Which bankruptcy should I file?
If you’re in debt and think you need to file bankruptcy, but aren’t sure which bankruptcy to file, this article is for you.
This article will help you know how to decide which Bankruptcy Chapter to file. While this article contains valuable information to help you in your decision, it is still very important to talk to a professional. Gaudiosi Law offers free consultations.
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Finding the right chapter of bankruptcy to file depends on many factors including your income, household size, the type of debt you have, assets you own, and many other factors. Speaking with a bankruptcy professional will help you make this decision. The decision on which chapter of bankruptcy to file should not be taken lightly. It is important to give your attorney all of the information about your income and assets you own in full disclosure so your attorney can help you make the right choice.
How much debt is worth filing for bankruptcy?
There’s really no figure on how much you need to owe before you can file for bankruptcy as different individuals have different financial situations and incomes. However, if you owe a lot of money and do not see a foreseeable future where you can pay off what you owe, then it’s time to talk to a bankruptcy lawyer. Bankruptcy should always be a last resort. When you feel that you have exhausted all other reasonable efforts to pay your debt and still are unable to get out from underneath your obligations, bankruptcy is a great way to get a fresh start.
Should I file Chapter 7 or Chapter 13?
Choosing between Chapter 7 and Chapter 13 bankruptcy depends on your individual financial situation and goals. Let’s break it down:
Chapter 7: The Fresh Start
Most people will qualify for chapter 7. However, you should take a look at what assets you own. Chapter 7 is a liquidation bankruptcy meaning that a bankruptcy trustee will be looking at all of your assets. You are required to disclose all assets including both personal property, real property and all financial assets. Most of your assets will be protected through bankruptcy laws called exemptions. You should consult with a bankruptcy lawyer to make sure the assets you own are protected. If you have assets that are not protected, then consider whether chapter 13 would be better for you.
Consider Chapter 7 if you have a significant amount of unsecured debt (like credit cards, personal loans or medical bills) and little to no income to repay it.
This option allows you to discharge most unsecured debts, providing you with a fresh start without a repayment plan.
Chapter 13: The Repayment Plan
Chapter 13 is a good option if you have a regular income and want to keep valuable assets, like your home or car, but are struggling to meet monthly payments.
Chapter 13 involves a court-approved repayment plan, allowing you to catch up on missed payments over three to five years. Chapter 13 may also be a good option if you have debt that may not be dischargeable in a chapter 7 case such as recent tax debt or domestic support obligations like child support or spousal maintenance. These debts must be repaid in a chapter 13 plan, so you may be able to avoid excessive interest, fees or penalties imposed by the taxing authorities or get caught up on domestic support obligations through a structured chapter 13 repayment plan. Chapter 13 can also help you avoid losses due to foreclosure, repossession, bank levies, judgments and garnishments. Filing bankruptcy under any chapter will stop creditors from imposing such legal actions, but chapter 13 is the best way to help you keep assets you want to retain such as your home or car if you are behind on the payments.
Ultimately, the decision depends on your unique circumstances. If you’re looking for a clean slate and have limited income, Chapter 7 might be the way to go. If you have a steady income and want to protect valuable assets, Chapter 13 could be the better fit. You can contact Gaudiosi Law for advice. We offer free consultations.
To learn more about which bankruptcy chapter is suitable for you read this article.
If I file Chapter 7 what can I keep?
Filing for Chapter 7 bankruptcy doesn’t mean you have to give up everything you own. The process involves liquidating non-exempt assets to pay off creditors, but there are exemptions in place to protect certain properties. Here’s a general overview:
1. Homestead Exemption:
Many states allow you to keep a certain amount of equity in your primary residence. The specific amount varies by state. In Arizona, your homestead exemption is up to $400,000 of equity in your primary residence. Your exemption may be less if you have not lived in the home for very long. It is important to contact a bankruptcy lawyer if you are a homeowner and considering bankruptcy.
2. Personal Property Exemptions:
You can typically keep necessary items such as clothing, furniture, and household goods. The value allowed varies by state. In Arizona, bankruptcy filers may protect household goods for up to $15,000 of assets per filer.
3. Vehicle Exemption:
There’s usually an exemption for a certain amount of equity in your car. If you own your vehicle outright and its value is within the exemption limit, you can keep it. In Arizona, your vehicle exemption is up to $15,000 of equity in one vehicle per filer.
4. Retirement Accounts:
In most cases, retirement accounts like 401(k)s and IRAs are protected from creditors in bankruptcy. Typically these types of accounts are 100% protected.
5. Tools of the Trade:
Items essential to your profession, such as tools or equipment, may be exempt up to a certain value. In Arizona, you may exempt up to $4,000 of tools of the trade assets.
6. Public Benefits:
Certain public benefits, like Social Security, unemployment benefits, and public assistance, are typically exempt from the bankruptcy process.
It’s important to note that exemptions vary by state, and some states allow you to choose between state and federal exemptions. However, Arizona does not allow for Federal exemptions unless you have lived in Arizona for less than 2 full years prior to filing your case. If you have not lived in Arizona for two full years, you need to contact a bankruptcy lawyer before filing any bankruptcy to discuss your exemption options.
What can you not do after filing for Chapter 7 bankruptcy?
Filing for Chapter 7 bankruptcy comes with certain restrictions and responsibilities. Here are some common limitations and actions you may be restricted from after filing:
Accumulating New Debt:
If you filed a chapter 7 case, you may acquire new debt after your discharge. The discharge is a court order you receive near the end of your case which eliminates your responsibility for all dischargeable debt you disclosed in your case. Once you receive your discharge, you may be able to qualify for a car, unsecured or secured credit cards or other forms of debt. If you filed a chapter 13 case, acquiring new debt may require court or trustee approval. You should consult with an attorney before filing a chapter 13 case.
Selling Property Without Approval:
In chapter 7 cases, you may be able to sell property if it was exempt from your trustee. However, you should consult with an attorney to make sure you know all the laws regarding the sale of assets before selling anything. In chapter 13, selling assets while in a chapter 13 repayment plan may require trustee or court approval. Some of the money may need to be turned over to the trustee to help with repayment of your debt.
Repaying Certain Creditors:
You should not selectively repay certain creditors before others. The bankruptcy process is designed to treat all creditors fairly. It is wise to avoid preferential payments which means paying any one creditor to the detriment of other creditors. This is especially true when it comes to repayment of loans to friends or family. It is important to discuss these issues with a bankruptcy lawyer.
Transferring assets to family or friends with the intent to hide them from the bankruptcy process is not allowed. Such transfers could be considered fraudulent. The transfer of any asset without receiving equivalent value or consideration may be reversed by a bankruptcy trustee. If you have transferred anything out of your name within two years of filing your case, you need to consult with an attorney before filing any bankruptcy case.
Ignoring Court Obligations:
You must adhere to court requirements, attend hearings, and provide requested documentation. Failure to do so may result in dismissal of your case. Generally, you will have at least one hearing with your bankruptcy trustee. Attendance at that hearing is mandatory in any bankruptcy filing.
Filing for Chapter 7 Again Too Soon:
There are time limits on how often you can file for Chapter 7 bankruptcy. Generally, you must wait eight years from the date of a previous Chapter 7 discharge before filing another chapter 7 case. If you need to file again, you may be able to file a chapter 13 case. Contact a bankruptcy lawyer to find out what your options are.
Not Completing Financial Management Course:
You’re required to complete a financial management course before receiving a discharge in all bankruptcy cases. Failing to do so may impact your ability to have your debts discharged.
Hiding Assets or Providing False Information:
Providing inaccurate information or hiding assets during the bankruptcy process can lead to serious consequences, including the denial of discharge. All information on your bankruptcy documents or testimony given to the court or your trustee is under oath and it is considered perjury if you provide a false oath or hide assets. Doing so could result in not only denial of your discharge, but you may be prosecuted by the U.S. government for lying on a bankruptcy form or testimony.
Frequently asked questions
Can I keep a credit card when filing Chapter 7 or 13?
When filing for bankruptcy, you will likely need to surrender all your credit cards as part of the process. This is because the purpose of obtaining a bankruptcy discharge is to discharge your debts and provide a fresh financial start. Here are some key points regarding credit cards and filing for bankruptcy:
Automatic Account Closure:
Once you file for Chapter 7 or 13, your credit card accounts may be automatically closed by the issuing banks. This is a standard practice as all credit accounts will be notified about your bankruptcy.
No New Charges:
It’s generally advised not to use your credit cards once you’ve decided to file for bankruptcy. Incurring new debt before filing may complicate the bankruptcy process, and those charges may not be dischargeable. If you are using your credit cards, we advise you to stop using them, if possible. Recent charges with the 90 day period before filing may be disputed by the credit card lender. Most lenders will overlook charges for food or necessities, but it is better if you can stop using them all together.
Reaffirmation Agreements typically involve your car loan. Reaffirmation means you are removing the loan from your bankruptcy and once approved by the court, you will remain responsible for the loan even if you get a bankruptcy discharge. The advantages of reaffirmation are; the lender may be able to report your payments to your credit report and you may be able to have direct contact with the lender. The disadvantage is you will lose your bankruptcy protection on the loan. This means that if you default on your car loan and the car is repossessed, you have no further protection from your bankruptcy discharge or the bankruptcy court. You should give careful consideration as to whether reaffirmation is in your best interest. Talk to your bankruptcy lawyer for advice before making this decision.
In Arizona, there are no reaffirmation for home loans or mortgages.
Secured Credit Cards:
After the bankruptcy process, you may have the opportunity to rebuild your credit with a secured credit card. These cards are backed by a cash deposit and can be a useful tool for rebuilding credit responsibly.
When should you file Chapter 13?
Filing for Chapter 13 bankruptcy can be a strategic move in various financial situations. Here are some common scenarios in which filing for Chapter 13 may be a suitable option:
Chapter 13 is often preferable if you have a regular income and can afford to make monthly payments to a bankruptcy trustee. This allows you to set up a repayment plan to gradually pay off your debts over three to five years.
If you’re facing foreclosure and want to keep your home, Chapter 13 can help you catch up on mortgage arrears over the repayment period, allowing you to retain your property. The Bankruptcy Court also offers mortgage modification for those who have outstanding debt on their mortgage that would be difficult to overcome with monthly payments to a chapter 13 plan. Mortgage modification through the bankruptcy court is a permanent modification to your mortgage loan once approved.
Car Loan Issues:
If you’re behind on car loan payments and want to avoid repossession, Chapter 13 provides an opportunity to catch up on missed payments and potentially reduce the overall amount owed on the vehicle.
If you have significant non-exempt assets that you want to protect from liquidation, Chapter 13 allows you to keep your property while still addressing your debts through a court-approved repayment plan.
Chapter 13 allows for the repayment of certain tax debts over time, providing a structured approach to addressing these obligations. Any recent tax debt within three years of your filing will not be dischargeable is either chapter 7 or chapter 13, but must be repaid in a chapter 13 plan. Tax debts older than three years may be dischargeable and forgiven depending on certain qualifications. Consult with your bankruptcy lawyer for advice as to whether your tax debt is likely to be discharged.
Unsecured Debt Repayment:
While Chapter 7 discharges unsecured debts, Chapter 13 allows you to repay a portion of these debts through the court-approved plan, often at a reduced amount. Unsecured debt is repaid based on your income and what you can afford to pay after secured loans and other priority debts are paid.
When should you file for Chapter 7 bankruptcy?
Filing for Chapter 7 bankruptcy may be a suitable option in various financial situations. Here are some common scenarios in which filing for Chapter 7 might be considered:
Overwhelming Unsecured Debt:
If you have a significant amount of unsecured debt, such as credit card balances or medical bills, and you lack the means to repay them, Chapter 7 may provide a way to discharge these debts and get a fresh start.
Chapter 7 is often appropriate if your income is below the median for your state, or if your disposable income after allowable expenses is insufficient to make meaningful payments to creditors through Chapter 13.
No Assets to Protect:
If you don’t have substantial assets that you want to protect from liquidation, Chapter 7 may be a viable option. Certain exemptions protect essential assets, but it’s crucial to understand how they apply to your specific situation.
Foreclosure or Repossession Concerns:
If you’re facing the threat of foreclosure on your home or repossession of your vehicle, Chapter 7 can provide temporary relief by putting an automatic stay in place, halting collection efforts. However, you must be able to catch up and remain current on these obligations within a short amount of time after filing. If you will require more time to catch up on these obligations, consider chapter 13 instead.
Financial Fresh Start:
If your primary goal is to obtain a financial fresh start and quickly eliminate most of your unsecured debts, Chapter 7 is designed for this purpose.
Excessive Medical Debt:
Medical expenses can quickly lead to overwhelming debt. If you’re burdened by extensive medical bills, Chapter 7 can help discharge these debts.
No Co-Signed Debts:
If you don’t have co-signed debts that you’re concerned about, Chapter 7 may be a simpler option, as it doesn’t involve a lengthy repayment plan like Chapter 13.