Choosing the Right Type of Bankruptcy
An important part of making your decision to file bankruptcy is deciding which type of bankruptcy is right for you. For the most part you will be making the decision to file chapter 7 or chapter 13. Although it is possible to “convert” or switch from chapter 7 to chapter 13 or vice versa, it is best to make the decision before we file.
You may have also heard of chapter 11 bankruptcy. Chapter 11 bankruptcy is not used by individuals very often because it is more expensive and complicated. There are times when chapter 11 is better for high-income individuals, but for the most part our clients are making the choice between chapters 7 and 13.
Why Choose Chapter 7?
Chapter 7 is often referred to as “straight bankruptcy.” It is offers immediate relief and an immediate fresh start for our clients. For many clients who have lost jobs or who took pay cuts during the economic downturn, there is not any extra income after your monthly expenses are being paid. Because the Arizona bankruptcy laws allow you to exempt a wide array of property needed to continue your life after bankruptcy, most of our clients are able to keep the majority of their property.
If you are being harassed by creditors or your wages are being garnished, once we file your bankruptcy all of that stops immediately. If your home is being foreclosed, filing will stop the foreclosure. For the most part, your chapter 7 case will be completed in less than a year. At the closing of your case, you receive a discharge. The discharge means that you have no legal obligation to pay your creditors and you get a permanent fresh start.
It is also possible for a client to not be eligible for chapter 7 because their debts are higher than those allowed under the bankruptcy laws. You can file a chapter 13 case at any time after you have filed a chapter 7 case. If your circumstances change during the course of your chapter 7 case and it would be more advantageous to file chapter 13, we can convert your case as needed.
In our Arizona bankruptcy practice, if a client is eligible for chapter 7, we encourage you to consider it. It will be a quicker and easier process for you. You will recover more quickly in terms of your credit rating because your case is usually closed within a year. If you own a home, want to keep your car (and you owe money on it), own a business that you want to keep, or have a second mortgage, read on to see why chapter 13 might be right for you.
Why Choose Chapter 13?
Chapter 13 takes longer than chapter 7. In a chapter 13 bankruptcy we work together to set up a payment plan that must be approved by the court. Under the payment plan you will pay unsecured creditors pennies on the dollar. Examples of unsecured creditors includes credit card companies, hospitals and doctors, or anyone you owe money to where you did not pledge your property to get the loan.
Under chapter 13, we have the opportunity to deal with a car loan and mortgage. These are the most common secured loans that we handle with chapter 13. If you have property that is not exempt under the bankruptcy laws we can also set up a payment strategy to pay the present value of that property to your unsecured creditors.
If your car was repossessed within the last 10 days and we file quickly enough we can get the car back for you. After we have the car returned to you, you will need to follow the bankruptcy payment plan to keep the car.
Under chapter 13, we can also look at reducing or “stripping” a second mortgage. It is very common in the current housing market that homeowners owe more than their house is worth on the market. If the fair market value of your home is less than what you owe to the first mortgage holder, then we can eliminate the second mortgage. Once we file your chapter 13 bankruptcy we file a complaint that alleges that the fair market value of your home is less than what’s due on the first mortgage and, therefore, the second mortgage holder is stripped of his status as a secured creditor. That creditor becomes a general unsecured creditor. This in and of itself can be a reason for filing a chapter 13 bankruptcy.
There are some debts that can be discharged under chapter 13 but not chapter 7. For example, homeowner association or condominium fees, property settlements from divorce (that are not spousal support), can be discharged in chapter 13. It is also possible to stretch out overdue payments for child or spousal support, or tax debts over a longer period and possibly avoid late charges and interest.
Some of our clients whose income is too high to qualify for chapter 7 are able to receive financial relief under chapter 13. One of the advantages of a chapter 13 is that it provides a structured way to pay back a portion of debts and lower fees and charges. The chapter 13 plan will last anywhere from 36 months to 60 months depending upon your income. Once you complete the plan, you will receive a discharge.
Some of our clients also own a business. If you want to maintain your business it may be you will have to file chapter 13. We will need to discuss the financial value of the business as we consider all of your options during our consultation session to determine the best course of action with regard to your business.
In reading this you may not know what the best choice is for you. Deciding on whether you should file chapter 7 or chapter 13 bankruptcy doesn’t have to be made alone. We are here to give you the best legal advice possible in making your decision. You can take advantage of our free consultation in our Tucson or Phoenix office. Our practice is committed to providing education and information for all of our clients.
As part of our practice we want to work with to achieve the financial goals you’ve set. If you want to try and keep your house and car, if you have a business, if you are ready to quickly get a fresh start financially, we will discuss all of your options to be able to meet those goals. With decades of experience working with Arizona bankruptcy, we are here for you. Call our office today to schedule your free consultation.