Hundreds of people in Glendale, Arizona file bankruptcy each year, just like you. If you are unable to manage your debts and feel bankruptcy may be your best option, it is important to understand how the process works. Bankruptcy is a fairly straightforward process for most people, but certain rules and procedures must be observed.

Credit Counseling

Individual (i.e., non-business) debtors must complete pre-bankruptcy credit counseling prior to filing. The U.S. Department of Justice maintains a list of approved credit counseling agencies in the state of Arizona. A debtor must complete counseling within 180 days (six months) of filing a bankruptcy petition. The bankruptcy court will need to see a certificate from the counseling agency proving you completed the course. The course is a short, single class that can be completed online through your lawyer.

Means Testing

Consumer bankruptcy comes in two forms: Chapter 7 and Chapter 13. If you are considering whether bankruptcy is your best choice, learn about which option will work best for you. In Chapter 7, or no-asset bankruptcy, you discharge most or all of your debts and you do not have to pay them. In exchange, you also have to give up your non-exempt assets. Most debtors have few or no non-exempt assets and keep their property. In Chapter 13, or reorganization bankruptcy, you keep your property but have to make payments to the court for three to five years. Some debts will be repaid, and others can be discharged.

In order to qualify for Chapter 7 bankruptcy, you must pass a “means test.” Basically, you need to prove that you do not have enough assets or disposable income to meet the terms of a Chapter 13 repayment plan. The means test is based on the median income for a household of your size. For example, a two-person household in Glendale, AZ, with an average income of less than about $75,000 would earn less than the mean income in the state and pass the means test without further inquiry.  The amount of money you can earn increases with the number of people in the household.  A two-person household that makes more than about $75,000 filing bankruptcy in Glendale could still pass the means test but would face more scrutiny.

Filing Requirements

Once you have completed the required credit counseling and determined your Chapter 7 eligibility, you can file for bankruptcy. In the United States, bankruptcy is a matter of federal law, so you need to file your paperwork with the U.S. Bankruptcy Court for the District of Arizona.  The Federal Bankruptcy Court in Phoenix handles the bankruptcy filings for Glendale.

The bankruptcy petition itself requires you to disclose your name, address, Social Security number, and basic information about your assets and debts. You are also required to pay a filing fee of $338. If you cannot afford this fee at the time of filing, you may ask the bankruptcy court to allow you to pay in installments, which it almost always does, or waive the fee altogether.

What Happens After You File?

Once you file for bankruptcy, the court will issue an automatic stay. This is a legal order stopping any efforts to collect debts you owe. For example, a credit card company cannot send you any collection letters or file a lawsuit against you while the stay remains in effect. Even if a creditor has already obtained a judgment against you, the stay prevents them from taking any further action, such as garnishing your wages.

If you file for bankruptcy, Arizona law allows you to keep certain “exempt” property, including part of your home equity, household furnishings, clothing, and so forth. Up to $6000 in equity is exempt in a car or other motor vehicle.  Equity is the difference between what you owe on the vehicle and what it is worth.  If you owe more than the vehicle is worth, there is no equity.  The equity exemption is doubled in a vehicle for a disabled person.  Usually this just requires having disabled plates or a windshield decal.  Any non-exempt property may be used to pay off your creditors. In Chapter 7 cases, creditors often receive little and the debtor receives a discharge within a few months. Chapter 13 cases are more complicated since they involve a court-supervised repayment plan that can last up to five years.

Whether you plan to file for Chapter 7 or Chapter 13, you should work with an experienced Arizona bankruptcy attorney, and a local Glendale bankruptcy lawyer. There is a lot of paperwork involved in a bankruptcy, and if you are not familiar with the process, it is easy to make a mistake that may cost you dearly. A bankruptcy lawyer can guide you through each step and make sure you get the fresh start you deserve.