Chapter 7 Bankruptcy Overview
Chapter 7 bankruptcy, also known as “fresh start” or “liquidation” bankruptcy, provides debt relief for honest people who are being crushed by overwhelming debt. Many people, from white-collar professionals to blue-collar auto workers, find themselves unable to keep up with credit card, medical or other debts after experiencing job loss, illness, divorce or other circumstances beyond their control. Chapter 7 bankruptcy can eliminate credit card debt, medical debt, lawsuits and judgments against you, deficiencies in car repossessions or foreclosures and some income taxes (typically those that are over 3 years old). Chapter 7 bankruptcy can also eliminate any debt you owe on car loans if you want to surrender your car, which is of benefit to you if you owe much more than the blue book value of the car.
The Process of Filing for Chapter 7 Bankruptcy
The first step in the process is to call my office and set up an appointment to sit down with me to discuss your situation and your options. Before the first appointment I will email you a short questionnaire to fill out and bring with you. I will also ask you to bring some documents with you as well such as pay stubs, bank statements and tax returns. There is no charge for the first consultation.
During the first consultation I will go over your income, expenses and debt to determine if Chapter 7 bankruptcy is a good option for you and your situation. Bankruptcy is based on ability to pay and that is determined by looking to see if you would have any money left over each month if all of your debt was wiped out. This is why I need to know what your income is and what your basic living expenses are. This is all asked in the questionnaire I send you before we meet and it is critical that you complete it and bring it with you. Otherwise, it will be very tough for me to tell you if you fit in a Chapter 7 bankruptcy. Typically if all of your debt was wiped out and you only had up to $100 or $150 dollars left over each month you would fit into a Chapter 7 bankruptcy. If you have more than that left over each month then you may have to file Chapter 13 bankruptcy. Chapter 13 bankruptcy is discussed in another article on this website.
Next, I would look at what property you own and if there is a possibility of losing anything you own in a Chapter 7 bankruptcy. You are allowed “exemptions” which allow you to keep certain property in your bankruptcy. If you were not allowed any exemptions, you would lose everything in a Chapter 7 bankruptcy. Arizona has its own set of exemptions and there are dollar limits on what you are allowed to keep. One exemption I typically use is the homestead exemption, which gives you $150,000 value or equity in your home that you can keep. So for example, if your house is worth $200,000 and you owe $100,000 on all loans against the house, then you have $100,000 equity. Since the $100,000 equity is less than the $150,000 homestead exemption, you would be allowed to keep your house. If your house is worth $200,000 and you owe nothing on it, then you don’t have enough exemption to cover the full $200,000 and you would risk losing your house in a Chapter 7 bankruptcy. In that case I would have to look at either a Chapter 13 bankruptcy or possibly debt settlement.
Another exemption I use a lot is the vehicle exemption. You are allowed an exemption of $6,000 in value or equity in motor vehicle. I use the same analysis as above in order to determine how much equity you have in your car if there is a loan against it. To determine value, the court’s use Kelly Blue Book private party value. You can determine the value of your car by going to www.kbb.com and looking up the private party value of your car. If you are married and you are filing with your spouse and you only have one vehicle, you each are allowed the $6,000 exemption for a total of $12,000. A full list of Arizona exemptions can be seen by clicking on the Bankruptcy Information tab above.
Once I have determined that Chapter 7 is the best option for you, the next step is for you to decide that is the what you want to do. Sometimes you may not want to file bankruptcy but when we look at your income and expenses, there really is no other option. Once you have decided to move forward I will then have you fill out an additional questionnaire that will ask you more detailed information. You will also be required to take a one hour, online credit counseling class before I can file your bankruptcy. This is required by the bankruptcy court. The course typically takes 1 hour and you can take it 24 hours a day, 7 days a week.
After I have all of the paperwork back from you and you have taken the course, I will prepare the paperwork that needs to be filed with the court. This process typically takes 2 weeks. Once all of the paperwork is completed I will email it to you to review it to be sure everything is correct. This is an important step because you will be signing your paperwork under penalty of perjury that the information is correct.
Once you have reviewed it I will set up an appointment with you to come to my office and sign the paperwork. I can also mail it to you to sign and send back or you can print out the paperwork I mail you and sign it and send it back to me. Once I have all the paperwork signed I will file it with the court.
Only after it is filed will you officially be “in” bankruptcy since you will be assigned a case number. This is important to note because many of my clients think that once they talk to me or start the process that they are in bankruptcy. This is not true. So if you need to stop a lawsuit, foreclosure or repossession you need to let me know so I can get it filed as quickly as possible. I can file the same day you meet with you or the next day if this is your situation.
Once your case is filed, an automatic stay will go into effect. This is a powerful bankruptcy provision that requires creditor collection activity to cease which includes stopping calls, letters, home foreclosures and car repossessions. Any further communications from your creditors will have to go through my office instead.
About 40 days after I file your case, you will be required to attend a hearing called the “first meeting of creditors.” This is an informal hearing where the bankruptcy trustee will review your petition and schedules and ask you questions. Creditors may attend this hearing but rarely do. There are approximately 6 cases scheduled every half hour and once your case is called your hearing will typically last about 2-3 minutes I will be with you at the hearing but you will be the one answering all the questions. This hearing is a very simple process and virtually all of my clients walk out and look at my and say “that’s it?” and I say “yes”.
After your hearing there is a 60 day waiting period. Usually nothing happens during that period of time but it allows time for creditors to do follow-up investigation if they attended the hearing and it also allows the trustee to do follow-up investigation if he/she found out something at your hearing that he/she wants to look at further. Also, during that period of time you are required to take a second online class that must be completed in order to received your discharge. That course takes approximately 2 hours to complete. The cost is typically $10.
Once the 60 days has run and you have completed the online course, you will received what is called a Discharge. This is an Order from the court eliminating all of your debt that can be legally eliminated, which usually is all of your debt. Some usual exceptions are student loans, some taxes, debts owed to former spouse incurred in connection with a divorce or child support proceeding and all child support.
The whole process take about 3 1/2 to 4 months from the day your case is filed until you receive your discharge.
Find Out If Chapter 7 Is Right for You
I invite you to discuss your situation with me, and I will help you understand your bankruptcy options. If Chapter 7 is not available to you because you exceed income or asset limits, Chapter 13 or Chapter 11 may offer an effective debt relief solution.
Call 480-809-1014 or email me to schedule a free initial consultation with me. Weekend and evening appointments are available upon request.
We are a debt relief agency. We help individuals and businesses file for bankruptcy relief under the Bankruptcy Code.