Bankruptcy Guide

CHAPTER 7 BANKRUPTCY GUIDE

  • General Description:

Chapter 7 is the most common form of bankruptcy because it enables qualified debtors to get a true fresh start. After filing, the Court will issue an "automatic stay" that prevents your creditors from contacting you or otherwise trying to collect on your debts. Shortly thereafter, a court-appointed trustee will work with you to liquidate all of your non-exempt assets (referred to as your "estate") in order to pay off as many of your debts as possible. Which debts to pay are determined by a ranking of creditor priority contained within the Bankruptcy Code.

Once your non-exempt assets have been liquidated and the monies dispersed to creditors, the remaining debts (other than non-dischargeable debts such as taxes and student loans) are discharged by the Court and are no longer legally enforceable against you. In most situations, debtors receive their discharge within four to five months of filing. Once the discharge is complete, you will truly have a blank slate upon which to rebuild your life and your credit.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER YOU QUALIFY FOR CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Chapter 7 vs. Chapter 13:

Advantages: The primary advantage of a Chapter 7 bankruptcy, as opposed to a Chapter 13, is that you will not have to make payments on your debts. Although your non-exempt assets, if any exist, will be liquidated in order to pay your creditors as much as possible, once that process is complete you will have no more obligation to satisfy whatever debts remain.

Disadvantages: The primary disadvantage of Chapter 7 bankruptcy, as opposed to Chapter 13, is that you may have to give up assets that you would be able to keep if you filed a Chapter 13 instead. For example, under Chapter 7, you would not typically be able to keep non-retirement investment accounts or your home if you are substantially behind on your mortgage payments. There are also a greater number of debts that are dischargeable under a Chapter 13 than there are under a Chapter 7. Finally, it is also important to note that a Chapter 7 bankruptcy will usually have a more negative impact on your credit rating and your ability to obtain future credit than a Chapter 13 bankruptcy would.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER CHAPTER 7 OR CHAPTER 13 BANKRUPTCY MAY BE RIGHT FOR YOU THEN PLEASE CLICK HERE.

  • Qualifying for Chapter 7:

In order to qualify for Chapter 7 bankruptcy, you must meet a variety of requirements. For example, you must reside in the United States, you must take a credit counseling class prior to filing, and you cannot have filed a Chapter 7 or Chapter 11 case within the previous eight years or a Chapter 12 or Chapter 13 case within the previous six years.

The biggest hurdle to tackle, however, is the income requirement. If your household income, which includes most or all of your spouse's income even if you are filing alone, exceeds the "median family income" as defined in the Bankruptcy Code, you will have to undergo a "means test" to determine whether you are eligible to file a Chapter 7 case. If you are not eligible, you will typically qualify for and may want to consider filing for Chapter 13 bankruptcy instead.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER YOU QUALIFY FOR CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Property Exemptions:

Although the assets comprising your "estate" will be sold by your trustee in order to pay some of your debts, the Bankruptcy Code and Arizona law provide for a variety of exemptions. These exemptions allow you to keep certain items (e.g. furniture, tools, wedding rings, and other household items) up to a set value and even permit you to keep a certain amount of equity in a home or a car, for example.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHAT ASSETS YOU MAY BE ABLE TO KEEP IN A CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Reaffirmation:

Even under Chapter 7, you are permitted to "reaffirm" certain debts at your option if you'd like to keep the asset it is backed by and continue with your obligation to pay for it. The most commonly reaffirmed debts are usually car loans. By reaffirming, you would continue to be responsible for the loan on the vehicle but would also be able to keep it.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT REAFFIRMING DEBTS IN A CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Non-Dischargeable Debts:

Although Chapter 7 bankruptcy is a very useful tool for wiping the slate clean, it is also important to note that there are a variety of debts that are non-dischargeable under the Bankruptcy Code. If a debt is non-dischargeable, it is not included in your final discharge and the creditors who hold these debts will still be able to pursue you for payment.

Some of the most common non-dischargeable debts include:

  • Most educational loans
  • Domestic support obligations
    • Domestic support obligations, or "DSOs," are debts for alimony, maintenance, or support owed pursuant to a court order to a child, spouse, former spouse, or government entity that pays such debts in your name.
  • Debts derived from fraudulent activity
  • Debts that are the result of drunk driving
  • Most taxes and government fines/penalties
  • Large debts incurred very shortly before filing
  • Debts to a spouse, former spouse, or children incurred in the course of a separation or divorce
    • One of the newest and most significant provisions of the Bankruptcy Code exempts debts created in the course of a separation or divorce. Although domestic support obligations like alimony and child support have always been non-dischargeable, this new class of non-dischargeable debts goes much broader. For example, if you and your spouse divorce and your divorce decree allocated the debt for a joint credit card to you only, you cannot discharge the obligation you have to indemnify your spouse as to that debt. In other words, even though you can discharge your debt with the credit card company, you will still be legally obligated to your spouse to pay it.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHAT DEBTS MAY OR MAY NOT BE DISCHARGEABLE IN A CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Objections to Discharge:

Your creditors have the legal right to file a formal objection to a debt discharge within 60 days after your first meeting of creditors. An objection will institute what is known as an "adversary proceeding" wherein the court will determine whether the debt should be dischargeable or not. Because this type of proceeding is not very common, given that most debts are in fact dischargeable under Chapter 7 or Chapter 13, you will need an experienced attorney to handle it if one or more of your creditors object.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT THE POTENTIAL FOR CREDITOR OBJECTIONS IN A CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Life after Bankruptcy:

A lot of clients worry about their financial future post-discharge. Generally speaking, however, credit is available for people who have recently completed a Chapter 7 case. Whether it is credit cards, auto financing, or a home loan, many lenders understand that you are much less of a risk after filing than you were before. But is critical to take advantage of the opportunity bankruptcy gives you to start fresh: use your new credit sparingly, make your payments on time, and keep a close eye on your credit report.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT LIFE AFTER CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

CHAPTER 13 BANKRUPTCY

  • General Description:

Chapter 13 is a very common form of bankruptcy and is typically referred to as the "repayment plan." After filing, the Court will issue an "automatic stay" that prevents your creditors from contacting you or otherwise trying to collect on your debts. Shortly thereafter, a court-appointed trustee will work with you to come up with a three- to five-year plan to pay back as many of your debts as possible given your unique income/debt situation. Your payments will be made directly to the trustee, who will then disburse them to your individual creditors. The debts that the trustee and the court determine that you are not able to pay back are then discharged at the end of the plan and no longer legally enforceable against you. For most clients, the best part of a Chapter 13 is getting to keep their assets, including their home, by avoiding foreclosures or repossessions.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER YOU QUALIFY FOR CHAPTER 13 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Chapter 13 vs. Chapter 7

Advantages: The primary advantage of a Chapter 13 bankruptcy, as opposed to a Chapter 7, is being able to keep your assets, including your home, by avoiding foreclosures or repossessions. There are also a greater number of debts that are dischargeable under a Chapter 13 than there are under a Chapter 7. Finally, a Chapter 13 bankruptcy will usually have a less negative impact on your credit rating than a Chapter 7 would because you are demonstrating a willingness to make payments on some of your debts.

Disadvantages: The biggest disadvantage to filing for Chapter 13 bankruptcy is perhaps the most obvious: you will have to pay some of your debts back over the next three to five years. Even though you get to keep your home, if you are unable to pay your mortgage now then it may be wise to consider whether you will still be able to make that same exact payment once your repayment plan is in effect.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER CHAPTER 13 OR CHAPTER 7 BANKRUPTCY MAY BE RIGHT FOR YOU THEN PLEASE CLICK HERE.

  • Qualifying for a Chapter 13:

In order to qualify for Chapter 13 bankruptcy, you must meet a variety of requirements. For example, you must reside in the United States, you must take a credit counseling class prior to filing, you must have a regular source of income, and you must not have unsecured debt in excess of $383,175* or secured debt in excess of $1,149,525*. Finally, you cannot have filed a Chapter 7 bankruptcy within the previous four years or a Chapter 13 bankruptcy within the previous two years.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHETHER YOU QUALIFY FOR CHAPTER 13 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Non-Dischargeable Debts:

Although Chapter 13 bankruptcy is a very useful tool for ultimately wiping the slate clean, it is also important to note that there are a variety of debts that are non-dischargeable under the Bankruptcy Code. If a debt is non-dischargeable, it is not included in the final discharge that occurs at the end of your repayment plan and the creditors who hold these debts will still be able to pursue you for payment.

Some of the most common non-dischargeable debts include:

  • Most educational loans
  • Domestic support obligations
    • Domestic support obligations, or "DSOs," are debts for alimony, maintenance, or support owed pursuant to a court order to a child, spouse, former spouse, or government entity that pays such debts in your name.
  • Debts derived from fraudulent activity
  • Debts that are the result of drunk driving
  • Old taxes for which no return was filed

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT WHAT DEBTS MAY OR MAY NOT BE DISCHARGEABLE IN A CHAPTER 13 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Lien Stripping:

Unlike Chapter 7, Chapter 13 bankruptcy can provide for a process called "lien stripping," which is most common in situations where you have both a first and a second mortgage. According to the Bankruptcy Code, a lien on an asset (say, your house) is only a secured claim to the extent that there is actual value in the asset to which it is attached. This means that any amount owed on the lien that exceeds the actual value of the collateral (house) is an unsecured claim. Accordingly, to the extent that a lien is "wholly unsecured" like a second mortgage where the amount of the first mortgage exceeds the actual value of the home, then that second mortgage may be "stripped," i.e., discharged at the end of your repayment plan.

For example, say that you owe $150,000 on your first mortgage, and $34,000 on your second mortgage, but your house is actually only worth $120,000. This means that the second mortgage is completely unsecured. Although both the claims must be included in your repayment plan, it is very likely that the second mortgage's unsecured claim in the amount of $34,000, less any payments made as part of the repayment plan, will be "stripped" off and discharged along with many of your other unsecured debts after the conclusion of your repayment plan and you will not have to pay the balance.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT LIEN STRIPPING IN A CHAPTER 13 BANKRUPTCY THEN PLEASE CLICK HERE

  • Objections to Discharge:

Your creditors have the legal right to file a formal objection to a debt discharge within 60 days after your first meeting of creditors. An objection will institute what is known as an "adversary proceeding" wherein the court will determine whether the debt should be dischargeable or not. Because this type of proceeding is not very common, given that most debts are in fact dischargeable under Chapter 7 or Chapter 13, you will need an experienced attorney to handle it if one or more of your creditors object.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT THE POTENTIAL FOR CREDITOR OBJECTIONS IN A CHAPTER 7 BANKRUPTCY THEN PLEASE CLICK HERE.

  • Life after Bankruptcy:

A lot of clients worry about their financial future post-discharge. Generally speaking, however, credit is available for people who have recently completed a Chapter 13 repayment plan. Whether it is credit cards, auto financing, or a home loan, many lenders understand that you are much less of a risk after filing than you were before. But is critical to take advantage of the opportunity bankruptcy gives you to start fresh: use your new credit sparingly, make your payments on time, and keep a close eye on your credit report.

IF YOU WOULD LIKE TO SPEAK WITH AN EXPERIENCED ATTORNEY ABOUT LIFE AFTER CHAPTER 13 BANKRUPTCY THEN PLEASE CLICK HERE.

*Subject to change