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We can help! Call now for a FREE Debt Consultation! 480-968-3100 or toll free at 1-800-790-8616 What is Chapter 7? A Chapter 7 Bankruptcy is a liquidation bankruptcy in which the individual debtor seeks to discharge as much of their debt as possible and obtain a fresh start. In Chapter 7 you can discharge most debts, including credit card debt, payday loan debts, medical debt, certain tax debts, and judgments resulting from lawsuits and deficiency judgments from repossessed cars or foreclosed upon homes. If you have a secured debt such as a mortgage, you have the option of either surrendering the house and having the debt discharged through the Chapter 7, or if you are current on the payments you can keep the house as long as you continue to make the payments. At the end of the Chapter 7 proceeding, the court enters a discharge which cancels most, but not all debts. In the majority of the cases that we file, our clients do not lose assets. This is either because they simply do not own any meaningful non-exempt assets, or because we guided them through the process of legitimate pre-bankruptcy planning. What is Chapter 13? A Chapter 13 is a reorganization bankruptcy in which you put together a plan that specifies how the debts are going to be paid back. You make a payment each month to a court appointed trustee. The trustee acts as a disbursing agent and pays your creditors for you. At the end of the plan, the court enters a discharge cancelling the remainder of your debt with a few exceptions. Chapter 13 has many advantages, including: If you are behind on your house payments, the back payments, late charges and other fees are put into the plan and the trustee cures the default over the course of the plan. If you have a second or third mortgage against your house, you may be able to have the second or third lien stripped off so that you no longer have to make the payments and do not owe the debt. If your home has a homeowners association and you are behind on the HOA payments, the back payments will be added to your Chapter 13 Plan and repaid over time. This is true even if the HOA has a lien against the property. If you have a vehicle loan, you can keep the vehicle even if you are behind on the payments at the time that your case is filed. You will no longer be required to make the vehicle payments once the Chapter 13 case is filed. In some cases, the Chapter 13 Plan will allow you to pay the lesser of the vehicle’s value or debt amount through the plan. At the end of your plan, the lien will be released even if you were only required to repay the lender an amount equal to the value of the vehicle. You can potentially save thousands of dollars. If you have a vehicle loan and the vehicle has been repossessed, as long as you file the Chapter 13 before the vehicle has been sold, it is more likely than not that the bankruptcy court will order that the lender return the vehicle to you. You will keep the vehicle without having to make any more payments directly to the lender. The payments will be made by your bankruptcy trustee to the lender. If you owe the IRS or State Department of Revenue for what are considered priority tax debts, the taxes will be repaid through the Chapter 13 Plan. As long as a lien has not been filed, the tax debt will be repaid without any further interest or penalties. You may save hundreds or even thousands of dollars. If a lien has been filed, the debt will be repaid through the plan with interest. A student loan creditor can not collect from you while you are in the Chapter 13. Therefore, although student loan debts are not dischargeable unless the court determines that there is an undue hardship, you can keep the creditor off your back until you receive your discharge and are then in a better position to repay the loan. You get to keep your non-exempt assets. Unlike a Chapter 7, a Chapter 13 trustee can not require that you turn over non-exempt assets as long as you meet the reconciliation requirement. How long will my credit report show that I filed bankruptcy? The Fair Credit Reporting Act specifies that a bankruptcy filing will be part of your credit report for ten (10) years. See 15 U.S.C. §1681c(a)(1). For a complete text of the law governing credit reporting see www.ftc.gov/os/statutes/031224fcra.pdf What property is exempt? The answer to this question depends on what exemption statutes you are required to use. If you have lived in Arizona for the 730 days (2 years) before the bankruptcy is filed the Arizona exemption statutes must be used. If you have not lived in Arizona for 730 days before the filing of the case, the exemption statutes for the state that you lived in during the 180 days preceding the 730 day period must be used. If you lived in more than one state during the 180 day period, the exemption statutes for the state that you lived in the most during the 180 day period must be used. To make things even more complicated, if the previous state that you lived in requires that you be a resident of that state to claim the exemptions, you must then use the Federal exemptions. If you are unsure what exemptions will be applied in your case, consult with your attorney. Which debts are not discharged in bankruptcy? The filing of a Chapter 7 or 13 will have no effect on criminal matters. These include such matters as: Issuing a bad check (ARS 13-1807); the concealment, disposal, removal, or sale of mortgaged personal property (ARS 44-1219); failing to return rented property (ARS 13-1806). Does discharging a debt in bankruptcy create a taxable event? No. The discharge of a debt in bankruptcy, unlike most other types of discharge of indebtedness without payment, is excludable from gross income for tax purposes. See Internal Revenue Code, 26 U.S.C. §108(a)(1)(A). The current version of Form 1099C states that “Debts cancelled in bankruptcy are not includable in your income.” http://www.gpo.gov/fdsys/pkg/USCODE-2010-title26/html/USCODE-2010-title26-subtitleA-chap1-subchapB-partIII-sec108.htm Can I get a repossessed vehicle back? In most cases, you can get your vehicle back if you file a Chapter 13 bankruptcy petition BEFORE the vehicle has been sold by the creditor. It has been our experience that once the petition is filed, most creditors voluntarily return the vehicle to you. If the creditor does not voluntarily return the vehicle, we file a Complaint for Turnover in the bankruptcy court. In most cases, the vehicle will be returned to you and you will no longer be required to make the vehicle payments directly to the lender. The payments will be made to the lender by your Chapter 13 Trustee out of the plan payments that you make to the Trustee. Can a home foreclosure be stopped? Yes, as long as the bankruptcy petition is filed before the foreclosure/ Trustee Sale takes place. As soon as the bankruptcy petition is filed with the court, a stay immediately goes into effect. The stay prohibits creditor action against you, including prohibiting a foreclosure or trustee sale from taking place. If you want to keep the property, you MUST file the Chapter 13 bankruptcy BEFORE the foreclosure or trustee sale takes place. If you file a Chapter 13, you will not be required to come up with all of the missed payments and fees to keep the house. The mortgage payment arrears, late charges and fees will be paid back through your Chapter 13 plan over a period of 3-5 years. All you will be required to do is make all mortgage payments that come due after your case is filed along with the Chapter 13 plan payment. When will I have to move out of my house if I am surrendering it? You own the house until the foreclosure/Trustee Sale takes place. Since you own the house, you can stay in the house until the sale takes place. Once the sale takes place, you will no longer have an ownership interest in the property and must move out. If you do not move out of the property when the sale takes place, you will receive a demand to vacate. You must immediately vacate. If you do not do so, the next visit you will receive will likely be from the Sheriff. The Sheriff will likely arrive with a professional mover who will remove the property from your former house and place the property in storage. You will not see the property again unless you pay for the cost of the move. In addition, you may also be assessed with the reasonable rental expense to cover the period in which you occupied the house following the Trustee Sale. We can help! Call now for a FREE Debt Consultation! 480-968-3100 or toll free at 1-800-790-8616 |