When you are burdened with debt and cannot afford monthly bills, creditor calls and the potential for legal action weigh heavy on your life. The anxiety only increases when you consider your financial situation; that is the reason for creditor actions. Looking at the full range of debts you carry, you may never get ahead. You would be wise to consider bankruptcy to ease your debt burden, especially when you learn more about the automatic stay as one of the key benefits.
Creditor calls and possible legal proceedings will go away under US Bankruptcy Code provisions on the automatic stay. Creditors cannot act to collect on debts because the details will be handled through the bankruptcy process. The automatic stay is effective for both Chapter 7 bankruptcy discharge and Chapter 13 debt reorganization.
Knowing about the automatic stay in bankruptcy in Arizona is crucial, but there are many other requirements and procedures as part of the process. To ensure a favorable outcome with your Chapter 7 or Chapter 13 case, make sure to get assistance from an Arizona bankruptcy attorney. It is also informative to review a summary of the automatic stay and how you can use it to your advantage.
Understanding the Automatic Stay
When you file your Chapter 7 or Chapter 13 case, the automatic stay stops creditors from collecting debt. They are prohibited from:
- Calling to collect debt;
- Continuing to apply late fees, interest, and charges on past due amounts;
- Starting a new debt collection lawsuit or continuing with an existing case;
- Liening property;
- Garnishing your wages;
- Starting or continuing with foreclosure on your home; and,
- Repossessing your vehicle.
The automatic stay is in effect for the duration of your bankruptcy case, which will be several months for Chapter 7 and a few years for Chapter 13. One of the most valuable advantages is that you will not be paying during this time because creditors cannot do anything regardless. This enables you to pay necessary monthly expenses without worries about utilities being shut down. You can also catch up or stay current with your mortgage, which puts you in a better position after bankruptcy with the right strategy.
Background on Chapter 7 Bankruptcy
Chapter 7 of the US Bankruptcy Code is called discharge bankruptcy because you eliminate all qualifying debt through the process. This is a great benefit to you, but it results in harsh losses for creditors. To balance the scale, bankruptcy eligibility rules are strict to ensure you truly need help with debt. The criteria to qualify are based on your income:
- If your earnings are less than the state median income for Arizona, you are automatically eligible. The assessment does take into account your household size.
- If your income is above the state median, you may still qualify under the Means Test. This evaluation examines whether you can pay the debt after subtracting amounts for necessary monthly bills like your mortgage and utilities.
Note that Chapter 7 is also called liquidation bankruptcy since the bankruptcy trustee can collect and sell your assets to pay creditors. You can protect certain assets through the use of exemptions, and there are many that you can leverage to your advantage. With assets that do not bring in a profit, the trustee may allow you to keep them.
Chapter 13 Bankruptcy Details
You can still discharge qualifying debt under Chapter 13, but the path to eliminating debt differs. Instead of liquidating your assets to pay creditors, you will pay amounts through a debt repayment plan. In other words, the bankruptcy trustee cannot take your assets because your creditors are paid through the plan. Under these circumstances, the main criteria to qualify for Chapter 13 is having a job or source of income to stay current with your debt repayment plan.
With Chapter 13, your debts are restructured. They are rolled together into a single monthly amount that becomes your debt repayment plan, which you pay for 3 to 5 years. The automatic stay protects you for the duration of the case. Once the legal process is complete, you are debt-free and have a clean slate for rebuilding your life. There are some debts that you cannot discharge and will still be responsible for paying, however. Examples include child support, alimony, certain lawsuits, and taxes.
Other Benefits of Bankruptcy
Besides the automatic stay for Chapter 7 and Chapter 13, there are many benefits of going through bankruptcy proceedings:
- The automatic stay alleviates your stress in the short term, but discharging debt through bankruptcy will really ease the anxiety of living under the weight of crushing debt. The looming threat of legal action ceases.
- You can eliminate many different types of unsecured debt through Chapter 7 and Chapter 13, including credit cards, medical bills, lines of credit, and personal loans.
- Though there are some debts you cannot discharge under bankruptcy laws, you still gain an advantage. With no obligation to pay debts that were wiped out, you have more financial flexibility to pay nondischargeable debt. Over time, you can catch up with these debts to have a spotless slate.
The Automatic Stay and Mortgage Foreclosure
The automatic stay does stop a lender from foreclosing on your home, but there is an exception on it remaining in effect during your Chapter 7 or Chapter 13 case. The bank can petition the bankruptcy court to lift the automatic stay for the mortgage, enabling it to move forward with foreclosure.
This rule exists because a home is among the most valuable assets involved in a bankruptcy case. While you are protected through bankruptcy proceedings, there are some protections for creditors as well. A lender is out tens or hundreds of thousands of dollars if not allowed to foreclose. When the process starts, it can take time for the bank to issue required notices, arrange for a public auction, and work through a broker for a private sale. However, the end result is that you lose your home and will be subject to eviction.
If the lender does not petition to lift the automatic stay, you can apply for exemptions in Arizona. You can protect up to $150,000 of the equity in your home so you do not lose this value.
Acts to Avoid Before Filing Bankruptcy
As you are preparing to file Chapter 7 or Chapter 13, there are some actions you need to avoid:
- Do not be tempted to sell off or give away assets for significantly less than fair market value. This could be considered a fraudulent transaction that can be voided by the bankruptcy trustee, who may see your actions are an attempt to hide assets.
- Never draw funds from your retirement to pay creditors before filing bankruptcy. Almost all funds are entirely exempt, so the rules protect them after you file. The key is ensuring a retirement account qualifies for the exemption, and most ERISA plans will be exempt. Later in life, you will depend upon these funds to support yourself.
- Avoid taking expensive vacations or purchasing luxury goods in the months before you file for bankruptcy.
- Do not try to open new credit accounts or take on new debt.
Tips on Rebuilding Credit
You have probably heard that a drawback of bankruptcy is the hit to your credit score and the fact that the case will remain on your credit report. Chapter 7 bankruptcy stays on your credit report for ten years, while Chapter 13 is seven years. Fortunately, there are ways to increase your score over time.
- If you made all mortgage payments during the case and you continue to stay current after discharge, this information is reported to credit bureaus to your advantage.
- On-time, in-full payments for your cell phone, cable, utilities, and other monthly bills will also become part of your credit history.
- Eventually, you can apply for a secured credit card with a cash deposit. Lenders are willing to loan when there is collateral, and your credit score will be boosted.
- Use what you learned in the credit counseling courses that are required for both types of bankruptcy. You will make wiser decisions that help you avoid getting into trouble with debt in the future.
Legal Help with the Bankruptcy Process
The automatic stay happens immediately and without any action by you other than filing Chapter 7 or Chapter 13. Still, there are many other tasks that will require assistance from an Arizona bankruptcy attorney, such as:
- Gathering and organizing financial documents;
- Advising you on whether Chapter 7 or Chapter 13 is suitable for your circumstances and goals;
- Preparing and filing the bankruptcy petition;
- Helping you develop the Chapter 13 debt repayment plan, which you must file within 14 days and begin paying within 30 days;
- Assisting with exemptions to protect property in Chapter 7 bankruptcy;
- Attending the meeting of creditors with you to advocate on your behalf while you are questioned about your petition; and,
- Wrapping up your case by getting a bankruptcy discharge order.
Set up a Consultation with an Arizona Bankruptcy Lawyer for a Free
If you are considering filing Chapter 7 or Chapter 13, the automatic stay is one of the most important benefits available to you. There are many other advantages that support your financial situation, and our team at DebtBusters can explain them. We will guide you in making decisions that support your goal for a fresh start. To learn more, please get in touch with our offices in Scottsdale, AZ, at (866) 223-4395 or check us out online. We can schedule a no-cost consultation with an experienced Arizona bankruptcy attorney.
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