Loans and debts are ways by which we can receive money that we do not have yet. In some cases, they may be financially advantageous, but it does not always pan out. In some cases, you might even lose the money that you loaned.
This can spell deep financial trouble for you and it might seem impossible to get out of that situation. Thankfully, there are provisions in the law that can allow us to overcome deep financial burdens in the form of filing for bankruptcy.
At first, it might seem to be very daunting and ominous, but it doesn’t have to be! Filing for bankruptcy might just be the way to give you debt relief and a fresh start, away from insolvency.
There are many different types of bankruptcy categorized by bankruptcy chapter in the federal bankruptcy code, but we can talk about the two most common types of personal bankruptcy, Chapter 7 and Chapter 13.
When deciding to file bankruptcy, it is always best to consult with a bankruptcy attorney to understand the bankruptcy options and to know which type of bankruptcy is best for you. We at Dodds Law Firm specialize in Arizona bankruptcy law, so we know how to best help you. Talk to one of our Phoenix Arizona bankruptcy lawyers for more bankruptcy information today.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is named as such because, in this type of bankruptcy, your assets will be initially segregated into exempt and non-exempt assets. After which, your non-exempt assets will be liquidated and used to pay for your debts including your credit card debt and other unsecured debt.
Don’t worry though! Exempt assets include personal property that is considered necessary for a person to continue working and making a living. These include a residence, articles of clothing, a car that you can use to go to work, etc. Non-exempt assets are those high-value assets including family heirlooms, collections, and other non-essentials.
Chapter 7 bankruptcy may be advantageous because if you do not have any non-exempt assets, you might not have to liquidate anything at all. Very few bankruptcy cases under chapter 7 result in the loss of assets.
While this seems like a very convenient way to get out of any financial trouble, there are policies around it to prevent it from being abused. You will first have to undergo credit counseling and take the bankruptcy means test.
This test first evaluates the total income that your household earns. You will have to look into all the sources of income of your household including alimony and child support. If your household income is below the state median income, you automatically qualify to file a Chapter 7 bankruptcy. If not, you will proceed to the means test calculation.
Similar to the first evaluation, the means test calculation will take your total household monthly income, and then subtract from it the necessary expenses that your household has incurred. This includes food bills, transportation costs, out-of-pocket medical bills, and other living expenses.
If the resulting amount of money is not greater than 25% of your unsecured debts, you will be allowed to file for a Chapter 7 bankruptcy starting with a bankruptcy petition for the bankruptcy court to hold a bankruptcy hearing. If it is greater, you will not be qualified to file a Chapter 7 and will have to proceed to file a Chapter 13 bankruptcy.
If you are overwhelmed by debt problems and need bankruptcy help, do not be afraid to contact us. We can consult with you regarding bankruptcy rules and assist you with bankruptcy forms and bankruptcy proceedings. Your financial future is important to us as a debt relief agency.
Once you declare bankruptcy, an automatic stay will be put in place. An automatic stay protects you from creditor harassment by debt collectors. In other words, it makes it illegal for a creditor to pursue you for the debts you owed.
A bankruptcy trustee will be assigned to you to evaluate your assets and see which can be liquidated for debt settlement. The debts that can be paid will be paid, starting with the secured debt, while the rest will be discharged. Do take note, however, that there are some types of debts that cannot be discharged including student loan debt.
Chapter 7 bankruptcies will also leave a longer scar on your credit rating. Since this type of bankruptcy will most likely relieve you from debts and dues, it will reflect worse on your credit report. A Chapter 7 bankruptcy will be in your report for 10 years from filing bankruptcy.
Needless to say, the figures and policies surrounding filing a Chapter 7 bankruptcy, or any type of bankruptcy for that matter, are state-specific. As such, it is best to consult with a local attorney in your area. Dodd’s Law Firm is based in Surprise, Phoenix, Arizona, and our Phoenix Arizona Bankruptcy Attorneys are fully knowledgeable of bankruptcy practices and the state law of Arizona. Consult with our bankruptcy lawyers today.
Chapter 13 Bankruptcy
On the other hand, there is Chapter 13 bankruptcy which is more common for those who earn more. Those who opt to file for bankruptcy of this type are those who also have debts that they can’t repay as originally agreed on but can fulfill in the next 3-5 years through a debt reorganization and payment plan.
Filing a Chapter 13 does not absolve your debts, but simply reorganize it into a repayment schedule that is more feasible for you to pay off as the debtor. This is good because since you’ll be paying off your debts anyway, it will appear better on your credit report. Chapter 13 bankruptcies only appear on your report for 7 years as compared to Chapter 7 bankruptcies that stay on your credit record for as long as 10 years.
This also means that since you will have a plan to pay off your debt, you will not be legally obliged to liquidate any of your assets, thus protecting your valuables from repossession.
A Chapter 13 bankruptcy filing has other advantages over a Chapter 7 including being able to stop foreclosure proceedings that can foreclose your home. Of course, you’d still have to make every subsequent mortgage payment on time. A Chapter 13 also lets you reschedule your other secured debts and let you pay them off over the Chapter 13 plan period.
Similar to Chapter 7, Chapter 13 will give you bankruptcy protection. You will also be on an automatic stay and a bankruptcy discharge will be filed so that no lender can continue harassing you.
As in Chapter 7 bankruptcy, a trustee will be assigned to you to help you pay back the debt that you owe after the bankruptcy filing. The trustee will be responsible for meeting with your lenders so that you won’t have to meet with them ever again.
Declaring bankruptcy is a major decision, but it doesn’t have to be daunting. Consult with a Phoenix, Arizona bankruptcy lawyer to know more about the bankruptcy process and bankruptcy laws in Arizona today! We, Dodds Law Firm, are a bankruptcy law firm and we are committed to helping you get back on track and begin rebuilding a new life. Consult with us today.