Bankruptcy is the legal process by which a person or business files a petition which effectively states that they are unable to repay outstanding debts to their creditors. The person or business who is filing for bankruptcy (referred to as the debtor) has all of their assets and debts evaluated in order to determine which debts may be forgiven, restructured, or otherwise paid off through asset liquidation.

How debt is eliminated depends largely on the type of bankruptcy filed (Chapter 7 or Chapter 13 for individuals) in addition to the amount of debt owed and assets owned.

Chapter 7 bankruptcy is the most common type of bankruptcy for individuals and is often referred to as a liquidating bankruptcy. This is because in a Chapter 7 bankruptcy non-exempt assets are often liquidated or sold to pay creditors. The remaining debt is usually discharged, meaning you are no longer obligated to repay it and your creditors can no longer try to collect it.

This is a good option for those who have a high amount of unsecured debt, such as credit card debt, medical bills, past due rent or utilities, personal loans, payday loans, or judgments.

Chapter 13 bankruptcy is the other most common type of personal bankruptcy. While more complicated, filing for Chapter 13 bankruptcy allows you to retain most if not all of your assets while restructuring your existing debt into more affordable payments. 

After filing, you will usually continue making payments for three to five years. If you have any remaining debt following the successful completion of your repayment plan, it may be discharged.

Chapter 13 bankruptcy can be a solid option for those who want to retain as many assets as possible, such as a house, vehicle, and non-exempt property that could be liquidated in a Chapter 7 bankruptcy case. In order to qualify for a Chapter 13 repayment plan, you will need to prove that you earn enough income to reasonably make the proposed payments.

While different bankruptcy chapters can discharge or restructure many kinds of debt, there are certain types of debt that are considered non-dischargeable and must be repaid. These include:

-Child support
-Alimony
-Other family support obligations
-Most state and federal taxes
-HOA fees (unless you surrender your home)
-Student loans (except in cases of extreme hardship)
-Criminal fines and restitution

That being said, many other kinds of debt can be discharged during a bankruptcy. This includes:

-Credit card bills
-Medical bills
-Personal loans
-Payday loans
-Title loans
-Past due rent and utility bills
-Wage garnishment
-Civil court judgments not for criminal restitution
-Vehicle repossession deficiency balances
-Mortgage loan debt

The bankruptcy process takes time, as there are certain steps that must be followed within specific time frames. 

Within 180 days before you file for bankruptcy, you will be required to complete a credit counseling course from an accredited agency. The course is offered online and takes as little as an hour to complete.
You must be a resident of the state of Arizona for at least 91 days prior to filing for bankruptcy.

After filing your petition, you’ll be required to take a two-hour debtor education course. 

You will have a meeting with your bankruptcy trustee, sometimes called a 341 meeting, around 45 days after filing for bankruptcy.
Any government entity including the IRS that has a claim against you has 180 days to submit proof of debts you owe the government.

If you’ve filed for Chapter 7 bankruptcy, you will generally receive a notice that your debt has been discharged 6 to 9 weeks after the 341 meeting.

If you’ve filed for Chapter 13 bankruptcy, your discharge won’t be complete until 3 to 5 years after filing and completing your court-ordered repayment plan.

How much you’ll pay to file for bankruptcy depends on several factors, including which type of bankruptcy you file for and the degree of legal assistance you require in handling your creditors. 

At Lerner and Rowe Law Group, we assess a flat attorney fee and offer affordable payment plans to make getting a financial fresh start that much easier. We accept most forms of payment, including debit cards, cash, or checks.

Many people are afraid of filing for bankruptcy because they believe it will ruin their credit. This common misconception may stem from the fact that a bankruptcy will show up on a credit report for a significant period of time. A Chapter 7 bankruptcy will remain visible for up to ten years. A Chapter 13 bankruptcy may stay on your credit report up to seven years.

However, just because you have filed for bankruptcy does not mean your credit score itself will be ruined for the next seven to ten years. You’ll likely see a noticeable dip in your credit in the months immediately following your bankruptcy, but you can begin rebuilding your credit almost just as quickly.

To boost your credit score following a bankruptcy, you can also apply for a secured credit card or personal loan, which can help you start reestablishing your creditworthiness when you make payments regularly.

If you file for Chapter 13 bankruptcy, you can most likely keep your home and your vehicle so long as your payments are current at the time you file and you continue to keep up with payments once you enter the repayment phase. 

If you file for a Chapter 7 liquidation bankruptcy, it is still possible to keep your primary residence by using the Arizona Homestead Exemption. This allows you to protect up to $150,000 in equity in your primary residence from your creditors as long as you’re up to date on mortgage payments.

Arizona’s Motor Vehicle Exemption will also allow you to retain up to $6,000 in equity for your vehicle, or up to $12,000 in equity if you are disabled, possibly allowing you to keep your car.

Contrary to popular belief, filing for bankruptcy doesn’t mean you’ll never be able to buy a home. With a bit of patience and some careful financial planning, you could potentially buy a home within several years of filing for bankruptcy.

After your bankruptcy has been completed and your debts have been discharged, you’ll want to check your credit score and credit report regularly to ensure that its contents are accurate. Next, you’ll want to begin rebuilding your credit through secured credit cards and installment loans, which will help prove your creditworthiness to potential mortgage lenders down the line. 

Within two to four years of filing bankruptcy and taking these steps, you should be able to qualify for a mortgage with reasonable terms in order to buy a home.

There is no limit on the number of times you can file bankruptcy. However, there are time limits on how often you may file for each type of bankruptcy. In general, the following rules of thumb determine how often you may file.

If you filed for Chapter 7 bankruptcy, you must wait eight years before filing for Chapter 7 again.

If you filed for Chapter 13 bankruptcy, you must wait at least two years before filing for Chapter 13 again.

If you previously filed for Chapter 7, you must wait four years before filing for Chapter 13 bankruptcy.If you previously filed for Chapter 13, you must wait six years before filing for Chapter 7 bankruptcy.

(You may be able to file for bankruptcy again sooner depending on how much of your unsecured debt was paid during your last bankruptcy. A bankruptcy attorney can help you determine whether or not you may be eligible.)

An attorney is not required in order to file bankruptcy, but having one can greatly increase your chances of successfully discharging all or most of your debt. A successfully completed bankruptcy is contingent upon meeting strict deadlines and providing extensive documentation to the bankruptcy trustee who oversees your bankruptcy.

An experienced Arizona bankruptcy lawyer knows the ins and outs of bankruptcy proceedings and can help you gather, organize, and present all the documents you need to file for bankruptcy. By avoiding errors that can result in your bankruptcy being dismissed, you can save precious time and get on your way to financial recovery faster.

At Lerner and Rowe Law Group, our team has decades of experience representing clients during Chapter 7 and Chapter 13 bankruptcies. From your initial free consultation to preparing crucial paperwork to representing you in court at the 341 meeting, we’ll be with you every step of the way. 

Have more questions about filing for bankruptcy in Arizona? Schedule your free consultation today by calling 602-667-7777, chatting with us online, or submitting the details of your bankruptcy claim now.