If you dread every time the phone rings and cannot seem to get ahead on bills, you might be wondering about your options to address debt. As it is, you could be paying the minimum monthly amount, which is all you can afford on your salary. The problem is that these payments go toward interest and late fees accrued during prior months and do not reduce your balance. Your financial situation snowballs if you have more than one account in this condition, along with a mortgage, car payment, and other bills. Under the circumstances, bankruptcy may be a good fit to help with a brighter financial future. People have so many questions about bankruptcy, and there is a lot of misinformation about the process. Therefore, it is understandable that you want to know whether you can file for bankruptcy if you have a job in Arizona.
However, there are many questions regarding eligibility besides having a job in Arizona. To determine the best option for your situation, you will need advice from an Arizona bankruptcy lawyer. You can also read on for some information on employment and Chapter 7 and Chapter 13.
Basics on Chapter 7 Bankruptcy
Chapter 7 is known as discharge bankruptcy because of the fact that your debts are eliminated at the end of the process. There are strict eligibility rules for Chapter 7 since wiping your debt away has harsh consequences for creditors. US bankruptcy laws aim to make sure only those who truly need help with debt discharge will receive it. Therefore, there are two tests to qualify:
- Your earnings are below the state median income level for Arizona, based on your household size.
- Your income is above the state median level, but you meet the criteria of the Means Test. This test takes your income and reduces it by the amount of your essential monthly bills, so you may still qualify.
As you can see, a job in Arizona is not a criterion, but having one does impact your income for purposes of these two tests. Almost without exception, it will not make sense to quit your job in Arizona or become unemployed to qualify for Chapter 7.
Another point to note about Chapter 7 is that the laws do attempt to get creditors to pay some amount of the debt owed. They give the bankruptcy trustee the power to liquidate assets to obtain the funds to pay, but there are limitations on what can be sold to satisfy the debt. You can use exemptions to protect your assets, such as the equity in your home, a vehicle, bank accounts, and personal belongings.
In practice, many Chapter 7 filers will not lose any assets to liquidation. Many items have a low fair market value or are difficult to sell. The bankruptcy trustee may determine that the amount of profit would not be enough to make a meaningful impact on the debt.
Overview of Chapter 13 Bankruptcy
Under Chapter 13 bankruptcy rules, there is also an attempt to get creditors to pay something for the debt. With this type of bankruptcy, you enter into a debt repayment plan that restructures your debts into a single amount that you can afford to pay monthly. At the end of your case, your qualifying debts are discharged and you are debt-free. Unlike Chapter 7, there are no liquidations with this type of bankruptcy.
Creditors need some assurance that you will be able to stick with the debt repayment plan, so bankruptcy laws establish critical eligibility criteria for Chapter 13. You must have a job, and Chapter 13 is known as wage earner’s bankruptcy for this reason. The amount of your income is not as essential as in Chapter 7, but you must have some earnings for Chapter 13.
Your Chapter 13 debt repayment plan will be in effect for 3 to 5 years, depending on your circumstances, when you continue with the established monthly payments. In total, it is likely that you will pay just a fraction of what you owe on the underlying debts.
FAQs About Bankruptcy
To better help you understand bankruptcy, some answers to common questions about Chapter 7 and Chapter 13 should be useful:
- Are there debts that cannot be discharged in Chapter 7 or Chapter 13? Yes, some debts cannot be eliminated through bankruptcy, so they will remain after the case is done. Examples include alimony, child support, certain taxes, and judgments from DUI accident lawsuits.
- What is the automatic stay in bankruptcy? When you file a bankruptcy petition, the bankruptcy court immediately issues an automatic stay, one of the key benefits of Chapter 7 and Chapter 13. Under this order, creditors cannot call, file a debt collection lawsuit, garnish your wages, or foreclose on your home.
- What is the difference between secured and unsecured debt? A lender may require some security when loaning money, such as for a mortgage or car loan. Your home or vehicle is the collateral for the debt, so the lender can exercise its rights to sell the asset and collect the debt.
- Will I lose my home in bankruptcy? You could lose your home if the Chapter 7 bankruptcy trustee decides to sell and you do not have sufficient exemptions to protect it. The trustee cannot take this action in Chapter 13, but the lender can still act on its secured interest. Banks can request that the bankruptcy trustee lift the automatic stay to allow for foreclosure proceedings. The lender will go through the steps to sell the home and evict you.
Chapter 7 and Chapter 13 Bankruptcy Benefits
Some of the advantages of filing for bankruptcy have already been mentioned, but additional details and examples are helpful:
- The automatic stay is a benefit because it stops creditors, but easing the anxiety of legal action is just one factor. With the automatic stay in place, you can stay current or catch up on your mortgage because you are not paying bills for unsecured debt.
- With both Chapter 7 and Chapter 13, you must complete credit counseling sessions. These courses provide a wealth of helpful information about how credit works and making responsible financial decisions.
- Even if you cannot discharge certain types of debt, the fact that you eliminated some is an advantage. Once your case is complete, you will have more financial flexibility to pay debts that cannot be discharged.
- You emerge from Chapter 7 and Chapter 13 debt-free, giving you a clean slate for the future.
Bankruptcy and Your Credit Score
As you are probably aware, filing for bankruptcy does affect your credit report. One of the drawbacks that people focus on is that a Chapter 7 case stays on your history for ten years and a Chapter 13 bankruptcy remains for seven years. They tend to disregard the fact that this period of time might be much shorter than what it would take to gain control over your debt.
Unless you win the lottery, inherit money, or make big changes to employment, it could be decades before you are debt-free. The best way to assess your situation is to combine all debts and what they generate in late fees and interest. Then, determine what you can afford to pay monthly on these balances. If you can only afford to pay for the charges, you are not touching the underlying debt.
Managing Credit After Bankruptcy
Some of the challenges you face with your credit score after bankruptcy include not qualifying for loans at all or only being eligible for high-interest loans. However, you can begin rebuilding your credit immediately, even when the Chapter 7 or Chapter 13 case appears on your credit report. Consider the following:
- When you pay your mortgage in full on time, your track record will be reported to the credit bureaus.
- You will also gain a boost from making required payments for cable, your cell phone, utilities, and even streaming services.
- Eventually, you can apply for a secured credit card. The security for the loan is a monetary fund you deposit with the lender.
Get Assistance from a Bankruptcy Lawyer
There is a massive amount of information you need to know about Chapter 7 and Chapter 13, in addition to understanding whether you can file if you have a job in Arizona. Determining the type of bankruptcy that suits your objectives is an essential initial consideration, but you cannot make the right decision for your needs without legal help. You can count on an Arizona bankruptcy to guide you, as well as handle other tasks:
- Collect and organize critical financial documents;
- Prepare and file your petition for Chapter 7 or Chapter 13;
- Help develop the debt repayment plan for Chapter 13;
- Represent you at the meeting of creditors, where you will answer questions about your petition and financial situation; and,
- Manage all requirements to obtain an order of discharge and close your bankruptcy case.
Reach Out to an Arizona Bankruptcy Attorney About Your Options
This information should answer the question about whether you can file for bankruptcy if you have a job in Arizona, but you will certainly have many additional questions about the process. At DebtBusters, our team is happy to provide any information you need to help you make informed decisions about Chapter 7 and Chapter 13. For details on our legal services, please call (866) 223-4395 or visit us online to set up a no-cost consultation. An Arizona bankruptcy lawyer can meet with you at our offices in Scottsdale, AZ.
Related Content: Will Bankruptcy Affect My Credit Score in Arizona?