Bankruptcy can provide those struggling with debts that they cannot afford to pay a fresh start to rebuild their financial future. Some people avoid the bankruptcy process because it seems complex and overwhelming. If you have the assistance of an experienced Arizona bankruptcy attorney, the process can be smooth and uneventful. Debtors without the assistance of an experienced Arizona bankruptcy attorney file many bankruptcies that run into difficulties. There are two basic consumer bankruptcy procedures, which include Chapter 7 and Chapter 13. Each process has different steps and procedures, so we have provided an overview of the procedures for a bankruptcy for both Chapter 7 and Chapter 13.
The first steps in the bankruptcy process were both created by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) which enacted certain restrictions and limitations on the bankruptcy process. The first step in the process is determining whether you qualify for a Chapter 7 bankruptcy also known as “Liquidation Bankruptcy”. If you qualify for a Chapter 7 bankruptcy, it will result in a complete discharge of all unsecured debts, but the BAPCPA imposes a means test that must be satisfied to qualify for Chapter 7 bankruptcy relief. The means test is designed for debtors whose financial debts are primarily consumer debts so if your debts are primarily business-related debts you may qualify for a Chapter 7 bankruptcy regardless of the means test.
A person automatically qualifies under the means test if his or her average gross family income during the six-month prior to filing is less than the median income in the state of Arizona. For single wage-earning households with a four-person household, this threshold for Arizona is $64,016 as of March 2011. If a person’s income exceeds this threshold, then the debtor must pass the second prong of the means test to qualify for a Chapter 7 bankruptcy. The process of determining whether a person qualifies under the second prong of the means test involves a complex series of financial calculations. The process is designed to determine whether a person filing bankruptcy has the financial ability to repay a substantial amount of their unsecured financial obligations.
Generally, this process involves deducting certain expenses from your current monthly income to determine your monthly disposable income. This calculation of expenses does not involve your actual expenses but statutory established deductible expenses. The process of calculating whether you qualify for bankruptcy after deducting these expenses is complicated, so it is important to seek the advice of an experienced Arizona bankruptcy law firm. If you do not qualify for Chapter 7 under the means test, then you must file Chapter 13 which involves making monthly payments toward your debts over a 3-to-5-year term. While you may have some portion of your unsecured debts discharged at the end of a Chapter 13 plan, you have to pay some portion of your unsecured debt if you do not qualify for a Chapter 7.
Whether you file Chapter 7 or Chapter 13, you are required to participate in pre-bankruptcy counseling during the 180-day period prior to filing for bankruptcy protection. Once you have completed the credit counseling course, you will receive a certificate of completion that must be filed with the bankruptcy court.
If you qualify for a Chapter 7 bankruptcy and have met the consumer counseling requirement, you must prepare and file your bankruptcy petition and schedules. The full bankruptcy package of forms is elaborate and can be very confusing. The petitions include schedules of all assets, income information covering multiple years, and lists of all creditors along with the amount of the obligations that you owe to each creditor. Upon filing your bankruptcy petition, you will receive the protection of the automatic stay, which prohibits further attempts by creditors to enforce debts outside of the bankruptcy process. The automatic stay also results in suspension of any garnishments, lawsuits, and most other pending legal proceedings with some limited exceptions.
341(a) Meeting of Creditors
In most Chapter 7 bankruptcy proceedings, the 341(a) meeting of creditors is the only hearing. The hearing is semi-formal and despite its name is rarely attended by creditors except for a mortgage holder if you own a home. The 341(a) meeting is an opportunity for the bankruptcy trustee to ask you questions under oath about the information contained in your bankruptcy petitions. You are also required to provide pay stubs and your most recent tax return prior to the meeting of creditors.
You are also required to complete pre-discharge counseling before you receive your Chapter 7 discharge. Once you have completed the process above you will receive a formal discharge of most of your unsecured debts. There are some exceptions such as family court obligations including child support, spousal support, some taxes, and other specific obligations.
Like a Chapter 7, you must file a bankruptcy petition and detailed petitions covering your assets, debts and income. A Chapter 13 bankruptcy filing must also include a carefully calculated payment plan. The plan must provide for repayment of all secured obligations and certain priority unsecured obligations which include unpaid wages, family court obligations like child support or spousal support, unpaid taxes and other unsecured obligations that are given priority status under the Bankruptcy Code.
The hearing in a Chapter 13 bankruptcy proceeding is called a “confirmation hearing” where the trustee will consider whether to approve your Chapter 13 bankruptcy plan. Creditors may appear and oppose approval of the plan. A key issue may be whether there is sufficient income to fund the Chapter 13 repayment plan and the plan provides for appropriate treatment of various classes of creditors.
If the plan is confirmed, then you will receive a discharge if you make all plan payments over the term of the plan. The Chapter 13 plan may be a three or five year plan and requires that all plan payments be made during the pendency of the plan. If all plan payments are made, then you will receive a discharge. Certain obligations will not be eliminated by a Chapter 13 discharge including spousal and child support obligations, student loans, criminal fines and certain long-term financial obligations that extend beyond the term of the Chapter 13 plan (i.e. mortgage obligations).
While this overview provides a general overview of the procedure of a bankruptcy, the actual process is far more nuanced and complicated especially for a layperson without the assistance of an experienced Arizona bankruptcy attorney.
The Arizona bankruptcy lawyers of Stone Rose Law can help guide you through the process so call us today at 480-498-8998 so that we can discuss your situation. We can also explain the process in more detail and answer your questions, so we urge you to contact us.