Bankruptcy

A legal process that allows you to obtain financial relief if you are having trouble paying your debts when they become due.

If you are having trouble paying your debts, and do not believe you can pay those debts off within the near future, you may want to consider whether you should file for bankruptcy protection.  “The near future” can be different for different people, but if you do not foresee yourself being able to pay them off within 3 years, you may want to consider filing.

There are a number of types of bankruptcies.  Consumers may file for Chapter 7 or Chapter 13 protection.  These types get their names after the federal code section that authorizes that type of bankruptcy filing.  Chapter 11 relates to business reorganizations.

The automatic stay is a court order that goes into effect when you file and protects you from your creditors.  The automatic stay keeps your creditors from collecting most types of debts, typically unsecured debts, described below.  It keeps them from initiating lawsuits against you, reporting you to a credit bureau, or taking money or property from you.  It also keeps your creditors from contacting you to attempt to collect that debt, which affords peace of mind.

When you file bankruptcy, most of your property comes under the control of the Bankruptcy Court.  The property that the court controls is the bankruptcy estate. 

Many people desire to give away their property prior to filing for bankruptcy, so that the property is not included in the bankruptcy estate.  However, property given away within two years of filing must be returned to the Bankruptcy Trustee, or the Trustee may try to collect it, or have it seized.  You should not give away property to avoid having to give it to a Trustee.

The bankruptcy process will discharge many or all of your debts.  Discharge means you no longer will be responsible to pay.  So, when a debt is discharged, you no longer have to pay for that debt.

There are two main categories of debt:  Secured and unsecured.  Unsecured debts are debts that have no security interest associated with the obligation.  Examples of unsecured debts include credit cards, medical bills and some personal loans.  Secured debts are loans that are associated with a security interest.  Examples of secured debts include home or car loans. If you own your home (it is in your name) but you are still making payments, your lender will be the beneficiary of a deed of trust (or, perhaps, a mortgage) that you signed when you purchased your house.  So, the deed of trust will be the security interest associated with your home. Similarly, if you have a car payment, the lender who lent the money to you to enable you to buy the car has a security interest, typically called a lien, to secure the repayment of the loan. 

When filing for bankruptcy protection, the law allows you to keep certainproperty, called exempt property.  The list of exempt property will depend upon the state law that applies to your case.  If you have lived in the state you currently live in for two or more years, the state law that applies will be the state in which you currently live.  If you have not lived in the state in which you currently live for at least two years, there are several factors that must be considered to determine what set of exemptions can apply.  Some states allow you to pick from a list of state exemptions or a list of federal exemptions.

Exempt property is property you have the right to keep after you have filed.  Examples of exempt property include appliances, jewelry, musical instruments, and many other categories of belongings. 

You Home.

If you file bankruptcy and are still paying on your home, your options as to what occurs to your home depends upon how much equity, or value in excess of how much you owe on the home, that you have in the home.  In Arizona, the homestead exemption is currently $150,000.  As a result, if you file Chapter 7 bankruptcy and have less than $150,000 in equity in your home, you will be able to keep you home.  That is, the Trustee will not force the sale of your home, because their will be no excess funds over the homestead exemption to distribute to creditors.  You only get one homestead exemption; if you own two homes, your second home will not be protected by a homestead exemption.

Your Car.

Similarly, if you file bankruptcy and are still paying on your car, your options depend upon how much equity you have in your car.  In Arizona, your exemption in your car is currently $5,000.  You only get one exemption for your car; your second car will not be protected by an exemption.

If you file for bankruptcy protection, your credit report may reflect that you filed for up to 10 years.  However, after you file, you will likely get offers of credit cards and other offers of credit.  And, at this point, your credit may not be all that great as it is.

Prior to filing, you will have to make a list of your debts and your creditors to include in your Bankruptcy Petition.  You will have to take an on-line credit counseling course prior to filing and one after filing.  You will also have to go to court and participate in a meeting with your creditors, also called a 341 meeting, after the bankruptcy code section that requires these hearings.

Filing bankruptcy is not for everyone.  It may not be the best option for you.  However, if you need to file, it will likely provide you with peace of mind, and the ability to have a fresh start to your financial affairs.  A fresh start may be just the thing you need.

Our bankruptcy attorneys have gained years of experience in dealing with a variety of case types. We understand that this is a difficult time for you and we want to help you toward a fresh start.  We offer a free bankruptcy consultation to help you in deciding if bankruptcy is your best option. You will meet with a friendly bankruptcy attorney with absolutely no-hassle and no-pressure. Our affordable rates and manageable payment plans make this whole process a little bit easier for you. We are ready to represent and protect you from creditor harassment and hope that you will choose us to help you toward your fresh start.