Chapter 7: Straight Bankruptcy

Unlike a Chapter 13 Bankruptcy, a Chapter 7 Bankruptcy (also known as Straight or Liquidation Bankruptcy), offers no option for a payment plan. However, most of your debt is eliminated although some of your property may go to creditors.

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.

You cannot file Chapter 7 bankruptcy in Arizona for eight years.

A couple things to know:

  • The eight-year rule only applies if your bankruptcy was discharged.
  • Doesn’t apply if your prior bankruptcy was a chapter 13 reorganization and creditors received at least 70 percent of their claims.

In order to qualify for a Chapter 7 bankruptcy while earning more than the median income for Arizona, you’ll have to pass the Means Test. The Means Test utilizes a complicated set of calculations that are intended to identify those who are able to pay a significant portion of their bills and should be required to do so rather than forgo those debt obligations in a Chapter 7. The Means Test does not apply to debtors earning less than the median income for Arizona but keep in mind that most of those earning more than the median are still able to pass.

In order to pass you will have to show that you don’t have enough income to pay a significant portion of your debts. The means test is pretty complicated, but most people pass. The hardest part is putting together the information necessary that you will need to provide.

Always make sure your bankruptcy is in good faith. Make sure you review your bankruptcy paperwork thoroughly. If you don’t know the answer, look it up.

Call 480-755-8000 to speak with our Arizona bankruptcy attorney today for immediate help.