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As filing for bankruptcy in Arizona follows federal guidelines, read on learn more about your options.

Chapter 7

Chapter 7 bankruptcy is sometimes referred to as “liquidation bankruptcy.” It’s quite common because it allows the court to discharge many types of unsecured debts. For example, massive amounts of credit card debt or personal loan debt can be completely discharged by a judge under this law. If there are nonexempt properties or debts, the court would appoint a Trustee to oversee your finances until remaining creditors are paid off.

This type of bankruptcy is only available to debtors with medium to low-income. The process to file for Chapter 7 bankruptcy can take up to 4 months, and sometimes involves significant paperwork.

Chapter 11

This type of bankruptcy is similar to Chapter 13 in that it is also a type of “reorganization” bankruptcy. It is typically used by large corporations or companies but individuals can use it too. Personal bankruptcy is rarely filed under Chapter 11 however.

Chapter 12

Chapter 12 bankruptcy is exclusively for fishermen and farmers. It involved submitting a repayment plan to court like in Chapter 13. However, unlike Chapter 13, these plans are allowed to be more flexible. Chapter 12 offers more flexibility with cramdowns and lien shipping for unsecured aspects of secured loans. Chapter 12 requires higher debt limits to get a favorable ruling.

Chapter 13

Chapter 13 bankruptcy is called the “wage earners” bankruptcy. It’s usually the last resort for those who don’t qualify for Chapter 7 bankruptcy. This route allows debtors to pay back their creditor in full or part via a court-approved payment plan. Paying the debts off can take up to 5 years depending on the petitioner’s income. Once the payment plan is approved, the court may discharge some unsecured debts. Chapter 13 bankruptcy can prevent a home foreclosure and allow debtors to keep much their property.  Discussing these issues with experienced bankruptcy legal counsel is critical.

Under Chapter 13 bankruptcy law in Arizona, only unsecured debt below a certain fixed debt amount (e.g. $394k) will be discharged by a court. Submitting a payment plan for this type of bankruptcy can be complicated so a bankruptcy attorney is almost always needed to successfully procure court approval of your 3 or 5 years Chapter 13 discharge plan.

To decide which type of bankruptcy is best for you, look at two things: assets and income. Income matters because filing under Chapter 7 is only possible for people in a certainly limited income bracket. You must also choose the right type of bankruptcy to protect assets that could be considered nonexempt. Speaking in general terms, if you are unemployed or earn a low income with few available assets, Chapter 7 may be the best option. If you earn a significantly high income and have many assets, Chapter 13 could be the best option.  Under either Chapter, counsel with experienced and seasoned bankruptcy legal counsel is the critical first step in the process.

In order to determine if bankruptcy is the best solution to your current situation you must first determine if you are qualified to file a Chapter 7 case.

Are you eligible to file a Chapter 7?

This is determined by seeing if you qualify under the means test. You will qualify if your current monthly income is below your current state median limit. If your CMI is more that your state median income you can go through the means test calculation to see if you qualify.

Are your debts dischargeable?

Even if you do qualify to file a Chapter 7 case you want to make certain it will give you the relief you are seeking, a true fresh start. To determine this it is important to look at the type of debts that you are seeking to discharge. Most debts (including both secured and unsecured) are fully dischargeable, although discharging a secured debt likely means surrendering the collateral.

Have you considered the costs?

Filing a Chapter 7 bankruptcy does come with certain costs. There are the monetary costs, such as the filing fees and costs of credit counseling and attorney fees, if you hire a private attorney. There are also non-monetary costs to consider.

Is this the right time to file a bankruptcy?

If you file a Chapter 7 case that is successfully discharged you are unable to file another Chapter 7 and receive a discharge for 8 years. While it is impossible to predict upcoming unexpected financial difficulty, you should still think about your current level of debt as you try to decide if filing a case now is worthwhile.

Here are some things to think about before you decide to file for Chapter 7 or Chapter 13 bankruptcy.

Should You Choose Chapter 7 or Chapter 13 Bankruptcy?

Chapter 7 bankruptcy works well for people who can protect all of their property with exemptions, whose income is low enough to meet qualification requirements, and whose debt is the type that bankruptcy will discharge.

By contrast, Chapter 13 bankruptcy works best for people:

• whose income is too high to qualify for Chapter 7 bankruptcy
• who would like to save a house from foreclosure or a car from repossession, or
• who want to pay back nondischargeable debt, such as back child support or income tax debt, through a three- to five-year repayment plan.

Will Bankruptcy Wipe Out Your Debt?

Before you file your case, you’ll want to think about the goals because a bankruptcy discharge doesn’t eliminate certain types of debt (called priority obligations). For instance, you can wipe out most credit card obligations, medical bills, and personal loans. But you can’t discharge domestic support obligations (such as child and spousal support), newer tax debt, student loans (unless you can prove undue hardship), and more.

Is Your Lender About to Foreclose on or Repossess Your Property?

If you have debts secured by your property (such as a mortgage or car loan), your lender can foreclose on the home or repossess the car if you default on your obligation (or take any other property that serves as collateral for the debt). Your lender has this right because of the lien you agreed to when you took out the loan.

However, bankruptcy’s automatic stay can stop or delay the foreclosure and repossession process. The relief afforded by the stay in Chapter 7 bankruptcy is usually temporary. But filing for Chapter 13 bankruptcy might allow you to:

• keep the property and catch up on your missed payments
• reduce the balance of your loan if you qualify for a cramdown, and
• eliminate wholly unsecured junior liens from your house through a process called lien stripping.

Source: https://www.nolo.com/legal-encyclopedia/considering-bankruptcy.html