Which debts qualify under a Chapter 7?
Chapter 7 is sometimes referred to as a “fresh start bankruptcy” or a “straight bankruptcy” and completely discharges all of your qualifying debt.
The types of debt which qualify to be cancelled under this action include:
- Personal loans
- Credit cards
- Medical bills
- Repossession deficiencies (the balance owed following repossession or foreclosure)
- Amounts owed due to most lawsuits and court judgments
- In certain instances, income taxes more than three years old
Some types of debt not typically covered by a Chapter 7 bankruptcy include student loans (unless you can prove undue hardship), most types of taxes, alimony and support payments and fines.
A bankruptcy lawyer can review your financial situation and goals and help to determine if a Chapter 7 is most suitable for your needs. It may also be worth reviewing Chapter 7 vs. Chapter 13. You legal counsel can advise as to how each would affect your personal circumstances.
What is a Chapter 7 Bankruptcy?
Filing Bankruptcy under Chapter 7 is generally known as an immediate liquidation or discharge of all your dischargeable debts without a payment plan. A Chapter 7 Bankruptcy requires that the person(s) filing qualify based on recent and current income vs. your current expense. This calculation is known as the “Means Test”. Our office will schedule a free consultation for you to determine whether you qualify to file a Chapter 7 Bankruptcy.
The Chapter 7 Bankruptcy Means Test
Since the new changes to the Bankruptcy code in October 2005, people who want to file for a Chapter 7 Bankruptcy must first qualify under what is known as the “Chapter 7 Means Test.” The Chapter 7 Means Test is a mathematical formula applied to your current and recent income versus your current expenses in order to determine whether or not you have enough money available to make some minimal payments to creditors in a Chapter 13 Bankruptcy. The entire purpose of this new change in the Bankruptcy Code is to reserve Chapter 7 Bankruptcies for those without enough means to pay, and to push those with available Disposable Income into a Chapter 13 Bankruptcy Plan so that their creditors will at least receive some sort of partial payment prior to your debts being discharged.
The first calculation of the Means Test is actually quite simple. Our office simply needs to compare your income to the median income of families your same size here in Arizona. If you are below the median income for a family of the same size then you automatically qualify to file for a Chapter 7 Bankruptcy. If however your income is above the median income for a family of the same size, it does not mean that you do not qualify for to file a Chapter 7 Bankruptcy, but rather we must then perform an additional calculation.
This second calculation is more complicated and actually takes into account certain allowable expenses, determined by local IRS guidelines, and subtracts them from your income to determine your “Disposable Income.” In simple terms, if your Disposable Income over the next five years is totals less than $6,000 (or $100 per month), then you qualify and can file a Chapter 7 Bankruptcy.
If however, your Disposable Income is greater than $10,000 (or $166 per month) over the next five years, then you do not immediately qualify to file aChapter 7 Bankruptcy and are not allowed to unless you can show the Bankruptcy Court that there are special circumstances.
For those who fall in between $100 – $166 per month (or $6,000 – $10,000) over the next five years of Disposable Income, our office will need to perform yet another calculation to determine your eligibility. This calculation compares yourDisposable Income to a percentage of your unsecured debt (most likely credit card debt) in order to determine whether any sort of repayment to your creditors is possible. If your Disposable Income is greater than 25% of your unsecured and non-priority debts then you must file a Chapter 13 Bankruptcy unless you can demonstrate to the court that you have special circumstances.
This means test can be a difficult and confusing process. Please contact our office and we will perform the test for you for free to determine your eligibility. Our attorneys offer free consultations to perform this calculation and offer you our professional advice concerning your individual circumstances. We will also gladly counsel you in all of your bankruptcy alternatives.
The Bankruptcy Laws require that all persons who file for bankruptcy receive a Credit Counseling Briefing from a certified credit counseling agency before and after they file a chapter 7 bankruptcy petition. In fact, our office will need the certificate provided by the agency at the completion of your course in order to even file your bankruptcy petition. Without this certificate your case may be dismissed.
Most credit counseling courses can be done online and can take anywhere from 20 minutes to an hour. The credit counseling agency will simply explain aspects to financial management, how to do a budget analysis, and will likely discuss some alternatives to bankruptcy. Our office will gladly provide you with an up to date list of all the approved credit counseling agencies in Arizona.
The Automatic Stay – A Debtor’s Protection!
One of the best aspects about a Bankruptcy is the absolute protection offered to debtors. Once we file your bankruptcy federal law allows an Automatic Stay to be put into place. An automatic stay simply means that all collections proceedings cease. Creditors cannot continue to call or send letters. Your home can not be sold at auction. Your cars can not be repossessed. Your wages can not be garnished. If your wages are being garnished then they must stop. Any law suits filed against you must stop. Your utilities companies will be forced to turn your utilities back on. Any tax levies placed by the IRS will stop. The Automatic Stay offers amazing protection to you and your family. However there are some things that it cannot stop.
The Automatic Stay will not stop any criminal proceedings nor any support actions. Support actions are lawsuits against you where someone is seeking to establish paternity, establish or modify, or even collect child support or spousal maintenance.
This relief from the automatic stay will remain in effect until you complete your bankruptcy with a discharge, or the judge lifts the stay due to a creditor successfully requesting it be lifted, or the property you are trying to protect is no longer a part of the bankruptcy estate.
Arizona Bankruptcy Exemptions – Property Creditors Cannot Take Through Bankruptcy:
When you file for bankruptcy there are exemptions which protect certain property from liquidation in bankruptcy. In most cases, exemptions will protect all of your property. For any property unprotected by an available exemption, the trustee can seize it and liquidate it in order to pay your creditors. However, in most cases a trustee will only sell your unprotected property if he or she can obtain enough money from the sale to actually make significant payments to your creditors. If the trustee does not seize the property then it is considered abandoned by the trustee.
Keep Your House. Keep Your Car. Keep Assets by Reaffirming or Redeeming Secured Debts.
Although a Chapter 7 Bankruptcy may help eliminate unsecured debts, you may still have debts which are secured by the assets attached to the debts. The two most common secured debts are a house and a car. Each of these debts are secured or attached to the asset, in other words, the bank lent you the money on the condition that they get the asset back if you don’t make timely payments.
In Arizona, a debtor may choose to keep his or her house and or car (or any other secured debt) by simply electing to keep the asset during the bankruptcy process. In order to keep the secured asset the debtor will be required to continue making the required payments under the existing contract on that asset.
However, if you are behind in payments on an asset you wish to keep then you should consult an Experienced Bankruptcy Attorney for solutions to keep that asset. Additionally, there are many other factors and strategies which need to be discussed when deciding which assets to keep or which to surrender.
Chapter 7 Bankruptcy Fees
While Attorneys fees may vary depending on the complexity of your case, our fees at Dodge & Vega are set as affordable flat fees. We DO NOT bill for any client communication! This means that through the entirety of your bankruptcy case you may contact our office and speak with attorney at no charge to you. Unlike most firms, we do not have any hidden or additional charges. We also DO NOT bill for any copy charges, facsimile charges, postage charges, etc. Our flat fee really is a flat fee! Notwithstanding all of these services included in your bankruptcy flat fee, our firm is one of the most affordable bankruptcy firms in the Valley. Contact us today and schedule your free no obligation Bankruptcy Consultation.
The Federal Bankruptcy Court fees are as follows:
- Chapter 7 Bankruptcy Petition Filing Fee: $299.00 (A Chapter 7 is the immediate discharge of most unsecured and secured debts)
- Chapter 13 Bankruptcy Petition Filing Fee: $274.00 (A Chapter 13 is a re-organization of your debts with a structured repayment plan prior to the discharge of your debts).
- Bankruptcy Conversion Fee: $15.00 (This is to change a Chapter 7 into a Chapter 13 or vice versa)
- Bankruptcy Amendment Fee: $26.00 (This fee is assessed anytime you want to make changes to certain documents after your initial filing)
Legal Help with Chapter 7 Bankruptcy
At Dodge & Vega, PLC, we understand the stress you are facing and that you need fast, effective help. We can assist you throughout the entire process, including reviewing your case and determining the best approach for you, obtaining needed documentation, completing the required paperwork and more. Our dedicated legal team can prepare you for the hearing and guide you through what can be a relatively simple process with the right help. Our firm is A rated by the Better Business Bureau and has achieved recognition for our successes. We continue to pursue these successes diligently, as we feel strongly about helping our clients toward a brighter future.