Chapter 7 Bankruptcy Information
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Divorce, Community Property, & Debt Obligations in Arizona
In Arizona, all property acquired by husband or wife during the marriage is presumed “community property” unless a spouse acquired the property via a gift, inheritance, or owned the property prior to entering the marriage (See A.R.S § 25-211). Community property begins at marriage and terminates at either death or upon service of either the Petition for Divorce or Legal Separation. In addition, each spouse has equal management, control and disposition rights over their community property and have equal power to bind the community, i.e., incur debt on behalf of the marriage (See A.R.S. § 25-214). Arizona does carve out exceptions to “binding” the community with respect to acquisition of real property or guaranteeing a loan (See A.R.S. § 25-214(C)).
Likewise to the treatment of assets being community property in Arizona, debts incurred during the duration of a marriage are also deemed community in nature. Spouses acting in the capacity of marriage are presumed to have incurred debt for the benefit of the community (See A.R.S. § 25-215). Often this is secondary to the obvious dual contractual obligation if both husband and wife signed and incurred the debt. If a debt preexists the marriage, a creditor only has access to the community assets only to the extent of that spouse’s contribution to the community estate.
In most cases, it is better to file the bankruptcy prior to finalizing the divorce. Filing the bankruptcy first will prevent the family court from entering orders that might be non-dischargeable later in a Chapter 7 bankruptcy. (See § 523(a)(5) & (15)). In addition, by filing a joint or separate bankruptcy prior to finalizing the divorce, the marital community receives a discharge, allocating debts during the property settlement is avoided, and if filing jointly, the debtors can save money on attorney fees. Inversely, if a divorce is finalized prior to filing bankruptcy, ex-spouses cannot file jointly, and more importantly, assigned debts may become non-dischargeable in a Chapter 7 Bankruptcy. Specifically, a Chapter 7 discharge does not eliminate obligations of a divorce decree or separation agreement. Note, a Chapter 13 can discharge some domestic support obligations under subsection (15).
As an exception to filing a bankruptcy prior to finalizing a divorce, if the martial community has non-exempt property, it may be beneficial to allocate this property strategically among the spouses, to enable one spouse to file a Chapter 7 bankruptcy without jeopardizing this property to the bankruptcy process. An alternative would be to have the family court enter a temporary order allocating assets, could also protect non-exempt assets. Another concern to filing bankruptcy first, is that an Arizona family court judge can take into consideration a debtor’s discharge of community debts in a contested division of community property. However, this risk is perhaps secondary to risk of creating non-dischargeability issues.
Community debts incurred during the marriage are the joint responsibility of the spouses even after divorce. Community Guardian Bank v. Hamlin,182 Ariz. 627 (1995). Since divorce does not absolve the spouses of the community obligations, both spouses can be sued on the community debt after the divorce. The allocation of community debts between the parties through a divorce decree does not bind third party creditors. The creditor can sue both spouses, and the spouses, if they choose to do so, can enforce the divorce decree between themselves. Typically, this takes the form of a cross-complaint in the suit regarding the debt. Death of one spouse does not absolve the surviving spouse from community obligations. VanEmmerik v Colosi, 276 Ariz.Adv. Rep. 33.
Premarital debt is an obligation incurred by one spouse prior to the current marriage. The premarital debt also may be the responsibility of a spouse from a previous marriage if the debt was a community obligation. In this situation, the lawsuit would name the former spouse, and the current spouses of an existing marriage. The current spouse must be sued in an action on a premarital debt for the creditor to reach community assets. Flexmaster Aluminum Awning Co. v. Hirschberg, 173 Ariz. 83 (1992). The new spouse can litigate the other spouse’s liability for the debt and the other spouse’s contribution to the community. §25-215. Litigation regarding the contribution issue is important because the premarital debts may be ordered to be satisfied exclusively out of the debtor-spouse’s contributions to the community. Hines v. Hines, 146 Ariz. 565 (1985). Thus, in a case involving premarital debt that has been reduced to judgment, a garnishment would lie only against the debtor-spouse’s earnings. If a debt is reduced to judgment prior to the new marriage, the judgment can be enforced against the debtor spouse without suing the new spouse on the judgment. The new spouse can not be sued, but is entitled to raise the contribution issue. CBM of Arizona, Inc. v Sevier, 184 Ariz. 503 (1996).
Quite simply, debts incurred by either spouse after service of the petition for dissolution or separation are the separate debts of that spouse as long as the petition results in a decree of divorce or separation. The time between service of the petition for dissolution and the time the decree is signed is a gray area for suit. For example, husband and wife have a $2000.00 balance on a charge account at the time husband serves a petition for divorce on wife. Husband then charges an additional $1000 on the card. If the collection suit is filed after the divorce decree is signed, wife would be responsible only for $2000.00, while husband would be responsible for the full amount of the debt. If the collection action is filed after service of the petition but prior to the decree, the court will likely stay the collection action pending the outcome of the marriage dissolution action. Because the amendments apply only if the petition results in a decree, the collection action is in legal limbo after service of the petition and prior to the decree.
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Mr. Foley and his staff far exceeded my expectations! No words can adequately express my heartfelt appreciation for the exceptional support I received throughout what was surprisingly a very positive, stress-free, and smooth process. I highly, highly recommend Matthew T. Foley!
September 14, 2016
"Your Excellent Choice!"
Matt and his team rock !!!!!!!!
They took the stress and worries out of the whole process and made it smooth and stress free. He and his staff are caring, knowledgeable, very organized, honest and affordable. They responded quickly to any questions or concerns I had.
I would highly recommend Matt and his team to anyone who needs a bankruptcy...... Thank you so much
July 13, 2017
"Caught in a Bind”
I was in a real bind and not knowing the law, I contacted the best reviewed bankruptcy lawyer in town. After the consultation I left feeling better about my situation with a much better understanding of the law. The man knows his stuff and is very knowledgeable. I hired him and he did an amazing job. I literally did nothing but answer questions in an honest manor. The staff is a collection of incredible people, who are kind and very nice and understanding towards your situation. Thank you so so much for everything and would recommend the heck out of this gentlemen. Awesome experience.
March 6, 2017
Matt and his team rock!!! They took the stress and worries out of the whole process and made it smooth and stress free. He and his staff are caring, knowledgeable, very organized, honest and affordable. They responded quickly to any questions or concerns I had. I would highly recommend Matt and his team to anyone who needs a bankruptcy or debt settlement attorney.
October 21, 2016
"Brinda ayuda honesta"
Le agradezco a usted y a su equipo de professionales por el apoyo, la guia, comprension y toda la asistencia brindada al lo largo del proceso. Siempre estuvieron ahi para ayudarme, para responder mis preguntas. Gracias al buen trabajo que hicieron pude no unicamente liberarme de mis deudas pero tambien mejoro mi salud, mi bienestar y el de mi familia. No tengo con que pagarle todo lo que hizo por mi. Muchas gracias por todo. Dios lo bendiga a usted y a su equipo y continuen ayudando a nuestra comunidad hispana como hasta ahora... con honestidad y respecto.
August 11, 2017
Mr. Foley handled my chapter 7. After my first meeting with him I instantly felt better about the whole thing. I was stressed about my finances and felt guilty for even considering a bankruptcy. I felt like a total failure. Mr. Foley was able to help me see that it was the right business decision and was also able to help me by pointing me to resources for a redemption loan on my vehicle. If you are considering a bankruptcy attorney, I would recommend you consult with Mr. Foley.
July 18, 2017
"Very helpful even though not client (yet)”
Matthew represented us at a Trustee meeting when our Phoenix attorney could not be present. He was knowledgeable and helpful. In addition, when my existing attorney became "disengaged", we contacted Matt and he spent a lot of time helping us understand some issues we were having. He was supportive, helpful, and gave excellent advice even though we were not his clients. I highly recommend him and he will be my first call for any future legal issues.
May 23, 2017
"A saving grace!"
I was literally days away from having my paychecks garnished. Not knowing what to do anymore, I decided to look for an attorney and researched all around Tucson. I came across reviews of Matt's firm on multiple sites and saw he was the highest rated and most reviewed. I decided to go in for my consultation and I couldn't hire him quick enough. Halee was awesome in helping me as well. I submitted all of my paperwork in less than 24 hours and 3 days later, I filed. I was so sick to my stomach in the stress of the debts I had. I was quickly relieved. Matt made me feel comfortable and told me just to relax. I think we are all scared of the unknown and what lies behind Bankruptcy. But I cannot speak highly enough of the positive experience I had with Matt and his team. Thank you so much, from the bottom of my heart. Finally, there is light at the end of the tunnel.
April 27, 2017
"Matt is fearless and unflappable...”
Finding Matthew Foley and his team was like finding cool, clear water in the desert. After wading through several overworked, confused huckster attorneys in the bankruptcy area; finding Matt was like finding an angel. He was not put off by complexities in our case and he was always a calming, soothing commander in the midst of a difficult situation. He was a great strategist and his professionalism was amazing. He was incredibly patient to explain and reassure us of the best course of action. I have been exposed to many attorneys in my life but none have ever impressed me the way Matt Foley has. Even his staff, Halee, Alysha and Austin maintain extraordinary standards of professionalism while always supporting Matt in his mission: to serve and reassure the fiscally challenged throngs that enter through Matt's door hoping for knowledge and assistance. I would give Matthew Foley the highest possible recommendation as the best Bankruptcy Attorney in Arizona. Five Stars are not enough to capture what he does for the people of Tucson, Arizona. I would also recommend him for any position that requires competence, calm professionalism and uncanny skills, knowledge and competency. Matt is fearless and unflappable. Thanks again, Matt!
December 12, 2016
"Excellent choice for bankruptcy"
Matt helped get us a chapter 7 bankruptcy in a quick and professional manner. He explained the process step by step and allowed us from feeling overwhelmed to relieved. He stopped the garnishments from continuing and I even got my garnishment checks back. if I ever needed more help in the future, I would go back to him and recommend him to anyone that needs help with debt.
May 25, 2017