack of documents and think their chances of winning their case are over.

But that’s not the case.

Just because a debt buyer is able to provide you with a large stack of documents doesn’t mean that they can prove that they are the owner of the debt and it certainly doesn’t mean that they can prove their case in court.

So, before you make any decisions as to your debt collection lawsuit, it is wise to have an attorney look over what the debt buyer has sent you and whether any of it means what they claim it means.

The Debt Buyer Must Prove That They Own the Debt

In order for a debt buyer like Midland Funding to obtain a judgment against you they are going to have to provide evidence to the court that they actually purchased the debt from the original creditor.  Merely having statements from the original creditor is not enough.  They must have a valid assignment or bill of sale from the original creditor that actually shows that your specific account was transferred.  Not only that but they must have an affidavit or testimony from the original creditor attesting that the bill of sale is true and accurate.

Rarely do the debt buyers have an affidavit from the original creditor that verifies the bill of sale.  But the debt buyer knows they need this.  So they try and meet this requirement by having one of their own employees sign an affidavit attesting to the validity of the transfer.  The problem is, this isn’t sufficient.  It is hearsay.

Let’s use Midland Funding as an example.  Let’s say that Midland Funding filed a lawsuit against you alleging that they bought a Chase credit card account that you used to own.  As evidence of this transfer Midland Funding provides you with a copy of a Bill of Sale.  However, Midland doesn’t provide you with an affidavit from a Chase employee to verify the Bill of Sale, Midland will provide you with an affidavit from one of their employees (or more typically an affidavit from Midland Credit Management).  This is Midland Funding’s attempt at making you think they have all their ducks in a row, when in reality – they don’t.

If you have been sued by a debt buyer and are feeling like you have no hope of winning your case, meet with a consumer law attorney who handles these types of cases.  More often than not the debt buyer will not have evidence it needs to prove its case and you may be in a better position to win your case than you first thought.

I, like most bankruptcy attorneys here in Arizona, offer a free consultation for those wanting to learn more about the process of filing a chapter 7 bankruptcy.  The bankruptcy consultation is a great time for you to understand the basics of what is involved in a chapter 7 filing and what you can expect from the bankruptcy process.

Often when people come in for the consultation I can tell they are stressed out, nervous, angry, depressed, etc. and I can tell that they aren’t absorbing very much of what I am saying.  It is with that scenario in mind that I thought I would do an audio version of an initial consultation for a chapter 7 bankruptcy.

By no means do I cover every possible situation in a chapter 7 filing, but I do give you a general idea of what the bankruptcy process is like here in Arizona.  As I have mentioned before, if you have specific questions on your case you should contact an attorney.  But if you are looking for some general information go head and click on the audio player above!

It has been a long time since I released an episode of the Consumer Warrior Podcast!  I began this podcast about a year ago in connection with my Consumer Warrior website.  My goal was to provide some valuable information for people that didn’t need or couldn’t afford an attorney.  As time went on it was clear that I was just doubling up on my efforts between that site and the Skiba Law Group website.

So, I have decided to combine the two and my plan is provide not only a lot more information on bankruptcy and debt lawsuits on the blog but to provide more audio as well where I will be able to expound on the subjects in a little more detail.

I look forward to gearing up the content and hope that you find it helpful.  If you do, I would really appreciate it if you would click on the link below and leave me a review in iTunes!

Leave a Review or Subscribe to the Consumer Warrior Podcast in iTunes!

Is bankruptcy a simple process here in Arizona?  Depends.  Often when I meet with people they will tell me that they have a very easy bankruptcy case for me.  Over the years my experience has taught me to become skeptical – because rarely is there such a thing as an easy bankruptcy.

Some bankruptcy cases are definitely more complex than others, but all bankruptcy cases have issues that must be addressed in order for the process to go smoothly.

Not only that but each bankruptcy cases is assigned a trustee.  In Arizona there are twenty-one (21) chapter 7 bankruptcy trustees.  While all of them are guided by the bankruptcy code, they each run their own individual office and have their own way of doing things.  This means that different issues could arise if your case is assigned to one trustee as opposed to another trustee.

Sometimes the random assignment of a trustee can have a huge impact on how smoothly your bankruptcy case goes.

Having a bankruptcy attorney on your side can make a difficult bankruptcy case seem simple.  Knowing what issues to look for before your case is filed is vitally important.  Once your case is filed with the bankruptcy court there may be no looking back.

It is also possible to turn what should be a simple bankruptcy into a painfully complex one.  This most often happens when a client fails to disclose an asset or a financial transaction to their attorney.

In order to provide you with best legal advice, your bankruptcy attorney must know all the facts.  A missing fact here and there can complete change the legal advice you get.  And that could mean big trouble for your case.

There can be simple bankruptcy cases here in Arizona.  But they don’t always start out that way.

Things have been bad for a long time.  Here in Arizona bankruptcy filings have been near 40,000 per year for several years.  However, this year things seem to be improving.  Bankruptcy filings are down – significantly.  That means one of two things is happening: (1) things are getting better; and/or (2) a large number of people have already filed for bankruptcy and don’t qualify to file again right now!

It is probably a combination of both.

An improving economy can impact your bankruptcy case.  Here are a few ways that you might now be thinking of:

Higher Income Makes Qualifying for Chapter 7 Bankruptcy More Difficult

It is always good to get a raise, right?  If you are needing to file a chapter 7 bankruptcy you must qualify for it based upon your household size and income.  If you make more money than the typical household of your size in Arizona, then you may not qualify for a chapter bankruptcy but may end up filing a chapter 13 instead.

If you are close there are numerous deductions we can make to keep you in a chapter 7 case, but if your income goes up too much (it is even kind of weird saying that), then you may end up in a chapter 13 bankruptcy.  And remember, chapter 13 cases are typically 5 years long while a chapter 7 bankruptcy is usually about 5 months long.

More Equity in Your Home Could Cause Problems

Over the past 5 years it was rare to see anyone here in Arizona who actually had equity in their home.  Now, slowly, things are starting to improve.  I am actually seeing clients come in who have equity in their homes and we have had to dust off the homestead exemption once again to protect that equity.

In Arizona the homestead exemption is $150,000.  This means that your house can be worth $150,000 more than what you owe on it and it will still be protected in a chapter 7 bankruptcy.

The Days of Eliminating Your Second Mortgage in Bankruptcy May be Coming to an End

With the downturn in the economy many people filed a chapter 13 bankruptcy because they could eliminate a second mortgage or a home equity line of credit through the chapter 13 process.  In order for this to work the value of your home had to be less than what you owed on your first mortgage.  For example, if your house was worth $100,000 and you owed $150,000 on your first mortgage, then you could eliminate your second mortgage or HELOC.

Now, with the improving economy I am seeing more and more people who will not be able to take advantage of this procedure because their house is worth more than what they owe on their first mortgage.

An improving economy is a good thing, but it may change the chapter of bankruptcy that you need/want to file and may limit some of the tools that many people have taken advantage of over the last 5 years.

Midland Funding is a debt buyer that buys Arizona debts in huge volume.  If you have been sued by Midland Funding your first thought was likely “Midland who?”  After getting over the unsettling experience of being sued it is important you put together a game plan on how your are going to deal with this new debt problem.

The good news is you have a good shot at actually winning your lawsuit with Midland Funding.  Here are four tips that can put you on the path towards victory.

Tip #1 – Answer the Lawsuit

Here in Arizona (and in most places) if you get sued you have to file a written Answer with court.  If you don’t do this the lawsuit with Midland Funding will be over before it even really starts.  In Arizona you are going to have twenty (20) days to file your Answer with the court.

If you don’t Answer the lawsuit the court will enter a default judgment against you.  And if you thought being sued was awful, wait until the creditor has a judgment.  A creditor armed with a default judgment can inflict a whole new world of financial pain in the form of wage garnishments and bank garnishments.  If you do anything – Answer the lawsuit!

Tip #2 – Learn the Rules

In Arizona, if you represent yourself in a lawsuit you will be held to the same standards as the attorneys for Midland Funding.  This means that you need to know the rules.  Admittedly  this can be somewhat confusing.  After all, you are not a lawyer and you don’t do this all day long.

However, the court does provide you with a copy of the rules.  As most of Midland’s lawsuits in Arizona are filed in the Justice Court, it is important that you have a copy of the Rules that apply specifically to that court.  You can access a copy of the Arizona Justice Court Rules of Civil Procedure here.

Tip # 3 – Show Up

When it comes to court proceedings showing is truly half the battle.  Strike that.  It can be the entire battle.  Again, in the Arizona justice court system there are usually a couple of times you will have to show up at the court house prior to the actual trial.

First, the court may require you to attend mediation.  This is the process where an independent mediator works to see if you and Midland Funding can reach some middle ground and settle the case.

Second, in almost all of the Arizona justice courts they will hold what is known as a Pre Trial Conference.  This is a meeting held prior to the setting of a trial date and is usually very short in nature.  However, if you don’t show up, there is a good chance that the court will enter judgment against you.

This is obviously the same with trial.  If you don’t show up judgment will be entered against you.  If you have an emergency and can’t be to any court proceeding call the clerk and let the court know what is going on.  There is no guarantee that you will avoid a judgment but the chance of the judge continuing it to a later date are much greater.

Tip #4 – Don’t Be Bullied 

Often, when a person represents themselves in a Midland Funding lawsuit – or any debt collection lawsuit – the opposing attorney will tell them it is best to settle this debt because they are going to lose the case.  However, if the lawsuit is by Midland Funding or almost any of the debt buyers that is not true at all.

Most – if not all- of the debt buyer lawsuits I see are legally insufficient. What I mean by that is that the evidence they have is not sufficient to support a legal judgment.  The X-Factor in all of these cases is the judge or justice of the peace – they can always rule against you.

But the fact of it is these Midland Funding lawsuits are anything but a slam dunk for the creditor.  Stick to your guns.  You are in a better position than you think you are.

In the grand scheme of things most would consider this a lose/lose situation.  I mean, who really want’s to file for bankruptcy.  No one.  That’s who.  But if you find yourself in the position of needing to file bankruptcy one of the first questions you will likely have is which type or chapter of bankruptcy should you file?

As with most things in the law – it depends.  I can tell you why you should file one chapter of bankruptcy over the other.  I can also tell you which one my clients seem to be happier with.

Which Chapter of Bankruptcy Should You File?

The main two factors that go into your decision on what chapter of bankruptcy to file is how much money you make and what type of debt problems you are dealing with.

First things first.  If you make too much money you will likely not be able to file for a chapter 7 bankruptcy.  So how much is too much?  It depends on the state (and even county) you live in and how many people live in your household.

For example, here in Arizona in Maricopa County if you have a household of four (4) the income limit is $4,982 per month.  Note that I am writing this article in March, 2013 and these number are changed periodically.

This number represents gross income per month.  It is also a little deceiving in that there are dozens of deductions that are permitted if you happen to be above this number in income.

But, if your income is too high – even after all of the deductions, you will likely have to file a chapter 13 bankruptcy.

Now, as to the types of debt problems you have.  If your debt problem is related to your house payment – as in you haven’t made your house payment in some time – then you will likely need to file a chapter 13 bankruptcy because it will allow you up to 5 years to get caught up on those missed house payments.

If your main problem is credit card debt or medical bills, and your income qualifies, then you should likely file a chapter 7 bankruptcy.

Which Chapter of Bankruptcy Will You Be Happier With?

This is really not a fair question.  You should file the chapter of bankruptcy that will help you deal with your debt problems.  If you are on the verge of losing your house to foreclosure, and you want to keep your house, then you should file a chapter 13.  If you are dealing with credit card debts a mile high, you should file chapter 7.

That being said, generally my chapter 7 clients are happier with that process over a chapter 13.  Why?  Because it is shorter.  That is it.  Chapter 7 lasts about 4 to 5 months while a chapter 13 is 3 to 5 years – most of my chapter 13 cases are 5 year cases.

This means that you are dealing with me, the bankruptcy court, and the bankruptcy trustee for a long time.  A lot can happen in 5 years.  Life happens.  And because of that nationwide the overall success rate for chapter 13 cases is surprisingly low.

Chapter 7 bankruptcy is designed to get you, get you out, and on with life.  It comes with the possibility of some pain in the form of loss of assets, and you may have to make the hard decision of whether you should actually stay in your current house or not.  But if your goal is to simply get a mulligan – to start again – chapter 7 may be your best choice.