Limitation on Liability for Non-Working Spouse’s Premarital Debt

BattleThe Arizona Court of appeals issued its opinion in SQPR Venture, Inc. v. Robertson addressing the issue of whether a non-debtor spouse’s income can be used to satisfy a separate pre-existing debt of the debtor spouse (“Judgment Debtor”) when the Judgment Debtor provides non-financial support to the family as a stay at home spouse and parent.

The underlying facts are that the Judgment Debtor had a default judgment entered against her in 2003. The Judgment was timely renewed. Years later, after she re-married, the judgment creditor, filed an earnings garnishment against the community property. The non-debtor spouse provided all of the income while the debtor was a full-time stay at home mother. The Judgment Creditor argued that the Judgment Debtor’s non-financial contribution to community property was a quantifiable value that should open the non-debtor’s community income to garnishment.

Arizona law provides “[t]he community property is liable for the premarital separate debts or other liabilities of a spouse, incurred after September 1, 1973 but only to the extent of the value of that spouse’s contribution to community property which would have been such spouse’s separate property if single” A.R.S. § 25-215(B).

The Judgment Creditor also argued that the transfer of the non-debtor spouse’s income into the Judgment Debtor’s account of funds that fell just short of the threshold for garnishment was a fraudulent transfer under the UFTA. The Judgment Creditor argued for a UFTA violation if the court found that the non-debtor spouse’s community property was liable on the judgment. The flaw with the Judgment Creditor’s argument is that the Judgment Debtor was not making any transfers. Rather, the non-debtor spouse transferred funds to the Judgment Debtor. The Judgment Creditor’s arguments did not satisfy UFTA.

The court of appeals court held that the trial court correctly found that the income of the non-debtor spouse was protected against liability for the Judgment Debtor’s premarital debt, when the Judgment Debtor provides a non-financial service to the family that has value and for which the community would otherwise have to pay. The court affirmed the trial court’s finding that the non-debtor spouse’s property was immune from garnishment since the Judgment Debtor was not making a financial contribution to the marital community.

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights prosecuting and defending garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.

Timeline for Trustee’s Sales in Arizona

Stripping Liens in Bankruptcy: Can my debtor do this?The non-judicial foreclosure process in Arizona is known as a Trustee’s Sale. The requirements to complete a valid trustee’s sale fully set forth in statute. For those professionals that are statutorily identified as being qualified to act in a trustee capacity, the process is a “paint by numbers” procedure.

A Trustee’s Sale is, by statutory design, meant to be quick and relatively simple. The entire Trustee’s Sale process occurs over a period of 91 days. Generally, if the Trustee follows the statutory requirements, a valid sale will occur unless another party takes action to stop the sale before the sale occurs. The basic timeline for a trustee’s sale is below.

Day 1
The Trustee records the Notice of Trustee’s Sale.

Day 5
The Trustee mails the Notice of Trustee’s Sale and Statement of Breach to those listed in the Deed of Trust (and those defined by statute).

Day 30
The Trustee mails the Notice of Trustee’s Sale and Statement of Breach to those in the Deed of Trust and those that have an interest in the Property.

Usually between day 20 and day 69
The Notice of Sale is posted at the property being sold and at the Superior Court Courthouse at least twenty days before the sale at (1) some conspicuous place on the property to be sold (if it can be done without a breach of the peace), and (2) at the places in the county courthouse provided for the posting of public notices.

Usually between day 20 and day 79
The Notice of Trustee’s Sale is published in a newspaper of general circulation in the county in which the trust property is located. The Notice must run once a week for four consecutive weeks with the date of last publication not less than ten days prior to the sale.

Day 91
The Trustee sells the property at the Trustee’s Sale.

Usually within 10 days after the sale
The Trustee’s Deed is recorded.

Once the sale occurs and the Trustee’s Deed is executed and delivered, the property will be vested in the party that purchased at the Trustee’s Sale, either the beneficiary or a third party.

There are many “behind the scenes” actions being taken by the trustee and their staff, to ensure that there is full statutory compliance. From the “outside looking in” perspective, the above timeline describes what will happen.

The statutes define many other items that must be completed. For example if a property owner believes the Trustee’s Sale is invalid, and the borrower wants to ‘stay’ a Trustee’s Sale, the stay must be obtained at least one business day prior to the scheduled Trustee’s Sale. If no stay is obtained, and the sale occurs, the issuance of the Trustee’s Deed brings with it a statutory presumption that all requirements to complete the sale were properly completed. If you are facing a Trustee’s Sale, retain counsel without delay. Time passes quickly, and if you want to stop the process, you must move promptly.

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights prosecuting and defending garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.

Fraudulent Transfers: Looking Back Before the Debt

Patent1In an earlier post, Fraudulent Transfers and Creditors’ Rights to Collect, we discussed collection against an insolvent debtor. But what about a savvy future debtor who takes action to make sure a future debt cannot be collected?

If an Arizona creditor is already owed money, it is not necessary to show fraudulent intent to prove fraudulent transfer. However, a creditor is also entitled to a finding of fraudulent transfer for a transfer that occurred before the debt, if the transfer was made “with actual intent to hinder, delay or defraud any creditor of the debtor.”

There are several factors that may be considered to determine actual intent, including:

1. The transfer or obligation was to an insider.
2. The debtor retained possession or control of the property transferred after the transfer.
3. The transfer or obligation was disclosed or concealed.
4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
5. The transfer was of substantially all of the debtor’s assets.
6. The debtor absconded.
7. The debtor removed or concealed assets.
8. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
10. The transfer occurred shortly before or shortly after a substantial debt was incurred.
11. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

These factors, known as “badges of fraud,” can be used to prove your debtor took steps before the debt to make sure you wouldn’t collect. If you encounter any of these red flags when attempting to collect, an experienced attorney can help you recover your debt despite a debtor’s careful planning.

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.

Objections to Claims in a Bankruptcy

Recovering Debt: Attorneys vs. Collection AgencyIn certain cases, in order to receive a distribution in a bankruptcy case, it is incumbent upon the creditor to file a proof of claim. Filing a proof of claim is the first step in getting paid. Once the claim is filed, it is critical that the creditor monitor the bankruptcy, because there may be an objection to the claim lodged. A Chapter 7 trustee, or debtors-in-possession (in Chapter 11 cases), can object to a creditor’s proof of claim. In response to the objection, the creditor will need to file a response within fourteen (14) or twenty-one (21) days, depending upon the notice provided by the objecting party.

There are many reasons why a trustee or debtor-in-possession may file an objection to a creditor’s claim; however, it is critical that the objection be a valid reason under the Bankruptcy Code. Often times, objections are filed to claims because the claim is ‘secured’. Even though the creditor has security for its claim, that fact alone is not the end of the inquiry.

The existence and enforceability of the debt to a creditor, in a Chapter 7 bankruptcy case, is governed by state law. 11 U.S.C. § 502(b)(1) (a claim cannot be allowed if it is not enforceable under state law). In re Miller, 292 B.R. 409, 412 (9th Cir. BAP 2003). A claim may not be denied for just any reason, but only for one of the reasons Congress has included in §502(b). In re Taylor, 289 B.R. 379 (Bankr. N.D. Ind. 2003). An objection to a claim, based only on the fact that the claim was filed as a secured claim, does not meet any of the exceptions under § 502(b) and does “nothing to undermine the prima facie validity of either the creditors’ right to payment or the amount they say was due on the date of the petition.” In re Muller, 479 B.R. 508 (Bankr. W.D. Ark. 2012) citing to In re Taylor, 289 B.R. at 385.

In determining allowance of claims, the Court “must find a basis in section 502 to disallow a claim, and absent such basis, we must allow it.” In re SNTL Corp., 571 F.3d 826, 838 (9th Cir. 2009); In re Rodriguez, 375 B.R. 535, 545 (9th Cir. BAP 2007), citing Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 452, 127 S. Ct. 1199, 1206, 167 L. Ed. 2d 178 (2007) (“we generally presume that claims enforceable under applicable state law will be allowed unless they are expressly disallowed” under section 502).

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.

Terminology for Creditors: Chapter 13 lien stripping

"best collection attorney"In bankruptcy cases, the law generally provides a higher payment priority to secured creditors.  By removing liens through a procedure known as lien stripping, a Chapter 13 debtor is empowered to turn secured creditors into unsecured ones.

Stripping a lien can only be applied to mortgage debt.  If a debtor owns a home and its value is less than the liens on it, the procedure will “strip” the second and any other subsequent mortgages, literally removing them from public records.  The subordinate debt must be wholly unsecured to strip the lien.  The remaining first mortgage will remain a secured debt, but the other mortgages transform into unsecured debt, which reduces the likelihood of their being paid in full.  There are many conditions, or hoops, the debtor must get through to strip a lien.

There are measures in place to protect creditors against lien stripping.  Working with an experienced and knowledgeable Arizona creditor’s attorney can be a tremendous help.  If you would like more information about lien stripping in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Terminology For Creditors: REO and OREO

Foreclosure Process in ArizonaA property is foreclosed upon by a lender, but the property remains unsold after a foreclosure auction or Trustee’s sale. The lender still retains the property, which is now classified as an REO – “Real Estate Owned.”

The original term from which REO is derived is OREO –“Other Real Estate Owned.” This is a term found on a financial institution’s financial statement to describe real property that is owned by, but that does not materially relate to the business of, that institution.

Holding a portfolio of REO properties may not offer tremendous value to a financial institution.  They may not even have the potential to recoup what is owed on a loan.

REO disposition refers to the business of handling, selling and otherwise managing REO properties.  As unattractive as these distressed assets may be to lenders, REOs have assumed a substantial position in the portfolio holdings of some real estate managers.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating creditor options.  If you would like more information about bankruptcy filings, REO properties, foreclosures, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Storage Lockers and Liens in Arizona

"best creditor rights law firm"Readers of this blog may be learning about how bankruptcy and creditor actions may impact a debtor’s property.  Now, let’s consider a less-common entity that is also subject to Arizona laws regarding creditors and personal property:  self-storage facilities.  There are occasions when liens may be placed against a debtor’s storage locker and its contents.

Suppose a storage facility tenant who was behind on rent for a long time files for bankruptcy.  An automatic stay then goes into effect. Can the storage facility owner proceed to place a lien against the locker contents and sell them to recoup the lost rent? Or should the facility owner file as a creditor in the bankruptcy proceedings, and request the court’s permission to conduct a lien sale?

Actually, until the Bankruptcy court lifts the automatic stay (or rules in favor of a motion against the stay) a creditor may not proceed with any action against a debtor. Should the court dismiss the bankruptcy filing, a creditor may proceed with a lien sale.  If the court discharges the debt, however, the debtor is no longer required to pay the rent owed on the storage unit.

Perhaps the best way a storage facility owner/creditor can protect his/her interests is to act quickly when any tenant becomes delinquent on rent, and upon doing so exercise their legal rights prior to any indication of bankruptcy.  This same proactive thinking can help creditors in other situations as well.  Engaging an experienced creditors attorney will help navigate the legal process.

Most standard rental agreements in Arizona ought to include some form of remedy authorizing the owner to sell the contents should delinquency occur.  The contract rights and remedies must conform to Arizona statutes.  Should the bankruptcy filing take place before the contract can be enforced, however, the owner/creditor should enlist the help of a skilled bankruptcy attorney to assert the claim for unpaid rent.

Working with an experienced and knowledgeable Arizona creditor’s attorney can be a tremendous help.  If you would like more information about personal property and bankruptcy, possessory liens, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Terminology For Creditors: Termination-Upon-Bankruptcy Contract Clauses

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A typical contract may contain a clause allowing one party to terminate the contract should the other party encounter financial trouble such as insolvency or bankruptcy. This type of provision is known as a “Termination Upon Bankruptcy” clause.  The specific contract language in such a provision is known as an ipso facto (i.e. “by the fact itself”) clause, meaning that the existence of a bankruptcy filing is reason enough to terminate the contract.

Termination clauses are often found in different types of contracts:

  • Licenses
  • Leases
  • Development agreements

Factors that may trigger the termination clause may include:

  • Filing for bankruptcy by contract party
  • Having an involuntary bankruptcy filed against the party
  • Becoming insolvent
  • Written statement of insolvency by the party
  • Making a general assignment for the benefit of creditors
  • Invoking the contract’s financial condition covenant

According to Section 541(c) of the US Bankruptcy Code, a contract that terminates because of the financial condition of the debtor will be unenforceable once a bankruptcy case has been filed. Section 365(e)(1) pertains to termination- type ipso facto clauses in executory contracts – stating that such a contract may not be enforced, terminated or modified based on the financial condition of the debtor/party.

Whichever side of a contract or bankruptcy is in question, a knowledgeable attorney is best qualified to address the complexity of interpreting contract language.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about termination-upon-bankruptcy contracts, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Countering Strategic Default

California-DUI-ScalesRecently, news outlets across the country reported that government mortgage lenders Fannie Mae (FNMA) and Freddie Mac (FDMC) may soon be taking more aggressive legal steps against debtors who carry out a strategic default on their mortgage loans.

Strategic default can be defined as what occurs when a borrower/debtor intentionally defaults on a loan, even if s/he is capable of making payments.

The Federal Housing Finance Agency, which oversees FNMA and FDMC, experienced billions of dollars in losses on bad loans during the recent economic downturn.  In 2014, this agency may be pursuing litigation against strategic defaulters at an increasing rate.  This proactive approach may aid in recouping losses suffered over the past few years; ideally, it may also serve as a deterrent to those who do not intend to honor their loan commitments. This step toward greater debtor accountability may prove to be significant in the category of creditors’ rights, both inside and outside of bankruptcy.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously if you are facing litigation resulting from a strategic default.  If you would like more information about creditors’ rights or defending claims, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We represent creditors enforcing loan documents and debtors that have been sued by creditors.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

Topics in Bankruptcy: LLCs and Creditors’ Rights

Road DangerIn the business entity known as a limited liability company (LLC), the individual members of the LLC are not responsible for the company’s debts and financial obligations when money problems arise.

An LLC can have a single member or more than one member.  Depending on the circumstances, even though there is a single member, the LLC can be recognized as a separate entity, or it may not be treated as an entity separate from its individual members.  However, the extent of that protection may depend on the type of creditor seeking payment from the LLC, as well as the composition of the LLC itself.

When the company is liable.  A creditor may have a claim or receive a judgment against the LLC when the problem or nonpayment derives from the company as an entity, rather than from the actions of an employee or member of the LLC. Should that situation arise, members of the LLC are generally not liable for those claims.

When a member of the LLC is liable.  Another scenario involves obtaining a judgment against a member of the LLC rather than against the company itself.  In these cases, the member is responsible for the judgment.  The creditor may have an avenue for collection from any assets flowing from the LLC to the member.

When a member files for bankruptcy.  In Arizona, when a single member LLC files for bankruptcy, or if a single member LLC adds a member and subsequently files bankruptcy, the filing may raise certain legal issues.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about bankruptcy issues relating to LLCs, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.