Arizona residents may be aware that filing for bankruptcy is one way to restart their financial lives when a debt crisis strikes. However, as familiar as they are with the term, they may not be clear about the rights and obligations that arise from filing for bankruptcy.
One form of bankruptcy for which residents of Arizona may file is Chapter 7. A recent story in the news involved a prominent college football coach filing for Chapter 7 bankruptcy; in the filing, he listed assets of just over $1 million and debts totaling $40.7 million as a result of bad real estate deals. The vast majority of his multi-million dollar debt has been discharged by a federal bankruptcy judge.
However, the coach will be required to pay over a quarter of a million dollars in cash and turn over almost half a million dollars in real estate as a result of allegations by the trustee that, while signing a new contract a week before the filing, he deferred a majority of his salary until after the filing date. By doing this, it was claimed, he was able to list only a token amount of income on the bankruptcy filing. The trustee in this case agreed to a settlement with the coach and acknowledged that, in the end, the contracts were apparently not intended to be fraudulent.
The story raises an important point for Arizona residents: in a Chapter 7 bankruptcy, the court appoints a trustee who may sell some of the available assets to satisfy debts. The trustee can only use assets that were acquired by the filer before the date of filing to satisfy creditors-debtors can keep whatever they earn or acquire after filing. Arizona residents should be very careful when reporting their incomes in order to ensure that they do not make a mistake or quote incorrect figures, as trustees do investigate assets before coming to a final decision. An inadvertent mistake in reporting income or assets may mean the difference between financial relief and additional legal problems.
People with financial difficulties should understand the options available to them. In addition to the mental peace that comes with knowing that creditors will no longer harass filers, they also may be able to put at least a temporary halt to foreclosure proceedings and other collection efforts by filing for bankruptcy.
Source: USA Today, "Ex-Arkansas coach discharged debt in bankruptcy deal," Brent Schrotenboer, Sept. 5, 2013