1Q - Can I keep my home?
A – It is possible, and quite common, for individuals and families to keep their home in both Chapter 7 and Chapter 13 cases. Homestead Exemption. The Bankruptcy Code provides that certain property is exempt from creditors and not subject to seizure by the bankruptcy trustee. Each State is allowed to determine if it will use the federal exemptions provided for in the Bankruptcy Code or the State may provide their own statutory exemptions. Arizona has opted out of the federal exemptions and has created its own exemptions that may be used by individuals and families that file bankruptcy in Arizona (Arizona Exemptions). In Arizona, under the Homestead Exemption, you may exempt up to $150,000 of equity in your home. If you have purchased your home in the last 1,215 days, that exemption may be limited to $125,000.00. What if I have a mortgage? In a Chapter 7 bankruptcy, you may keep your home if it has a mortgage but you will need to continue to pay the mortgage payments because the creditor still maintains a lien against the property. In Chapter 13 bankruptcy, you may keep your home if it has a mortgage but will need to continue to pay a first mortgage; however, there is a way to remove a lien held by a 2nd or home equity line creditor by including the creditor in the Chapter 13 payment plan.
1Q - Can I keep my car?
A – It is possible, and quite common, for individuals and families to keep their car in both Chapter 7 and Chapter 13 cases. Arizona Vehicle Exemptions. The Bankruptcy Code provides that certain property is exempt from creditors and not subject to seizure by the bankruptcy trustee. Each State is allowed to determine if it will use the federal exemptions provided for in the Bankruptcy Code or the State may provide their own statutory exemptions. Arizona has opted out of the federal exemptions and has created its own exemptions that may be used by individuals and families that file bankruptcy in Arizona (Arizona Exemptions). You may exempt one car with a fair market value of up to $5,000. If you are physically disabled, the fair market value of the vehicle may be up to $10,000. If you are married you may double the amount of the exemption. For example, if you are married and have a car worth 18,000 and have a loan on the vehicle of $10,000, you may exempt the $8,000 of equity you have in the car and keep the car; however, you will need to continue to pay off the loan on the car.
1Q - What assets can I keep?
Most people find that they are able to exempt and keep almost all of their property.
The Bankruptcy Code provides that certain property is exempt from creditors and not subject to seizure by the bankruptcy trustee. Each State is allowed to determine if it will use the federal exemptions provided for in the Bankruptcy Code or the State may provide their own statutory exemptions. Arizona has opted out of the federal exemptions and has created its own exemptions that may be used by individuals and families that file bankruptcy in Arizona (Arizona Exemptions)
. Property that you may keep includes, but is not limited to, the following:
- $150,000 of equity in your home ($125,000 if recently purchased)
- $5,000 vehicle ($10,000 for a married couple)
- $4,000 household goods, home furnishings, furniture, and appliances ($8,000 for a married couple)
- Up to a six months supply of food, fuel, and provisions
- $500 of wearing apparel ($1,000 for a married couple)
- $250 of musical instruments ($500 for a married couple)
- $500 of pets and animals ($1,000 for a married couple)
- $1,000 engagement and wedding rings ($2,000 for a married couple)
- Cash value of certain life insurance policies that you have had for over two years
- Court ordered child support or spousal support
- Annuities that you have had contract for over 2 years
- Qualified retirement plans
- To review the details of these and all other exemptions allowed under Arizona law click on the following link(Arizona Exemptions).
1Q -Do I need a Bankruptcy attorney?
We recommend that you use an experienced bankruptcy attorney to assist you in preparing and filing your bankruptcy petition. The US Bankruptcy Code is complex and nuanced and it is important to strategically approach the entire bankruptcy process. An attorney can review your entire financial situation and help you make decisions about which Chapter would be best for you, what property you can keep, what assets may be at risk if you file, and they can help you avoid costly mistakes. However, you are not required to use an attorney. The following is a disclosure provided by the Bankruptcy Court about using an attorney. The Bankruptcy Code requires attorneys to make this disclosure.
“Debt Relief Agency Disclosures Required by 11 USC §527(b)
IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY
If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. The law requires an attorney or bankruptcy petition preparer to give you a written contract specifying what the attorney or bankruptcy petition preparer will do for you and how much it will cost. Ask to see the contract before you hire anyone.
The following information explains what must be done in a routine bankruptcy case to help you evaluate how much service you need. Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and decide which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents (Petition, Schedules, Statement of Financial Affairs, and in some cases a Statement of Intention) must be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you must attend the required first meeting of creditors, where you may be questioned by a court official called a “trustee” and by creditors.
If you choose to file a Chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.
If you choose to file a Chapter 13 case, in which you repay your creditors what you can afford over 3 to 5 years, you may also want help preparing your Chapter 13 plan and with the confirmation hearing on your plan, which will be before a bankruptcy judge.
If you select another type of relief under the Bankruptcy Code other than Chapter 7 or Chapter 13, you should consult someone familiar with that type of relief.
Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only lawyers, not bankruptcy petition preparers, can give you legal advice.”
1Q - What is the Means Test and how do I know if I can file a Chapter 7 bankruptcy?
In 2005 when Congress made major changes to the bankruptcy laws, they added the Means Test which is meant to ensure that those with adequate “means” to pay their debts are not allowed to file Chapter 7 bankruptcy. If you desire to file a Chapter 7 bankruptcy, you will be required to take the Means Test.
The first step of the Means Test is to determine if you make less than your state’s median income for your household size. If so, you pass the means test. If you make more than the median, you do not automatically fail but you must complete the next step of the Test by calculating all of your monthly income and then deducting specific monthly expenses to determine your monthly disposable income. If you are upside down and do not have any disposable income, or if your disposable income is irregular and/or very low, you may still file Chapter 7 bankruptcy. Those who are not able to file Chapter 7 bankruptcy are those who have sufficient monthly disposable income to pay some or all of their debts.
1Q - How long does a Bankruptcy stay on my credit report?
A Chapter 7 bankruptcy itself will remain on your credit report for 10 years. In most cases, the individual creditors reporting that their account has been included in the bankruptcy will remain for 7 years. A Chapter 13 bankruptcy will remain for 10 years if dismissed or 7 years after a successfully completed reorganization plan.
1Q - Will I be able to obtain credit in the future?
Most people find that they are able to obtain some credit immediately after bankruptcy, and that over time, they are able to rebuild their credit history and improve their credit score. Many of our clients have reported that they have received credit card offers and auto finance offers in the mail very soon after their bankruptcy was discharged. It is important to remember that you just received a fresh start by going through the bankruptcy process and that you should be cautious as you obtain new credit. Many of these offers received are with low limits and very high interest.
This process takes time. Most important is that you rebuild your credit history and score by paying any post bankruptcy credit as agreed. Even with the bankruptcy still on the credit report, its effect on the credit score is reduced and scores may increase sufficiently to qualify for a mortgage as early as 2 years after bankruptcy.