By: Ronald Ellett and Brittany Sifontes
Under Arizona law, a recorded judgment does not become a lien on a homestead property. Arizona law provides that a recorded judgment “shall become a lien . . . on all real property of the judgment debtor except real property exempt from execution, including homestead property . . .” A.R.S. § 33-964(A). The Arizona Revised Statutes further prescribes that any person, “entitled to a homestead on real property as provided by law holds the homestead free and clear of the judgment lien.” A.R.S. § 33-964(B).
There is an impressive line of cases holding that a recorded judgment does not become a lien on homestead property under Arizona State law. In all, the Bankruptcy Appellate Panel, the Arizona Supreme Court, the Arizona Appellate Court, and Judge Haines have all ruled that a recorded judgment does not become a lien on homestead property under Arizona law. Furthermore, the Bankruptcy Appellate Panel’s unanimous ruling is controlling precedent.
The only Judge to hold that a recorded judgment becomes a lien on an Arizona homestead property was Bankruptcy Judge Maggoire who, as a result, found himself duly reversed by the unanimous Bankruptcy Appellate Panel in Charles v. Carter Shield, 25 B.R. 331 (9th Cir. BAP 1982). In Charles the facts were undisputed. The Chapter 13 Debtors had equity in the homestead in excess of the homestead exemption amount. The Appellants argued that the recorded judgments did not become liens on the homestead, while the Appellees argued the recorded judgments became liens on any equity above the homestead amount. The Bankruptcy Appellate Panel followed the controlling Arizona Supreme Court cases of Union Oil v. Norton Morgan Co., 23 Ariz 326 (1922) and Security Trust & Savings Bank McClure, 29 Ariz. 325 (1925) in holding that a recorded judgment does not become a lien on a homestead under Arizona law. The Bankruptcy Appellate Panel also pointed out that the Arizona Supreme Court’s ruling in Schreiber v. Hill, 54 Ariz. 345 (1939) was also consistent with the earlier ruling by the Arizona Supreme Court. The Bankruptcy Appellate Panel noted that, “as federal tribunals, neither we nor the court below may depart from this consistent exposition of Arizona law by that state’s highest Court.” Charles v. Carter, 25, BR. 331, 334, (BAP 9th Cir. 1982).
In making its ruling in Charles, the unanimous Bankruptcy Appellate Panel rejected the obligatory argument, made by every creditor, that the statute had changed. The Charles panel considered and rejected this over-used argument. The correctness of the Charles court’s ruling was reinforced the following year by the decision of Evans v. Young, 135 Ariz. 447, 661 P2d. 1148 (App.Div 1 1983). The Arizona Appellate Court conducted a detailed review of the statue and held that A.R.S. 33-964 specifically prevents a recorded judgment from attaching to homestead property. The Evans court unanimously concluded that this result was compelled by the Union Oil v. Norton Morgan Co., 23 Ariz 326 (1922). The principle had been upheld at that point for a period of sixty-one years.
Twenty-five years later, the issue resurfaced once again in Rand v. United Auto Group, 400 B.R 749 (2008) with the judgment holder once again asserting the obligatory “the statue has changed” argument. Judge Haines reviewed the long line of cases that held that a recorded judgment does become a lien against homestead property in Arizona. Judge Haines then reviewed the consistency and logical coherence of those cases. Next, Judge Haines scoured the Arizona Statutes for any changes that could possibly produce a different result. Judge Haines held that under the plain and unambiguous language of the statute, a recorded judgment still does not become a lien against to a homestead property under Arizona law:
[T]he only statutory amendment that might affect the Evans analysis was the addition of the initial “except” clause to the beginning of A.R.S. 33–963(B), “[e]xcept as provided in section 33–1103.” Porsche argues that the addition of the qualifier “except as provided in section 33–1103” refers specifically to 33–1103(a)(4) and allows a recorded judgment to become a lien on homestead property if the debtors’ equity in their homestead exceeds the homestead exemption.
But as noted above, a plain language reading of the revised 33–964(B) reveals that this provision still does not create any judgment liens. Judgment liens are only created by 33–964(A), which contains no exception to the prohibition of any such liens on homestead property. And, as noted above, Porsche’s reading of the effect of the introductory clause of the first sentence of paragraph B would render it contradictory not only to paragraph A but also with the second sentence of paragraph B.
More importantly, however, the statutory amendment has no effect on the analysis or reasoning of Evans. It remains the case that both the homestead statute and the judgment lien statute both conceive of the “homestead” as being the real property, not the equity value of such real property. So when A.R.S. 33–964(A) and (B) both prohibit judgment liens from attaching to “homestead property,” they mean the lien does not attach to the real property, regardless of its value. It would have taken far more extensive amendments to both the homestead statute and the judgment lien statute to change that interpretation of those statutes as clearly held in Evans. It also remains the case that there remains another method in A.R.S. 33–1105 for a judgment creditor to reach the value in excess of the homestead value cap, not by obtaining and foreclosing a judgment lien but rather by requiring an execution sale and obtaining a bid in excess of the consensual liens and the homestead amount. And finally it remains the case that the judgment lien statute still does not expressly permit a judgment lien to attach to property claimed as a homestead, but merely contains an oblique cross reference in an exception to the exception to the statute that creates judgment liens.
In re Rand, 400 B.R. 749, 753-54 (Bankr. D. Ariz. 2008).
As recited by the unanimous Bankruptcy Appellate Panel, “as federal tribunals, neither we nor the court below may depart from this consistent exposition of Arizona law by that state’s highest Court.” Charles v. Carter, 25, BR. 331, 334, (BAP 9th Cir. 1982).
By: Ronald Ellett and Brittany Sifontes
The death of the Debtor does not change the right to a homestead. Under Bankruptcy Rule 1016, “Death or incompetency of the debtor shall not abate a liquidation case under chapter 7 of the Code. In such event the estate shall be administered and the case concluded in the same manner, so far as possible, as though the death or incompetency had not occurred.”
Furthermore, the death of the Debtor makes no difference to the Debtor’s entitlement for exemptions. “It is hornbook bankruptcy law that a debtor’s exemptions are determined as of the time of the filing of his petition.”In re Peterson, 897 F.2d 935 (8th Cir. 1990), citing White v. Stump, 266 U.S. 310, 313, 45 S.Ct 103, 104, 69 L.Ed. 301 (1924); Mansell v. Carroll, 379 F.2d 683, 684 (10th Cir. 1967); and In re Friedman, 38 B.R. 275, 276 (Bankr.E.D.Pa.1984). Also:
Once the estate is created, no interests in property of the estate remain in the debtor. Consequently, if the debtor dies during the case, only property exempted from property of the estate or acquired by the debtor after commencement of the case and not included as property of the estate will be available to the representative of the debtor’s probate estate. The bankruptcy proceeding will continue in rem with respect to property of the estate, and the discharge will apply in personam to relieve the debtor, and thus his probate representative, of liability for dischargeable debts. In re Bauer, 343 B.R. 234, 237 (Bankr. W.D. Mo. 2006) quoting Sen. Rep. No. 95–*989, 95th Cong., 2d Sess. 82–*3 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5869 (legislative history regarding 541).
“[A] Debtor’s homestead exemption must be determined as of the date of the original filing under chapter 7, and, as a result the Debtor’s subsequent death is not controlling.” quoting In re Mobley, 2004 WL 377679 citing In re Costello, 72 B.R. 841 (Bankr.E.D.N.Y. 1987), In re Alexander, 236 F.3d 431 (8th Cir.2001).
In September of 2013, House Bill 2325 took effect in Arizona which increased several of the bankruptcy exemptions. The Bill changed the following provisions:
A.R.S. § 33-1123 – Household furniture, furnishings and appliances
Under the old exemption, a debtor’s household property was only exempt to the extent that an item was included on a specified list set forth by statute (i.e. one couch, one television, three living room lamps). Further, a debtor’s household property was exempt, as delineated by statute, only to an aggregate value of $4,000. The new exemption expands household property items to include consumer electronic devices and households appliances used by dependent of the debtor as well as a general exemption of all household furniture, furnishings, goods, and appliances not exceeding an aggregate value of $6,000. Therefore, the debtor’s household goods are no longer subject to a statutorily prescribed list, rather, their household furniture and furnishings, goods, consumer electronic devices, and dependent’s household appliances will generally be exempt pending their aggregate value not exceeding $6,000. A.R.S. § 33-1125(7) – Personal Property Addition
The old exemption only exempted one typewriter, one bicycle, one sewing machine, a family bible, a burial plot, and one shotgun or one rifle or one pistol collectively aggregating a total fair market value of no greater than $500. The new exemption not only increases the aggregate fair market value exemption limit to $1,000 but also now includes one computer as a personal item that may now be included as exempt.
Under the old exemption, the equity in a debtor’s vehicle was exemption so long as it did not exceed $5,000. (Equity is the fair market value of the vehicle remaining after subtracting the debt owed to the secured lien holder.) The new exemption increases this exemption to exempt the equity in a debtor’s vehicle up to $6,000. Further, the exemption now provides that the vehicle may belong to the debtor or the debtor’s dependent. Additionally, the exemption also increased the equity exemption prescribed for debtors who are physically disabled; the fair market value of the vehicle is now exempt up to $12,000 as opposed to the previous amount of $10,000.
Increasing Exemption Limits
As of September 2013, a variety of exemptions increased in dollar amount. These items included:
Under the new law, the fair market value amount of this exemption increased from $200 to $400.
Domestic Pets, Horses, Milks Cows, and Poultry
Under the new law, the fair market value amount of this exemption increased from $500 to $800.
Engagement and Wedding Rings
Under the new law, the fair market value amount of this exemption increased from $1,000 to $2,000.
Under the new law, the fair market value amount of this exemption increased from $100 to $150.
A debtor was previously allowed to exempt one bank account up to the amount of $150. Under the new exemption, a debtor may now exempt one bank account up to $300.
Tools and Equipment
A debtor may exempt tools and equipment used in commercial activity, trade, business or their profession. These items aggregate fair market value, under the old exemption, was exempt up to $2,500. The new exemption increases the exemption amount to $5,000. However, it is important to note that a vehicle that is primarily used for personal, family, or household purposes (including transportation to debtor’s employment) shall not qualify under this exemption. Additionally, the exemption expanded to include telephone numbers, client or customer contact information, marketing tools, and other intangibles as tools and equipment under this statute and therefore exempt.
On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 7 on Wednesday, September 26, 2012
When consumers owe large amounts of debt, they can easily fall behind on their payments. This can create serious problems and repercussions for consumers in Arizona and elsewhere. Along with damaging credit scores, falling behind on debt payments may prompt a creditor to file a lawsuit against those who owe past due amounts. However, one way consumers or businesses can remedy this is to petition for Chapter 7 bankruptcy, which puts an automatic stay on the lawsuit. This means that the lawsuit is halted and any legal actions against the petitioner is stopped while the bankruptcy is processed.
This is what one business, owned by a couple, decided to do recently when their bank filed a lawsuit against them for failure to pay debts owed. Their bank had attempted to put up the property, in which their business was located, for auction. However, when the couple filed for Chapter 7 a notice of a bankruptcy stay was sent to the court which took the property off the auction block. It also stopped the bank’s legal action against the couple pending the resolution of the bankruptcy proceeding.
Prior to the filing of the bankruptcy, the bank had loaned the couple $168,000. That was in October 2006. The couple agreed to repay the debt in 240 installment payments. The lawsuit alleges that the couple failed to make some required payments. The bank’s complaint asked for $150,790.87, which is the total unpaid balance. The bank also sought $2,000 for legal fees and interest.
A Chapter 7 bankruptcy petition in Arizona typically results in the appointment of a trustee by the court. That trustee is responsible for marshaling assets and overseeing their liquidation so that the proceeds may be applied to outstanding debt. Secured claims, such as those held by a mortgage lender, are considered ahead of unsecured claims.
By choosing to meet outstanding financial obligations through bankruptcy, individuals look to make good on their debt problems to the greatest extent possible while laying the groundwork for a return to financial stability.
Source: Republican Herald, “Deer Lake Inn owners file for Chapter 7 bankruptcy,” Amy Marchiano, Sept. 17, 2012
Tags: Chapter 7, bankruptcy protection, personal bankruptcy
On behalf of Ellett Law Offices , P.C. posted in 1. Personal Bankruptcy on Tuesday, September 4, 2012
Bankruptcy is a difficult time for anyone, and may involve a lot of hard decisions involving what assets to sell off to satisfy creditors. Even when an individual is cooperative in doing what they must to turn their finances around, it’s natural to want to preserve things like wedding rings or life insurance policies. For Phoenix residents, whether in Chapter 7 or Chapter 13 bankruptcy, this is actually a distinct possibility.
For example, a person filing for bankruptcy would be able to keep wedding or engagement rings granted they are worth less than $1,000. They are also able to keep one car, one bike, and a typewriter if they are worth less than $5,000. Despite being items people have come to value, things like cars can be critical in allowing an individual to find work after bankruptcy, if they are unemployed.
In terms of life insurance policies or annuities, it’s nationally considered that these items can be retained if the beneficiary is a minor child. In Arizona, the 9th U.S. Circuit Court of Appeals has ruled that these policies can be kept in bankruptcy if the beneficiary is any child, even if they’re no longer legally dependent to the filer. Regardless of the value of these accounts, they can continue to benefit the children named under them.
Filers are also able to keep things like a stove, refrigerator, and a table and chairs which all benefit cooking for and feeding a family. They can also keep a washer and dryer, a television, a radio alarm, and other items that can help an individual maintain a productive daily life. For Phoenix residents, a Chapter 7 or Chapter 13 bankruptcy doesn’t have to be the end, and these exemptions can assist in seeking a new beginning. Further, under a Chapter 13 proceeding, the goal is to keep significant assets by proposing a plan for the court’s approval to repay creditors over a stipulated time period.
Source: Arizona Daily Star, “Annuities, life policies get shield in bankruptcies,” Howard Fischer, Capitol Media Services, Aug. 25, 2012
Tags: Chapter 13, Chapter7, personal bankruptcy
On behalf of Ellett Law Offices , P.C. posted in 1. Personal Bankruptcy on Thursday, August 30, 2012
Over the last several months Phoenix has seen significant dips in the number of bankruptcies in the area. Most recently, it’s said that bankruptcies declined by 14 percent in July. But what does this actually mean for consumers and their attempts to eliminate debt? It’s important to know how the figures are compiled.
In the whole of Arizona, this 14 percent drop in July was one in a string of 18 consecutive months where bankruptcy rates have declined. These drops are based on a comparison to the rates for the same month year over year, so the 1,847 bankruptcies in Arizona this July are down 14 percent from the 2,153 bankruptcies in July 2011. In addition, the number of mortgage delinquencies fell by 21.1 percent for the state over the last year. At the same time, median home prices in the Maricopa and Pinal County areas have been ticking upward.
While these are certainly positive signs, analysts agree that consumers have a ways to go before they can be said to be flourishing. The experts note that it’s a tenuous recovery driven by banks tightening their standards for making loans and consumers remaining tight fisted in a bid to regain some stability.
The reality is that economic problems continue for many Phoenix area consumers still seeking to eliminate debt. These debts will keep posing a problem for many households. For these individuals, a personal bankruptcy option such as Chapter 7 or Chapter 13 may be helpful in setting finances straight and securing a stable financial future. And seeking advice from an experienced attorney about what may be the best approach to finally conquer outstanding debt may be a good first step.
Source: The Arizona Republic, “Phoenix-area bankruptcies fall 14%; 18th dip in a row,” Russ Wiles, Aug. 9, 2012
Tags: Chapter 13, Chapter 7, debt relief, personal bankruptcy
On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 13 on Monday, August 20, 2012
With the latest summer Olympics wrapped up, the eyes of Phoenix sports fans are on our athletes as they return home with victories and medals to prove it. As celebrity status goes, though, this attention can draw out the sometimes more embarrassing aspects of an Olympic athlete’s personal life. For superstar gymnast Gabby Douglas, this attention has been brought to her mother’s Chapter 13 bankruptcy filing.
The filing was made in the beginning of 2012, listing Douglas’ mother’s assets at just over $160,000 – made up mostly of the family’s home and car. She held nearly $80,000 in overall debts and was in need of a way to begin to repay this while still maintaining daily life for herself and her four children. The Chapter 13 bankruptcy filing is allowing her to do so, with monthly payments of $400 toward her debts over the next five years.
Douglas’ mother suffered a long-term medical disability in 2009, and like many in similar cases, found herself with a limited income. In fact, there was a six month period where the family took in little to no income. The income she does receive consists of child support payments from her former husband, as well as Social Security disability benefits. When attempting to support four children, one of which is pursuing a dream that comes with training costs, it can be understandably difficult to stay on top of debt payments for things such as home mortgages.
Chapter 13 bankruptcy is designed in a way that allows filers to reorganize their debt and form a feasible repayment plan that will span several years. For Douglas’ mother, it allows her to keep her car and home for her family and may also provide time for her to seek additional income to keep herself debt free after emerging from bankruptcy. Douglas’ mother says she isn’t ashamed of her bankruptcy and is glad there is a way she can protect and provide for her family. For Phoenix households in similar situations, a bankruptcy filing could bring the same sort of relief to debt and financial struggles.
Source: ESPN, “Bankruptcy for Gabby Douglas’ mom,” The Associated Press, Aug 5, 2012
Issues discussed in this post are of the type handled by our firm. Readers can learn more by visiting our Maricopa County Chapter 13 debt relief page.
Tags: Chapter 13, bankruptcy, bankruptcy protection, debt relief
On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 7 on Wednesday, August 15, 2012
Some encouraging news has been released regarding the status of the United States economy. A recent report has stated that bankruptcy filings for businesses, which include those seeking Chapter 7 protection, have declined in the last 12 months. However, despite the decline, the numbers still indicate that there remain a large number of individuals and businesses in Arizona and elsewhere who seek the protection of bankruptcy each year.
The recent numbers from the U.S. Bankruptcy Courts show that, in the last 12 months, ending on June 30, there were a total of 44,435 businesses that filed for bankruptcy across the country. This is a 14.8 percent reduction from the 2011 report. It was not clear what percentage of these filings were for Chapter 7 protection.
Meanwhile, personal bankruptcies were also on the decline. It was reported that for the same time period as the business report, 1.27 million individuals filed for bankruptcy. This amounts to a 14.2 percent drop from 2011. Based on these numbers, many have claimed that this report is another sign that the United States economy is on the rebound.
Despite the reduction of bankruptcy filings across the United States, there are still a large number of people who are struggling financially. Whether it is a business or an individual, filing for Chapter 7 bankruptcy allows those who are struggling to free themselves from the pressure brought on by unmanageable debt to give themselves a fresh financial start.
By seeking the proper advice, those Arizona residents struggling to stay afloat are arming themselves with all the necessary information they need to ensure that they can chart a new course to prosperity.
Source: The Orange County Register, “Business bankruptcies continue to fall,” Jan Norman, Aug. 6, 2012
Tags: Chapter 7, bankruptcy protection, debt relief
On behalf of Ellett Law Offices , P.C. posted in 1. Credit Card Debt on Tuesday, August 7, 2012
Credit cards are commonplace for many Phoenix consumers, as is the growing presence of credit card debt in Arizona and across the nation. Credit card debt is one that can build up unexpectedly and become a problem before some consumers are able to turn it around. This can lead to further debt problems, and even bankruptcy solutions later on if left unchecked.
For individuals such as stay-at-home spouses who don’t directly earn an income, credit cards can be an extra hassle. The Credit Card Accountability Responsibility and Disclosure Act of 2009 prevents individuals who don’t earn a direct income – such as stay-at-home spouses and college students – from obtaining a credit hard. However, spouses are able to apply jointly for credit cards, and a stay-at-home spouse can have a card in their spouse’s name.
In some states, this joint card ownership would be complicated, with the person who has their name on the card being the one responsible for any debt. Arizona, though, is what is considered to be a community property state. This means that, when both spouses benefit from the use of a credit card or loan of some sort, both spouses are responsible for any debt incurred. Even if the card is in one spouse’s name, both spouses can be held responsible in the eyes of creditors.
This may make a debt situation easier to handle, having two individuals to be responsible for debt. Yet, having only one household income can be a struggle, especially if one spouse must stay at home for health or childcare reasons. As with any credit card holder, smart spending practices are important to maintaining and avoiding credit card debt. When one finds themselves in a heavy debt situation, though, solutions such as bankruptcy may provide an orderly and positive means of resolving those financial problems while clearing the way for a return to financial stability.
Source: Fox Business, “Four Credit Card Myths for Stay-at-Home Spouses,” Janna Herron, July 24, 2012
Tags: bankruptcy, credit card debt, debt relief
On behalf of Ellett Law Offices , P.C. posted in 1. Chapter 7 on Wednesday, August 1, 2012
When a Phoenix individual or business is faced with levels of debt that are higher than their available assets there are often limited options for their financial future. Commonly, individuals and businesses turn to bankruptcy, Chapter 7, Chapter 11 or Chapter 13, as an answer to their debt. Chapters 11 and 13 essentially allow a company or individual respectively to reorganize and pay off debts. Chapter 7 is a filing that liquidates a company or a person’s assets in order to repay debts.
Some Phoenix area businesses may find the recent Chapter 7 bankruptcy filing of National Service Industries elucidating. The company provides linens to industries across the country, including the health-care, hotel, and restaurant industries. With declared assets of only $500,000 compared to their $100 million in various debts, the company will be liquidating under Chapter 7 in an attempt to pay off creditors.
With their Chapter 7 filing, National Service Industries anticipates closing its doors as the entire company is liquidated to pay off debt. The company’s board said in formal documents that it believes this is the best decision for the company as well as its creditors and other affected parties. The filing was a voluntary decision on the part of the company.
While National Service Industries could have chosen a Chapter 13 filing, it is likely that the significant difference between the company’s assets and their debts made the Chapter 7 filing more sensible for this company. There’s no word on what specific factors led to the company’s asset-debt imbalance. Perhaps it, like many Phoenix area businesses, faced stiff competition and was confronted with high costs of doing business. In a faltering economy, the chances of successfully climbing out of severe financial distress can be low. Sometimes dissolving under a Chapter 7 bankruptcy filing is the optimal option.
Source: Bloomberg Business week, “National Service Industries in Bankruptcy, Will Liquidate,” Dawn McCarty, July 12, 2012
Tags: Chapter 13, Chapter 7, Chapter11, bankruptcy