1. What is the difference between Chapter 7 and Chapter 13 bankruptcies?
Chapter 7 is usually referred to as the "liquidation" type of bankruptcy. It is the simplest, and usually quickest, form of bankruptcy. Assets and liabilities are listed. Assets may be reduced by applying certain "exemptions". If liabilities exceed assets, most types of debts are "discharged". The purpose of Chapter 7 is to give the debtor a fresh financial start with little or no remaining debt. Under the new bankruptcy laws, debtors must meet a "means testing" before they can file a Chapter 7 bankruptcy.
Chapter 13 is for wage earners or those with a regular income. Under Chapter 13, the debtor retains assets and a plan is proposed whereby the debtor pays a portion of income to creditors over a three to five year period. Most debts remaining after the plan is finished will be discharged. The bankruptcy court must approve the plan and payments are made to the trustee who then pays the creditors. This plan is advantageous when a debtor has substantial non-dischargeable debt or assets that the debtor wants to preserve.
2. What debts are dischargeable?
Most debts that exist at the time of filing for bankruptcy are dischargeable unless specifically excluded by bankruptcy law. Under most circumstances, debts such as medical bills, credit cards, consumer loans and other unsecured loans are dischargeable in bankruptcy. Obligations for child support, most student loans, most taxes, court ordered fines and criminal restitution are examples of some obligations that are not dischargeable in bankruptcy.
3. Can I keep my house...car...credit card...?
There are many variables under the bankruptcy laws. Sometimes what you are allowed to keep is determined by state law. Each state determines which types of property are "exempt", that is excluded, from the bankruptcy estate. Often personal items, some bank accounts, retirement plans and equity in primary residences are exempt, although the amount of the exemption varies greatly from state to state. In some states debtors can also choose to use federal exemptions in some situations which may or may not be more favorable than the state exemptions. Arizona does not offer the choice of using federal exemptions.
For most debtors, whether they can keep their house or their car will depend on whether the property has been given as "collateral" for a loan. Secured creditors must usually be paid or will be able to take their collateral.
A list of exemptions for the state of Arizona can be found here.
4. How do I keep creditors from calling and harassing me?
Federal and State law prevents creditors from employing certain harassing techniques when attempting to collect a debt. The best way to stop the calls is to provide the caller with the name and telephone number of your attorney and ask that they do not contact you directly. Most consumer attorneys will take these calls. If a creditor continues to call after you have asked them not to, or is abusive in any way, tell your attorney. The creditor may be breaking the law.
5. Will I be able to get credit again after bankruptcy?
Probably, and perhaps sooner than you might think. Many companies have found that people who have gone through a bankruptcy are good credit risks because they no longer are overwhelmed with debt and cannot file bankruptcy again for eight years. Not all credit providers feel this way so there may be some providers who will not extend credit as long as the bankruptcy appears on your credit report. These providers, however, are becoming the exception.
One of the services included at no extra charge when you file through The Law Office of Barry W. Rorex is a report on your current credit score along with a projection of your credit score several months after filing bankruptcy. Most filers find that their credit scores actually get better after bankruptcy.
The most important factor is that you rebuild your credit wisely so that you do not get into the same situation again.
6. What is "Means Testing"?
Under the 2005 bankruptcy law changes, potential filers must now qualify in order to file under Chapter 7. The qualification consists of a comparison of the debtor's gross income with state median incomes for the same size household. If the debtor's gross income is less than the state median, the inquiry is complete and the individual debtor may file a Chapter 7 or a Chapter 13. If the debtor's gross income exceeds the state median further calculations are necessary involving deductions and adjustments to the gross income. After all of the calculations are completed, debtors who do not qualify are not eligible to file under Chapter 7.
For your convenience, The Law Office of Barry W. Rorex has provided a Means Test Calculator that you can use to see if you qualify.
7. What is the automatic stay?
The automatic stay is actually an order from the bankruptcy court that prevents creditors from proceeding against you in any action to enforce or collect on an obligation. It goes into effect immediately upon the filing of a bankruptcy petition. Before creditors may proceed against the debtor, they must go to the bankruptcy court and obtain relief from the automatic stay.
8. When should I file for bankruptcy?
The timing of a bankruptcy filing may be very important and is one of the first things you should discuss with a bankruptcy attorney. Whether a filing should be accelerated or delayed may depend on such things as the length of time a debtor has lived in a jurisdiction, the pendency of a divorce proceeding or inheritance, or the possibility of a pay raise or possible unemployment.
9. What do I get to keep after bankruptcy?
The purpose of the bankruptcy laws is to give debtors a fresh financial start. While the answer to this question depends on the debtor's unique circumstances, every state has established certain "exemptions". These are items or possessions that are not counted as a part of the debtor's assets. In Arizona, these exemptions can include some clothing, furniture, personal items (such as a watch or wedding ring), some amounts of cash, tools, pets, some vehicles, and other items of a similar nature. Identifying these exemptions in your personal situation is one of the things a debtor should discuss with their attorney.
10. Do I have to have an attorney to file bankruptcy?
No. Attorneys are not required for the filing of a bankruptcy petition but are almost always desirable. Bankruptcy, even so called "simple" ones are complicated. There are many traps for the unwary. There are deadlines which if missed can result in a petition being dismissed. There are state and federal exemptions to be considered. There are complicated timing factors and procedural issues that often seem counter-intuitive. In almost all situations, the debtor will obtain more value from a bankruptcy if assisted by a competent bankruptcy attorney.
Note: Some jurisdictions allow non-attorneys to assist filers in filling out the bankruptcy forms. You need to understand that this assistance is not the same as assistance from an attorney. These non-attorneys are not allowed to provide you with legal advice, which is probably what you need much more than help filling out forms.