1. Should I file for bankruptcy?
This question can only fully be answered after we meet with you to discuss the facts of your individual situation. However, if one or more of the following apply in your situation, consulting an Arizona bankruptcy attorney may be a good option:
- Your wages have been garnished or your bank account has been attached
- Most of your debts are unsecured debts like credit card bills, hospital or doctor's bills, etc.
- Your total debt, not including your car or house loan, is more than you could pay, even over five or more years
- Collection agencies are calling you at home and/or at work
- Your payments are more than 30 days behind on more than one bill
- There are lawsuits pending against you
- You have high medical bills not covered by insurance
- You owe income taxes that you are currently unable to pay
- You have few assets
- You have little or no savings
- You have had property repossessed (such as a vehicle)
- What is the main purpose of bankruptcy?
- Bankruptcy can give you a fresh start by discharging, or canceling, many of your debts. Bankruptcy may also give creditors some payment on their debts.
2. What are the most common types of bankruptcy?
The three most common types of bankruptcy are:
Chapter 7 Arizona bankruptcy (commonly known as liquidation);
Chapter 13 Arizona bankruptcy (a payment plan typically over 3 to 5 years, sometimes called consolidation bankruptcy); and
Chapter 11 Arizona bankruptcy (a more complex reorganization used primarily by business debtors, but sometimes by individuals with substantial debts and assets).
Consumers typically file chapter 7 or chapter 13. Both provide for some possible payments to creditors, a discharge for you and supervision by a trustee. In a chapter 7 case, you turn over non-exempt property in return for a discharge of most of your debts. The trustee sells any non-exempt property and pays your creditors. In a chapter 13 case, you keep your property but must commit to a three to five-year repayment plan. These plan payments are calculated using a variety of factors more fully discussed on our chapter 13 Arizona bankruptcy information page. You then obtain a discharge of most of the debts not paid in the plan.
3. What’s the difference between the different kinds of bankruptcy?
The biggest difference between the two plans is the time to complete the case. Chapter 7 discharges are obtained in a matter of months. Chapter 13 discharges can take between 3 and 5 years.
Chapter 7 is designed as a liquidation. A trustee may sell certain property that you own at the time you file the bankruptcy case. The trustee uses the proceeds of the sale to pay creditors. In most chapter 7 cases this does not happen. Typically, you will not have any assets over and above what the law allows you to keep, this is your exempt property. In practice, you generally do not have any non-exempt property a trustee can sell.
Some debts are not discharged in a chapter 7 case and you must repay them. These include, but are not limited to, past-due child support, certain tax obligations and student loans. Secured debts, (commonly your house, car) also do not go away in a bankruptcy.
The bankruptcy case addresses only the debts you list at the time of the bankruptcy case. You must pay debts you incur after filing the bankruptcy case as usual. You may keep the money that you earn after filing a chapter 7 bankruptcy case, as well as most other property that you obtain after the filing.
Under chapter 13, you keep your property and you agree to pay your debts over time from your current income, pursuant to a court-approved plan. The amount that you will repay to creditors under the plan will vary based on your particular circumstances. In general, it is more a function of your ability to pay (as the court sees it) than the amount of your debt.
The payments made to creditors under the plan must total at least as much as creditors would have received if you filed a case under chapter 7. The payments are made to a trustee, who distributes the payments to the creditors.
Do I have to qualify for bankruptcy? How will I know if I am eligible?
On October 17, 2005, changes to the bankruptcy laws were made which changed the requirements for filing chapter 7. You have probably heard of the "means test" if you are considering bankruptcy.
The means test compares your excess monthly income to the amount of unsecured debt to determine how much you could repay to creditors if you were to file chapter 13. This calculation is hypothetical and in many cases does not reflect your true circumstances. In an effort to standardize the means test, debtors calculate this ability to pay based on charts provided by the I.R.S. Sometimes these charts work to your advantage, by overestimating your expenses compared to your actual expense. Sometimes it works against you, such as the case where your actual vehicle expenses exceed those allowed by the I.R.S. chart. Unfortunately, the means test is quite complicated. We can better explain your options during your initial consultation after considering your unique circumstances.
There are two principal requirements for eligibility in a chapter 13
case. First, you must have regular income, although this need not be from a job; regular benefit payments or rental income would qualify. Second, you must not have debts over a certain amount. The debt limits are $1,010,650 in secured debt (like home mortgages and auto loans), and $336,900 in unsecured debt (like most credit card debt). These numbers go up periodically.
4. How does bankruptcy help me in the short run?
There are a number of benefits to filing bankruptcy. See our "How Can Bankruptcy Help?
" page for numerous examples.
5. What is a discharge? Will all my debts get discharged?
If a debt is discharged, you are no longer obligated to repay it.
Which debts are discharged depends what type of debts you have. Some debts are not dischargeable in bankruptcy.
Debts that are not discharged include debts for certain taxes, certain unscheduled debts (creditors with debts not listed in your paperwork), alimony, maintenance or support debts, pre-petition fines or restitution, debts for injury or death caused by use of drugs or alcohol, and most student loans.
Other debts that may not be discharged include debts you may have incurred through fraud or by willful or malicious actions. If the creditor does not ask the court to rule on these debts, they will be discharged.
Whether you file chapter 7 or chapter 13 will also impact what types of debts can be discharged. For more information on the differences, review our pages discussing chapter 7 and chapter 13 in more detail.
6. How much does it cost to file bankruptcy?
The current filing fee for a chapter 7 case is $299 and for a chapter 13 case it is $274. In some cases the court may waive the filing fee in a chapter 7 case if your income is below specified levels and the court finds that you cannot pay the filing fee in installments. The court fees are in addition to the fees charged by our firm for handling your case.
Do I have to list all my creditors on the bankruptcy schedules?
You must list all your debts, with the name and address of the creditors. This is so creditors receive notice of the bankruptcy and get their fair share of any money paid to creditors. You may think that you should omit a creditor because you want to continue to pay the debt. This would violate the law, and it is unnecessary because you can always choose to pay a debt voluntarily, even though the debt has been discharged and there is no legal obligation to make payment. However, creditors are prohibited from taking any action to collect discharged debts.
What should I do if a creditor demands payment of a debt after I file my case?
Most efforts by a creditor to collect a pre-petition debt (one that you owe as of the filing of your case) or to obtain your property without the permission of the bankruptcy court are violations of the automatic stay. If this happens you should contact us immediately.
7. What property can I keep after filing?
Every state has "exemption" laws that allow you to keep some assets, free from creditors' claims, even if you do not pay your creditors. There are a number ofbankruptcy exemptions in Arizona. Most of our clients discover that the majority of their property is covered by an exemption. If that is the case, you do not need to surrender any property. Despite the exemptions, you always need to pay debts owed to secured creditors in order to keep the collateral securing the debt. Your exemptions do not affect their claims.
Under chapter 13, you enter into a payment plan in exchange for keeping even non-exempt property. Again, you must still pay for secured property in order to keep it. You may not have to pay the full amount of the debt in some circumstances, however. Also, it is possible that a bankruptcy judge may not allow you to keep and pay for certain secured property, such as an unnecessary luxury good.
You may use a chapter 13 to save your home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as you file bankruptcy. Chapter 13 allows you to catch up on overdue pre-petition payments over time, while keeping up with current payments.