Filing for bankruptcy is a serious and involved process with many legal and tax issues. Our firm is familiar with the complexities of the bankruptcy filing system and can competently guide you through the process.
The following is for information purposes only and not intended for, nor should it be used as legal advice. The information is general in nature. Please contact us to discuss your particular situation and Arizona specific rules and guidelines.
WHAT IS CHAPTER 7 BANKRUPTCY?
Chapter 7 Bankruptcy, sometimes called a straight bankruptcy is a liquidation proceeding. The debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick “fresh start”.
The following is required in order to qualify for Chapter 7 bankruptcy:
- Credit counseling: You must have attended a credit counseling session 6 months prior to filing chapter 7 bankruptcy.
- Means Test: You must qualify under the Chapter 7 bankruptcy Median Income and Means Test. Under the Means Test, if your income is less than the median income of other families of the same size in your state, you qualify to file Chapter 7. If you make more than the Median Income you must take further steps to see if you qualify under the Means Test. This involves calculations using your income and certain allowable expenses to see if you qualify for a Chapter 7. Click to see where you are regarding the Median Income.
- Tax Returns: You must file your previous years tax returns prior to filing or very shortly after filing.
- Prior bankruptcy: You must not have received a Chapter 7 bankruptcy discharge within the past 8 years or a Chapter 13 discharge within the past 6 years.
- Bankruptcy dismissal: You have not had your bankruptcy dismissed within the past 6 months for failure to appear or contempt of court.
Chapter 7 Bankruptcy Steps
1. Analyze your debt. Some debts, such as child support obligations, are not dischargeable in Chapter 7 bankruptcy. And if you pledged collateral for a debt, the creditor can take the property if the debt isn’t paid. Bankruptcy is not for everyone. We can help you analyze your debt to determine whether there is a better alternative.
2. Determine your property exemptions. Every state has exemption laws, which dictate what types of property (or, in some cases, how much equity in particular types of property) you are entitled to keep if you file for Chapter 7 bankruptcy. If you become our client we advise you as to what property is exempt.
3. Make sure you are eligible. If your average income during the six months before you file is more than the median income for a family of your size in your state, you may not be allowed to use Chapter 7, depending on your income and debts. Click to see where you are regarding the Median Income. We facilitate these calculations.
4. Redeem or reaffirm secured debts. If you pledged property as collateral for a loan, you’ll need to pay something to the creditor if you want the right to keep the property. When you file for bankruptcy, you’ll be asked to decide whether you want to “redeem” the property (pay the creditor the current replacement value of the property), “reaffirm” the debt (agree on new contract terms with the creditor), or “surrender” the property (let the creditor take it — if the property is worthless, the creditor may not bother). We will advise you what can happen and what typically happens.
5. Fill out the bankruptcy forms. You complete a few dozen pages of forms, in which you tell the court about all of your property, debts, income, and expenses. You’ll list the names of all your creditors, note which debts are disputed, decide what property you are claiming as exempt, and decide what you want to do about each of your secured debts.
6. File the forms. Filing your petition (the main bankruptcy form) officially starts your case. Most people file all the forms at once, but if you’re in an emergency, you can file just a two-page form, and then file the complete set of the forms within 15 days. Based upon the information you provide, we complete all forms and file them for you.
7. Go to a hearing. In most cases, you’ll need to go to court only once, for a short meeting with the trustee (and perhaps a creditor or two) to review your case and answer any questions about the information in your forms. As part of our engagement we appear with you and represent you at the hearing.
8. File objections or motions if needed. If you dispute a creditor’s claim against you or you want to eliminate certain liens, you’ll need to address these matters before your bankruptcy case is closed.
9. Wind up your secured debts. When you filed your bankruptcy forms, you completed a form in which you stated how you intended to handle your secured debts. Before your case is closed, you’ll need to act on these matters. We will advise you as to the best course of action for each secured asset.
10. Get your discharge. Congratulations! This is what it’s all about. At the end of a successful bankruptcy, the court will issue an order saying that your dischargeable debts are officially discharged. Once a debt is discharged, you no longer have a legal obligation to pay it and the creditor has no legal right to demand it.
The Chapter 7 Bankruptcy Discharge
- debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and
- debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).
WHAT IS CHAPTER 13 BANKRUPTCY?
Chapter 13 Bankruptcy is also known as a reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want, or need, to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.
Repayment Plans for Chapter 13 Reorganization Bankruptcy
Perhaps the most important, and most tricky, part of a Chapter 13 bankruptcy will be the repayment plan. This paperwork will describe, in minute detail, how much you will pay to which creditors to pay down your debts. Although there is no standardized, official form to be used, many courts have developed their own that may be useful for you in making your repayment plan. In Arizona there is an approved format that must be used.
How Much Do You Need To Pay?
Under your Chapter 13 repayment plan, you must include a plan to pay certain debts in full. Called “priority debts,” these debts are considered to be more important that other debts and can jump the line to the head of the bankruptcy repayment plan. These debts include things like taxes that are due and owing as well as child support payments.
There are other things that must be included in your repayment plan as well. For example, payments on any secured debts you have need to be included in the plan (such as car or home payments). In addition, if you have fallen behind on any of these secured debt payments, these late payments should be included in the repayment plan.
Lastly, the repayment plan must also show that if you have any disposable income after making payments on secured debts, that this money goes towards making payments on unsecured debts. It may not be required that you make payments if you do not have any disposable income, but you must show a good faith effort to repay your unsecured debts.
Length of Repayment Plan
As a general rule, if your average monthly income for the six months prior to your bankruptcy filing was more than the median income for your state, you will have to propose a repayment plan that is five years long. If, on the other hand, your average income for the same time period is less than the median income for the state, then you will propose a three year repayment plan. However, if you pay off all of your debts in full before the end of the repayment plan, your repayment plan will end.
Failing To Make Plan Payments
There are often situations that may befall you where you will become unable to make payments on your repayment plan. For instance, if you lost your job after getting into the repayment plan, the bankruptcy trustee may be able to modify your repayment plan to match your new circumstances. As well, if making payments on the repayment plan would pose an undue hardship (if you were hospitalized for a long period of time), a bankruptcy judge may decide to discharge your debts. However, if you fall behind without good cause, the Trustee can move to have your case dismissed.
Chapter 13 Bankruptcy Checklist
Based on the information you provide we guide you and perform all of the following with you:
Decide if Chapter 13 is right for you: Learn the details of Chapter 13 bankruptcy law to decide whether it’s right for you. Explore other options, like payment deferments, Chapter 7 bankruptcy, and Chapter 11 bankruptcy, before you choose Chapter 13 bankruptcy.
Calculate your debt: Chapter 13 bankruptcy law requires you to follow a payment plan. If your debt total is too high, the court may deem you ineligible or unable to formulate a feasible repayment plan.
Weigh your income against the payment obligations set up in your Chapter 13 payment plan: If you don’t have a sufficient income to meet your repayment plan demands, the court will not let you proceed.
Calculate the total value of your property: This will enable you to determine how much of your property is exempt, which will factor into your payment arrangement under the Chapter 13 payment plan.
Complete your Chapter 13 bankruptcy law paperwork: After you have determined whether you are eligible, you must provide all of your financial information on the appropriate forms and devise your repayment plan.
File your forms: Once you have completed your Chapter 13 bankruptcy forms, you must file your forms and plan the procedure from there with the court.
Meet with the Trustee: Shortly after you file, you must meet the Trustee at the courthouse and review your paperwork and plan. Creditors may appear at this meeting to ask you questions or even negotiate the terms of your repayment plan.
Attend a confirmation hearing: Soon after you meet with the trustee, you will have a confirmation hearing. At this hearing, the bankruptcy judge will rule on whether to confirm your plan. Your creditors can raise objections to your plan at this hearing, and the judge will make rulings on them.
Make your payments accordingly: Within 30 days of your confirmation ruling, you must begin making payment plans according to your repayment plan. Be prepared to return to court should any issues come up during your case. Be sure to stay current on your payments. If you consistently miss your payments, your case will be dismissed.
Finally, receive your bankruptcy discharge: Once you complete your repayment plan, having successful made all of the payments, you will receive your bankruptcy discharge. This is the discharge that you have been waiting for, which relieves you of all of the unsecured debts you listed in your plan. So long as you have made all of the promised payments, you are done.
Effect of the Discharge
The discharge releases the debtor from all debts provided for by the plan or disallowed, with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts referenced in the Bankruptcy Code. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.