The Arizona bankruptcy attorneys with Phillips Law Group understand that bankruptcy can be a confusing topic. The two most popular choices of consumer bankruptcy filings, Chapter 7 and Chapter 13, are explained here.
Every individuals financial situation is unique, and this information is meant as a general guideline only. To learn more about your bankruptcy options and to discuss your specific situation, please schedule a free consultation with a Phoenix and Tucson area bankruptcy attorney.
Chapter-7 Liquidation Bankruptcy Law
Chapter-7 Liquidation is the most common form of consumer bankruptcy. It is generally the best option for consumers with smaller amounts of debt and those who do not have a lot of valuable property. A Chapter-7 bankruptcy generally takes about four to six months from start to finish and usually only takes one trip to a 341 creditor’s meeting.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start”. The bankruptcy discharge has the effect of extinguishing the debtor’s personal liability on dischargeable debts. Although the filing of an individual Chapter-7 petition usually results in a discharge of debts, an individual’s right to a discharge is not absolute, and some types of debts are not dischargeable. Moreover, a bankruptcy discharge does not eliminate a lien or mortgage on property.
The filing of a bankruptcy case puts into effect an “automatic stay”. The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors will not be able to go after your car, house or other property, or cut off your utility service or welfare benefits. Further, the automatic stay will stop most legal proceedings that may be pending against you and will stop all collection efforts. This means that as soon as your case is filed, many of your financial problems are usually over.
After filing Chapter-7 Bankruptcy, most people can keep their property that falls under exempt property. There are sometimes items of property that are non-exempt, and they become part of the bankruptcy estate. While most people do not have valuable non-exempt property, if they do, it could be sold by the trustee to pay off the debts. The debtor retains control, with a few exceptions, of property or income that is acquired after he/she files for bankruptcy.
If the debtor has pledged property as collateral for a loan, the loan is called a secured debt. Secured debts are only dischargeable if the debtor surrenders the pledged property. The most common examples of collateral are houses and motor vehicles. If the debtor wants to keep the house and/or automobile, the debtor must keep the payments current when and after he/she files for Chapter-7 Bankruptcy.
If the debtor is a party to a contract or lease, and the debtor or the other party still has obligations under it, the bankruptcy trustee may cancel it unless the contract will produce assets for the creditors. If it’s canceled, the debtor and the other party to the contract are discharged from any contractual obligations.
A bankruptcy court operates through an appointed person called a ” bankruptcy trustee”. The trustee goes through the papers that are filed by the debtor with the court and asks the debtor questions at a short hearing called a “341 creditors meeting”. Creditors may attend this meeting, but seldom do so. Creditors usually only attend if the debtor has many valuable assets.
After the meeting, the trustee will determine if the debtor has any non-exempt property. If so, the trustee has the right to collect the non-exempt property and sell it to pay creditors. The debtor can surrender the non-exempt property to the trustee or keep it by paying the trustee its fair market value. Very few people actually lose property in a Chapter-7 bankruptcy.
At the end of the bankruptcy process, most of the debtors financial obligations are eliminated by the discharge. The debtor no longer legally owes any of the debts listed on his/her bankruptcy petition. The debtor cannot file for Chapter-7 bankruptcy again for another eight years from the date of the bankruptcy discharge.
Bankruptcy is about starting over, and at Phillips Law Group in Phoenix, their bankruptcy attorneys can help.
If you are even thinking of filing for bankruptcy, contact a Phoenix, Arizona bankruptcy attorney from the Phillips Law Group now for your free debt evaluation.
Chapter-13 Wage Earner
Chapter-13 Bankruptcy, known as a Wage Earner Plan, is a different type of bankruptcy that generally allows the debtor to keep most all of their property if they will be willing to repay creditors to the extent they can afford to do so over a three to five year period.
Often, most people seek bankruptcy protection due to illness, loss of work, divorce, or just plain bad planning. Please do not feel guilty or ashamed. Keep in mind that you have been subjected to numerous professional sales people who have surrounded you with seductive messages urging you to buy. The credit card companies have spent billions urging you to accept their easy credit so that you can live beyond your means. The result is that you are tied down because they want to make huge profits on your purchases and interest payments.
Please understand that there is more to life than a perfect credit rating and if you are considering bankruptcy, your credit rating is probably already gone. What is important is your family, friends, and neighbors. It is not easy to always manage perfectly on finances and why should you be any different in this era of multi-billion dollar bailouts for poorly managed companies. Fortunately, since biblical times, societies have discouraged debtors from “falling on their swords” when overwhelmed with debt.
Chapter-13 of the Bankruptcy Code is designed to enable individual debtors under court protection and supervision to apply a portion of future earnings to the payment of all or a portion of their debts over an extended period of time. The debtor is protected from creditors by an automatic stay while a plan of repayment is developed and carried out. It is similar to Chapter-11 Business Reorganization. In fact, Chapter-13 is sometimes called “Consumer Debt Adjustment”.
Chapter-13 Bankruptcy was intended to give the wage earner a reasonable opportunity to arrange installment payments out of future income so that creditors would receive more money than they otherwise would receive in liquidation.
To discuss your Chapter-13 options, please contact a Phoenix, Arizona bankruptcy attorney from Phillips Law Group to schedule a free, no obligation debt evaluation
Which Chapter is Best for You – Chapter-7 or Chapter-13?
The choice of which type of bankruptcy to file depends on many factors that are specific to your situation, and this is one of the most important reasons to get good legal advice before filing. Which chapter is best for you depends on the nature of your debt and the nature and value of your assets. At Phillips Law Group, their Phoenix, Arizona bankruptcy attorneys offer a free debt evaluation and want to help you to make the best decision.
Chapter-7 Liquidation
Chapter-7 is the most common type of bankruptcy for individuals. The debtor receives a discharge of most or all unsecured debts within several months of filing the case. If the debtor’s income appears high enough to permit some repayment of debt, the trustee or the court may move to dismiss the case for “substantial abuse”. The theory is that the court should require someone who has the ability to repay their debts to do so. Allowing them to walk without repayments is an abuse of the bankruptcy system. This is termed “substantial abuse” and is a catch phrase with the U.S. Congress.
If your debt is a mix of business and consumer, it is important to know the legal form of your business. Corporations and partnerships can file bankruptcy either under Chapter 7 or Chapter 11. The decision is based on whether the business can be reorganized under Chapter 11 or will be liquidated under Chapter 7. Sole proprietorships are treated for bankruptcy purposes as just one kind of asset of the individual who owns them; thus the owner of a troubled business must file an individual bankruptcy, including all of his assets and liabilities, personal and business, to obtain bankruptcy court protection.
Chapter-13 Wage Earner
Chapter-13 Bankruptcy is frequently a better choice if the debtor has debts that are not dischargeable under Chapter-7. Many people select Chapter-13 because they are in default on mortgages or car payments and they want to save them. Chapter-13 is also a good option if the debtor has more property than can be exempted from creditors in Chapter-7, or if the debtor owes taxes or other debts that are not dischargeable in Chapter-7.
A Chapter-13 may be best if you have the following debts that are not dischargeable in a Chapter-7 Bankruptcy:
- Recent taxes
- Family support obligations
- Drunk driving judgments
- Criminal fines
- Criminal restitution
- Debts incurred by fraud
- Debts by any intentional wrongdoing
Chapter-13 Wage Earner plans must provide for full payment of priority tax debts and past due family support. It is possible to discharge debts based on fraud or wrongdoing under certain circumstances.
The scope of the discharge is different in each chapter. The Bankruptcy Code makes the Chapter-13 discharge more encompassing, to encourage individuals to use Chapter-13 to repay a portion of their debts.
Generally speaking, most unsecured debt is dischargeable. Most secured debt survives bankruptcy as a lien on the property to which it is associated unless a court order modifies the lien.
In Chapter-13 Bankruptcy the following debts are not dischargeable:
- Student loans
- Family support obligations
- Drunk driving judgments
- Criminal restitution
In Chapter-13 Bankruptcy the debtor can wrap most of his/her bills into one simple monthly payment to the Trustee and still eliminate many unsecured debts.
Debtors choose to file a repayment plan under Chapter-13 Bankruptcy when:
- They owe debts not dischargeable in Chapter-7 (such as taxes, child support, fraud judgment)
- They have liens that are larger than the value of the assets securing the debt
- They have years of unfiled taxes
- They are behind on car or house payments
- Their assets are worth more than the available exemptions
Please remember that secured debts remain after bankruptcy. If you owe money that is secured by a home or vehicle you can not get a free house or car by filing. You can, however, give up the home or vehicle and be released from any liability on that debt.
DISCLAIMER:
Phillips Law Groupand Phillips Law Group, P.C. are separate independent law firms from other firms listed on this website. Phillips Law Group, P.C. handles only contingency fee cases. This includes automobile and vehicle accidents and all personal injury cases but we also handle medical malpractice, product liability, employment, wage and hour cases, Social Security disability and worker’s compensation cases. Phillips Law Group, handles only Criminal and DUI cases, as well as consumer Bankruptcy and Debt Relief cases, and Immigration Law cases.
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