Which chapter is best for you?
There are a few choices when it comes to bankruptcy. Some choices will apply to you and some will not. Most people will opt for Chapter 7 to liquidate everything. Another common choice is Chapter 13, where can keep most of what you own and pay back a portion over several years. If you are a family farmer of fisherman, you may consider Chapter 12. Chapter 11 is for business reorganization.
Are you married?
You are liable for your own debts or debts incurred through cosigning a loan. Arizona is a community property state. Husbands and wives are frequently responsible for their spouses debts.
Chapter 7: Straight Bankruptcy
In a Chapter 7 Bankruptcy in Arizona, most of your debt is eliminated, some of your property may go to creditors, and your debts disappear.
Assets that are not exempt may be sold by the trustee with the proceeds distributed to your creditors. Most cases are no-asset cases. This means, you have nothing for creditors to take, except your shirt and other items that are off-limits. You only have your debt to lose.
Chapter 13: Debt repayment plans
In a Chapter 13 bankruptcy, you propose a plan to pay your debt in 36 to 60 months. The two types of payments are to a trustee and payments outside the plan that are paid directly to the creditor.
Creditors usually don’t get much through bankruptcy, but once your finished with the plan, you’re done.
Decide between Chapter 7 and Chapter 13
An attorney can help you understand the implications of your choices and help you determine which option is best for you. Here are some things to consider.
Chapter 7 is a good choice when…
- You don’t have assets that you have to surrender to a trustee.
- You’re current on your home and car payments, or willing to give them up.
- You don’t have much money left over each month after paying expenses.
- You haven’t received a bankruptcy discharge in an earlier case filed within the past eight years
Chapter 13 is a good choice when…
- You want to catch up on your mortgage
- You need time to pay past-due support obligations
- You owe tax debts that you want to pay off without interest or penalties.
- You received a discharge in a bankruptcy case filed within the past eight years.
- You earn enough money to pay monthly expenses with ease and want to do your best to repay creditors at least some amount.
Other Chapter 13 Bankruptcy advantages
- You can pay taxes over time, possibly without interest or penalties.
- Your overdue alimony and child support can be stretched out and paid over three to five years
- You can get your house and car payment up to date over the life of the plan
- You can reduce your obligation to the value of collateral. If you have a $3,000 car, but you owe $5,000. You would only have to pay the $3,000.
- You can keep non-exempt property
- You can get some relief even if you’ve received a discharge on a Chapter 7, 11, or 12 bankruptcy case filed less than eight years ago.
- You can protect a cosigner by agreeing to pay the cosigned debt over the life of the plan.
- You can back out or convert to a Chapter 7
Disadvantages of Chapter 13 Bankruptcy
- It takes at least 3 years to complete
- You’ll feel like you don’t have much flexibility
- You might have to give up your income tax refunds
- You may receive an unexpected windfall and have to give it to the trustee
- You can’t incur more debt without permission from the trustee
- If you lose your job your case may be dismissed.
- You may risk your homestead exemption if you move or sell your home
- Most Chapter 13 Bankruptcies fail.
Advantages of Chapter 13 repayment vs. repayment without bankruptcy
- You can catch up on back alimony and child support.
- Automatic stay will be on your side. Your creditors will stop pursuing you.
- You don’t need permission from the creditor to cut your obligation
- You can deal with secured debts such as your home and car.
- You pay a small percentage of your debts.
Things to consider
- Are your debts not consumer debts?
- Are your debts primarily consumer debts?
- Your income vs. median for Arizona? Click Here to See!
- How much debt do you owe?
- Have you had a previous Chapter 7 or Chapter 13 discharge?
- Effect of nondischargeable taxes, alimony, child support, or liability for personal injuries arising from drunk driving or boating.