The television commercial sounded like a godsend to Ruthie Dennis. Pay nothing down! an authoritative male voice intoned. Get your financial fresh start today!

A fresh start is what Dennis needed. Income-tax and other debts had haunted her since she'd retired from Honeywell in 1991 after 20 years on the job.

Dennis had moved from her own house into an apartment and made other efforts to cut expenses. But that had failed to stem the tide.

"The bills were piling up and things were getting away from me," says the 58-year-old widow. "I seen myself going down the drain, and I didn't want it to happen. I wanted to do what I could."
The TV ad led the north Phoenix resident last summer to the Phoenix offices of Duane Varbel and Associates, the first Arizona law firm to pitch what's known as "zero-down" bankruptcy filings.

Zero-down refers to a previously rare practice: attorneys demanding nothing up front (except for filing fees) from clients in Chapter 7 bankruptcy cases.

Dennis recalls that she met for about 15 minutes with Varbel, who gave his well-practiced spiel about the advantages of wiping one's financial slate clean with a Chapter 7 bankruptcy. Varbel then introduced her to an assistant.

In a span of about 90 minutes, the assistant--not a lawyer--asked questions and took notes about Dennis' financial condition. The assistant also asked for $150 to cover the bankruptcy filing cost.

Near the end of the session, Dennis says, the assistant pulled out a chart that purported to show what she could afford in legal fees. It came to $187.50 a month for eight months, or about $1,500.

The assistant then presented Dennis with an unsecured promissory note to seal the deal. It indicated she would pay off her attorney's fees through a finance company, starting a few weeks later. The document warned her "to keep the contract current for a truly FRESH START with your credit."

Like most people, Ruthie Dennis didn't comparison-shop or ask around about her new attorney. She just wanted someone to direct her back to financial stability.

"I thought they knew what they were doing," Dennis says. "I mean, it's not cheap to advertise on TV, is it?"
Duane Varbel's firm--now known as Hessinger and Associates--is one of two Valley zero-down firms that have taken the local bankruptcy system by storm in the last year or so. Thanks to nonstop, multimedia advertising campaigns, the firms grabbed about one in every six Chapter 7 debtors who hired an attorney last year.

The boom in zero-down bankruptcy in Arizona can be traced to two brothers, Larry Majors Sr. and Wayne Majors. Both men have been convicted of white-collar crimes in recent years, and have served time behind bars. Like pied pipers, the Majors brothers have led lawyers in three states into the lucrative bankruptcy business--and often controversy and ruin. @rule:

@body:Bankruptcy-related services had been one of the Valley's steadiest growth industries since the economic free fall of the late 1980s. Filings in Arizona quintupled during a ten-year period that ended in 1992, and the stigma that once accompanied such declarations has vanished.

But last year marked the first decrease in Arizona bankruptcy filings since 1990, which makes the burgeoning of zero-down business even more impressive. More than 2,500 Arizonans in 1993 signed on with attorneys from the two zero-down firms, Hessinger and Associates and Michael S. Manning and Associates. Mike Manning hung up a zero-down shingle only last August, yet already has forged a spot as one of the area's busiest Chapter 7 operators. (Michael S. Manning is not the Michael C. Manning of Morrison and Hecker.)

These firms are run like fast-food restaurants: Speed and volume are their modus operandi. Ex-Varbel/Hessinger attorney Kathleen Patterson filed a staggering 877 bankruptcy cases in 1993 before she resigned last October.

And the zero-down firms are expanding like some fast-food franchises: Hessinger and Associates now has seven offices in California and two in Arizona. Manning and Associates has two offices in the Valley.

"The number of zero-down cases is frankly incredible," says Phoenix bankruptcy trustee Charles Riley. "It's a tribute to advertising, I guess. But the problems. . . . So often, I have to question the accuracy and honesty of the bankruptcy schedules and other things."
New Times conducted a months-long investigation of the Valley's two prominent zero-down firms, studying 300 Chapter 7 cases and speaking with 28 debtors who hired attorneys from the high-volume firms to represent them. The paper interviewed 40 people in five states, including bankruptcy attorneys, judges, trustees, debtors and other sources.

(No one from Hessinger and Associates responded to calls or a hand-delivered letter from New Times. Michael Manning's lawyer, Mike Scott, provided a written response from Manning, defending his firm's practices.)

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Paul Rubin
Contact: Paul Rubin