Debt is one of those problems that can snowball out of control before you know it, and you could quickly be unable to pay your bills. Late fees and interest add to the amount due every month. Of course, the harassment from creditors begins soon after you miss a payment, with constant phone calls, threats to sue, and legal notices. In situations like these, many individuals consider bankruptcy in Arizona as an option to address their financial challenges. A creditor may file a debt collection lawsuit, possibly leading to wage garnishment. You might also be facing foreclosure and the loss of your home, as well as repossession of your car.
Under the circumstances, it may be wise to consider your options for bankruptcy in Arizona. With Chapter 7, you could eliminate debt if you qualify. Under Chapter 13, you pay back some of your debt at a monthly amount you can afford. Both options offer a fresh start on building a solid financial future.
When making such an important decision as filing for bankruptcy, you will want to know the basics. Understanding the process, eligibility, and outcomes is crucial. Though you can trust your Arizona bankruptcy lawyer to handle all legal details, some background on how bankruptcy works is useful.
Two Types of Bankruptcy in Arizona
For individual filers, there are two bankruptcy chapters that could be suitable for your situation:
- Chapter 7 is bankruptcy discharge, in which you eliminate qualifying debt. The caveat is that your assets could be subject to liquidation, where the bankruptcy trustee sells them to pay creditors. However, the trustee cannot sell certain assets and may choose to not sell those of limited value.
With Chapter 7 bankruptcy, the eligibility rules are strict and based on income. You qualify if your income is at or below the state median income for Arizona. It is still possible to qualify if your earnings are higher if you pass the Means Test. This assessment looks at your income after deductions for designated monthly expenses.
- In Chapter 13, your debts are reorganized and you enter into a debt repayment plan to pay back creditors an amount you can afford on a monthly basis. The key eligibility rule is that you must have a steady income to pay this amount every month, consistently and without defaulting. Your debt repayment plan will take place over three to five years, at which point your case ends and you eliminate the remaining debt.
Steps in Chapter 7 Bankruptcy in Arizona
As with many legal matters, a Chapter 7 case starts with preparations months before you even file. This is because you will require time to collect and organize all relevant documents. Your paperwork must show your eligibility, which means gathering all payroll and income tax information. You will also need all documentation on your assets since some could be liquidated. Your preparations for filing Chapter 7 should include determining whether you can apply exemptions to property, enabling you to protect assets from being sold. This pre-filing period for Chapter 7 is when help from an Arizona bankruptcy lawyer is most critical.
Another reason to start preparations early is that you will need to complete a credit counseling course within 180 days before filing. Additional steps in the process include:
- Complete the Chapter 7 bankruptcy petition and all schedules.
- The court appoints a bankruptcy trustee who takes control of the filer’s assets, known as the bankruptcy estate.
- A creditor’s meeting will be held within a few weeks after filing, where you will answer questions to confirm that the information you provided in your petition is correct.
- Any nonexempt assets will be sold, but only if the bankruptcy trustee finds the effort to be worthwhile.
- You receive a Chapter 7 bankruptcy discharge order from the court.
Chapter 13 Bankruptcy Cases in Arizona
If you do not qualify for Chapter 7 or have nonexempt assets you do not want to lose through the process, Chapter 13 may be appropriate. The preparation to file Chapter 13 bankruptcy is similar to Chapter 7, as you must complete the credit counseling course within 180 days. Plus, you will still need to gather a multitude of important financial documents. With this type of bankruptcy, your paperwork will be essential for developing the proposed debt repayment plan. Steps in a Chapter 13 case include:
- Prepare the Chapter 13 bankruptcy petition and schedules, along with the proposed debt repayment plan. If you do not include your plan in the original filing, you have 14 days to submit it.
- The bankruptcy trustee is appointed by the court.
- You start paying on the proposed debt repayment plan within 30 days after filing, even before it has been approved.
- The creditor’s meeting is held to review your paperwork and evaluate the debt repayment plan. Creditors may object to the plan, and it is often possible to resolve these disputes by settlement.
- The court schedules a confirmation hearing to officially approve the plan.
- You pay the amount for the debt repayment plan for three to five years.
- Once the plan is complete, the court issues a discharge order for remaining eligible debts.
Debts That Cannot Be Discharged
There are some debts that cannot be affected by either Chapter 7 or Chapter 13 bankruptcy, so you will not be able to eliminate them. Secured debts will not be discharged because the creditor has actual collateral to settle the amount owed. Your home mortgage and auto loan are examples. In addition, you cannot discharge:
- Child support;
- Most tax debts;
- Amounts due to court for fines or fees you incurred from violating the law; and,
- The judgment you owe a victim who was injured or killed in an accident because of your drunk driving.
Many people believe that student loans can never be discharged in bankruptcy, but there are still options. You may qualify to eliminate student loans by showing extreme hardship and meeting other strict legal criteria. It is not impossible to discharge student loans, but there are considerable challenges.
What Happens After Bankruptcy in Arizona
Your Chapter 7 case could wrap up as quickly as 60 to 75 days after the meeting of creditors. With Chapter 13, the debt repayment plan will be in effect for three to five years, at which point your case concludes. Like many people, you consider your credit score as one of the most crucial factors after bankruptcy. It will drop significantly, there is no question. A Chapter 7 case remains on your credit report for 10 years, and a Chapter 13 bankruptcy will show up for 7 years.
However, you can start rebuilding your credit almost right away after your case ends. You can start with lines of credit and credit cards secured by cash as collateral. Pay all monthly bills on time, so you accrue a history of on-time payments. There are also several mobile apps that help people rebuild credit after bankruptcy, and they may be worth reviewing.
Benefits of Chapter 7 or Chapter 13
The hit to your credit score is tough, but you should also look at the advantages for your life when you file Chapter 7 or Chapter 13. One of the first to impact you is the automatic stay-on creditor efforts. Upon filing your petition, all attempts to collect the debt from you must cease pursuant to the bankruptcy proceedings. Creditors cannot call, file a lawsuit, pursue wage garnishment, foreclose your home, or repossess your car while the case is pending. In addition, you benefit from:
- The burden of crushing debt is off your shoulders, which eliminates the stress, anxiety, and depression of being in a financial hole.
- You are no longer paying in full for interest and late fees, while balances keep increasing.
- In situations where debt will be impossible to pay off during your lifetime, your waiting period to get a fresh start would instead be 7 or 10 years with bankruptcy.
- Even for secured debts and debts, you cannot discharge, eliminating other debts frees up funds to pay these accounts. You can stay on track with your mortgage.
Your First Meeting with a Bankruptcy Lawyer in Arizona
With a matter as critical as bankruptcy, you should always rely on legal counsel for assistance and protection of your rights. The bankruptcy rules are very strict and specific, and always keep in mind that the bankruptcy trustee does not represent you. When you are meeting with a bankruptcy attorney for the first time, you should be prepared to answer questions and explain your financial situation. Also, make sure to bring:
- A list of all real estate, personal property, debts, and other legal liabilities;
- A schedule itemizing your income from a job and other sources;
- A total of all monthly expenses;
- Your lease, if you rent your residence; and,
- A certificate showing that you completed the pre-filing credit counseling course.
In addition, you should take advantage of the opportunity to ask questions and learn more about your lawyer. Find out about their skills and experience with bankruptcy cases, and inquire whether Chapter 7 or Chapter 13 is more appropriate for your situation.
Consult with an Arizona Bankruptcy Attorney About Details
This overview of how bankruptcy works is informative since you will be participating at different stages along the way and have obligations to meet. You will have confidence in the results of the process when you have legal representation, especially with the specific rules under Chapter 7 and Chapter 13. For more information, please contact DebtBusters to set up a no-cost consultation with an Arizona bankruptcy lawyer. You can reach our offices in Scottsdale, AZ by calling (866) 223-4395 or visiting us online. Once we review your situation, we can tell you what to expect and advise you on options.
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