To file bankruptcy in Arizona, you file a voluntary petition with the United States Bankruptcy Court. However, before you do so, the first step is consulting with an Attorney. There are some who choose to do this on their own, but this could result in a loss of assets and create unnecessary headache. Whether you decide to move forward with an attorney is up to you, but many Bankruptcy Attorneys in Arizona offer free consultations, including our firm. It is very important to educate yourself and be fully informed. You should be aware of the potential road-blocks in your bankruptcy and a good attorney will tell what those may be.
During the consultation, your attorney conducts a general review of your income, assets, and liabilities. Some people hesitate to share this information, but understand you are required to file statements in your voluntary petition listing all assets, income, and liabilities. You want to be thorough with your attorney to receive correct advice. Your income is the first determining factor in the type of bankruptcy you qualify for (a Chapter 7 or Chapter 13). Many aim to file a Chapter 7 (see “What is the difference between a chapter 7 and chapter 13” section), but you may be better suited for a Chapter 13 depending on what assets you own and the type of liabilities you have. Furthermore, your Attorney will also let you know your best timeline to file.
A higher price tag does not mean greater service. The higher cost generally means a higher overhead cost. We firmly believe in keeping our cost low to make bankruptcy affordable for our clients. How do we keep our overhead low? We currently keep advertising cost low which means we do no TV, Radio, Phonebook, or Billboard advertising.
We provide full service bankruptcy. What does that mean? We will consult with you on your bankruptcy options and then review your paperwork. Then we prepare your petition, file objections and pleadings if necessary, prepare your trustee document package, negotiate with creditors, contact those suing or garnishing you, and we will attend your hearing(s) with you. All of the above vary based on your case.
We’re a smaller firm with a smaller volume of clients. This means we have the time and means to give our clients the extra attention they deserve. Secondly, we believe in face time with our clients. Our clients primarily work with an attorney throughout their bankruptcy. Most of our competitors will have legal assistants doing the work on your case and answering your questions, as opposed to attorneys.
Here’s a very simplistic answer: in a chapter 7 case, your debts are wiped out (with certain exceptions) and you are not required to repay any of them. In a chapter 13 case, you are required to pay back at least something but usually not all debts, unless your income is unusually high. Obviously then, a chapter 7 case is more desirable than a chapter 13 case in most cases. If you want to learn more about the differences, you should read our post about why someone would file chapter 13 even when they are eligible for chapter 7. However, if your income is too high (i.e., you are over the median income) you may be ineligible for chapter 7 and must file a chapter 13 and repay some of your debts.
We say you “may” be ineligible for chapter 7 if you make more than the median income since you’re not “unequivocally ineligible.” This is where it gets slightly complicated. If you make more than the median income, the court uses a government formula called the “means test” to determine if you have any disposable income. In other words, the court looks at your income, and your expenses to see if you have any money left over after you pay all of your bills. If you do have money left over, then you must repay that leftover amount each month in a chapter 13. On the other hand, if you don’t have any money left over at the end of the month, then you are eligible for a chapter 7 bankruptcy despite your higher-than-median income.
The means test is a form the court uses to to determine if your qualify for a Chapter 7 Bankruptcy. It is a series of calculations that determines whether there is disposable income to pay back your creditors. In other words, the test is to determine whether you have the “means” to pay back your creditors. If you do have the means available, then you’re not eligible for a Chapter 7.
It is a strict test and is reviewed objectively. It can be compared to your tax returns, where you provide the information that is requested and the tax formula determines how much you owe in taxes. The means test will determine if you are eligible for a Chapter 7, or not.
In general, The means test reviews your gross income over a six month period and the form has 64 lines of allowed deductions. We prepare this form for you. If your income is near the median income, we will do an analysis with you after reviewing your income and deductions before you decide to file.
Bankruptcy is not an application process. The court does not review your case to see if there is enough debt or whether you have a valid reason to seek a discharge. Bankruptcy is purely objective. It goes back to the means test and whether you’re filing in the correct Chapter. We will review this with you.
As long as you have overcome the “means test” then your case will move forward.
In some circumstances, cases get dismissed, but this is generally due to lack of cooperation from the debtor/petitioner during the process (ie. failing to appear at court, not providing requested documents, or falling behind on monthly chapter 13 payments).
The waiting periods go from file date to file date (dates of discharge are irrelevant) and only apply if the first case was discharged. A person must wait:
8 years after a chapter 7 case to file another chapter 7.
6 years after a chapter 13 case to file a chapter 7 (with an exception if over 70% of creditors were paid).
4 years after a chapter 7 to file a chapter 13.
2 years after a chapter 13 to file another chapter 13.
A Bankruptcy Trustee is appointed to your case upon filing. The Trustee is court appointed and is generally an Attorney, CPA, or professional. You can learn more bout the United States Trustee’s Program here: http://www.justice.gov/ust/about-program
You are required to cooperate with your Trustee. He or she will always ask for documents and sometimes, disclosures, amendments, and turnover of estate assets. He or she is most likely the only authority figure you will meet during your bankruptcy. Note that your Trustee is not the Judge in your case. A Trustee cannot order your case be dismissed or withhold your discharge. He or she is bound by the Bankruptcy Code and is required to file notices and pleadings with the court if there is any objections to your case.
While you are required to cooperate with your Trustees, it is important to remember he serves as “the watchdog over the bankruptcy process.” The Trustee is not a neutral party. He is an adversary who represents the best interest of creditors. He receives a commission by seizing assets. In Chapter 13 cases, the trustee receives a 10% administrative fee of the total pay back amount. This means he has a vested interested in finding assets you may not have disclosed or are hiding.
In both Chapter 7 and Chapter 13 bankruptcies, you are required to attend the “Meeting of Creditors.” This absolutely mandatory. You must attend in order for you case to be successfully discharged.
The 341 hearing is named after the section of the bankruptcy code that describes the meeting: 11 USC 341. It is also known as the “meeting of creditors.” The name “341 hearing” and “meeting of creditors” are synonymous and refer to the same meeting. However, the name “meeting of creditors” gives the false impression that your creditors attend the hearing. In theory they can attend the hearing, but in practice they don’t.
In many cases, the 341 hearing is simply a formality, and for this reason the meeting is typically very short. Each hearing averages between 2-4 minutes in length. Also, no judge will be at the 341 hearing, just your trustee. It is not in a courtroom.
During the hearing the trustee will ask you several questions relating to your assets, debts, income and expenses, which you will have reviewed several times with our office by your hearing. You are only required to answer yes or no and occasionally provide further clarification.
If you are feeling nervous about your 341 hearing, I recommend you arrive early so that you can sit-in and watch other 341 hearings take place. That way you might know better what to expect.
For the most part, a creditor can only dispute the bankruptcy if they can show fraud. This is rare, but it does happen. In the context of bankruptcy, fraud means that you incurred the debt with the intent to discharge that debt in the bankruptcy. For this reason, maxing out all of your credit cards right before filing bankruptcy is a bad idea.
The bankruptcy code has a 90 day rule for dealing with fraud. Basically any cash advances or credit card purchases made in the 90 day period before the filing of the bankruptcy are “presumed” to be fraudulent. This “presumption” means that you bear the burden of proof to show they are not fraudulent by a preponderance of the evidence.
If a creditor wants to make a claim for fraud against you, they will file an adversary proceeding in your bankruptcy case. An adversary proceeding is an ancillary lawsuit in your case with a separate case number and complaint. This happens less than 5% of cases, and when it does happen, we are typically able to settle with the creditor on a payment plan that the debtor can afford.
In short, it will take between 2 and 3 years for your credit score to fully recover if you stay perfect on your payment history, based on the FICO scoring model. Statistically you will reach a 650 FICO score at the 2-year mark, and a 720 score (which is excellent credit) at the 3-year mark if you stay perfect. 720 is about as high as you can get while the bankruptcy still appears as a negative item on your credit report.
Reaffirmation and Redemption are the two mechanisms in bankruptcy which allow you to keep secured collateral. When you file chapter 7 bankruptcy you must specify your intention with each secured debt. Your three options are either 1) reaffirm 2) redeem or 3) surrender.
In a reaffirmation you will sign an agreement promising to repay the debt on the same terms as before the bankruptcy. If you sign a reaffirmation agreement then the creditor retains to right to hold you liable for the debt if you ever default on the loan.
In a redemption you will pay the secured creditor what the collateral is worth in a lump sum, instead of what you used to owe on the loan. For example, if you owe $18k on a Ford pickup truck that is now worth $12k, then you have a right to pay Ford only $12k and take clear title to the vehicle. In practice many individuals wish to redeem instead of reaffirm because it makes more financial sense; but these individuals must obtain new financing through a redemption company like Rightsize Funding in order to come up with the lump sum payment to pay off the old loan.
When you file bankruptcy, in theory you surrender everything you own to the bankruptcy trustee. However, the state legislature has decided that there are certain assets that a person should be able to keep even if they are filing bankruptcy. These are called “exemptions.”
In Arizona, you may exempt $6,000 for a car; $500 for clothes, $6,000 household furniture and goods; $2,000 for a wedding ring or other jewelry; $5,000 for work tools, machinery or inventory of a sole proprietorship, $150,000 for a house. In Arizona even some types of stocks are exempt, as well as life insurance proceeds and retirement benefits.
So in summary, most often a person who files bankruptcy will lose nothing, unless they have valuable assets that are not exempt. If you are concerned about a particular asset you have, please come in for a consultation.
“Nondischargeable” debts are debts that cannot be wiped out in a bankruptcy case.
1. Educational Loans
All educational loans are nondischargeable.
The bankruptcy code does provide an exception and allows a debtor to discharge their educational loans if they can show “undue hardship.” However, the courts have narrowly construed this meaning so that a very persuasive showing must be made. To make matters worse, the procedure for eliminating student loans is very time consuming for the attorney and requires an adversary proceeding and typically litigation. As a result, a person could quite easily spend as much money fighting to discharge their student loan as is actually owed on the student loans, with no guarantee of success.
2. Domestic Support Obligations, Alimony, Child-support.
The policy reason for such a rule is quite obvious. We don’t want to allow a person who has neglected her court-ordered child-support or alimony to simply file bankruptcy and walk away from her obligations. For this reason, any debt to an ex-spouse through a divorce decree or other court order is nondischargeable.
However, a person who is delinquent in alimony or child support may find help in a chapter 13 case where she is allowed to pay the back-support over 5 years at zero interest. Therefore, if a person was delinquent $25,000 in back child-support she could do a chapter 13 repayment of $500 per month for 60 months and her back-support would be paid, but all her other debts would be wiped out.
3. Recent IRS debts.
In order to discharge IRS debts you must meet a four-part test.
a) The taxes must have been last due more than 3 years ago.
b) The tax return must have been last filed more than 2 years ago.
c) The tax debt was not assessed in the last 240 days, or not assessed at all.
d) The IRS has not filed a federal tax lien.
In cases where the IRS has filed a federal tax lien, the taxes can still be discharged in a chapter 13 case but you will have to pay a portion of it back depending on what assets you own. This is what I meant in an earlier part of this section by “cramming-down” the tax lien.
4. City or Municipal Fines, traffic tickets, etc.
Government fines are non-dischargeable. The exception is when the fine is to compensate the government for a monetary loss or
5. Fraudulent transactions (purchases that are made with the intent to discharge in bankruptcy).