Will Bankruptcy Stop Creditor Harassment in Arizona?

Creditor Harassment in Arizona

When you are already struggling financially and behind on monthly bills, it adds insult to injury when you are also facing creditor harassment in Arizona. You could be receiving calls and harsh letters threatening action if you do not pay, but creditors will eventually engage in tactics that have legal consequences. Creditors have right to collect debt, and they have multiple options at their disposal. In many situations of debt spiraling out of control, there may be no chance that you can stop creditor harassment unless you take action yourself.

Fortunately, you also have multiple options to address debt. Bankruptcy is a process that enables you to discharge qualifying debt, and there are two types of cases that could be suitable for your financial circumstances. Importantly, both Chapter 7 and Chapter 13 are beneficial to stop creditor harassment in Arizona. The automatic stay is a powerful way to cease collection activities, and it goes into effect right away.

However, the impacts of bankruptcy are extensive and go far beyond stopping creditor harassment in Arizona. You must appreciate how Chapter 7 and Chapter 13 work and how each type of case affects you during the proceedings and afterward. While you should always trust an Arizona bankruptcy attorney for specifics on your unique situation, an overview of the automatic stay is useful.

Bankruptcy and the Automatic Stay

With both Chapter 7 and Chapter 13 bankruptcy, you file a petition with the US Bankruptcy Court in the area where you live. Upon submitting your documents and filing fee, the court issues the automatic stay. This order prohibits creditors from any collection activities, regardless of status. For instance, if a creditor has already started a debt collection lawsuit, it will stop. When no legal action has been filed, the creditor cannot initiate a debt collection suit because of the automatic stay.

The automatic stay also bars a wide range of efforts creditors use to collect a debt, including:

  • Harassing calls and letters;
  • Garnishing your wages;
  • Attaching bank accounts;
  • Repossessing your vehicle; and,
  • Foreclosing on your home.

Throughout the duration of your case, the automatic stay will be in effect to protect you from creditor harassment in Arizona. You will not receive or be required to pay bills from creditors during this time as the bankruptcy process takes over.

Understanding Types of Debt

If you have been threatened with any of the above collection activities, it is probably the case that the creditor is seeking payment for unsecured debt. These are accounts where you borrowed money but did not provide collateral for the loan. Examples are credit cards, lines of credit, medical debt, and personal loans. Their collection actions are all creditors have available by law, without some security interest in an asset you own. Unsecured debts are the discharge focus in both Chapter 7 and Chapter 13.

Secured debts are a different matter. You cannot discharge them in bankruptcy because the creditor has collateral to get payment for your debt. This point raises the issue of the automatic stay and creditor harassment regarding foreclosure. The court’s order does prohibit filing a new foreclosure or continuing with an existing action, but the lender can request that the automatic stay be lifted. Therefore, the bank can move forward, potentially selling your home and evicting you. 

How Chapter 7 Bankruptcy Works

Under Chapter 7 of the US Bankruptcy Code, you can discharge qualifying, unsecured debt if you qualify. The process eliminates your debt, but it harshly affects creditors who are taking a financial hit. As such, the eligibility rules are strict to ensure that only debtors who truly need Chapter 7 discharge will qualify. The two tests for determining eligibility are based on your income:

  1. If you make less than the state median income for Arizona for the size of your household, you automatically qualify.
  2. You could make more than the state median income and still be eligible if you pass the Means Test. Your earnings are reduced by your essential monthly expenses, possibly enabling you to qualify for Chapter 7.

If you do qualify to wipe out your debt, keep in mind that Chapter 7 allows for the liquidation of your assets. The bankruptcy trustee can sell them to pay your debt to creditors, but this does not happen often in practice. Many assets will not generate enough profit so you can keep some.

Background on Chapter 13

With Chapter 13 bankruptcy, you can also discharge unsecured, qualifying debt. Plus, you can stop creditor harassment in Arizona through the automatic stay, just like Chapter 7. However, the bankruptcy trustee cannot liquidate assets to pay off debt to creditors. Instead, Chapter 13 involves reorganizing your debt into a single monthly payment you can afford. This debt repayment plan is why having a job or source of income is required under the rules.

You pay monthly amounts under the debt repayment plan for 3 to 5 years, depending on your circumstances. Once the case is complete, your unsecured debts are discharged. You cannot eliminate secured debt, but you can wipe out the debt related to it. An important example is your mortgage, so you can work late fees and arrearages into your debt repayment plan. However, you are not able to discharge the mortgage itself.

There are other types of debt you cannot discharge in most cases, including:

  • Child support;
  • Alimony;
  • A judgment from a personal injury lawsuit for a DUI accident; and,
  • Many types of taxes.

What to Expect During and After Bankruptcy

The automatic stay that goes into effect and stops creditor harassment immediately is one of the most impactful benefits of Chapter 7 and Chapter 13 bankruptcy. However, there are many other advantages you can expect during your case and after it ends.

  • As a requirement for both types of bankruptcy, you must complete two credit counseling sessions. These courses educate you on how credit works, and they provide support to help you make smart financial decisions and avoid getting into debt trouble in the future.
  • Though you cannot discharge all types of debt, you have more financial flexibility after wiping out unsecured debt. You will have more income available to pay what remains.
  • After your case, you are debt-free. You will no longer struggle under the weight of debt, and creditor harassment will stop.

Additional Points to Note About Bankruptcy

In addition to the information above, there are a few points to note about stopping creditor harassment in Arizona and other aspects of bankruptcy:

  • Creditor harassment in Arizona refers to the efforts creditors engage in to collect a debt. It is not the same as the threats and intimidation debt collection agencies use when the original creditor hires them to get you to pay. The actions of debt collection agencies are covered by the Fair Debt Collection Practices Act (FDCPA), and there are extreme prohibitions on what they can do. If you are actually dealing with illegal activities by debt collectors instead of creditor harassment, it is essential to discuss them with your Arizona bankruptcy attorney.
  • There is an impact on your credit score when you go through bankruptcy. Your case will appear on your credit report for ten years with Chapter 7 and 7 years for Chapter 13. Compare this timing to how long it would take to pay off all debt, along with late fees, interest, and arrearages. 
  • Many people look into debt management solutions that are not bankruptcy, such as negotiating down debt or applying for a debt consolidation loan. However, you will not stop creditor harassment or legal actions to collect the debt.
  • It is tempting to think that taking funds out of your retirement will alleviate debt stress, but this is a mistake. Any ERISA retirement plans are entirely exempt from bankruptcy, allowing you to keep your retirement for later years. 
  • Despite bankruptcy appearing on your credit report for several years, you can rebuild credit during this time. If you can continue to pay your mortgage through bankruptcy and in the months after, this is a track record the credit bureaus report positively. You should also responsibly pay all necessary monthly bills, including your cell phone, cable, utilities, and streaming services.

What to Bring to Your Meeting with an Arizona Bankruptcy Attorney

You can see that legal representation is crucial when filing and going through the process for Chapter 7 or Chapter 13. It will be necessary to do some research, which means meeting with lawyers and determining which is the right fit for you, your case, and your personality. When you attend consultations to evaluate candidates, you should bring the following documents and details:

  • All paperwork representing assets that you own, including your home, vehicles, investments, and bank accounts;
  • Tax records and pay stubs;
  • All documents regarding your secured debts, unsecured debts, and other amounts you owe;
  • Paperwork on your regular monthly bills; and, 
  • Basic information about your family.

With this information, your attorney can assess your current financial condition, advise you on bankruptcy options, and start the process.

Learn More from an Arizona Bankruptcy Lawyer

If you are seeking ways to stop creditor harassment in Arizona, Chapter 7 or Chapter 13 may be suitable remedies. However, you can see that there are many other considerations that affect your decision, and you will need guidance in determining the best option. To learn more about the automatic stay in bankruptcy, please contact 

DebtBusters at (866) 223-4395 or via our website. We can schedule a free consultation at our offices in Scottsdale, AZ, for you to discuss details with an Arizona bankruptcy attorney.

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