What Happens to My Assets in Bankruptcy in Arizona?

One of the primary concerns people have about filing for bankruptcy in Arizona is not knowing what will happen to their assets and the uncertainty over losing them during the process. Fortunately, US bankruptcy laws are not committed to taking everything from someone who is struggling with debt.

Bankruptcy is focused on helping people get out of the weight of crushing monthly fees, interest, and late charges. The objective is to help you seek a brighter financial future and contribute to the economy. Through Chapter 7 bankruptcy discharge or Chapter 13 debt repayment, you are no longer suffering such a financial burden.

Still, your assets do play an important role in a bankruptcy case. Even if nothing happens to your property, it may be a factor for other reasons. Plus, concerns about losing assets in bankruptcy are valid. You must develop a solid strategy for protecting what you can, without running afoul of laws on improper transfers.

Many bankruptcy laws are generous on what assets you can keep, but you need to know how to apply them to gain the best advantage. Getting help from an Arizona bankruptcy lawyer is crucial for understanding what type of case you should file for the top protections, as well as many other aspects of the process. A summary of the basics is also useful.

Overview of US Bankruptcy Laws

Your assets are treated differently under rules for the two most common types of bankruptcy for individuals, so it is helpful to understand the basic distinctions between them.

Chapter 7 Bankruptcy: Chapter 7 is discharged bankruptcy, in which a qualifying debtor can get rid of all amounts owed and emerge debt-free. The eligibility rules are strict because discharging your debts does have a harsh impact on the creditors who do not get paid. Your current monthly income must be below the state median for the size of your family.

If your income is higher than the state median, you may still qualify for Chapter 7 under the Means Test. Allowed expenditures are deducted from your current monthly income to determine whether you have enough to pay creditors. When it falls below, you pass the Means Test and can file Chapter 7.

Chapter 13 Bankruptcy: With Chapter 13 bankruptcy in Arizona, you work out a debt repayment plan to pay off creditors. The arrangement is a monthly payment that is lower than what you owe, but it is an amount you can afford based on your disposable income. Your debt repayment plan will last three to five years, and you emerge free of most debts.

Note that you cannot eliminate all debts with Chapter 7 or Chapter 13 bankruptcy. Child support, taxes, and judgments for DUI accidents will not be discharged.

Exempt v. Nonexempt Assets

Another important factor in what happens to your property is how it is classified under bankruptcy laws. The distinction is between exempt and nonexempt assets. It affects both Chapter 7 and Chapter 13, as described in more detail below. Understanding what will happen to your property starts with knowing how it is categorized, and bankruptcy laws allow states to enact regulations on the topic.

In Arizona, you are required to work with the list of exempt and nonexempt assets that is established by the state. The following items are included as exempt assets in Arizona:

A vehicle that does not have more than $6,000 in equity;
Your primary residence, subject to the homestead exemption;
All retirement plans, pensions, and other employment-based investments that are covered by the Employee Retirement Income Security Act (ERISA);
Household furnishings and personal goods up to $6,000;
Up to $300 in a single bank account;
Tools the trade, which includes the equipment you use to earn a living; and,
Clothing up to a value of $500.

Assets in Chapter 7 Bankruptcy Discharge

You may hear Chapter 7 referred to as liquidation bankruptcy, which is an aspect of the case that does have an impact on your property. Some filers focus on how they can discharge debt, not realizing that liquidation is also part of the process. Upon filing your petition, the bankruptcy trustee takes control of your property. The goal is for the trustee to sell off certain assets to pay creditors, so they can get some value from their claims.

Exempt property is protected from liquidation under Chapter 7. The bankruptcy trustee cannot attempt to sell these items, though keep in mind the dollar thresholds with some assets. For instance, while you can protect up to $6,000 in household goods, the rest may be liquidated. Plus, the trustee can sell off all nonexempt assets to satisfy the debt to creditors.

While liquidation is a crucial aspect of Chapter 7, it may not have a significant impact in practice. The bankruptcy trustee is not likely going to try and sell your furniture, wall art, and clothing. Many filers have few exempt assets and low value in nonexempt assets, so the trustee will not be liquidating anything.

Chapter 13 Debt Repayment and Your Assets

When you file for Chapter 13 bankruptcy, you will always be able to keep all of your property, including both exempt and nonexempt assets. However, the distinction between exempt and nonexempt property will be a factor when determining the amount you pay back to unsecured creditors in Chapter 13.

You can have a higher disposable income and still qualify for Chapter 13, even though your earnings made you ineligible for Chapter 7. However, if you have a significant nonexempt property you want to protect, you will have to pay to keep it. The following points illustrate how this happens:

Your disposable income is the initial factor for determining the amount you owe unsecured creditors under your debt repayment plan. You will be required to pay all of your disposable income under the plan, which is calculated as your earnings minus living expenses.

If the value of your nonexempt assets is higher than your disposable income, this is the amount you will be required to pay to creditors. When you have significant nonexempt assets, the value could lead you to be paying more monthly than the calculation that is based upon your income.

Your Home and Bankruptcy

If you have a mortgage on your home, it is crucial that you understand how this unique asset is treated in bankruptcy. Your primary residence is the security for the loan, making the lender a secured creditor who could foreclose on the home. There is the homestead exemption that offers some protection for both types of bankruptcy.

With Chapter 7, you can keep up to $400,000 of the equity in your primary residence. The bankrupt can sell it only if the equity is higher, not the value of the loan. Plus, with the automatic stay on creditor efforts to collect, the lender cannot attempt to foreclose.

In Chapter 13, your home would never be sold. Through your debt repayment plan, you can pay off arrearages and late fees while you are also keeping up your regular mortgage. When your three- or five-year plan is complete, you are caught up.

Avoid Misconduct with Asset Transfers

As you review this information on what happens to your real estate and personal property in bankruptcy, it is tempting to think you can protect your interests by giving them away. US bankruptcy laws anticipate this tactic, so there are strict rules regarding fraudulent transfers, which may occur when a debtor takes certain actions:

Transferring property with the intent to hinder or defraud creditors; and,
Transferring an asset for less than fair market value, while also being insolvent and unable to pay debts.

If there is a fraudulent transfer within the two years prior to filing, creditors may request that the court avoid or unwind the transaction. The bankruptcy court has the power to take back the asset that was improperly transferred, at which point it becomes part of the bankruptcy estate. The bankruptcy trustee takes control of the property and can liquidate it to pay creditors.

Steps for Chapter 7 and Chapter 13 Bankruptcy

Your assets are valuable, personally and financially, so it is critical that you do all you can to protect them in a Chapter 7 or Chapter 13 case. You are in a better position to achieve your goals when you have an Arizona bankruptcy lawyer on your side to assist with the steps in bankruptcy:

Preparations: For both types of bankruptcy, you will need to supply considerable information on your assets, income, taxes, and expenditures. These documents will be submitted with your petition.

Filing the Petition: There is more to the process than filling out a form, since you will need your financial paperwork to complete all schedules. When you file and submit your fees, the automatic stay begins and creditors cannot contact you.

341 Creditor Meeting: You will be required to go through this session, in which creditors can address the court about your Chapter 7 discharge or Chapter 13 debt repayment plan.

Concluding the Case: Your debts are eliminated in Chapter 7, though your Chapter 13 case will take either three or five years to complete.

Consult with an Arizona Bankruptcy Attorney for Details

An overview of what happens to your assets in bankruptcy is helpful, but you certainly want to know how the laws apply to your specific situation. You can count on DebtBusters for personalized advice, as we have in-depth knowledge of rules on exempt versus nonexempt assets. Please call (866) 223-4395 or go online to reach our offices in Scottsdale, AZ. We can set up a free consultation with a skilled Arizona bankruptcy lawyer.