Tucson Bankruptcy Attorneys  

Chapter 7 Bankruptcy

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a means by which a person is released (discharged) from paying his or her debts by filing bankruptcy. The person (debtor) is permitted to keep those assets that are exempt from liquidation, reaffirm (continue to pay) on secured assets he or she wants to keep, and surrenders all of the other non-exempt assets to a Trustee.  Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds of the same are distributed to the creditors. Ordinarily, most (if not all) debts would be discharged within months of the attorney filing a bankruptcy petition.  An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home.

Who Can File For A Chapter 7 Bankruptcy?

Any person who resides in, who does business in, or who has property in the United States may file under chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds or who received a Chapter 7 discharge or completed a Chapter 13 plan within the last 8 years.

How much does it costs to file a chapter 7 bankruptcy?

The Court's filing fee is $299.00 for a chapter 7 and $274 for a chapter 13, whether you are filing bankruptcy individually or jointly with your spouse. In addition to the court filing fee there are also two classes each individual must take. The cost for the two classes is approximately $100.00. Our office will assist you in making arrangement for both classes. Attorney fees vary based on the complexity of the case.

What is the role of the attorney in a bankruptcy proceeding?

A bankruptcy lawyer is responsible for

• Analysing the amount and character of the debts owed.
• Assembling the information and data necessary to prepare the bankruptcy schedules and statements for signature and filing.
• Preparing the proper petitions, schedules, and statements for filing with the bankruptcy court.
• Reviewing the debtor’s credit history and records to identify all of the creditors.
• Attending the Meeting of Creditors with the debtor.
• Preparing and filing amended schedules as required by the court.
• Addressing issues related to redemption, surrender or reaffirmation.
• Responding to inquiries from creditors and/or the Bankruptcy Trustee.

How do I know if I qualify to file Chapter 7 Bankruptcy?

A debtor must satisfy the “Mean’s Test” in order to qualify for Chapter 7 bankruptcy. The "Mean's Test" is a formula that determines whether the person filing for bankruptcy protection has enough income to pay the expenses that are allowed, plus extra money to pay to non-priority, unsecured creditors such as credit cards. If your income is below the average for your state, then you can file for Chapter 7 bankruptcy without any problems. If our income is above the state average, however, the means test determines if you have enough disposable income to pay off some or all of your debt. looks at your disposable income (the amount left over after paying your expenses). If your disposable income is too high, the Bankruptcy court may decide that you can pay off at least some of your debts, and prevent you from filing for Chapter 7 bankruptcy. A debtor who fails the Means Test may be required to convert the case to a chapter 13 or lose the bankruptcy protection completely.

What classes are required before and after filing a bankruptcy?

Due to concerns of people abusing the protections provided for through the US Federal bankruptcy code, everyone who files a Chapter 7 bankruptcy is required take a credit counselling class within 180 days PRIOR to filing their bankruptcy petition. Proof of completion of the class must be filed at the same time as the petition itself. The purpose of the pre-filing counselling class is to help the debtor gain a full understanding of the process of a new bankruptcy filing, to understand the consequences to which bankruptcy leads with respect to their credit score, and to investigate available alternatives to the decision to file. After filing for bankruptcy, a second class is required for education purposes. The debtor must take this class between the time that he or she file a bankruptcy petition and the bankruptcy is discharged. A bankruptcy is not considered complete, and the debts are not eliminated, until the bankruptcy is discharged by the court. The discharge of the bankruptcy is the final step in the process. Typically, the pre-discharge classes are two hours in length. During that class the consumers learn about budgeting and more effective money management skills. They also learn about the proper uses of credit, how to re-build a positive credit record, how to recognize predatory lending practices and how to avoid such practices, and how to take steps to protect against identity theft.

What is the Automatic Stay?

The filing of a bankruptcy petition creates an automatic stay under 11 U.S.C. §362 prohibiting all collection actions. A few days after a chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If you cannot wait this long, it is permissible for you or your attorney to notify one or more of the creditors of the filing of the case. In short, it stops most lawsuits that have been filed against you, garnishments, foreclosures, repossessions, and creditor harassment. The most common actions not affected by the filing of a chapter 7 case are criminal proceedings, paternity actions, and collection of domestic support obligations (child support) through wage withholding.

Will I lose all of my property if I file bankruptcy?

Certain properties are declared to be exempt and out of reach of your general creditors. If you owe back child support or spousal maintenance/alimony, however, your exempt property may also be seized and sold to pay the debt. Here is a list of just some of the property exempted by Arizona:

1. Homestead. Up to $150,000 of the equity in a home, townhouse, condominium, mobile home, or mobile home and lot in which the debtor resides.

2. One motor vehicle not in excess of a fair market value of one thousand five hundred dollars. If the debtor is maimed or crippled, the fair market value of the motor vehicle shall not exceed four thousand dollars.

3. Domestic pets, horses, milk cows and poultry not in excess of an aggregate fair market value of five hundred dollars.

4. All food, fuel and provisions actually provided for the debtor's individual or family use for six months.

5. Some household furniture, furnishings and appliances personally used by the debtor are exempt from process provided their aggregate fair market value does not exceed four thousand dollars. You must reside in Arizona for the last 2 years in order to use Arizona exemptions. Otherwise, you will have to use the state that you lived in for the six months prior to the last 2 years prior to filing a bankruptcy.

What happens to the property turned over to the Trustee?

The bankruptcy Trustee will immediately begin to collect all of your property to which he is entitled by law. You are obligated to protect those assets until the Trustee can make arrangements to pick them up. A public auction is held and your property is converted into cash, which is then distributed to those of your creditors who file claims against your bankruptcy estate. After the auction of the items, your creditors will be notified by the Trustee to file a proof of claim; usually within six months after the Meeting of Creditors. All claims not objected to will receive a pro-rata share of whatever the Trustee has collected. The fees for the auctioneer, trustee and their attorney are paid out of the funds they collected, not by the debtor.

What will happen if there is no money or property to turn over to the bankruptcy Trustee?

If you have no money or property of a value in excess of the exemptions allowed by law, your case will be considered a “no-asset” case.

How does filing bankruptcy affect my credit rating?

Once you file for bankruptcy, your credit rating will drop anywhere from 80 to 220 points. When you file for bankruptcy, you are still obligated to pay student loans, child support, taxes, fees and other types of debt. If you are delinquent on these payments, your credit rating may drop an additional 70 to 120 points. Lenders will compare your information against others who have filed for bankruptcy to calculate your credit rating. A Chapter 7 bankruptcy will remain on your credit report and potentially affect your credit rating for 10 years. It may not take long after your discharge, however, to substantially raise that rating. Several financial institutions openly solicit business from recent debtors, apparently because they know that the debtor cannot file another chapter 7 for at least eight years. If there are compelling reasons for filing bankruptcy that were not within your control, such as an injury or illness, the creditor may take that into consideration in rating your credit after bankruptcy.

What is a Reaffirmation Agreement?

A debtor can keep non-exempt property for which a debt is owed by reaffirming the debt. This is most commonly done for mortgages and vehicles. The debtor will sign a new agreement with the lender re-establishing his/her personal liability to a creditor. This agreement is then submitted to the court. The Court may refuse to sign the reaffirmation agreement if it appears that the Debtor cannot afford the contractual payments.

What is a Discharge in Bankruptcy?

A discharge is the court's order stating that you do not have to pay your debts to the creditors that were listed in your bankruptcy documents, so long as the court did not entered a non-dischargeability order. Other debts that are not discharged under the current laws include student loans, child support, alimony/maintenance, government fines or penalties, most taxes and a few others. The effect of a discharge is that debtors are released from personal liability for all dischargeable debts, and all creditors, whose debts are discharged, are prohibited from performing any act to collect such debts from the debtors. This is known as a permanent, federal injunction. The granting of a discharge does not stop the Debtor's involvement in his/her case. The debtor must continue to comply with the orders of the court, such as continuing surrender assets or tax refunds to the Trustee after the discharge is entered. In the event the Debtor fails to perform those duties an action may be brought to revoke the discharge. This will mean that the Debtor went through all this hassle and ends up with no protection from his/her creditors garnishing wages, suing or seizing bank accounts.

What debts are not discharged in bankruptcy?

If your discharge in bankruptcy is granted, in most circumstances all of your debts will be discharged except the following list, which is intended to be only an outline of most debts that are not discharged.

1. Taxes due within the last three years or taxes not assessed because of fraud.

2. If the bankruptcy court so rules, debts for obtaining money, property, services, or an extension, renewal, or refinancing of credit by means of false pretenses, fraud, or a false financial statement used with intent to deceive.

3. Debts not listed on your bankruptcy papers, unless the creditor had knowledge of the case in time to file a claim.

4. If the bankruptcy court so rules, debts for fraud, embezzlement or larceny. 5

. Debts for domestic support obligations (alimony, maintenance or support).

6. If the bankruptcy court so rules, debts for intentional injury.

7. Debts for certain fines and penalties payable to governmental units.

8. Debts for student loans that were insured by a governmental agency, unless not discharging the debt would impose an severe undue hardship. This undue hardship must be properly plead to the Court and the judge will decide based on your unique situation.

9. Debts that were or could have been listed in a prior bankruptcy case in which you either waived your discharge or your discharge was denied.

10. Debts that are owed to a single creditor for a total of more than $500 for the purchase of "luxury goods" incurred by you in the 90 days before you filed the petition for bankruptcy. The 90 day period may be long, depending on your history of paying, what the money was used for and your "intent" at the time of incurring the debt.

11. Cash advances that total more than $750 that arose from the extensions of consumer credit under an open—end credit account incurred by you an the 70 days before the bankruptcy was filed, regardless of the number of creditors involved.

12. Debt for personal injury judgments against you resulting from car accidents in which you were a drunk driver.

13. Post-petition Home Owner Association fees. 14. Monies owed to a pension, profit-sharing, stock bonus or such other plan.

What about my tax refund check?

Any right that you had to a tax refund at the time of filing the bankruptcy is an asset of your bankruptcy estate and belongs to your trustee. At the time that you get your tax refund check, you must turn that check over to the trustee. You should anticipate that the trustee will take a portion of the refund equal to the amount due to you on the date of filing.

Under what conditions should a husband and wife both file under chapter 7?

Both husband and wife should file if some of the debts to be discharged are owed by both spouses. In a community property state, such as Arizona, most debts incurred during the marriage are the joint responsibility of each spouse even if only one spouse's name is on the debt. If both spouses are liable for some of the debts and if only one spouse files under chapter 7, the creditors often try to coerce the non-filing spouse into paying the debts, even if he or she has no income or assets. If a husband and wife are considering a divorce, it is recommended that they file for bankruptcy together before the divorce, rather than after the divorce as individuals.

May employers or government agencies discriminate against me for filing under chapter 7?

It is illegal for either private or governmental employers to discriminate against a person as to employment solely because that person has filed under chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including a driver's license), permits, and similar grants because that person has filed under chapter 7.

When will I go to court in a chapter 7 case and what do I do there?

Typically, you will only have to go to court once about a month after your case is filed. This is known as the Meeting of the Creditors. There you will be put under oath and questioned about your bankruptcy papers and your assets by the trustee in bankruptcy. In all probability few, if any, of your creditors will appear.

Our experienced law firm will provide you with strong representation when you need it most.  For your free initial consultation or more information about bankruptcy call one of our bankruptcy attorneys in Tucson today at 520.888.4200, or contact the law firm using our web form.