Understanding Arizona Bankruptcy
Understanding Arizona Bankruptcy
Understanding the bankruptcy process can be a daunting undertaking. However, if you break it down into manageable sections, it can be easier to understand. Keep reading the following sections to learn more about the bankruptcy process and how it applies to your individual situation: Bankruptcy Explained, Bankruptcy Types, Why Should You File Bankruptcy, When Should You File Bankruptcy, and Bankruptcy Costs.
If you are not sure if bankruptcy is right for you or if you have decided to file, it is important to seek the help of qualified, experienced legal counsel, specializing in bankruptcy filings / courts. Filing bankruptcy can affect you greatly for both better and worse. Also, when you file can affect your outcome drastically. Seeking the advice of a bankruptcy expert will help you understand your options and how they affect your individual situation, so you can make the best decision given your circumstances.
Bankruptcy Explained
Bankruptcy is a legal court procedure, where a person filing bankruptcy requests the judge to discharge or reorganize their debt. Bankruptcy provides a legal option for not repaying debts. It is important to remember not all debts are dischargeable. For example, most student loan debt, taxes, alimony, and child support cannot be discharged through the bankruptcy process. However, a lot of unsecured debt can be discharged in the bankruptcy process including: credit card debt, personal loans, and medical bills.
As part of the bankruptcy court process, a judge and usually a court appointed trustee will examine the individual’s liabilities and assets. If they determine you do not have enough assets and income to pay your obligations, the court will discharge your debts. This means you are no longer legally obligated to pay them.
It is extremely important to understand which assets are protected and which you may be required to sell to pay your liabilities, as this can greatly affect your bottom line and future.
Bankruptcy was designed to give people a second chance, a fresh start, regardless if they got in the bad position because of poor choices or bad luck. The good news is if you decide bankruptcy is the right choice for you, the majority of people’s debt is discharged through the bankruptcy court process, as long as, the debt qualifies.
Filing Bankruptcy in Arizona
Bankruptcy is generally governed by federal laws. Arizona residents file for bankruptcy in the United States Bankruptcy Court for the District of Arizona, which has several locations, including the Tuscon bankruptcy court. Although federal laws define the types of bankruptcy and the general bankruptcy process, Arizona state laws also come into play. For example, Arizona law helps define what property is exempt from bankruptcy — in other words, what property you can keep after bankruptcy, such as your home and certain personal possessions. So, when hiring a bankruptcy attorney for an Arizona bankruptcy, it is important to hire a local bankruptcy attorney who is familiar with all the Arizona bankruptcy laws.
Bankruptcy Types
There are many types of bankruptcy. There are types of bankruptcy for businesses, farmers, and fisherman. The different types of bankruptcy are named for the chapter of the US Bankruptcy Code they represent. The two most common types of bankruptcy for individuals and families are Chapter 7 and Chapter 13.
Chapter 7. More than half the bankruptcy cases filed are for Chapter 7 bankruptcy. It is known as liquidation, because the court will require you to liquidate the majority of your assets and use the money to pay down your debts. Once that process is completed, Chapter 7 allows the individual to request most unsecured debt to be discharged. This includes medical bills, credit card debt, and personal loans. Typically, the process takes four months to complete, and the majority of Chapter 7 filings are granted. In 2017, more than 95% of the Chapter 7 filings were granted.
In order to file Chapter 7, you need to pass a “means test.” The “means test” requires individuals and families to show they qualify for the discharge. The judge and / or court appointed trustee will look at how much money you make, bills, unsecured debt like personal loans, credit cards, and medical bills, and secured debt like auto loans and mortgage payments. Once the judge and / or trustee reviews your financial records thoroughly, they may require you to sell non-exempted assets, which can include second homes, recreational vehicles, and other property. The amount gained from the sale of non-exempted assets will be used to pay down the amount of your debts.
You will be able to keep exempted property like your home, car, and work tools. In Arizona, you can claim an exemption for $6,000 for personal property including household furniture, $6,000 for your car ($12,000 for a married couple or if you are disabled), $150,000 for your home, $5,000 for your work tools, retirement accounts, and up to $300 in a bank account.
Chapter 7 is not for everyone. However, if you owe more than 50% of your annual income or it would take you more than 5 years to pay off the debt, Chapter 7 may be your best option. If you file Chapter 7, you will lose your credit cards and non-exempt assets like second cars and homes. If you do not already have a mortgage, it will be very difficult to obtain one, and the bankruptcy will stay on your credit report for up to 10 years. However, you will not lose your obligations to pay alimony, child support, or student loans.
Chapter 7 does have a lot to offer, despite the negative effects. It will stop the harassing phone calls from creditors of unsecured debt and stop creditors from pursuing garnishment of your wages and the foreclosure process, if one has been started against your home. You will be able to keep a lot of your property, as it will be protected as exempted property. Also, after you file, you will be able to keep your income and property you purchase.
If planned properly, Chapter 7 can give individuals and families a fresh start and a new chance at financial health. It can give you the opportunity to climb out from under the mounting pile of stress and start over with a better financial plan.
Chapter 13. Chapter 13 allows a way for people to restructure their debt. This allows part of your debts to be forgiven after the payment plan has been completed. More than 30% of individuals and couples who filed for bankruptcy, filed for Chapter 13.
Chapter 13 works best for people, who either do not want to give up their assets and / or earn too much money to qualify for Chapter 7. Chapter 13 requires you to set up a 3 – 5-year repayment plan, monitored by the court. Once the payment plan has been completed, the remaining debt is discharged.
If you do not successfully complete the payment plan, you have the option of pursuing Chapter 7. However, creditors can resume their collection process, if you stop making plan payments and do not file Chapter 7. It is estimated nationally that 75% of Chapter 13 filers do not complete their payment plans with only 15% of those filers changing over to Chapter 7.
To make sure you chose the plan that is best for you with the best overall outcome, seek the advice of a bankruptcy attorney that is experienced with a proven track record. Also, do not make a quick decision, but think through it carefully, making sure you have enough money to adhere to the payment plan you are agreeing to follow for the next 3 – 5 years.
Why Should You File Bankruptcy?
Deciding to file bankruptcy is a huge decision that should not be considered lightly. It will affect your credit for years. If you answered yes to any of the questions listed below, these are some red flags you should consider filing for bankruptcy.
- Do you owe more than 50% of your annual income?
- Would it take you more than 5 years to repay your debts?
- Are you considering taking money from your retirement account(s) to pay for credit card or medical bills?
- Are banks starting to foreclose on your home or repossess your car?
Although the decision cannot be made for you, it is important to seek the advice of legal counsel, who specializes in bankruptcy. They can review your entire financial situation and advise you of your options and best course of action.
Most people file bankruptcy to get a fresh financial start. However, filing bankruptcy, also, allows people to take a deep sigh of relief and let some of the financial stress flow away. It will stop the harassing phone calls and letters from debt collectors. Also, filing for bankruptcy can stop the foreclosure process on your home or the repossession of your car, wage garnishment or other legal actions, including eviction, pursued by creditors to collect payments. By stopping these harassing tactics, bankruptcy provides the financial reset many individuals and families desperately need.
It will help you develop a financial game plan, so you know financially what you can and cannot afford to do. Bankruptcy can give people the fresh start they need to have a financial do-over. It can give you a chance to wipe the slate clean and start over.
When Should You File Bankruptcy?
You have made the decision to file bankruptcy. So, when should you file? There is not an easy answer to this question, as it depends drastically on individual circumstances. It is better not to delay seeking the advice of a bankruptcy expert, as they can review your individual circumstances, advise you of your options and best time to file.
If foreclosure or repossession procedures have been started, it is important that you do not wait. Filing for bankruptcy can stop the foreclosure or repossession process and allow you to keep your home and car. Each state has certain amounts that apply to specific property to exempt that amount of property and allow you to keep it. Although you will still need to make payments, the bankruptcy process can allow you to establish extended payment plans and free up funds by discharging other unsecured debt, for example, credit card and medical bills. This process allows a fresh start to allow you to start applying the payments you were making to the credit card and medical bills to your home and / or car.
If you delay, it can cost you more over time. If you delay filing, but finally decide to file, all the previous payments made to reduce unsecured debt could have been used to pay on secured debt. This is one of the many reasons, it is important to have your financial situation reviewed by fresh pair of eyes, who can advise you the best course of action to take based on your individual situation.
Bankruptcy Costs
Although bankruptcy provides the fresh start needed by many hundreds of thousands of people each year, bankruptcy, also, has its costs. There are court fees and attorney fees; however, there are, also, other costs to consider.
Cost of Time. Bankruptcy will cost time. The entire process takes approximately 4 – 6 months to complete, and that is if you get everything handed in on a timely manner. Also, there will be financial training to complete and court date(s) to attend.
Credit Score. Your credit score will be negatively affected by filing bankruptcy. Also, the bankruptcy will be reported on your credit report for 7 – 10 years. If you file Chapter 13, it is important to remember as well that even though it only stays on your credit report for 7 years, it will be 3 – 5 years before you complete the repayment process established by the bankruptcy court.
The majority of people who file for bankruptcy already have low credit scores. However, it is important to keep in mind that filing bankruptcy provides a road to recovery, not a quick fix. It will be difficult to qualify for a mortgage, unsecured credit card, or new lines of credit for years after filing bankruptcy. And, it is important to keep in mind that credit scores are used to determine everything from auto insurance premiums to job offers.
The Bottom Line
Although there are different costs to be considered when filing bankruptcy, if the pros of filing outweigh the cons, it can still be best to file. Seeking the advice an expert bankruptcy attorney, who can review your individual financial situation and needs, can give you the best insight on when and why to file. An attorney can review your options, including which bankruptcy is best to file giving your individual concerns, situation, and needs.
Finally, if you have decided it is best for you to file bankruptcy, it is best not to delay. Delaying can cost you thousands that could have been used to pay down your secured debt for items you want to keep, like your home or car. If you are considering filing for bankruptcy or have answered yes to any of the questions above in the Why Should You File Bankruptcy section, do not delay seeking expert advice any longer. Start the road to recovery and get your fresh financial start as soon as possible.
