If you are falling behind on bills and dread the sound of your phone ringing with creditors on the line, it may be time to file for bankruptcy to clear your debts. There are multiple options under the US Bankruptcy Code, including those for individual consumers, married couples, and business owners. Chapter 7 and Chapter 13 are the most common types of bankruptcy in Arizona, and they both deliver numerous benefits for filers who are struggling to stay afloat. Depending on factors that affect eligibility, you could eliminate qualifying debt and open the door to a brighter financial future.
However, with any legal proceeding, many people will question if they should try to go it alone with Chapter 7 or Chapter 13. In short, no law requires you to have representation. On the other hand, it is difficult to take advantage of the many benefits of bankruptcy unless you have an experienced professional on your side. While you can file for bankruptcy without an attorney in Arizona, another important question is whether you should.
By retaining a skilled Arizona bankruptcy attorney, you gain confidence knowing your case is in qualified hands. A summary on the process, eligibility, and important rules for Chapter 7 and Chapter 13 should be convincing.
How Bankruptcy Works
Bankruptcy is a process for resolving debt, and there are two types of proceedings that you might consider. One option is Chapter 7, in which you eliminate qualifying debt without having to pay in full. During the initial stages, the bankruptcy trustee takes control over your assets for purposes of liquidation. The trustee can sell your real estate and personal property to satisfy your debt to creditors.
Chapter 13 bankruptcy is another option for individual filers. With this process, you will also be able to wipe out qualifying debt. The process works differently, but it still aims to pay back some of what you owe to creditors. You will enter into a debt repayment plan with creditors, which reorganizes your debt and structures it into a single monthly payment you can afford. You are obligated to pay this amount for at least 3 to 5 years under the debt repayment plan, and the result is usually far less than the total you would owe with interest, late fees, and the underlying balance.
Understanding Secured Versus Unsecured Debt
A factor that impacts both Chapter 7 and Chapter 13 cases is the type of debt you owe, which is why legal representation is crucial. There are significant differences between secured and unsecured debts, depending on how they are structured. Secured debts are those that are backed by a financial interest in assets. The most common example is one you may need to address with bankruptcy since it is your mortgage that is secured by your home. Your vehicle may also be secured by your auto loan, making it a secured debt.
Unsecured debts are those in which you took out a loan or purchased on credit without giving any secured interest to the lender. You probably underwent a credit check, but you did not pledge an interest in real or personal property. Many of those considering Chapter 7 or Chapter 13 bankruptcy will have unsecured debt, including credit cards, medical debt, lines of credit, and other personal loans.
Automatic Stay in Chapter 7 and Chapter 13
There are numerous benefits you gain by filing bankruptcy, and one of them will work in your favor right away. When you file for Chapter 7 or Chapter 13 bankruptcy, the court imposes an automatic stay on the efforts of creditors. The entities seeking payment from you cannot call or communicate as soon as your petition is filed. They are also prohibited from:
- Threatening you with a lawsuit;
- Filing a collection action in court;
- Garnishing your wages; and,
- Attaching liens on property.
The automatic stay in bankruptcy also bans actions for foreclosure on your home, so you are not at risk of losing it to the bank. There is an important exception to this law. With a secured loan such as a mortgage, the lender can file paperwork in the bankruptcy court to request that the stay be lifted. Doing so would allow the bank to proceed with foreclosure. Consulting with an Arizona bankruptcy lawyer is critical for avoiding this result or minimizing the impacts.
Eligibility Rules for Bankruptcy
Bankruptcy offers a solution and way out of debt for many filers, but you should still realize the harsh implications for creditors. These companies have financial interests, and they stand to lose a significant amount when the amount you owe is wiped out. Though creditors may recover some through liquidation in Chapter 7 or the Chapter 13 debt repayment plan, there are some losses.
Because of the impact on creditors, US bankruptcy laws include rigid eligibility rules. To qualify for Chapter 7, you must meet the income qualifications. There are two options:
- Your earnings fall below the state median income level for Arizona, allowing you to automatically qualify.
- If you are not eligible through your income alone, you can take advantage of the Means Test. This analysis reviews your income along with monthly expenses.
Chapter 13 criteria are less strict since you will only need to show that you have a job with regular income. It is income from your employment that will be the source to pay the debt repayment plan.
Steps in the Legal Process
Eligibility and the nature of your debt are critical factors when considering whether to file bankruptcy without a lawyer. However, you should understand how the process works before moving forward as a pro se filer. The steps in Chapter 7 and Chapter 13 bankruptcy cases include:
- Collecting and organizing your financial documents on assets, expenses, income, and total debt;
- Preparing the petition for Chapter 7 or Chapter 13 bankruptcy, along with all schedules;
- Filing your case in US bankruptcy court, which triggers the automatic stay;
- Helping you develop the Chapter 13 debt repayment plan;
- Advocating on your behalf during the meeting of creditors, where you will be required to answer questions about your petition; and,
- Handling all tasks to close your case and obtain the bankruptcy discharge order.
Debunking Myths About Bankruptcy
There is considerable misinformation about Chapter 7 and Chapter 13 that affects how people view bankruptcy, and it could negatively affect how you approach the bankruptcy process. These myths often tempt filers into thinking they can manage the case on their own since it is just a matter of filling out some forms. Plus, the following points are important as you make decisions about your future.
- Contrary to popular misconception, you cannot discharge all debts through either Chapter 7 or Chapter 13. It is not possible to eliminate what you owe for alimony and child support, as well as a judgment for a DUI accident caused by you.
- With Chapter 7 liquidation, you can apply exemptions to safeguard your property. Arizona allows exemptions for the equity in your home, vehicles, cash, and certain personal belongings.
- Any retirement accounts that are covered by the Employee Retirement Security Income Act (ERISA) cannot be liquidated or taken from you by the bankruptcy trustee. Other retirement plans may also be protected from liquidation, depending on the details.
Post-Bankruptcy Benefits
One of the main drawbacks individuals perceive about bankruptcy is that the case will affect your credit. Chapter 7 and Chapter 13 will indeed show up on your credit report for 10 and 7 years, respectively. Still, you should also realize the benefits of the bankruptcy process when you are not burdened by debt.
- You can obtain better interest rates for loans once your credit is clear.
- A requirement of bankruptcy is taking 2 credit counseling classes, during which you will learn more about finances and gain tools to prevent future problems.
- You can begin rebuilding credit as soon as your case is complete, such as by paying your remaining bills and utilities. If you worked out mortgage arrearages in Chapter 13, you have a positive track record of on-time payments.
Why You Need an Arizona Bankruptcy Attorney
The above information should reveal the many reasons that hiring legal counsel is a top priority for a Chapter 7 or Chapter 13 case. You can only reap the benefits of bankruptcy with a lawyer’s help, starting with the initial decision on what type of case to file. Your lawyer will explain eligibility for Chapter 7 and advise you on what may happen with liquidation, of protecting as much of your property as possible through exemptions.
If Chapter 13 offers the most advantages for your situation, you can trust your bankruptcy attorney to develop a debt repayment plan that is sustainable considering your income. Part of the process is also ensuring that the plan will be acceptable to creditors, who must approve the agreement. You can benefit and avoid delays from your attorney’s guidance with strategy.
Discuss Debt Options with an Arizona Bankruptcy Lawyer
When you are considering taking such an important step to improve your financial future, you cannot afford errors. It is not always a mistake to go it alone, but the reassurance of having experienced legal counsel is priceless. For more information on how our team at DebtBusters can assist with your Chapter 7 or Chapter 13 case, please call (866) 223-4395 or visit us online. We can set up a free consultation at our offices in Scottsdale, AZ. After learning more about your situation, an Arizona bankruptcy attorney will advise you.
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