FAQ

Q: What is a chapter 7 bankruptcy?
A: A chapter 7 bankruptcy is referred to as a liquidation proceeding and was created to help individuals get out from under their financial debts and start over. If an individual cannot afford to payback debts they have accrued, they would file a chapter 7 bankruptcy. In a chapter 7 bankruptcy the debtor would be able to keep specific exempt property. Additionally, the debtor would turn over all non-exempt property to their bankruptcy trustee who then converts it into cash for distribution to the creditors.

Click here to read more about Arizona Property Exemptions.

Q: Who can file for chapter 7 bankruptcy?
A: Anyone who can show that they are unable to pay sufficient plan payments to make a reasonable distribution to the creditors can proceed in Chapter 7, if they have not gotten a bankruptcy discharge in the 8 years prior. In order to determine if a filer will be able to pay sufficient plan payments, the Bankruptcy code requires filers to submit a Means Test–which is a calculation of income versus expenses–to determine if granting a discharge under Chapter 7 would be an abuse of the code. However, even if the Means Test raises a presumption of abuse, the presumption can be rebutted by showing that in the totality of the circumstances the filers’ financial situation leaves them with insufficient disposable income to pay into a plan.

Q: What are the steps for filing a chapter 7 bankruptcy?
A: Our Mesa Arizona chapter 7 bankruptcy attorney will give you a packet of materials for you to prepare and return. This includes a questionnaire we need you to fill out and return, along with supporting documents. When we get the documents back from you we prepare your Chapter 7 Bankruptcy Petition. The Petition is a summary of your financial picture, but very few of your supporting documents will be filed with the court, so they will not become public record. While we prepare your petition, you will need to complete your Pre-filing class. This is a 90 minute class which is done online, or by telephone. After preparing your Petition, you will meet with us again to go over the Petition and ensure its accuracy. We will then file the Petition. About a week later you will get a letter from the Trustee asking for copies of your documents, and you will need to send those to the Trustee. About three weeks after that, you will have your 341 hearing, the meeting of the creditors. This lasts only about 5 minutes. You will also need to complete the post-filing debtor’s education course. In most cases this is all that is required to get your discharge.

Q: What is a chapter 13 bankruptcy?
A: A chapter 13 bankruptcy is referred to as a reorganization bankruptcy. When an individual files a chapter 13 bankruptcy, the debtor would have the opportunity to repay some or all of their debts. A chapter 13 bankruptcy allows the debtor to retain certain assets that would otherwise be liquidated in a chapter 7 bankruptcy.

Q: What is the difference between a chapter 7 bankruptcy and a chapter 13 bankruptcy?
A: The short answer typically given is that Chapter 7 is a liquidation bankruptcy and Chapter 13 bankruptcy is a restructuring of debt. However, this is not a useful answer. Both Chapter 7 and Chapter 13 will discharge unsecured debts, and both will discharge any secured debts where you choose to surrender the security. The real distinction is that in Chapter 7 you do not have to pay plan payments and you get your discharge in about 5 months; but in Chapter 13, while you must make plan payments equal to your disposable income each month, you can discharge an unsecured mortgage. In a Chapter 13 bankruptcy you can reduce what you owe on a vehicle by what is called a cramdown, if you qualify for cramdown. In Chapter 7 you can reduce what you owe on a vehicle by a redemption. A Chapter 7 bankruptcy will also stay on your credit for 10 years, whereas a Chapter 13 will only be on your credit for 7 years.

Q: Who can file a chapter 13 bankruptcy?
A: Nearly everyone with regular income can proceed in Chapter 13, as long as they have not gotten a bankruptcy discharge in the 4 years prior to filing.

As with Chapter 7, the main question will be whether the filer will be able to make sufficient plan payments to make an adequate distribution to the creditors. The Plan will require the filer to pay plan payments roughly equal to their disposable income, which is your income minus allowed expenses.

Q: What are the steps for filing a chapter 13 bankruptcy?
A: A Chapter 13 bankruptcy starts in much the same way as a Chapter 7 bankruptcy. Our Mesa chapter 13 bankruptcy lawyer will give you a packet of materials for you to prepare and return. This includes a questionnaire we need you to fill out and return, along with supporting documents. When we get the documents back from you we prepare your Chapter 7 Bankruptcy Petition. The Petition is a summary of your financial picture, but very few of your supporting documents will be filed with the court, so they will not become public record. While we prepare your petition, you will need to complete your Pre-filing class. This is a 90 minute class which is done online, or by telephone. After preparing your Petition, you will meet with us again to go over the Petition and ensure its accuracy. We will then file the Petition. About a week later you will get a letter from the Trustee asking for copies of your documents, and you will need to send those to the Trustee. About three weeks after that, you will have your 341 hearing, the meeting of the creditors. This lasts only about 5 minutes. You will also need to complete the post-filing debtor’s education course. The difference between a Chapter 7 and Chapter 13 is that a Plan is also prepared and filed with the Petition. The Plan specifies the number and amount of the payments to be made. You will need to make your first Plan payment before the 341 hearing. The minimum length of the Plan is also determined by the means test.

Q: What is a means test?
A: The Means Test is a three part Test designed to determine if you have the ‘means’, the ability, to make regular plan payments. Nearly anyone with the means to pay will not be allowed to proceed in Chapter 7. However, even if you qualify for a Chapter 7 bankruptcy you may still do a Chapter 13 bankruptcy if you wish, for any of the reasons why a Chapter 13 might be preferred. It is our job to complete the analysis for you. That is one of the reasons you hire us. But basically, the test works as follows: The first part determines whether your annual income is less than the median income of a household in Arizona of the same size. If so, then you qualify for a Chapter 7. Also, if you qualify under the first part, but you decide to proceed in Chapter 13, then you will only be required to have a 3 year plan. This is not true of any of the other parts. Also, if you qualify under the first part, then you do not complete the rest of the test.

The second part of the test is a calculation of income versus expenses. Essentially, the Means Test compares your average monthly income over the last 6 months to your average allowed expenses in the same period to determine if you have sufficient disposable income to require you to make plan payments. If you will have roughly $117 disposable income each month or less, then granting a discharge under Chapter 7 is not considered an abuse of the code, and you still qualify for Chapter 7.

If you must complete the final part of the test, then if your payments will total more than $11,725 over 60 months, the presumption of abuse arises. But if your payments will total less than $11,725, then if you are unable to pay off at least 25% of your unsecured debt, you will still qualify for Chapter 7.

However, even if the Means Test raises a presumption of abuse, the presumption can be rebutted by showing that in the totality of the circumstances the filers’ financial situation leaves them with insufficient disposable income to pay into a plan.

Q: Will my creditors stop harassing me once I file for bankruptcy?
A: Your creditors BETTER stop harassing you once you file. Bankruptcy includes what is called the Automatic Stay. This is a stopping of all creditor collection activity immediately upon the filing of your Petition.

Any creditor that ignores this can be liable to you for any actual and punitive damages, including attorneys’ fees. Even creditors that have not yet learned of the bankruptcy petition can be liable to you for actual damages. We cannot control what your creditors do, so we cannot promise that your creditors will all obey the Automatic Stay. But if they do not, then the Bankruptcy code has strong protections for you.

Q: What are the court costs when filing a bankruptcy?
A: The filing fee for a chapter 7 bankruptcy in Maricopa County is $306.00. The filing fee for a chapter 13 bankruptcy in Maricopa county is $281.00.

Click here for more information about bankruptcy court costs.

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