Bankruptcy in a Community Property State

There are two related questions that commonly arise in community property states when one spouse decides to file an individual bankruptcy petition without being joined in the petition by their spouse.

Question: If one spouse is filing an individual bankruptcy petition, is the other, non-filing spouse’s property part of the estate? Does the chapter matter?

Answer: In a community property state, yes, and it doesn’t matter which chapter the spouse files under. Section 541 of the Bankruptcy Code provides that “(a) the commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.”

This means that, in community property states, both halves of any non-exempt community property must be included in the estate and will be available to pay community creditors accordingly. But note: “A non-debtor spouse's share of the community property may not be available to pay creditors in the bankruptcy estate if there are no community claims.” In re McCoy, 111 B.R. 276 (B.A.P. 9th Cir. 1990) (emphasis added).

Question: What about exemptions though? The non-filing spouse has to give up community property entirely but, because only one spouse is filing, can the couple still receive the benefit of combined exemptions?

Answer: In Arizona, yes. The underlying rationale is that, in taking advantage of both exemptions, the filing spouse is acting for the benefit of the community. There is little doubt that it also just seems intuitively fair.

The ability of an individual debtor to claim both spouses’ exemptions is best explained by the seminal Arizona case In re Perez, 302 B.R. 661 (Bankr. D. Ariz. 2003): “the Bankruptcy Code permits states to exempt community property from community debts, and Arizona law permits one spouse to assert the community exemptions on behalf of the community. . . . In fact, the Code may permit a debtor to assert state law exemptions on behalf of a non-filing spouse. While only the debtor may claim the exemptions, in an opt-out state the exemptions that the debtor may claim are to ‘property that is exempt under … State or local law ….’ 11 U.S.C. § 522 (b)(2)(A). Thus the Bankruptcy Code itself does not limit the Debtor to claiming exemptions that would be available under state law if he were a single person. Instead, the Code permits the Debtor to claim as exempt any property that "is exempt" under state law. Thus the proper question is whether, under state law, the Debtor could claim that the property "is exempt" from community debts by asserting not only his own, but also his wife's exemptions. Under Arizona law, the amount of personal property exemptions of the two spouses is generally double the amount that each spouse could claim as a single person. There is nothing in Arizona law that prohibits one spouse from asserting both exemptions. To the contrary, A.R.S. § 25-215(D) provides that ‘either spouse may contract debts and otherwise act for the benefit of the community.’ Here, there can be no doubt that the filing spouse, in claiming his non-filing spouse's exemptions, is acting for the benefit of the community.”

This article is provided by the Gilbert Bankruptcy Attorneys at Wilson-Goodman & Fong, P.C.

If you need answers to your chapter 7 bankruptcy or chapter 13 bankruptcy questions, please contact the lawyers at Wilson-Goodman & Fong, P.C. through their website or you can call them directly at 480-503-9217. They have offices in Gilbert and Queen Creek to serve the entire East Valley.

AAJ 2009 Annual Convention - San Francisco, CA July 25th-29th

Starting today is the American Association for Justices's (AAJ) annual convention in San Francisco, California. It is located at the Hilton San Francisco and will feature education programs, political speakers, a chance to ear a year's worth of CLE credits and a great networking opportunity. If you are attending please stop by the FindLaw booth whether you are a current client or in need of some information on building a successful online web marketing presence.

Phoenix Real Estate, Business and Estate Planning firm releases new site

Congratulations to The Andrich Law Firm, P.C. on the release of their new FindLaw website, http://www.andrichlaw.com/ .

Devin Andrich and his firm are able to assist clients in the areas of real estate litigation, estate planning, elderr law and commercial transactions throughout Arizona from his office in Phoenix.

Post-Petition HOA Fees in Bankruptcy

This article is provided by the Queen Creek bankruptcy lawyers at Wilson-Goodman & Fong, P.C.

Many debtors, and even practicing bankruptcy attorneys, are surprised to find that post-petition homeowner’s association fees are not dischargeable in bankruptcy. Section 523(a)(16) of the Bankruptcy Code exempts from discharge any “fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association.”

This means that HOA fees that arise after a debtor petitions for bankruptcy are not dischargeable. But these non-dischargeable fees only accrue so long as “the debtor or trustee has a legal, equitable, or possessory interest” in the property. This typically means that the non-dischargeable HOA fees accrue until the debtor’s home is foreclosed upon or sold.

Of course, these fees are generally not a problem for the Chapter 13 debtor that intends to keep their home after bankruptcy. For debtors, typically of the Chapter 7 variety, who plan to surrender their home, however, these accumulating fees can be worrisome. Sale or foreclosure can be a lengthy process, and a debtor can do little but wait while this non-dischargeable debt continues to rack up.

There is good news though. Even though the Bankruptcy Code makes it very clear that post-petition HOA fees cannot be discharged, the debtor very rarely ends up the one ultimately responsible for paying them. The reason why lies in the very nature of foreclosure: after the lender forecloses on the property, but before it can sell the home, the lender has to ensure that it can convey clear title to the new owner. In most states, including Arizona, past due HOA fees operate as a lien upon the property. So, in order to sell the home, the lender will have to pay off any outstanding liens or encumbrances, including any HOA fee lien. Once the outstanding HOA fees have been paid, the debtor no longer has any financial obligation to the HOA. Instead, he simply owes his lender more money because the lender had to pay the fees on his behalf, so to speak, in order to foreclose on and ultimately sell the home.

By now you’re probably wondering: “well, aren’t these still post-petition HOA fees? Won’t my debtor just be responsible to the lender now instead?” Fortunately, no. All of the debtor’s financial obligations to the lender are legally grounded in the promissory note and mortgage agreement originally signed by the debtor long before bankruptcy. That means that all of the lender’s claims – including any claim for HOA fees – are based on pre-petition agreements that will be discharged by the bankruptcy. In the end, the chances are very good that the debtor will never actually feel the financial sting of Section 523(a)(16).

If you need answers to your chapter 7 bankruptcy or chapter 13 bankruptcy questions, please contact the lawyers at Wilson-Goodman & Fong, P.C. through their website or you can call them directly at 480-503-9217. They have offices in Gilbert and Queen Creek to serve the entire East Valley.

ARIZONA’S ANTI-DEFICIENCY LAWS ARE CHANGING!

Marc Mcain, a Phoenix loan modification attorney has some interesting news regarding Arizona's anti-deficiency laws. It appears that there are going to be some significant changes taking place on September 30, 2009. Please head over to his loan modification blog to learn more.

Kanu & Associates, P.C. - Arizona Immigration & Criminal Defense Law Firm

Congratulations to Kanu & Associates, P.C. on the release of their new custom website. Although the firm is able to help it's clients it the areas of criminal defense, real estate and small business transactions, their primary focus is on Phoenix Immigration Law.

With both of the attorneys in the firm actually being immigrants themselves, they have an unmatched insight into the process as they have both been through it. This firsthand experience plus their combined years of legal services make them a great firm to help you with your immigration needs.

Arizona Design of the Month - June

Every month my colleague and local FindLaw Consultant offers an opportunity to showcase some of the best new designs released in the State of Arizona. It's a fun way to see what's new and exciting and what our designers have created for our clients.

The firms that are up for design of the month for June are:

Glitsos, Kratter & Associates - www.glitsoskratterandassociates.com

Blake Law Firm, P.C. - www.blakefirm.com

Alvarez & Gilbert, PLLC - www.alvarez-gilbert.com

Pain Injury Law - www.painlaw.biz

Bredemann & McFarlane, PLC - www.taxlawaz.com

Deloughery & Ruotolo - www.delougherylaw.com

Please head over to his Arizona Attorney Marketing Blog and cast your vote today.

Ninth Circuit Holds that a Debtor Cannot Use a 401(k) Loan Repayment to Reduce Disposable Income for the Means Test

This article is provided by the Gilbert Bankruptcy Attorneys at Wilson-Goodman & Fong, P.C.

A three judge panel of the Ninth Circuit recently ruled that a 401(k) loan repayment does not qualify as a “monthly payment on account of secured debts” or an “other necessary expense” that can be used to reduce a debtor’s income for purposes of passing the Means Test in bankruptcy. Egebjerg v. Anderson, 2009 U.S. App. LEXIS 11651 (9th Cir. 2009).

The debtor, Lee Egebjerg, had taken out a loan from his 401(k) retirement account and was making regular repayments when he filed for Chapter 7 bankruptcy protection. In calculating his disposable income, Egebjerg included his loan payments as a necessary expense. The trustee moved to dismiss his petition, arguing that such repayments should not be included and that, absent them, Egebjerg’s petition was presumptively abusive under the Means Test. The trustee also argued that, even if not presumptively abusive, Egebjerg’s petition should still be dismissed because, under the totality of the circumstances, he still had the ability to repay his debts.

The bankruptcy court agreed with the trustee as to the latter argument and the Ninth Circuit affirmed. Not only did the appeals court agree that, under the totality of the circumstances, Egebjerg was able to repay his debts, the court also held that 401(k) loan payments do not count as payments on a secured debt (contrary to the lower court’s ruling). The Ninth Circuit reasoned that the loan was not, in fact, a debt: “Egebjerg’s obligation is essentially a debt to himself – he has borrowed his own money. Egebjerg contributed the money to the account in the first place; should he fail to repay himself, the administrator has no personal recourse against him” (internal citations omitted).

The court also rejected Egebjerg’s claim that his loan repayments were an “other necessary expense.” Relying heavily on Internal Revenue Service policy, the court reasoned that his repayments were the “functional equivalent of voluntary contributions to a retirement plan.” The payments also failed to qualify as a “special circumstance” under the Bankruptcy Code, as Egebjerg could not demonstrate that he took out the loan for any particularly extraordinary or compelling reason; rather, 401(k) loans are a common offshoot of the general financial problems that precede bankruptcy.

If you need answers to your chapter 7 bankruptcy or chapter 13 bankruptcy questions, please contact the lawyers at Wilson-Goodman & Fong, P.C. through their website or you can call them directly at 480-503-9217. They have offices in Gilbert and Queen Creek to serve the entire East Valley.

Glitsos, Kratter & Associates - Phoenix Criminal Defense Lawyers

Congratulations to Glitsos, Kratter & Associates on the release of their new criminal defense website, www.glitsoskratterandassociates.com .

Phoenix criminal defense attorneys Rena Glitsos and Marci Kratter bring over 30 years of combined experienced and are able to defend criminal cases in city, state or federal courts.

The Baker Law Firm, LLC Seeks Family Law Attorney

Michael Baker the lead attorney at The Baker Law Firm, a successful Phoenix based firm that focuses exclusively on criminal defense and all divorce related issues is looking for an experienced attorney to handle their family law department.

This is a young and energetic firm, so all applicants must have at least 1-3 years experience and be willing to work hard.

*If you are interested in learning more about this position please contact this firm through their website or you can call Mr. Baker directly at 602-889-6901.

DUI with Kids in the Car (Aggravated DUI) in Arizona

This article is provided by The Law Office of Karl A. Mueller, PLC http://www.aztriallawyer.com/

Many people are surprised to find themselves charged with a felony after being stopped and charged with their very first DUI. In Arizona if the State can prove the elements of DUI and additionally that you had a child under fifteen (15) years of age in the vehicle at the time, then you will find yourself facing a felony. Consequences of a felony conviction can negatively impact many aspects of your life.

A DUI with kids in the car is called the crime of Aggravated DUI. It is also known as Aggravated DUI with kids in the car, Aggravated DUI with children, or Aggravated DUI a class 6 felony. There are two other types of Aggravated DUI, but this particular type is a class 6 felony in Arizona. In Arizona, a class 6 felony is the least serious class of felony, but a felony none the less.

A felony is usually defined as a crime that is punishable by imprisonment for more than a year, or a crime that is punishable by death or a prison sentence served in a state penitentiary.

Beyond mandatory fines, classes, jail, probation and possible prison, consequences of a felony conviction may include:

Loss of the right to possess a firearm

Loss of the right to vote in elections

Immigration ineligibility

Ineligibility for elected office

Ineligibility for professional licenses

Ineligibility for housing

Ineligibility to serve as a juror

Ineligibility for public benefits

Ineligibility for educational benefits

Negative impact on parental rights

Negative impact on divorce proceedings

Negative impact on employment

Negative impact on credit

Criminal Record

Criminal Registry

Negative social stigma

In Arizona, a conviction for Aggravated DUI with kids in the car will also lead to the Motor Vehicle Division (MVD) revoking your driver’s license for a minimum of three (3) years. A revoked license means you cannot drive at all until your license is re-instated. If your license is revoked for Aggravated DUI with kids in the car, you are not eligible to apply for re-instated driving privileges for a minimum of three (3) years.