Filing Bankruptcy in Arizona

Potential clients frequently ask whether filing bankruptcy in Arizona is their best option. Before filing, you also must understand the differences between Chapter 7 and Chapter 13. If you are considering bankruptcy, always consult with an experienced Arizona bankruptcy lawyer prior to making any decisions. Every person’s situation is different. 

Factors to consider when filing bankruptcy.

There are several factors to consider to determine whether filing bankruptcy in Arizona is the best option.

1. Analyze your debt to determine if it is dischargeable. Some debt is not dischargeable, such as student loans, unpaid child support, and recent tax debt. However, some debt not dischargeable in Chapter 7 may be discharged in Chapter 13. 
2. You have to determine whether creditors will sue you for certain debts.  For example, in Arizona we have the anti-deficiency statute.  The Arizona anti-deficiency statute usually applies to first mortgages used to acquire a residential dwelling unit. It may or may not apply to junior mortgages. Another example is the statute of limitations. If you haven’t made a payment on a debt in a long time, it might be uncollectible.
3. If a creditor has filed a lawsuit, you should consider filing bankruptcy in Arizona. The creditor will garnish your bank accounts and some of your wages. A bankruptcy will stop all collection activity.
4. You should consider whether a creditor will negotiate to reduce the debt. This may be possible, depending on how much debt you have, your employment situation, and your collectability. However, most creditors (such as credit card companies) are unwilling to reduce the debt by any significant amount. Furthermore, the creditor rarely documents the deal, likely making the debt settlement unenforceable. Be careful about debt consolidation. There are some reputable non-profit debt consolidation companies. You must obtain written documentation from all creditors agreeing to the reduced payments. Otherwise, creditors may still sue you later. It could end up wasting a lot of money. 

You should take a step back and ask to yourself:

• Can I put food on the table and buy school clothes for my kids?
• Can I save some money in case I lose my job, develop an unexpected illness, or other emergencies arise? 
• Will I waste a bunch of money on debt renegotiation/consolidation?
• Am I going to incur substantial attorney fees defending any collection lawsuits?
• Am I able to save a little for retirement? 

If the answer to any of these questions is “no”, then filing bankruptcy in Arizona may be the best solution.

chapter 7

The court randomly appoints a Chapter 7 bankruptcy trustee to your case. The trustee ensures that everyone follows the rules. The Chapter 7 trustee’s primary responsibility is to collect your non-exempt assets. Most people primarily own exempt assets. These assets are protected from forfeiture as specified under Arizona bankruptcy exemptions. For example, you may keep:

• A primary residence with $400,000 of equity or less.
• A vehicle with $15,000 of equity or less, a pension/401(k)/IRA, furnishings worth $15,000 in the aggregate or less, etc.).  

The trustee will liquidate non-exempt assets to pay creditors. Such non-exempt assets may include:

• Money in a bank account in excess of the applicable exemption amount.
• Valuable jewelry.
• Lawsuits and claims a debtor has against third-parties.
• Boats, ATVs.
• Tax refunds.

You may make too much money to qualify for Chapter 7. If your average gross income for the six (6) months before the month of the bankruptcy filing is too high for your household size, you may not qualify for Chapter 7. Instead, you may have to file a Chapter 13 bankruptcy. Chapter 13 under this scenario would require you to make monthly payments to the trustee for sixty (60) months.  

However, despite making too much money, an experienced bankruptcy attorney might help you qualify to file Chapter 7 anyway. For example:

• If you lost your job and are currently not working, you will qualify for Chapter 7. 
• Your debt may primarily consist of non-consumer debt (i.e., business debt, tax debt). This allows you to file Chapter 7, regardless of your income. 

Chapter 13

A Chapter 13 bankruptcy is a payment plan bankruptcy. You make monthly payments to the bankruptcy trustee for 36-60 months. Once you make all of your payments, the court will enter a discharge. The amount you must pay each month is always the million dollar question. Your monthly payment depends on your disposable monthly income, which is determined by computing your monthly take-home pay minus the debtor’s “reasonable monthly expenses”.  A bankruptcy attorney can give you a better estimate of your projected payment based on your income and expenses.

Depending on the circumstances,  filing Chapter 13 may be more appropriate than filing Chapter 7. As stated above, you must file Chapter 13 if you make too much money to qualify for Chapter 7 bankruptcy. However, there are also other benefits of Chapter 13 that a debtor cannot obtain in a Chapter 7: 

1. A debtor may use Chapter 13 to help come current with missed mortgage payments without penalties and interest free. 
2. Although liens remain after bankruptcy, a debtor may be able to use Chapter 13 to completely strip away junior mortgages in certain circumstances.
3. A debtor may discharge debts that are otherwise not dischargeable in Chapter 7. This might include certain divorce obligations and government penalties.  
4. Unlike Chapter 7, a debtor may use Chapter 13 to modify vehicle loans and other debts secured by personal property. This may reduce the remaining principal and interest rate.
   • For example, assume you owe $15,000 on a vehicle loan with 18% interest, but the car is only worth $7,500. Chapter 13 may allow you to reduce the $15,000 loan at 18% to a $7,500 loan at a more reasonable interest rate. 
   • For example, assume you must pay $500/month to the bankruptcy trustee for 3 – 5 years. This amount will include your reduced vehicle loan and unpaid IRS and state taxes. Once you complete all payments, you will receive a discharge of any remaining debts. This is true even if your other creditors receive nothing or very little from your payments. In addition, you can keep the non-exempt assets that you would otherwise have to surrender in Chapter 7.
   • $500/month is much less than what you may pay each month before you file bankruptcy. Assume you are already paying a $350/month car payment and $400/month in credit card payments before you file Chapter 13. Once you file Chapter 13, you only pay the $500/month payment to the trustee.  You do not pay any other existing debt! For an extra $150/month, you pay off the entire car loan and all outstanding tax debt. Your remaining debt is discharged. 
5. Chapter 13 provides more time to pay off certain non-dischargeable debt, such as tax debt and unpaid child support/alimony.  
6. Unlike a Chapter 7, a debtor may be able to keep most non-exempt assets in Chapter 13.
7. The Arizona bankruptcy court has a special Mortgage Modification Mediation Program. This program is one of the most success mortgage modification programs in the country. While the mortgage modification is pending, foreclosures are stopped. Debtors may have a better chance obtaining a mortgage modification through this program than on their own outside of bankruptcy. 

Filing bankruptcy in Arizona usually saves the debtor a lot of money, killing 10 birds with one stone.

How much does it cost to file bankruptcy?

No experienced Arizona bankruptcy lawyer can quote a fee until after speaking with the client. Our initial consultation will provide me with a snapshot of your situation. I will analyze any complexities that may arise if you file for bankruptcy in Arizona. A person’s actions before filing bankruptcy might require more legal work to minimize potential problems. More complicated cases cost more in legal fees.

Without trying to sound like a cliche, you get what you pay for. Not every attorney will provide the same level of service or communication. You must have a competent and reputable bankruptcy attorney. Your attorney must shepherd your case from the beginning through completion. You are not only paying for the attorney’s expertise. You are also paying the attorney for their stellar reputation in the bankruptcy legal community. This increases your odds of completing your bankruptcy case without too much anxiety and pain. 

For Chapter 7 cases, most experienced attorneys charge flat fees ranging from $1,800 – $5,000 (or even more), depending on the complexities.  The bankruptcy court also charges a filing fee of $338 for every Chapter 7 bankruptcy case. Generally, these fees must be paid upfront before the case is filed. Chapter 13 is more expensive because it is more difficult and time consuming The filing fee for a Chapter 13 is $313.

I have sole responsibility for all my cases, from the first phone call until I complete the case. I answer every question, telephone call, and email. All my clients know exactly what to expect before I file the case, both the good and the possible complications. The key to my success is my expertise, extensive due diligence, and reputation. I have a very good relationship with all of the bankruptcy trustees. I dig into the details and always ask follow-up questions. It is essential to make sure there will not be any surprises in your case. Again, you get what you pay for.

Whether it is me or some other competent bankruptcy attorney, proper legal representation is key to filing bankruptcy in Arizona. Click here to watch a video on the court’s website stressing the difficulty of filing bankruptcy without an attorney. If you would like a consultation, please call me at (602) 923-7370 or fill out my contact form.