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People who file bankruptcy sleep better. Ninety four percent of people surveyed said they slept better after filing bankruptcy. That’s the result of a 2019-2020 study taken through SurveyMonkey.com of former clients who filed bankruptcy with us three or four years before. One hundred four people participated in the survey. Getting good sleep […]
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People who file bankruptcy sleep better. Ninety four percent of people surveyed said they slept better after filing bankruptcy. That’s the result of a 2019-2020 study taken through SurveyMonkey.com of former clients who filed bankruptcy with us three or four years before. One hundred four people participated in the survey. Getting good sleep […]
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A Mortgage Forbearance Might Not Get You a Mortgage Deferment A mortgage forbearance under the CARES Act is NOT the same as a deferment. At the end of a mortgage forbearance, you are behind by the exact number of payments they allowed you to skip. A deferment means you are not behind. Mortgage companies are […]
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A Mortgage Forbearance Might Not Get You a Mortgage Deferment A mortgage forbearance under the CARES Act is NOT the same as a deferment. At the end of a mortgage forbearance, you are behind by the exact number of payments they allowed you to skip. A deferment means you are not behind. Mortgage companies are […]
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The Arizona Statute of Limitations Applicable to Collection Lawsuits and Non-Judicial Trustee’s Foreclosure Sales of Real Property, article by Larry O. Folks, Folks Hess, PLLC (1/2021).
Excerpts:
- Can a lender collect upon a promissory note that matured six or more years ago?
Short answer: No. The statute of limitations applies to each matured/defaulted note installment payment separately as it becomes due under the note amortization schedule, and it does not begin to run on any installment until it is due. Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 270, 418 P.3d 1038, 1043 (App. 2018) review denied (July 3, 2018). See also, Ancala Holdings L.L.C. v. Price, 220 Fed. App. 569, 572 (9th Cir. 2007) (a cause of action “accrues” each time a party fails to perform as required by the contract) and Ortiz v. Trinity Fin. Servs. LLC, 98 F.Supp. 3d 1037, 1042 (D. Ariz. 2015) (each time the debtor fails to make a payment when it becomes due, a separate breach occurs and a cause of action “accrues”, starting the clock).
Because the maturity date of a promissory note is the last scheduled installment payment of the debt instrument, the cause of action for that final installment payment “accrues” on the loan maturity date. As a result, a lender cannot sue upon the promissory note six years or more after the scheduled maturity date.
EXAMPLE: Loan Maturity Date: 1/1/2015. Current Date: 1/2/2021. A Collection Lawsuit or Foreclosure Sale is barred, as more than six years have passed since the loan maturity date.
7. Application of the six-year statute of limitations to loans that have not been accelerated:
When does a cause of action “accrue” upon a defaulted unmatured installment promissory note for the purpose of calculating the six-year statute of limitation if the lender has not taken an affirmative act to accelerate the loan?
Short answer: The statute of limitations applies to each matured/defaulted Note installment payment separately as it becomes due under the Note amortization schedule, and does not begin to run on any installment until it is due.
If the creditor does not exercise the option to accelerate an installment contract debt and/or to determine the date of “accrual” of a cause of action upon a matured/defaulted monthly installment payment, the statute of limitations applies to each matured/defaulted Note installment payment separately as it becomes due under the Note amortization schedule, and does not begin to run on any installment until it is due. Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 270, 418 P.3d 1038, 1043 (App. 2018) review denied (July 3, 2018). See also, Ancala Holdings L.L.C. v. Price, 220 Fed. App. 569, 572 (9th Cir. 2007) (a cause of action “accrues” each time a party fails to perform as required by the contract) and Ortiz v. Trinity Fin. Servs. LLC, 98 F.Supp. 3d 1037, 1042 (D. Ariz. 2015) (each time the debtor fails to make a payment when it becomes due, a separate breach occurs and a cause of action “accrues,” starting the clock).
The rules discussed above concerning deter- mining the date of “accrual” of a cause of action based upon a defaulted mortgage loan installment promissory note have been applied consistently by the Arizona Court of Appeals and the United States District Court for the District of Arizona in the following line of cases: Andra R. Miller Designs LLC v. US Bank NA, 244 Ariz. 265, 418 P.3d 1038 (AZ App. 2018) review denied (July 3, 2018). Baseline Financial Services v. Madison, 229 Ariz. 543, 278 P.3d 321 (AZ App. 2012); Navy Federal Credit Union v. Jones, 187 Ariz. 493, 930 P.2d 1007 (AZ App. 1996); Hummel v. Rushmore Loan Management LLC, 2018 WL 3744858 (D. AZ 2018); and Ortiz v. Trinity Financial Services LLC, 98 F.Supp.3d 1037 (D. AZ. 2015). Furthermore, as was fully discussed above, the Arizona Supreme Court, in Mertola, LLC v. Santos, 244 Ariz. 488, 490, 796 Ariz. Adv. Rep. 16, 422 P.3d 1028, 1030 (2018) distinguished installment debt from credit card debt in the context of selecting the correct rules to determine when a cause of action “accrues” to calculate the six-year statute of limitation.
EXAMPLE #1: Loan Maturity Date: 1/1/21. Last Payment: 1/1/15. Current Date: 1/2/21. Both a Collection Lawsuit and a Foreclosure Sale are barred.
EXAMPLE #2: Loan Date: 1/1/10. Loan Maturity Date: 1/1/40. Loan is not accelerated. Last Payment Made: 1/1/15. Current Date: 1/2/21. The limitations period bars a suit on any payments due under the loan on 1/1/15 or earlier. The lender may, however, still commence a Collection Lawsuit or Foreclosure Sale based upon the installment payments due from 2/1/15 going forward.
- Do the same rules apply to determine when a cause of action “accrues” to pursue a
non-judicial Foreclosure Sale of real property as apply to a matured or unmatured installment promissory note?
Short answer: Yes.
See, Andra R. Miller Designs LLC v. US Bank, 244 Ariz. 265, 269, 418 P.3d 1038, 1042 (AZ Ct. App. 2018), review denied (July 3, 2018).
Larry Folks
Folks Hess, PLLC
1850 N. Central Ave., Suite 1140
Phoenix, Arizona 85004
www.AzDefaultLegalServices.com
602-256-5906 Direct Line
[email protected]
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My favorite client, or prospective client, is someone who wants to learn as much as possible about their situation, so they can make informed decisions. Finances are confusing and everyone needs to take time to determine the best way to find a solution that works in the long run, not just today. Never rely on the Internet for advice – there is more bad advice than good. Always seek advice from at least two people who are experienced in the area you need help. Once armed with good information, then use your common sense to decide what is best for you.
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- Transferring Assets Before Bankruptcy
- 10 Things You Need to Know Before Filing Bankruptcy
- Supreme Court – Statute of Limitations under FDCPA
- Warning – Debt Collectors “Friending” You on Facebook Make Public Demand for Payment
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Most people think the bankruptcy process is just about wiping out debt. Indeed, discharging debt is the key mission of bankruptcy.
However, there is another important goal of the bankruptcy process: ensuring fair treatment of creditors. To achieve equality of treatment the bankruptcy law empowers its Trustees to avoid payments that unfairly prefer one creditor over another.
When a debtor has paid back money borrowed from family members within one year of filing they must disclose those payments on the bankruptcy schedules. These payments are considered to be “insider preference payments.”
Law of Insider Preference Payments.
Section 547 of the Bankruptcy Code sets forth the rules on avoiding preference payments.
The trustee may . . . avoid any transfer of an interest of the debtor in property
-
- to or for the benefit of a creditor;
- for or on account of an antecedent debt owed by the debtor before such transfer was made;
- made while the debtor was insolvent;
- made—(A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider.
Who is an insider?
Bankruptcy Code Section 101(31) defines the term “insider” and it includes any relative of the debtor. So who is a relative? “The term “relative” means individual related by affinity (i.e., by marriage) or consanguinity (i.e., a blood relative) within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree.”
The typical insider preference payment.
Most insider/family preference payments are fairly straightforward. A debtor paying back his or her parents $200 per month for 12 months has a $2,400 preference to report on the bankruptcy schedules. The bankruptcy Trustee will then demand the parents return the money to be distributed to all creditors pro-rata. That is fairly simple.
Revolving door preference payments.
What gets complicated are cases where the same $100 is borrowed and paid over the course of a year. If a debtor borrows $100 from a parent and pays it back and then borrows and pays it again each month throughout the year, how much is the preference? Is the preference $100 or $1,200?
In the case where a debtor has something of a Revolving Line of Credit arrangement with a parent, the courts look to see whether the parent’s relative position has improved or worsened during the year.
For example, assume a parent was owed $1,200 at the beginning of the year but, due to new borrowing and payments, at the end of the year the parent was owed $2,000. In that case the parent’s position got worse and there is no avoidable preference. However, if the parent was owed $1,200 at the beginning of the year and by the end of the year was owed only $500, then the parent has a voidable preference of $700.
Listing family debts on the creditor list.
A very common mistake made by bankruptcy attorneys occurs when they list a preference payment on the Statement of Financial Affairs but fail to list the parent on the creditor list. If the parent is still owed money they should be listed on both sections.
Solutions to the Insider Preference Payment Problem
The most obvious solution to insider payments is to wait one year before filing the Chapter 7 case. If a significant preference payment occurred and the case must be filed now, consider filing a Chapter 13 payment plan. The bankruptcy trustee in chapter 13 has no power to claw back insider preferences (although it may be a factor in how much is repaid to creditors). A third option is to reverse the preference and have the parent pay back the money to the debtor assuming there are enough exemptions to protect the money. This last option is somewhat questionable and the court may not approve of such a tactic.
Image courtesy of Flickr and Kevin Dooley.
Not everyone understands how important it is to improve your credit score. That is until they find themselves in circumstances where credit score is extremely crucial. This could include proceeding with a credit card application, borrowing from a specific lender, or other instances where your credit history will determine if you can get credit or not. Almost always, a potential creditor will check the credit report of the borrower. It is important to improve your credit score since a good credit profile can help you qualify for credit cards or loans and get lower interest rates, both of which can affect your financial future.
Credit scores are generally calculated by lenders or financial companies by applying a certain algorithm to data in credit reports. Among the most common credit-scoring models is the FICO score. This takes into account your payment history, revolving credit, applications for new credit, and other factors that could influence your credit rating.
For several years, bankruptcies stay on and can affect your credit report and score. They can be seen by anyone who will check your credit scores. Building your credit, however, can be a little less difficult if you check your credit report regularly and take steps that can help raise your credit score.
Credit utilization ratios, repayment patterns, and creditor reports are just some of the many credit score factors being considered. As such, it is important that you pay your bills and promptly make monthly payments for your credit card bill, auto loan, student loan, or any other loan. Avoid making payments past the due date. Payback what you owe, and pay it within the specified period.
Your credit utilization ratio is the sum of your credit card balances divided by your credit limit, across all bank accounts and card companies. Keep your credit utilization ratio low by keeping your credit card balance low. If possible, do not close your unused credit cards. Despite the annual fees, they are useful in decreasing your credit utilization ratio, building good credit, and increasing credit scores.
Check your credit reports through credit reporting bureaus so you can spot and dispute incorrect information or inaccuracies, when applicable. Credit monitoring helps you avoid actions that lead to bad credit. Furthermore, avoid opening new credit accounts since these can lead to hard inquiries, overspending, and future credit problems.
A good credit score will allow you to get a credit card and borrow money under favorable terms and with low-interest rates. As such, make sure you take these things seriously. Rebuilding credit after bankruptcy is not easy, but it is also not an entirely impossible feat. Make it a habit to try checking your credit report and credit scores regularly.
Do not let a bankruptcy set you back at a chance for a fresh start in your financial life. Build your credit and revamp your financial outlook.
For questions on bankruptcies and building your credit, give us a call. Contact us at Northwest Debt Relief Law Firm for a consultation.
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“I came to Diane cause her reviews stuck out the most. I WAS NOT DISAPPOINTED!!!” S.C.
I came to Diane cause her reviews stuck out the most. I WAS NOT DISAPPOINTED!!! If you’re serious about filing for bankruptcy than I suggest you go with Diane Drain!!! From the start, she tells you the process, gets to know you and your situation, doesn’t sugar coat the process and is upfront and helpful the entire time. My first, and hopefully only time needing a lawyer, and she exudes exactly what you would want/need in one. Thank you again Diane, you’ve really helped me move on and start over. S.C.
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It costs a lot of money to go broke. The cost of filing Chapter 7 bankruptcy in Nebraska is $1,300 to $1,800 on average, and once a complete bankruptcy petition is filed attorneys are bared from collecting unpaid fees. The bankruptcy petition wipes out all debt, including unpaid legal fees associated with preparing a bankruptcy petition.
Many debtors need to file bankruptcy immediately to stop garnishments, but how can they pay legal fees when their wages are being garnished?
Attorneys also face a financial problem. They need to file cases to earn a living and most are willing to accept fees in installments, but the current bankruptcy law prohibits them from accepting payments after a Chapter 7 case is filed.
I think the bifurcation is all about informing the client. . . . I do think we are on the cutting edge of something big in Nebraska. I think bifurcation will become the norm.
What is the solution to this problem? Bifurcated fees.
What is a bifurcated Chapter 7 case?
Under a bifurcated case, the attorney files a bare bones skeletal case for little or no money down consisting of nothing more than a the debtor’s name, address and a list of creditors. None of the bankruptcy schedules are prepared or filed at this time.
Then, after the incomplete petition is filed, the attorney schedules a second meeting with the client to complete the remainder of the case. Since the schedules are prepared after the case is filed, the attorney, in theory, is allowed to accept payments for this work.
The attorney and client sign two contracts during the case: a pre-petition contract for filing the skeletal petition and a post-petition contract for completing the case.
Bifurcated cases have the potential to revolutionize the Chapter 7 world by allowing debtors to file cases for little money down.
Why are bifurcated fees a burning issue in Nebraska?
The Courts and the US Trustee (the agency that oversees bankruptcy cases) hate bifurcated cases.
The US Trustee’s Office hates the use of bifurcated fees because it feels the program is based on a lie. Attorneys say they are completing most of the work after the case is filed, but investigations indicate otherwise. It is clear that many of these attorneys are merely accepting payments post-petition for work completed pre-petition, and that is a violation of bankruptcy injunction baring the collection of pre-petition debts.
A second reason the US Trustee dislikes bifurcated cases is that they believe unsuspecting debtors are being abused with abnormally high fees. Whereas a debtor may pay $1,400 to file a traditional chapter 7 case, those who file bifurcated cases are paying substantially more, often twice as much.
Some attorneys hate bifurcated fees.
Not only is the Court and the US Trustee hostile to the use of bifurcated fees, some attorneys are angry at their use as well. Allowing bifurcated fees is a “Race to the Bottom” where attorneys desperate to file new cases advertise “Zero Down” chapter 7 fees. One local Omaha attorney is advertising his $170 down chapter 7 service that ultimately charges a client $2,100 to complete the case.
Veteran attorneys are crying foul. First, to file a case for $170 down means that virtually nothing is paid for pre-petition services and they say that is a lie. Lots of services must be performed to file any case. There must be some basic interview of the client before any case can be filed. There must be some measurement of a client’s income to see if they even qualify for chapter 7 relief. There must be some basic examination of the debtor’s property list to see if any of it is subject to liquidation. Also, an attorney has an ethical duty to see if any preferential or fraudulent transfers have occurred prior to filing a case.
He’s only charging $75.00 up front. And, an attorney must do more work than that to ethically file. Which, we all know he is. He wouldn’t file the case without checking stuff out. He’s analyzing the case, checking Justice, going through the questionnaire with the clients BEFORE he files. He’s not negligent.”
So how can an attorney ethically file a case for no money down when all these required pre-petition duties exist? The plain answer is that they cannot do so ethically, and the concept of a Zero Down chapter 7 is inherently unethical.
A Race to the Bottom
Anybody who advertises Zero Down Chapter 7 is going to get business and take away from those who don’t. Bankruptcy attorneys are suffering a loss of business during COVID-19. Attorneys are laying off staff and more layoffs are coming soon if revenues don’t change.
Mortgage foreclosures are at a record low due to the moratorium in place, so profitable Chapter 13 cases are dramatically down. Clients who would normally file cases to avoid car repossessions or paycheck garnishments are currently unemployed. Lots of folks are just waiting for Covid-19 to end before dealing with the financial problems the pandemic has caused. So, bankruptcy attorneys have faced steep declines in income and are desperate to try new things.
So when one attorney advertises no money down chapter 7 cases, others must follow. Soon the majority of chapter 7 cases in Nebraska will be bifurcated unless the Court or the US Trustee intervene.
Final thoughts.
Every court opinion on bifurcated fees starts out by saying the arrangement is allowed, but it must be carefully tailored to avoid ethical and legal dangers.
- An attorney that doubles his or her fee when filing a bifurcated case risks a motion to disgorge fees.
- The use of a factoring company to sell unpaid legal fees to a high interest rate lender presents problems.
- Charging nothing down to file a skeletal case when everyone knows a fair amount of work must be done pre-petition is seriously flawed.
- Complicated cases involving high income or potentially non-exempt assets should not be filed as a bifurcated case.
- Filing bi-furcated cases for clients who are in no present threat of garnishment seems unnecessary.
- Not collecting a reasonable partial fee prior to filing a case to cover necessary pre-petition services is unwise.
Something tells me we will be seeing more US Trustee and Court oversight of the bifurcation process in the near future.
Image courtesy of Flickr and USFWS Mountain-Prairie
“She is like your favorite professor who just happens to be a spitfire attorney and advocate for understanding, support, kindness and knowledge.” N.B.
I can’t describe in a short review how much Diane and her team changed my life. I’m not being dramatic or cheesey. I had credit card debt piling up living alone, working in restaurants and the Covid hit. I was scared, stuck, trapped, didn’t consider bankruptcy even an option due to growing up hearing it’s a shameful or embarrassing resort. She is like your favorite professor who just happens to be a spitfire attorney and advocate for understanding, support, kindness and knowledge. I was notified by long process is over, and I am a completely different person debt free on my way to start my life over again, and yes bankruptcy is part of it but I would have never considered following through with bankruptcy if Diane wasn’t the first attorney I looked up on BBB and reached out that night. Her website and almost immediate reply was so comforting, it was like a warm hug and not a scary attorney. I am beyond satisfied, taken care of and couldn’t be more pleased with my experience. N.B.
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Updated daily, this blog will keep you informed on the latest bankruptcy news! 
Learn more about how Bankruptcy works and what you need to know.