If you fall behind on paying debts, creditors have a wide range of options as far as legal actions to collect. They may have been calling you already trying to seek payment, but the stakes will get higher when a creditor considers official remedies. One solution to overwhelming debt is bankruptcy, and you might consider Chapter 7. Once your case is complete, your qualifying debts are discharged. However, there is a significant benefit that affects you during the proceeding. The automatic stay in bankruptcy stops wage garnishment in Arizona, and creditors cannot exercise many other remedies that would be otherwise available to them.
When you carry debt, a creditor may sue in a collection lawsuit, a lender may foreclose on your home, and the IRS can even take your income tax refund check in some situations. One creditor action that has a major impact on your life is taking an amount off the top of your paycheck. Therefore, you may wonder how Chapter 7 bankruptcy stops wage garnishment in Arizona and the protections of the automatic stay.
The laws are in your favor when it comes to a creditor garnishing wages, but you will need legal assistance to make sure to leverage all benefits of bankruptcy. It is wise to consult with an Arizona Chapter 7 bankruptcy lawyer who can explain the process, and read on for some background.
Basics of the Automatic Stay in Bankruptcy
US bankruptcy laws include many protections for debtors, as the point of the process is to get people back on their feet financially. The safety nets start early in the proceeding with the automatic stay in bankruptcy. On the date that you file your Chapter 7 petition, the court enters an order prohibiting creditors from taking any legal action against you. The automatic stay also puts a hold on any cases or proceedings that are already started by the creditor.
The bankruptcy automatic stay will be in effect for the entire duration of your Chapter 7 case. Plus, it also applies when you file Chapter 13 debt reorganization if that type of bankruptcy better suits your situation. Effectively, once the automatic stay starts, creditors will never be able to seek payment again concerning debts that you discharge.
There is one exception you should note with the automatic stay in bankruptcy, and it may impact your case if you have a mortgage on your home. The lender may request that the bankruptcy court lift the stay on just the home loan. If granted, this would enable the bank to foreclose.
How Chapter 7 Bankruptcy Works
Chapter 7 is termed discharge bankruptcy because you can eliminate all qualifying debt through the process. You are also stopping any creditor actions against you through the automatic stay, which gives you some financial relief. However, the bankruptcy process does attempt to pay back creditors in Chapter 7. The bankruptcy trustee takes control over your property and can liquidate it to generate funds for your bankruptcy estate. If you do not have significant nonexempt assets, the trustee may allow you to keep them.
An important point about Chapter 7 is that the eligibility rules are among the most rigid of all types of bankruptcy. They are based on your income:
- If your earnings are less than the state median income for a household of your size, you automatically qualify for Chapter 7.
- When your income is higher, you may still be eligible to file for Chapter 7 through the Means Test. This analysis looks at your monthly expenses and how they reduce your earnings.
Exemptions as Protection Against Liquidation
Part of bankruptcy’s goal to support debtors in getting back on their feet is protecting their property. The laws are not intended to make you destitute, so you can use exemptions to avoid losing your assets to liquidation. For instance, in Arizona:
- You get an exemption for your home or other residence of $150,000, and this limit is upon the equity in the property. Unlike other states, married couples cannot double the exemption amount.
- There is an exemption for up to $4,000 of your personal property.
- Your vehicle is exempt for a value of $1,500 or $4,000 for disabled individuals.
Secured Versus Unsecured Debt in Chapter 7
The objective in Chapter 7 is to discharge all qualifying debt that is unsecured by collateral. These are accounts or loans that you took without pledging collateral to act as security. When you have secured debt, this means you put up an asset to act as security for your payments on the loan.
Secured debt is not dischargeable in Chapter 7, because the creditor has the security interest to get its payment. Your mortgage will not be wiped out in bankruptcy, so the lender will likely pursue a foreclosure. Still, there is a benefit to filing Chapter 7 as it affects your mortgage. You could protect your home if you remain current, and bankruptcy may free up funds so that you can make all payments.
What Debts Can Be Discharged in Chapter 7
Aside from the distinction between secured and unsecured debt, there are also categories of debt that can and cannot be discharged. The most common types of unsecured debt that you can eliminate in Chapter 7 include:
- Credit cards;
- Gas and retail cards;
- Lines of credit; and,
- Medical debt.
There are also many debts that you cannot discharge because of bankruptcy rules, other laws, or public policy reasons. Someone who owes a debt for alimony or child support cannot get rid of the obligation through Chapter 7. In addition, you cannot wipe out government fees, some taxes, tax liens, and certain lawsuits in bankruptcy.
Comparing Chapter 7 to Chapter 13 Bankruptcy
The automatic stay will stop wage garnishment and other creditor actions with both types of bankruptcy. Therefore, it is important to consider whether Chapter 13 would offer more benefits for your situation compared to Chapter 7. The following points are useful:
- Even if you qualify for Chapter 7, you might not want to put your assets at risk of liquidation. Chapter 13 does not include liquidation.
- With Chapter 13, there is still an attempt to pay back your creditors. The debt repayment plan is how you satisfy some of your debt. Your debts are restructured into an amount you can afford, and it will result in paying less than the total of what you owe.
- While Chapter 7 may take just 4 to 6 months, Chapter 13 is a longer bankruptcy process. You will take 3 to 5 years to complete the debt repayment plan, so your case will be at least this long.
Chapter 7 Bankruptcy Steps
The process for Chapter 7 starts even before you file, since you must complete two important tasks. One is completing a credit counselling course that provides information intended to help you assess bankruptcy as a solution. Another critical job is gathering and organizing your financial documents on assets, debts, income, and expenses. When it is time to file, you can trust your Arizona Chapter 7 lawyer to handle essential legal requirements, including:
- Preparing your bankruptcy petition and schedules;
- Submitting your petition along with the Chapter 7 filing fee of $338;
- Advocating on your behalf at the Meeting of Creditors, where creditors may review and inquire about your bankruptcy petition;
- Helping you take advantage of all exemptions available under Arizona bankruptcy laws; and,
- Obtaining the final discharge order from the bankruptcy court.
Your Credit After Chapter 7 Bankruptcy
Despite the benefits of the automatic stay and being able to stop wage garnishment, many people disregard bankruptcy because of fears about their credit score. Chapter 7 will cause it to drop, but keep in mind that your score was possibly suffering already due to nonpayment of bills. Continuing to carry unsecured debt will send your credit rating down the tubes.
When you file Chapter 7, your credit report will include the bankruptcy case for 10 years. However, you can begin rebuilding credit right away through payment of monthly bills that you owe for utilities, cell phones, internet, cable, and other services. When the time is right, you can also obtain a secured loan or credit card, in which you deposit funds as collateral.
What to Avoid Before Filing Chapter 7
As another part of your preparations to file your bankruptcy petition, there are numerous tips on what not to do. Bankruptcy is a serious legal proceeding, and some attempt to abuse it. Keep in mind the following tips as you contemplate Chapter 7:
- Never attempt to get rid of assets for less than fair market value just to hide them from liquidation.
- Do not take out any new credit cards or loans in the months before filing.
- Avoid making purchases of luxury goods or high-ticket items.
- You should not try to go it alone with Chapter 7 bankruptcy. With qualified legal help, you maximize the benefits and avoid the mistakes that can create delays for your case.
Speak to an Arizona Chapter 7 Bankruptcy Attorney Today
It is reassuring to know that Chapter 7 bankruptcy stops wage garnishment, as well as other creditor actions. However, there is much more to your case than the automatic stay in bankruptcy. You will need experienced legal representation at your side, so please contact DebtBusters to learn how we support those considering bankruptcy. You can call (866) 223-4395 or go online to schedule a free consultation at our offices in Scottsdale, AZ. After reviewing your circumstances, an Arizona Chapter 7 lawyer can advise you.
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