Before filing bankruptcy, 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.
- Analyze your debt to determine if it is dischargeable. Some debt is not dischargeable. Furthermore, some debt not dischargeable in Chapter 7 may be discharged in Chapter 13.
- 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.
chapter 7
The most common personal bankruptcy is Chapter 7. In a nutshell, filing Chapter 7 allows the debtor to discharge most debts. Such debts include credit card bills, vehicle repossession debt, foreclosure debt, and health care bills. Chapter 7 is procedurally simple and the least costly. Click here to watch a video about obtaining a Chapter 7 discharge.
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. The trustee will liquidate non-exempt assets to pay creditors.
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.
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:
- A debtor may use Chapter 13 to help come current with missed mortgage payments without penalties and interest free.
- Although liens remain after bankruptcy, a debtor may be able to use Chapter 13 to completely strip away junior mortgages in certain circumstances.
- A debtor may discharge debts that are otherwise not dischargeable in Chapter 7. This might include certain divorce obligations and government penalties.
- 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.
- Chapter 13 provides more time to pay off certain non-dischargeable debt, such as tax debt and unpaid child support/alimony.
- The Arizona bankruptcy court has a special Mortgage Modification Mediation Program. 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.
How much does it cost to file bankruptcy?
No experienced Arizona bankruptcy lawyer can quote a fee until after speaking with the client. A person’s actions before filing bankruptcy might require more legal work to minimize potential problems. More complicated cases cost more in legal fees.