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Relieving Drowning Individuals with a Fresh Start Through Bankruptcy

Aug 17, 2015
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Cristina Perez Hesano helps individuals struggling with debt to file for bankruptcy. In this episode, she he takes us through a Chapter 7 bankruptcy from prep to discharge, and why she decided to leave her first bankruptcy firm job to go out on her own. Cristina is a graduate of Arizona State University.

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Host:

From LawHub, this is I Am The Law, a podcast where we talk with lawyers about their jobs to shed light on how they fit into the larger legal ecosystem. In this episode, Derek Tokaz interviews a bankruptcy lawyer who discusses the types of bankruptcy and how she helps those struggling to pay their bills.

Derek Tokaz:

Today we're joined by Christina Perez Hesano, a 2007 graduate of Arizona State University. She's a partner at her eight attorney firm, Bella Perez, located in Glendale, Arizona just outside of Phoenix. So first I wanted to get a little bit of background on how bankruptcy works in a general matter, because there's a few different types of bankruptcy that people may have heard of, several different Chapters. Chapter 7, Chapter 13. Just a general sense of what those things mean.

Christina Perez Hesano:

Well, Chapter 7 is also known as a liquidation bankruptcy. That's a bankruptcy that most people picture when they're thinking of the term bankruptcy. It allows a person to get rid of their unsecured debt. You enter into about approximately a four-month stage from the time of filing, and it includes any credit card debt, any payday loans, any medical debt, forcible detainers due to leaving a rental place, and allows you to essentially get a fresh start. And although it's federal law, there are specific state exemptions and protections that each debtor is entitled to when they're looking to file a Chapter 7.

Derek Tokaz:

How does that differ from Chapter 13?

Christina Perez Hesano:

Well, Chapter 13 is known as the reorganization bankruptcy. It's also known as a wage earner's bankruptcy. And the difference in a 13 is that you're essentially restructuring your debt and there's a hierarchy based on creditor types and allows you to pay a portion of your debt and sometimes all of your debt, depending on your financial situation, depending on the type of debt that you have in a matter of three to five years. And that's dependent on your gross income as well.

Derek Tokaz:

So this is one of the types that we might hear more about on the news when we hear about companies coming through bankruptcy?

Christina Perez Hesano:

Well, actually when you're hearing companies going through bankruptcy, they're referring to Chapter 11. Individuals can also do Chapter 11, but there are certain thresholds you have to meet as far as debt and typically it's more expensive so most consumers will do a Chapter 13. Companies tend to do a Chapter 11, companies cannot file Chapter 13.

Derek Tokaz:

Which type of bankruptcy does your practice focus on? Is it more Chapter 7 or 13? Or do you work much with businesses at all?

Christina Perez Hesano:

I currently have a Chapter 11 where I represent a creditor, but the majority of my business tends to focus on Chapter 7 for individuals. Chapter 7, liquidation for businesses, Chapter 13 for individuals.

Derek Tokaz:

And by individuals you mean the people that need the debt assistance, not the creditor side.

Christina Perez Hesano:

I do tend to do debtor representation, the consumer side, so the individual. But there are cases, and I would say maybe about five to 10% of my practice does revolve around representing creditors.

Derek Tokaz:

So I'd like to hear a bit about what the life cycle of a client is. At what point does the typical person come into your office?

Christina Perez Hesano:

Every person's walk is different. I have had clients come to me after losing a spouse or going through a divorce, when they're getting sued. There's so many different situations. The most common situation, client comes into my office, they've essentially have gotten buried with debt. They've tried to keep up with their expenses, they've cashed out 401ks to pay interest on their credit card debt. They've gotten nowhere only to find out that now they have no 401k, they have no savings, and they still have this liability and they don't know what to do. Another common situation is when they've gone to one of these debt consolidation companies that have not done what they've stated they would do, they've been paying a huge fee where they take all their fees up front and then they end up not helping the client. They end up getting sued and then the companies tells the client, Hey, we don't deal with that because we're not attorneys. And they come to my office with a lawsuit, a short timeframe to respond to get the bankruptcy moving.

Derek Tokaz:

So when the creditor is suing your client, how do you go from that traditional civil lawsuit and transform the case in whatever way into a bankruptcy proceeding? And what happens to the lawsuit after that point?

Christina Perez Hesano:

When a client comes in with a lawsuit, they have a certain amount of time to either negotiate a debt with that creditor to try to get the lawsuit settled or you can file bankruptcy. And in order to file the bankruptcy, you have to have your paperwork in order, schedules and petitions formulated, reviewed and signed. And then you have to take a class as well. And we file the bankruptcy case. And as soon as you file a bankruptcy case, that's when you get your case number and the trustee assigned and a 341 meeting date. Then your creditors can no longer continue collection efforts against your client and the process there formally begins. So it's no longer at that point in civil, you've now created a bankruptcy estate. So the civil matter's still there. When a client files bankruptcy, what they do is essentially, they're starting their own case. They're starting a case in federal bankruptcy court, which trumps all collection efforts.

Derek Tokaz:

Is most of your time then spent actually in the courtroom arguing cases or are you outside of the court doing other sorts of work for your clients?

Christina Perez Hesano:

In bankruptcy, it's been a running joke that consumer bankruptcy attorneys don't tend to see the courtroom. Most of our time is looking at documents, putting together a petition and essentially going to a hearing, which is known as a 341 creditors meeting, which is not before a judge. It's actually before a trustee who is appointed to administer over their case. In a typical Chapter 7 or in a typical Chapter 13, if everything goes smoothly and everything goes well, you won't be before a judge. So you won't enter into a courtroom.

Derek Tokaz:

So is that creditor's meeting similar to arbitration then?

Christina Perez Hesano:

No. In Arizona, the way that it works is they have a docket. So when you file your case, the day that you file, you get a case number, a 341 meeting date and a trustee assigned to your case. 341 meeting of creditors, it's the one meeting that you're required to attend as a consumer debtor. Now that 341 meeting date is typically set out for 30 to 35 days from the date of filing. There's a couple of steps that occur beforehand. Taking a class is required by law, submitting all paperwork to the trustee that they require to have a verification. So essentially the trustee assigned to your case is going to send you a letter in the mail asking for a slew of paperwork in order to verify what you've transferred in the last two years. And if you've repaid any loans or friends or family, looking at your bank statements, looking at pay stubs.

And so they do their own fact finding in that manner because their job is to find what assets are available to liquidate so they can provide that to creditors. So that's their job. They also get paid from what claims they pay out. Now when you submit those paperwork back, they review it and around the 30 to 35th day, when you go to your hearing, it's a cattle call. When I was doing 341s in Florence, we were meeting at a catering hall, so it wasn't a courtroom. And in Prescott for some time they were meeting at an old post office. So a 341 meeting room does not have to be in a courtroom, but in Phoenix here we do have it in the courtroom, but it's downstairs. It's kind of a cattle call. You have different time slots, and within each 30 minute increment they'll have about four or five.

So when the trustee calls the nine o'clock calendar, so essentially I'll walk in with my client and then they'll be three or four other debtors. Sometimes they have attorneys, sometimes they do not have attorneys. When they call your client's name, I end up getting up with my client, they take an oath, we present their driver's license, their social security card, and then the trustee will ask them a general list of questions that they ask to everyone. But then they'll also ask them a specific list of questions after they're done with the generalist relating to their case.

Derek Tokaz:

So this trustee sounds in a way like he's sort of the judge presiding over everything, but it also sounded like from your description that he's also perhaps almost like an advocate or a representative for the creditors. So I'm trying to understand exactly what his role is.

Christina Perez Hesano:

He represents the creditors. His job is to find out what assets the debtor has that are not protected under federal law or under state law depending on which law you use. Although bankruptcy is a federal law, certain states have opted to use their own state allowances for protection of assets. So for example, my clients in Arizona, they can file, if it's a married couple, they can file on the day of filing with $300 in a bank account for each one of them. So it'll be $300 in bank account A and bank account B, or $600 in bank account A. That's an example of an exemption. Another example is car equity. Here in Arizona, you're entitled to $6,000 of equity in a vehicle, meaning if you have a free and clear car with no loan, it can be worth up to 6,000. And if you are a married couple, then you're entitled to two of those.

Derek Tokaz:

So when you say that there's some assets that are exempt, you mean these are things that will not end up going to the creditors? So your clients are not left with nothing, there's a minimum that they're going to have protected?

Christina Perez Hesano:

Absolutely. The concept behind bankruptcy is to provide people who are struggling debtors with a fresh start, a way of reorganizing and getting out of debt. Things like clothing, furniture, tools of the trade were allowed here up to a certain amount and that varies. And then in some states they allow what's called a wild card. We don't have one in Arizona. But that is where you can place a certain value protection on whatever item.

Derek Tokaz:

So we've heard a bit about what the trustee does during these proceedings, but I'd like to hear more specifically about your role and the preparation that goes in into it before you go into the creditor's meeting.

Christina Perez Hesano:

Well, my role tends to be more of the preparation. What I like to do is by the time that we go to that 341 meeting, my clients already know what issues they have on their case, what questions they can expect, what the procedure's going to be, how to respond to the trustees. So for every case that I meet with, before we file their petition, and then sometimes also after we file their petition, depending on the complexity of the case, I'm meeting with my clients and saying to them, these are the general questions that you can expect when we go to that 341. I give them a rundown of how the cattle call goes and so forth. And then explain to them of these questions, you'll hear him or her ask these questions to all debtors. Expect these questions to be asked to you in specifics to your case. Because by the time I file a case, I've already looked at their bank statements, I've already looked at their assets, I've already done a value of those assets.

I know what the trustee may or may not go after or ask about, inquire about. There's nothing worse than going to a hearing and I sit there and I hear another attorney meet a client and at that point explain to them these are the questions that you can expect to hear for the first time. At this point, you tend to see a look of fright in client's faces and I try my best not to have that. Now sometimes there are surprises because creditors can show to these meetings, although they typically do not show. So there may be some surprises. And I'd love to say that all of my clients are a hundred percent truthful to every fact in their case. I cannot say that because then I would be lying. And at times there's something that they forgot to mention or forgot to list or transferred before we filed. And then essentially that brings up a whole other slew of issues that can come up with your case, especially when dealing with your trustee.

Derek Tokaz:

I want to learn a little bit more about the end of the life cycle. You've gone to the meeting now, do you work with your clients afterwards or is that more or less the end of your involvement?

Christina Perez Hesano:

Well, it would depend. It depends on the client. And right now we're talking about Chapter 7. So Chapter 7 cycle is a little bit different than the Chapter 13 cycle. The Chapter 7 cycle will be you file your case, 30 days out you have a 341 meeting. After that meeting you have a 60-day objection period for creditors to object to your client's dischargeability. Meaning a creditor can object to a complete discharge for a client, meaning they have some type of wrongdoing or something that they did or they can object as to their particular claim.

Taking something out and say American Express will file an objection because your client has run up credit debt within the last 90 days. Then based on the code and each purchases for luxury goods within the last 90 days are essentially non-dischargeable if they're for luxury goods. You try not to allow it to get to that point. But creditors do have that option, that creditor would say, all right, because of this reason, this is non-dischargeable and they file an adversary proceeding in the case, which would delay your discharge. If a creditor does not file an objection, at the end of the 60-day period, you are eligible for your bankruptcy discharge. And if you've taken your second required class, you've supplied everything to your trustee, then you will get your bankruptcy discharge entered by the court within, I would say, 90 days from the date of your 341 meeting date.

Derek Tokaz:

If the client has their $300 in their bank account, that's protected and the $6,000 in their vehicle, how do you get paid when the creditors have now taken as much as they're able to get?

Christina Perez Hesano:

We get paid before we file a case. The way that I do our fees for Chapter 7 is we do a flat fee case. They'll pay a lump sum or they'll make monthly payment plans. And then I work on their case, but I don't file their case until it's paid in full. And so regardless of whatever's left over after they file, I've already been paid. The only time that additional fees come up is in circumstances where there's additional work that's not part of your bankruptcy. So let's say for example, the trustee wants a further investigation, they do some type of 2004 exam, which is essentially more of a, they want to ask more questions, but you have a limited time at a 341 meeting and they want to see more documentation. My clients pay additional for that. Or if they fail to go to a 341 meeting, they'd pay additional for that. But that's something that's occurred after the filing.

Derek Tokaz:

So I'm thinking if I'm facing bankruptcy and I know I'm going to lose whatever money I have anyways and I can just go ahead and pay the lawyer upfront, why not just give it all to you? And then there's nothing left for the creditors.

Christina Perez Hesano:

Well.

Derek Tokaz:

I assume some very clever people have thought to do this before and there's a protection in place to stop a transfer of money just to the attorney to get it away from the creditors.

Christina Perez Hesano:

See, here's the thing, try selling that to one of your clients, right? Pay me the money, this way you don't pay the creditors. I don't know how well that would pan out because the whole point of filing bankruptcy is there's certain things that you can do before you file to assist your client in protecting certain assets. So if you have the time and you plan properly and you're allowed to do pre-bankruptcy planning, if you do it properly, then your client would not lose a great deal because the client's goal is pay the attorney as little as possible and then pay the creditors as little as possible.

Derek Tokaz:

What might be the last step of your relationship with the client, although it could possibly come a little earlier? If the client has their $300 in their bank account that's protected and the $6,000 in their vehicle, how do you get paid when the creditors have now taken as much as they're able to get?

Christina Perez Hesano:

We get paid before we file a case. The way that I do our fees for Chapter 7 is we do a flat fee case. They'll pay a lump sum or they'll make monthly payment plans and then I work on their case, but I don't file their case until it's paid in full. And so regardless of whatever's left over after they file, I've already been paid. The only time that additional fees come up is in circumstances where there's additional work that's not part of your bankruptcy. So let's say for example, the trustee wants a further investigation, they do some type of 2004 exam, which is essentially more of a, they want to ask more questions, but you have a limited time at a 341 meeting and they want to see more documentation. My clients pay additional for that. Or if they failed to go to a 341 meeting, they'd pay additional for that. But that's something that's occurred after the filing.

Derek Tokaz:

All right. So now I want to go back about eight years into the past all the way to 2007. And I want to know those early first years of your practice, what that was like.

Christina Perez Hesano:

When I graduated, I was at the county and my original goal was to be a prosecutor because I wanted to be in the courtroom, I wanted to do trials. I visioned my life very differently than what it is right now. So I was actually at the county and the way that Maricopa County was at that time was they were in a hiring freeze. And so I was with the county for probably about a year. I was with them while I was finishing law school and then as I was studying for the bar. So I worked with them as a law clerk, helping other attorneys with motion writing and so forth. And then when I interviewed with them and they decided, well, they announced that because a budget cuts and restraints, they could not hire anyone. At that point I decided, Hey, I'm going to go find a job.

And I ended up finding a job with Harold Campbell who is a bankruptcy specialist. So I started off as a paralegal because I still hadn't received my bar admission. Harold had a way of just taking very complex cases and just really thinking outside of the box. So it's something that I appreciate the time that I spent with him because he was able to really show me how to look at the code, look at the laws, and then also do the best job you can for your client. And also learning how you just have to jump into things, which is as a first year attorney, is extremely scary. And you look back and you're like, wow, I can't believe I did that and I can't believe that was okay to do. And sometimes like, oh man, I don't know if that was okay to do. Sometimes you just have to learn as you go. But I did. I walked away with a lot of valuable experience when I was with Harold.

Derek Tokaz:

So you're obviously not still a paralegal there. So did you stay there after you got your Bar admission, or what was the next step in your career?

Christina Perez Hesano:

I ended up going to a boutique bankruptcy firm where they did consumers Chapter 7, Chapter 13s. But they did a high volume and it was more of a turn and burn type of feel. Essentially. I was meeting with hundreds of people and just filing case after case after case. And there were I would say some vanilla cases. I tended to always want to take more difficult cases, but it was one of those situations where you were filing cases and clients started becoming numbers. And I worked a lot. I still work long days, but at that point I was probably working about 12 hour days, but I was working for someone else. The business model that they had turned into something very different than when I first started. Where for them it was more, don't worry about the old clients, paralegals can handle that, worry about the new clients and so forth. I didn't like that. And so after a while, probably a little bit over a year of being there, it just became too much and I ended up deciding to open up my own shop.

Derek Tokaz:

So it sounds like this may have fed into what you mentioned before that you really hate to see in these meetings, which is an attorney for the first time getting to prep their client about the questions that they're going to see. So is that what you would see as a result of this high volume business?

Christina Perez Hesano:

I would say yes. And the thing is with bankruptcy, it definitely was high volume because you needed the numbers, you have a certain amount of cases that you can handle, and then you have a certain amount of staff that helps you handle those cases. And then after you hit your breaking point, your quality of work product is going to go down. And I value that, and that's one of the things that I pride myself on. When I started feeling that way, I realized that that wasn't for me. Either I was really brave or just really stupid because I literally heard of a firm that had a room that they were willing to have enough counsel relationship, and I just bought a computer, bought bankruptcy software program, hired someone part-time to help me and just started doing bankruptcies. From that point, it just kind of grew.

People left with me as well from the old firm and that also helped because that helped generate clients and so forth. And then from there it was with word of mouth because I didn't have the budget for advertising. I didn't have the budget to compete with these big firms that were around at the time. For me, it really was my work product, the way I treated clients and my reputation. And I also got involved in a lot of things. I got involved in the bankruptcy section for the state bar. I got involved in the Young Lawyers' Division doing their CLE programs. I was blessed in the fact that it just grew. It really did. And then I ended up hiring another attorney and I ended up hiring another assistant.

But the bigger firm where I had rented that room from, Richard Bella, who is the Bella in Bella Perez. When I came to this office, he was a 30 year practicing attorney and he lived in Glendale, was vice mayor of Glendale. And he was also looking to slow down. Now here I am looking to ramp up. And so it turned out to be a great relationship. And myself and another attorney at that time, and this is now in 2013, so now I'm working for myself for about three years. And then I just got a phone call one day from one of the owners of a company that had met years prior that his national business was going to go out of business and he needed help with his cases, but we essentially inherited a lot of their cases. And when I'm talking about a couple of thousand cases in just one swoop after the notice period had ended, it was, we now we're in a position where it's like, well, now we're a bigger firm.

And with that combined with Richard wanting to slow down, he ended up making a proposal saying, Hey, let's merge, let's become partners. And Perez Law Group turned into Bella Perez, and that's how now we're eight attorneys.

Derek Tokaz:

For our listeners who might be unfamiliar with the term, you said when you first started running that space, you were of counsel. Just briefly describe how that relationship works, what that means.

Christina Perez Hesano:

So they had about four or five attorneys at the time. I come in and I'm my own attorney. I have my own separate books, I have my own separate accounts, I have my own separate software. So I'm just kind of renting. But at the same time, when they needed bankruptcy help, I would handle their bankruptcy cases with them. It turned out to be a lead source for me where they didn't have anyone to do bankruptcy so that I handled it. So I kept myself separate, but I handled their bankruptcies for them.

Derek Tokaz:

So it's almost like your practice that you were running was almost like their bankruptcy department, but you still were independent and had control over that as opposed to being an associate there or a partner at the firm.

Christina Perez Hesano:

That's exactly right. Richard had proposed when I first walked in to hire me and I go, I'm just going to try this on my own. And then I know that there's always a job offer there if I can't, because the one thing they don't tell you is just how difficult it is to run a business because now you're playing many hats. And that's something that I learned. I happen to enjoy not having any free time.

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