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It is very important that you obtain legal advice from an experienced attorney regarding your particular situation. Consultation before you take action will certainly cost you less than it will cost to fix your unintentional errors.

Diane L. Drain

Diane L. Drain, attorney, retired law professor, wife, mother, mentor & community spokesperson


What is a Chapter 7, plus information about the means test and exempt property

Shopping for legal services needs to be very done carefully. You should take time to consider the reputation, experience and commitment of any lawyer. Hiring the wrong lawyer for your situation is like hiring a bad surgeon for your surgery. Ask for references and check out the attorney’s reputation and experience. I realize that money is tight, but your future could depend on this choice. You can lose your tax refunds and other important assets if you do not understand the risks.

By the way – Diane offers a free consultation.

A Chapter 7 bankruptcy is a tool to help individuals start over.

A chapter 7 bankruptcy is a proceeding under the federal law where a person is released (discharged) from paying his or her debts by filing bankruptcy, the person keeps those assets that are exempt, they continue to pay on secured items they want to keep (house, car) and turn over all of their non-exempt assets over to the trustee-in-bankruptcy. Some types of debts, however, are not affected by bankruptcy. See 11. USC Section 523.

Some of the information in this article is specific to cases filed in Arizona, but the majority is bankruptcy law and applies to all Chapter 7 bankruptcy.

This basic information should assist you in understanding how bankruptcy works, but please understand that the information on this website is not all you need to know to file Chapter 7 bankruptcy. Video explaining chapter 7 basics.

Chapter 7 bankruptcy is designed to give an individual a “fresh start”.

This includes eliminating or discharging all your unsecured debts after you have liquidated and paid to your creditors all of your non-exempt assets. Certain unsecured debts cannot be discharged in Chapter 7. Chapter 7 bankruptcy has no effect on secured debts. That means if you want to keep your home or car, and there are debts owing on that home or car, you need to keep the payments current.

What is Bankruptcy and How Does it Work?

Bradley’s Bankruptcy Basics (link to another website).

Many people ask me if they “can file their own bankruptcy”.

I always answer “Yes, anyone has the legal right to do their own open heart surgery, so why not not their own bankruptcy!” (Thank you Judge Baum for the quote.)

The laws were complicated before they changed in 2005, now I believe that only a fool would file their own bankruptcy, no matter “how simple”.

In fact, after the law changed many lawyers stopped doing any bankruptcy law because it had become so complex. Never listen to the advise of someone who filed their own bankruptcy. They had a “fool for a client” and probably committed at least one federal crime, but did not get caught. The current laws are being aggressively enforced and the Attorney General’s Office is actively pursuing bankruptcy fraud.

Do not use those who advertise on TV – you will end up paying their advertising costs.

Also, do not use “legal document preparers”. These are folks who want to be attorneys, but decided not to go to school. Instead, they pretend to know the law, or, worse yet, are disbarred attorneys or other scum who prey off the innocent who do not know better.

Always check out your lawyer with their state bar.

Ask for references from the lawyer. Most people find good lawyers by asking friends or relatives for referrals.

Hiring a cheap lawyer can be very expensive.

  • • First and foremost – educate the debtor about the importance of the bankruptcy process. That is absolutely necessary that the debtor fully disclosure all assets and debts (no exceptions). This education takes several hours and most must be done by an attorney, not an assistant to that attorney.
    • Help the debtor analyze the amount and character of the debts owed in order to determine whether bankruptcy is the best remedy for the debtor’s financial problems.
    • Assist the debtor in preparing their estate for bankruptcy, so that a minimum amount of property will later have to be turned over to the Trustee. Pre-bankruptcy planning.
    • Review with the Debtor their history of payments and transfers to determine possible exposure to Debtor and others.
    • Assist the debtor in assempling the information and data necessary to prepare the bankruptcy schedules and statements for filing.
    • Prepare the proper petitions, schedules, and statements for filing with the bankruptcy court.
    • Determine whether the education classes are necessary. If so, file the required certificates with the court.
    • File the bankruptcy petitions, schedules, and statements with the court and obtaining the necessary injunctions and restraining orders.
    • Attend the Meeting of Creditors with the debtor.
    • Prepare and file amended schedules as required by the court.
    • Address issues related to redemption, surrender or reaffirmation.
    • Respond to inquiries from your creditors and/or the Bankruptcy Trustee

The Court’s filing fees are set by the court and change over time.

The fee is the same 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 depends on the provider. We will provide you with a contact for a relatively low cost first class. Our office will assist you in making arrangement for both classes. More information on these classes.

As to attorney fees:

The 2005 Bankruptcy Reform Act requires a great deal more work for everyone – including the attorney for the Debtor. As a result many attorneys left the bankruptcy practice completely. Those who stayed found they had to increase their fees in order to pay for the additional work required. It is impossible to quote a fees without first reviewing your situation we will not be able to quote a specific fee for the attorney’s time. The more complicated your situation the higher the fees. The good news is that our initial meeting and review of your situation is FREE.

I am told by other clients that my fees are a lot less than those charged by other firms (especially the TV and billboard advertising firms. Those charge more than double in fees and who use strong-armed tactics to bully people to retain their services.

Why are our fees less than the TV advertisers?

I can do this only if my clients gather information in an orderly fashion by filling out as much of the requested information as pertains to their situation. If a client provides me with only part of the requested information, then my fees will have to increase for that client because I am forced to do more of the client’s work. So the client who fails to provide the names, dates, addresses, and/or amounts on the questionnaire will be charged more for the additional attorney time than the client who does their portion of the work without my intervention. That does not mean you should not ask questions. Thoroughness and accuracy are of utmost importance in a properly filed bankruptcy. Inaccurate paperwork can cause you to lose your bankruptcy protection, cost you more in attorney fees defending fraud claims and you may face jail time for bankruptcy fraud. My job it to help you avoid all those problems. So, thoughtful and organized questions are encouraged.

An important concept in both Chapter 7 and Chapter 13 bankruptcy is “exemptions” or “exempt property.” When you file a Chapter 7 bankruptcy, the Chapter 7 Trustee takes all of your “non-exempt” property and sells it for the benefit of your unsecured creditors. The Trustee cannot take your exempt property and you may keep all of your exempt property regardless of its value and amount. What property is “exempt” and what property is “non-exempt” depends on the exemption laws of the applicable state. Each state has its own exemptions for bankruptcy purposes. For a link to Arizona exemptions go to the primary menu, Bankruptcy, Arizona Exemptions. There is a download PDF of the exemptions. Only Arizona residents are able to use Arizona exemptions (YouTube video).

Click here for a link to Arizona Exemptions

Just because you are an Arizona resident when you file for bankruptcy does not mean you can use Arizona exemptions in bankruptcy.

Therefore, before you file bankruptcy you and your bankruptcy attorney must determine which state laws will determine your exempt assets. The state exemption law applicable to your bankruptcy is determined by the state in which you have been domiciled for the 730 days (two years) immediately prior to filing your bankruptcy. If you have not been a resident of Arizona for the two-year period before filing your bankruptcy, then your bankruptcy exemptions will be those allowed by the state in which you lived for 180 (6 months) days immediately before the two year period, or the state in which you lived for the longer portion of that 180-day period. Confused yet? I recommend making a diagram of where you lived and when.

For example: a person filing bankruptcy in Arizona today may use the Arizona property exemptions if he or she lived in Arizona for more than two years. But, if that person did not live in Arizona for two full years, then that person will need to look to the exemptions of the state where he or she lived in that last two years. It is possible that the exemptions of the prior state are limited to residents only. Therefore, the person filing for bankruptcy will need to use federal exemptions. In many cases, the state where the person moved from will provide better bankruptcy exemptions than Arizona law.

Consider John. John sells his residence in Georgia for $100,000 and moves to Arizona in January. In March of that year John purchases an Arizona homestead for $100,000; he gets an Arizona drivers license and registers to vote in Arizona. Then, 14 months after moving to Arizona, John loses his job and files bankruptcy. Under the bankruptcy law, Georgia’s relatively limited exemption laws would apply to John’s bankruptcy, and John may not have the benefit of Arizona $150,000 homestead protection (but laws change and so may this result).

o, you will be able to protect your exempt property.

Under the laws of the state where you live, and under the federal laws, certain properties are declared to be exempt, and out of the reach of your general creditors. That list of exemptions is unique to the state where you file bankruptcy and how long you lived in that state. If you have property not on the exemption list then you will have to turn it over to the Trustee. Warning – all your property, including exempt property, can be sold to pay back child support or alimony/maintenance.

On the main menu above is a link to a list of the properties that are exempt under Arizona law.

Be aware that the 2005 Bankruptcy Reform Act dramatically changed law governing exemptions. Now you are required to live 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.

In the bankruptcy documents you list secured debts separately from unsecured debts.

Unsecured debts include personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, and other credit cards used to purchase consumable items. Vehicle leases, medical bills, and personal loans are also unsecured debts. Secured debts include those debts where the creditor has a security interest in your property to guarantee payment. Examples of secured debts include mortgages, car loans, loans from finance companies (usually secured by household items), furniture, computers or electronics. If you purchased goods at a store using a store credit card, such as a card from Home Depot, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.


Secured Property

After filing a Chapter 7 bankruptcy, you will have to choose to either reaffirm or redeem secured debts or surrender the secured items to the creditor. You are entitled to keep any secured property as long as you continue to pay the loan for that property in a timely manner. If, however, you elect to surrender secured property, the secured creditor may not sue you for and try to collect any money from you. Some mortgage companies recently have required borrowers to sign cross-collateralizated agreements. This means that the borrower agreed to allow their bank or savings union to seize their bank accounts in order to pay delinquent payments for the vehicle. If you are unsure whether you signed this type of documents, you should review the papers you signed when you purchased your vehicle and/or when you opened your account. You may want to move your money to a new bank before defaulting on a vehicle loan.

Do not bank at Wells Fargo — they have been known to freeze your account even if you did not owe them any money.

Make certain you provide your attorney information about all liabilities, no matter how remote.

List any claim that anyone might have against you even if you are certain that claim will never arise. If you are a co-debtor on a note, have personally guaranteed any debt, or are liable on any mortgage, the debt should be listed and explained in the bankruptcy. You also must list debts you dispute. This includes any past obligations to any mortgage companies for a foreclosed home or even a short sale, make sure to include any mortgage insurance company (such as a VA loan). You should also include any obligations that someone promised to pay for you, such as selling your home to someone who promised to pay you, but the sale was done without paying off the entire debt.

Your bankruptcy estate refers to your non-exempt assets that are subject to administration by the bankruptcy trustee. Exempt assets, such as your homestead and IRA, are not part of your bankruptcy estate.

An executory contract is a legal term referring to an agreement between parties and an obligation due by at least one of the parties (such as a car lease or a residential lease). The most common example is a lease agreement for a car or a residence.

Chapter 7 bankruptcy permits the debtor, or the trustee, to assume or reject an executory contract. A debtor has to decide what to do about an executory contract before the court issues a bankruptcy discharge which usually happens about 90 days after filing.

An example of an executory contract is a vehicle lease. If the debtor does not want to keep the leased vehicle then he can surrender the vehicle to the leasing company and has no further liability. If the debtor wants to keep the vehicle then will need to assume the lease and keep the payments current. The debtor and creditor must sign the lease assumption, but it is not necessary for the judge to approve the lease assumption. If the debtor cannot make the lease payments the leasing company can repossess the car, but cannot sue the debtor for any deficiency.

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.

The means test is a formula established by Congress to determine who may be eligible to file Chapter 7 bankruptcy. People under their state’s median income and people whose debts are primarily not consumer debts are exempt from means test qualification. This means if 51% or greater of the debts are related to business obligations then the potential debtor does not need to worry about the means test.

The Debtor must calculate their “current monthly income”, including all income from spouses, rents (minus expenses), bonuses, plus “help” Debtor has been receiving from family or friends. Allowed living expenses and payment of secured and priority debts are subtracted from the total income for a net income or monthly disposable income that could be used to pay unsecured non-priority debts. The chapter 7 can be challenged if the net income, multiplied by 60, is greater than (1) either 25% of the nonpriority unsecured claims or $6,000, or (2) greater than $10,000. The Debtor may be required to convert the case to a chapter 13 or lose the bankruptcy protection completely. §707(b). Basically, if the debtor can pay $100 per month to their unsecured creditors, then they may face a challenge to their chapter 7. Only time will tell what the law really means.

To understand the Mean’s Test you must first understand some of the terms.

Current monthly income before taxes – it is not current, monthly or income. Instead, it is the total income received by your family for the last 6 full months, plus regular gifts and contributions by others toward household expenses. Income does not include social security, perhaps unemployment (to be determined by a court), and payments to war crimes/terrorism victims. §101(10A). Allowed expenses are then deducted from the total current monthly income. Allowed expenses are in §707(b)(2)(A)(ii) and the IRS Standards. Refer to this final number as the Debtor’s “monthly disposable income”. Our office will provide you with the form to assist with gathering this information.

Once “monthly disposable income” is calculated, the Debtor must compare it with the median family income for the Debtor’s state of residence.

If the “monthly disposable income” is less than the median family income, then the Debtor may file a chapter 7. But, see the next paragraph.

Comparison of Schedule I and J:

If the Debtor’s real monthly income, minus the allowed monthly expenses, is greater than some unstated number (usually in the range of $200 to $300) the Debtor may still have a problem filing a chapter 7, even though the Debtor passed the net current monthly income test. This situation could occur when a Debtor has been unemployed for several months of the last 6 months, but now earns more than needed to pay the allowed expenses.

If the court determines that the Debtor should not be in a chapter 7, it is possible that the Court can sanction the Debtor, or their attorney, for reimbursement of the Trustee’s reasonable attorney fees incurred in prosecuting the action. (§707(b)(4)(A) and Rule 9011).

Every consumer who files Chapter 7 or 13 bankruptcy is required take a credit counseling “briefing” within 180 days PRIOR to filing their bankruptcy and file a certificate of compliance.

There is a provision for emergency situations, but they still must prove that they tried to obtain the class within the last 5 days of filing, but they must take the class and file a certificate of compliance within 30 days after filing their bankruptcy Petition.  Never assume the court will permit this late filing – most likely your bankruptcy will be dismissed and you will have to start all over (plus there are other consequences).

There is also a budget class that must be taken within 45 day s after filing your bankruptcy. Failure to do so will result in additional fees and costs in order to get your discharge in your bankruptcy. There will be fees charged for those classes, unless you cannot afford to pay such fees.  Diane and Jay will explain the process.

Warning about all the companies providing the certificates – their information regarding bankruptcy is often not accurate. You must talk to a bankruptcy attorney in your State. We will provide you with information about both of these classes.

After filing your bankruptcy you must take a class called Personal Financial Management.   DO NOT TAKE THIS CLASS BEFORE FILING YOUR BANKRUPTCY.

Credit Counseling and Debtor Education classes must be approved by the US Trustee’s Office.


(click the question below and the answer will appear)

  • The Debtor may not submit any documents to the Bankruptcy Court until the Debtor is certain that the information is (1) well grounded in fact; and (2) warranted by existing law or a good faith argument for the modification of the existing law.

    Rule 9011 In other words, someone who is representing himself or herself in a bankruptcy is held to know both the bankruptcy and state laws that apply to their situation. Ignorance of the law is no excuse.

    The Debtor’s attorney must make the same avow regarding the information provided by the Debtor. Sanctions can be awarded under §707(b)(4).

    Section 521 describes:

    • the documents that must be filed
    • the 60 day deadline for filing the pay checks
    • filing of the Mean’s Test (Official Form B22A)
    • deadline for filing statement of intention and performing same (§§111, 521(a)(2) & (a)(6),
    • appear at the required creditor’s meeting
    • complete the required credit briefing class (before filing the bankruptcy §109(h)) and budget class (after filing the bankruptcy §§111, 727(a)(11)).
    • 7 days before the creditor’s meeting deliver to the Trustee a copy of the last tax return filed or a transcript, provide the Trustee with proof of identity and other documents (bank statements, wage statements, tax returns, car titles, etc).
    • Click here for the timeline. (§521(i)(1).
    • All creditors must receive notice of the bankruptcy (§521(a)(1)(A).
      • This notice requirement includes all addresses on all mail received in the last 90 days prior to filing. §342(c)
      • Failure to provide notice to the correct address may mean the creditor can continue legal actions outside the bankruptcy court, until they receive notice at the correct address.

    Failure to comply with these deadlines will most likely result in the dismissal of the bankruptcy case.

    Some of these requirements listed above may not apply if the Debtor is a company, or debts are not primarily consumer debts and has nonexempt property above $150,000. §101(3).

The bankruptcy stay is the bankruptcy tool that stops creditors from contacting you in any way after you file bankruptcy. This could be a problem because the lender secured by your home or car may stop sending monthly statements. It is your responsibility to make sure you pay these debts on time, otherwise the lender may ask the court for permission to take your home or vehicle.

The filing of the petition creates an automatic stay under 11 U.S.C. §362 prohibiting all collection actions. 11 U.S.C. §§ 301, 302, 101(42) – unless the Debtor has filed a prior bankruptcy in the last 12 months.

The automatic stay is good for only 30 days if that Debtor has filed one prior case in last 12 months. §362(c)(3)(A).

If the Debtor wants to extend the automatic stay they must file a motion to extend the Stay immediately after filing the bankruptcy.

There is no automatic stay if the Debtor has filed 2 or more cases in last 12 months. §362(c)(4)(A)(i)

A dismissed case is a filed case. There is no excuse for a Debtor’s failure to understand these limitations.


Always read and follow the directions from the court.

The orders or instructions will be mailed to you, unless you sign up for e-mail notification. You should contact your attorney as soon as you receive the orders to obtain advice on how to properly follow the orders. It is very important, therefore, that you always keep the court and your attorney informed of your correct address.

A public auction is held and your property is is converted into cash, which is then distributed to those of your creditors who file claims (Proof of Claim) against your bankruptcy estate. You, your family and friends have a right to bid at this auction. The expenses of administering your estate will also be paid from these funds. The Trustee assigned to your case will be responsible for paying his/her attorney or other professional.


What is a proof of claim?

No-Asset Case:

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. Soon after the Meeting of Creditors the Trustee/court will decide whether or not your case is a no-asset case.

Normally, your discharge will be entered approximately 120 days after your case was originally filed, unless a creditor files an objection to your discharge, the Trustee request an extension of time or you ask for more time in which to reaffirm debts. Your case will probably be closed shortly after the discharge.

When you receive your tax refund check, you must turn it over to the trustee.

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. If the amount is small it is possible that you may get back the check back. However, 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.

Talk to your attorney about pre-bankruptcy planning.


When your bankruptcy papers are filed, they become public records. The record of your filing may be published by some credit-reporting agencies. In addition, your name will be published in one newspaper in Arizona, and possibly more. However, your name will be listed on a page with hundreds of other debtors, so your name will probably not stand out.

To reaffirm a debt is to sign a new contract with the lender, thereby reaffirming the Debtor’s personal liability for the obligation.

This is typically done with vehicles. The Debtor should always talk to their attorney before reaffirming any personal liability for a debt. There may be other options to reaffirming, such as surrender, redeem, or avoidance of the lien. If, after considering the options a debtor voluntarily decides to reaffirm and re-establish their personal liability to a creditor, and enters into a written agreement to that effect signed by the debtor and the creditor, the Debtor must then submit the agreement to be approved by the Court.

Even once the reaffirmation agreement is signed the Debtor has 60 days to revoke it.

The consequence of a debtor’s failure to take advantage of other options, other than reaffirming the debt, is that the debtor is bound by the terms of the new agreement and can be sued if there is a default.

The danger for the Debtor is that they can be sued on any new contract signed after filing their bankruptcy.

If the Debtor does not sign a new contract, then the lender cannot sue, but they can take the vehicle – MAYBE. Here is where it gets complicated. Under the old bankruptcy law the Debtor could keep their vehicle so long as they made the regular monthly payments and kept insurance current. They were not required to sign a reaffirmation agreement. That way, if later on the car became a lemon, the Debtor could surrender the car to the lender and was not subject to any deficiency action (lawsuit).

Under the 2005 Reform act: a reaffirmation agreement is binding only if it is entered into before the discharge is filed, the debtor receives the numerous disclosures required from the creditor, except credit unions (§524(k), the Debtor does not rescind the agreement and the court approves the reaffirmation agreement – that may include having a hearing (§524(c)).

The Court may refuse to sign the reaffirmation agreement if it appears that the Debtor cannot afford the contractual payments.

So what is the problem? Some creditors are taking the position that the new Bankruptcy law requires the Debtors to sign a reaffirmation agreement, if they want to keep the car. But, §524(c) states that an obligation must be “enforceable under applicable non-bankruptcy law, whether or not discharge of such debt is waived”.  If the Debtor keeps the vehicle payments current, has insurance, but refused to sign the reaffirmation agreement – there does not appear to be a default which is “enforceable under applicable non-bankruptcy law”. After all, the creditor is receiving their monthly payment.

But, this law is always in flux so it is very important to talk with your attorney before signing any agreement.

Your attorney may choose whether or not to sign your reaffirmation agreement. Issues such as negative disposable income, no concessions by the creditor as to principal or interest or the attorney believes there is a presumption of undue hardship. If your attorney does not “approve” reaffirmation, you must prepare and sign a Reaffirmation Agreement Explanation explaining why you now have the financial ability to pay a reaffirmed debt. The bankruptcy judge will review your explanation and either deny or approve the reaffirmation. The bankruptcy judge will deny reaffirmation if he believes that reaffirmation is not in your best interest for a “fresh start.”

Perhaps, in the situation where the creditor is offering better terms on a new contract; such as a reduction in the principal equal to the current fair market value of the vehicle and reduction of the interest rate. Nothing stops the Debtor from negotiating these new terms as part of any reaffirmation agreement, but the lender can reject the terms and the court cannot force the terms on the lender.

A debtor’s tool in bankruptcy is to “redeem” secured personal property such as furniture, computers, automobiles, or other property purchased on credit. To redeem means to purchase the property from the secured lender at its current fair market value considering its age and condition. If the property is worth less than the secured debt then this may be a good option. The problem is that most redemptions require payment in full at the time the redemption is accepted or approved by the court.

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.

The discharge is the legal process that eliminates most of your legal liability to your creditors. Creditors who have been discharged in bankruptcy can never again try to collect debts that you incurred prior to filing bankruptcy. There are certain debts that remain even after the discharge is entered. These debts include child support, alimony, student loans, most taxes, and several other obligations. A good bankruptcy attorney can guide you as to what debts are discharged and what are not.  Video explaining the discharge.

Some 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.

This is known as a permanent, federal injunction.

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. Only people received discharges, companies do not.

Non-dischargeability complaint.

Creditors and the trustee have a 60 day period after the creditor’s meeting to file a complaint indicating that they believe there is good reason why their debt should not be discharged (forgiven) or a good reason why this chapter 7 case should not be continued (Bankruptcy Code §523(a)(2), (4), (6, and (15)). The Trustee can request that the court deny a chapter 7 discharge in some cases.

The granting of a discharge does not stop the Debtor’s involvement in their case.

The Debtor is not relieved from performing the duties required under the Bankruptcy law. One example of a continuing duty is the Debtor’s obligation to 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 their creditors garnishing wages, suing or seizing bank accounts.

Even after a discharge, generally a creditor with a valid lien on debtor’s property (such as: house, car, furniture, jewelry) may recover the property or its value.

However, if the debtor possesses certain property that is encumbered by a judicial lien or a non-purchase—money security interest, the Debtor will have to bring this issue to the Court for an order which will remove the effect of the lien. This action is called a Motion to Avoid a Lien.

If the debtor wants to keep assets that have secured liens (such as a house or car) the debtor can either continue making the same payments as before the bankruptcy, or pay the lender one lump-sum payment equal to the fair market value of the item (redemption).

Home Loans: Arizona bankruptcy do not sign reaffirmation agreements. for home loans.

Talk to your attorney about the issues and if they will sign the agreement so your payments will be reflected on your credit reports.

Usually by mail, unless you have asked for electronic notification. In some states there may be a court hearing, which you must attend, where the court will explain the meaning of the discharge, or the reasons for denying your discharge, if it is not granted.

Arizona does not have this discharge hearing, unless yours is a very unique situation.

The law changes and the following may not be accurate.  Talk to your attorney.

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.

  • Taxes due within the last three years or taxes not assessed because of fraud.
  • 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.
  • Debts not listed on your bankruptcy papers, unless the creditor had knowledge of the case in time to file a claim.
  • If the bankruptcy court so rules, debts for fraud, embezzlement or larceny.
  • Debts for domestic support obligations (alimony, maintenance or support).
  • If the bankruptcy court so rules, debts for intentional injury.
  • Debts for certain fines and penalties payable to governmental units.
  • 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.
  • 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.
  • Debts that are owed to a single creditor (of an amount specified in the Code) 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.
  • account incurred by you an the 70 days before the bankruptcy was filed, regardless of the number of creditors involved.
  • DUI personal injury judgments against you resulting from car accidents in which you were a drunk driver.
  • Post-petition Homeowner association fees.  Note – pre-petition HOA assessments are normally still attached to your home.
  • Monies owed to a pension, profit-sharing, stock bonus or such other plan.

If, immediately after filing the bankruptcy, the Debtor provides their utility company with a deposit or other security to insure the payment of future services, the utility may not stop service, refuse to serve, or discriminate against the Debtor for discharging their bill.

But, if the Debtor discharges a utility bill do not be surprised that there is a very large deposit required whenever a new service is requested.

Yes. Bankruptcy is a federal proceeding and the bankruptcy court has the jurisdiction and power to discharge debts contracted anywhere in the Country.

Contact your attorney immediately about a change of address or phone number for a year after you receive you discharge. Also, make sure the Court and the Trustee are informed of your new address.

Yes, you can pay as many of your debts as you want or need to pay after you file bankruptcy. Certainly, if you want to keep your house and car you must continue paying the lender. You are also obligated to pay the debts that for which you enter into a Reaffirmation Agreement. (See discussion above on reaffirmation agreements).

Do not take on any new credit for at least one year after bankruptcy.

I recommend that you not make any payments that are not absolutely necessary. My clients tell me they have more money than they ever thought, once they were relieved of the obligation to pay the high interest rates for their credit cards and other unsecured debts.

First make sure the debt was listed in your bankruptcy. If it was not you may still have the time to add it.

As to the lawsuit – do not ignore it, otherwise a default judgment will be entered against you. Respond to the law suit by filing an answer in the court where you have been sued, stating that the debt has been discharged in bankruptcy. In most instances the case will be dismissed once the judge learns the debt was listed in the bankruptcy and subsequently discharged. If the judge does not dismiss the case, then you can apply to the bankruptcy court for an injunction ordering the creditor to stop the suit against you.

A discharge in bankruptcy is a valid legal defense against any debt that has been properly discharged, but it is a defense that you must raise.

Normally 8 years from the filing of the last chapter 7 or 11.

Only individuals who have complied with the Bankruptcy laws can receive a chapter 7 discharge. That individual cannot receive another chapter 7 or chapter 11 discharge for 8 years after the filing of the first chapter 7 bankruptcy. 727(a)(8). If the debtor commits fraud, or fails to perform as required by law, the discharge can be revoked. Even if a chapter 7 discharge is not available the Debtor may be able to file a chapter 13.


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Obtain a copy of the debtor’s bankruptcy schedules or check with the clerk’s office to verify that your name and debt has been listed to ensure receipt of notices. This should be done at the Bankruptcy Court where the case was filed. A creditor should review the schedules filed by the debtor, noting whether the creditor’s claim (what is owing to the creditor) was properly designated as secured or unsecured and listed in the accurate amount. It should also be noted whether the debtor disputes the claim or lists it as unliquidated or contingent. Any errors can be rectified by filing a proof of claim, if a claim was not listed on the debtor’s schedules, the creditor must file a proof of claim by the court deadline or the claim will be disallowed and the creditor will not receive any monies if there is to be a distribution of funds.

Section 342 requires that all creditors receive notice of the bankruptcy in order for the full restraining action of the automatic stay to become effective. The debtor is to list all addresses provided by the creditor within the 90 days before the bankruptcy was filed, and/or any other address used by the creditor in another bankruptcy. Section 342(c) Again, this is new law and I would not advise the creditor to ignore any notice, written or otherwise. Once the creditor receives notice of the bankruptcy they must cease all attempts to contact the debtor or seize property, without obtain permission from the bankruptcy Court. There are monetary penalty for ignoring this prohibition. Section 343(g) and 362(k).

  • File a proof of claim. It is the creditor’s proof of claim that will govern unless specifically objected to by the debtor.
  • In a Chapter 7 no-asset case, proofs of claim need not be filed. There will not be any distribution of funds to any unsecured creditors. A no-asset is a case where all the assets of the Debtor were protected by law (exempt property). The majority of all chapter 7 cases involving individuals are no-asset cases.
  • In all other Chapter 7 cases and Chapter 13 cases, a creditor must always file a proof of claim to participate in any distribution.
  • In a Chapter 11 case a proof of claim is not required if the claim is accurately listed in the schedules and is not scheduled as disputed, contingent or unliquidated.

If a creditor wants its collateral out of the bankruptcy completely a Motion for Relief from the Automatic Stay should be filed early in the case, forcing the debtor to deal with the problem head on. Normally a hearing is scheduled in approximately 30 days on “lift stay” motions. Without an Order lifting the stay the creditor is prohibited from completing their trustee’s sale or foreclosure.

  • (1) Residential real property or personal property: Chapter 7 – The debtor/trustee has 60 days from filing the bankruptcy to either accept or reject the lease. If the lease is accepted then rents must be brought current. Section 365(p(2) If the lease is not accepted within within the 60 days then it is automatically deemed rejected. Unfortunately, despite the fact that the lease has expired the landlord still cannot take any action against the debtor or his personal property without filing a motion for relief. Therefore, it is wise in a lease to file a motion for relief immediately upon the debtor filing their bankruptcy. Chapter 11, 12 or 13 – trustee/debtor may assume or reject lease at any time before the confirmation of the Plan Section 365(d)(2) and 365(p)(3)
  • (2) Non-residential real property – trustee must assume within 120 days of the filing of the bankruptcy or order confirming Plan, court can extend for additional 90 days. Section 365(d)(4). See 503(b)(5) previously assume lease, then rejected – possible administrative claim.

Section 362(b)(22) indicates that there is no automatic stay, so long as the landlord obtained a judgment for possession of residential property prior to the filing of the bankruptcy.
Section 362(c)(3)(A) indicates that the automatic stay may terminate 30 days after filing the bankruptcy with respect to any lease, if that debtor had a prior bankruptcy (7, 1 or 13) pending in the last 12 months.
Section 362(c)(4)(A)(i) No automatic stay if debtor filed two or more cases in last 12 months.
Beware – this is new law and may “bite the landlord in the a_ _”. Until the law is settled I highly recommend obtaining a comfort order as described in 362(j).

The landlord may not use the filing of a bankruptcy as grounds for terminating a least 365(e)(1)
Trustee may assign the lease, despite non-assignment clauses Section 365(f).

The 2005 changes to the Bankruptcy Code greatly favor anyone owed child support or alimony/maintenance (called “domestic support obligations” or “DSO”). There is no automatic stay on the collection of any DSOs from property that is not property of the estate 362(b)(2)(B). Also, the legislative history of the new law and Section Section 522(c)(1) makes it clear that all property owned by the debtor can be liquidated to pay DSO debt. The Bankruptcy Trustee even has obligations to the DSO claimant. Section 704(c).

When a bankruptcy is filed a federal restraining order called the automatic stay immediately stops any trustee sales, foreclosures, garnishments, lawsuits or repossessions against the debtor and the debtor’s property by any creditor, collection agency, or government entity. It is contempt of this federal restraining order to attempt to collect money, evict the tenant, garnish wages or complete a trustee’s sale, foreclosure or repossession without first obtaining permission from the bankruptcy court. This permission is called an Order for relief from the automatic stay. Contempt of the automatic stay can be punishable by a very large fine.

A Motion for Relief from the automatic stay or a “stay order” is obtained by first filing a Motion, Notice and Certificate of mailing with the court and noticing the proper parties. The Debtor has an opportunity to file a response. If a response is filed a hearing will be held. If no response is filed an Order, Certificate of No Objection must be filed with the Court. The Court will most likely sign the Order. Once the signed order is received the creditor is free to proceed with the action that they requested in the Motion and that was granted in the Order.

Carefully check all of the loan and security documents to ensure that they are complete and that all necessary steps have been taken to perfect liens on any collateral securing the obligation. This step is extremely important and will determine the strength of a secured creditor’s position in the case. Section 506 describes how the value of a secured claim is determined. Although curing deficiencies post-petition may be a violation of the automatic stay, nevertheless it is essential to be aware of any problems. Section 547(c)(3) & (e) gives the secured creditor no more than 30 days after the debtor receives possession of property or transfer is made to perfect the creditor’s lien.

Shortly after a bankruptcy is filed, creditors will receive notice of an initial meeting of creditors (Section 341, Meeting of Creditors) to be held at the Office of the United States Trustee. You may attend the Section 341, Meeting of Creditors, but are not required. This meeting provides the creditor a opportunity to ask the debtor a few questions regarding its claim, its collateral, other claims against the debtor, the debtor’s plans for its bankruptcy case and any other aspects of its financial affairs. This is not an opportunity to interrogate the Debtor. This is a good time to reveal to the Trustee (the person conducting the meeting) any inconsistencies the creditor has discovered in the schedules. Make sure to be able to support any statements. Either the creditor or its counsel can attend the meeting.

You can ask the debtor questions at the creditors meeting (see above), or Bankruptcy Rule 2004 permits a creditor to take the deposition of the debtor and inquire into all aspects of its financial affairs. The scope of the examination is broad and should be taken advantage of to obtain information.

Look for a basis to object to the discharge of a particular debt under Sections 523 or 727. Creditors have only 60 days from the date of the initial meeting of creditors to file suit to declare their debts non-dischargeable on the basis of a false financial statement. It is very difficult for a creditor to win a non-dischargeable case and normally the creditor will not receive its attorney’s fees/costs for bringing the action.

After a bankruptcy is filed, but before the discharge is entered, the secured creditor, or landlord, could request the debtor sign a new contract “reaffirmation agreement”. This new contract has the exact terms as the original, Section 524(c) and (k) delineates several documents, disclosures and procedures that must be followed by the creditor in obtaining this new contract. It must be approved by the Court in order to be binding on the debtor. It is most likely no debtor’s attorney will sign the reaffirmation agreement because 524(k)(5)(B) requires that the debtor’s attorney certify that the debtor will be able to make the payments. This is not only ludicrous, but how could anyone certified anyone’s ability to pay a future debt. This is also new law and few, if any, creditors will be able to follow the complicated procedures.

Below is a link to a video of Bankruptcy Judge Eileen W. Hollowell, filmed explaining the reaffirmation process.

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