Where filing for divorce would be based on state law, filing for bankruptcy is actually based on federal law. State law does, however, determine what property of yours can be protected in bankruptcy (known as “bankruptcy exemptions”). Each state has unique bankruptcy exemptions. In this article, you’ll learn the steps to file for Chapter 7 bankruptcy, the most common type, and Arizona’s particular exemptions.
To discuss a possible bankruptcy case of your own, never wait to consult with a Phoenix bankruptcy attorney.
Chapter 7 Bankruptcy in Arizona
Regardless of which chapter of bankruptcy you file, the process, for the most part, is fairly similar. For consumers (non-businesses), there are two kinds of bankruptcy: Chapter 7 (fresh start, debts wiped out) and Chapter 13 (a debt consolidation and repayment plan). In this article, the focus will be Chapter 7. It’s important to understand that not all debts can be discharged in a Chapter 7 bankruptcy, such as:
- Back taxes
- Child support
- Student loans
- Debts from personal injuries/wrongful death cases against you
- Court judgments or fines
Steps for an Arizona Bankruptcy
The bankruptcy process is not over-complicated, but there are some things you’ll need to do and understand the order of. Here is an overview of the process:
- Talk to a bankruptcy lawyer to find out if you qualify for bankruptcy. This means you have not already filed Chapter 7 in the last eight years, have a qualifying income, and have not had another bankruptcy case dismissed in the last six months. Most bankruptcy lawyers offer free consultations to see if you qualify.
- Complete an approved two-hour credit counseling course. Think of this like a mandatory divorce waiting period. It’s the court’s way of making you think extra carefully about filing bankruptcy before doing so. These courses cost around $50 generally.
- Complete and file the bankruptcy paperwork. Your attorney will walk you through all of this, ensure everything is accurate and complete, and file it with the bankruptcy court on your behalf. Be prepared by gathering all of your bills and financial documents in advance.
- The “bankruptcy stay” goes into effect. Although this is not a step you need to take or anything you have to do, it’s a vital part of the process. The second your lawyer files your bankruptcy case, your creditors are no longer allowed to contact you about your debts. The court will notify each and every one of your creditors that you have filed for bankruptcy protection. If a creditor calls you before they receive official notice from the court, you can simply tell them, “I filed for Chapter 7 yesterday.” They will know they are no longer allowed to have contact with you, much like if a restraining order had been filed. Likewise, even though you have not had your bankruptcy hearing or had your debts officially discharged yet, you no longer need to pay certain creditors. Your attorney will further explain this so you understand who you can stop paying and who must continue being paid.
- Go to your bankruptcy hearing at the courthouse. Your attorney will be there with you for the “341 hearing.” The purpose of the hearing is for your creditors to have a chance to dispute anything or confirm information. Creditors, however, do not often attend these hearings unless something seems really out of order. The judge may also ask you a few questions about various details of your paperwork. It’s not a trial, and there are no witnesses, testimony, evidence, opposing counsel, or anything of that nature. Hearings are generally scheduled a few weeks after you file your paperwork.
- The final step is having your debts officially discharged, which generally takes about six months from the date you file for bankruptcy protection. Having your debts discharged means your bankruptcy case was approved by the court, processed, and is now finalized. With your case officially closed, you’ll then begin the journey to rebuild your credit. Your Arizona bankruptcy lawyer can give you some tips on how to get started over again after filing Chapter 7.
Arizona Bankruptcy Exemptions
Again, each state chooses its own exemptions or property you can protect while filing bankruptcy. If you have more property than what falls under the exemptions, then you can lose it by filing bankruptcy (It would be liquidated to pay off your debts).
There are a lot of exceptions, special rules, and so on when it comes to bankruptcy exemptions, so it is highly recommended that you consult an experienced bankruptcy lawyer for details. For example, most of these values are doubled if you file bankruptcy jointly with your spouse. Your lawyer can also help you strategize so you don’t lose any of your assets, if possible.
- Primary Residence: $150,000 worth of equity
- Retirement Savings & Social Security/Disability Pay-Outs: 100% exempt
- Vehicles: $6,000 worth of equity
- Work-Related Tools/Equipment: $5,000 of total value
- Home Goods/Furniture: $6,000 of total value
- Books: $250 of total value
- Clothing: $500 of total value
- Wedding Ring: $2,000 in value
- Bank Account: $300 balance per account
- Guns: $2,000 of total value
- Bicycle: $2,000 in value
- Musical Instruments: $400 of total value
- Life Insurance Pay-Out: $20,000
- Pets: 100% exempt
Note that these amounts change often, so again, please contact us for clarification and guidance. For example, if you do have more than $150,000 in equity in your primary residence, you can “reaffirm” the debt. Likewise, values should be calculated based on the current “garage sale” price of the item, not based on what you paid for the item when it was new.
Reach Out to Our Phoenix Bankruptcy Attorneys Now
Ready for a fresh start in 2024? Let the experienced, knowledgeable, friendly Phoenix bankruptcy lawyers at Want a Fresh Start help you navigate this transition. There are many tactical errors people make when filing bankruptcy on their own that often don’t surface until after the filing or even after the discharge. We are happy to answer any and all of your questions. Contact our office right away to schedule a free legal consultation.