Bankruptcy is a legal procedure to discharge debts. There are multiple chapters available depending on the filer’s qualifications and what they are hoping to accomplish. Most people filing personal bankruptcy choose either Chapter 7 or Chapter 13. Both chapters require that a petition describing the person’s financial situation be filed along with a list of all their creditors. A trustee will be assigned to oversee the case, and the filer will have to attend a 341 Meeting of Creditors. Both chapters also require that the filer takes two credit counseling courses.
Chapter 7 liquidates most unsecured, non-priority debts like credit cards, medical bills, and personal loans. There are two ways to qualify for a Chapter 7 bankruptcy. The first way is by making the state median income for your family size or less. The second is by passing the means test, which deducts mandatory expenses from average monthly income. Chapter 7 filers’ property must fall under applicable state exemptions, or they will be sold to pay off creditors. A Chapter 7 bankruptcy typically takes 4-6 months from start to finish.
Chapter 13 reorganizes debts into a payment plan that lasts 3 years for filers below the median income level, and 5 years for those above the median. Some debts, like arrearages on child support, mortgage, and vehicle payments and taxes must be paid in full in the plan. Others that would be dischargeable in Chapter 7 only require partial repayment.
The obvious difference between the two chapters is the structure and that Chapter doesn’t require any repayment. However, Chapter 13 allows the possibility of discharging debts such as a secondary mortgage on your home. Chapter 13 allows files who are behind on payments for an asset they would like to keep to catch up more easily. Chapter 13 lasts 3-5 years instead of a few months like Chapter 7.
If you file Chapter 7 and want to keep your home, it must qualify for the homestead exemption in Arizona. The homestead exemption in Arizona is $150,000. A paid in full house must be worth that amount or less, and a financed home may have up to the exemption amount in equity.
If you file Chapter 13, you may use your payment plan to catch up on past-due mortgage payments. This will halt your lender from foreclosing your home while giving you 3-5 years to satisfy the arrearages. As long as you stay current on your payment plan, you will be protected from home foreclosure.
If you are filing Chapter 7, the vehicle exemption in Arizona is $6,000. If you are married, you may have two vehicles with $6,000 equity each or one vehicle with $12,000. There are exceptions for filers with disabilities that require special vehicle equipment.
If you are filing Chapter 13, you can catch up with past-due payments on your auto loan while under the protection of the Automatic Stay. Your vehicle lender will be prevented from repossessing your car as long as you stay current on your plan payments.
You will need to notify your employer of your bankruptcy if your wages are being garnished. Anyone who has co-signed on your loans will also be notified. Your creditors will also of course need to know when your petition is filed. Other than that, anyone can search the bankruptcy filings for your name but will not be specifically notified when you file.
In Arizona, the filing fee for Chapter 7 is $335 and for Chapter 13 is $310. Attorney’s fees are typically much higher than the filing fees, and Chapter 13 representation usually costs more than Chapter 7. Chapter 13 attorneys may accept a small down payment and work the rest of the fees into the payment plan. While Chapter 7 legal fees are typically lower, most attorneys require for all fees to be paid in full before they will file a petition.
Zero Down Bankruptcy is a bankruptcy payment method that some attorneys offer for Chapter 7. Instead of requiring full payment up front, these attorneys will first file a skeleton petition for their clients, technically free of charge. This petition will only contain the filer’s most basic information, and must be completed within 14 days. The filer can begin accruing debt again once the skeleton petition is filed, so the attorney can allow the client to pay for the rest of their services after the petition has been filed. This process must be followed or the client’s debt to the attorney will also be discharged in the bankruptcy.
My AZ Lawyers is proud to offer Zero Down payment plans to qualified individuals. Our plans can extend for up to 12 months after you file, interest free. Payments are credit reported, which can help you improve your credit score even more quickly after a bankruptcy.
The waiting period after a Chapter 7 is 8 years for another Chapter 7, and 4 years for a Chapter 13. After a Chapter 13, the waiting period is 2 years for another Chapter 13, and 6 years for a Chapter 7.
The success rate for people who file Chapter 13 without an attorney is almost zero. The success rate for people who file Chapter 7 without an attorney is about 66 percent. You may be able to file Chapter 7 on your own if your case is simple, but you should definitely hire an attorney if you are filing Chapter 13.
If your wages are being garnished, a wage garnishment is one of the things the Automatic Stay will stop. If you are being garnished for debts like credit cards and medical bills, a Chapter 7 will wipe out the garnishment and all your other debts permanently. Non-dischargeable garnishments will resume at the end of a Chapter 7, so you may want to consider using Chapter 13 instead if this is your situation. There are exceptions to garnishments for past due child support and alimony, so talk to an attorney if you are considering bankruptcy to discharge a familial obligation.
Declaring bankruptcy will stop a foreclosure at least temporarily. Most people facing a home foreclosure opt for Chapter 13. The past-due mortgage payments will be spread out over the 3-5 years, and in some jurisdictions, the normal monthly mortgage payment will also be included in the plan. These are known as conduit payments. Because your payments will be caught up when the bankruptcy is discharged, your lender will only be able to foreclose on your home if you fall behind on your mortgage payments again.
Most bankruptcy courts use the Brunner Test to decide if student loans can be discharged in bankruptcy. The debtor must meet three requirements to pass the Brunner test. These are: (1) you can’t support yourself and your dependents if you have to pay off the loan; (2) your financial situation is unlikely to change; and (3) you made a good faith effort to repay the loan. Succeeding in discharging student loans is rare- consult with an attorney if you’d like to try to have your student loans discharged in bankruptcy.
The Automatic Stay is a bankruptcy protection that becomes active once your petition is filed. Once the stay is activated, your creditors can’t repossess your vehicle, shut off your utilities, foreclose your home, or garnish your bank account or wages. You are protected until your case is discharged, dismissed, or your creditor files a Motion for Relief from the Automatic Stay and it is granted. A creditor is allowed to proceed with collection after a successful Motion for Relief.