General Bankruptcy Questions
On this page you will find answers to frequently asked questions about general bankruptcy topics. I recommend taking the time to go through each of the topics below to learn more about bankruptcy.
Read the article on how to find a good attorney. Also, how expensive it is to hire a cheap or bad attorney
There are two types of bankruptcy : Reorganization & Liquidation
Liquidation for Individuals
In a Chapter 7 bankruptcy, an individual is entitled to keep some items known as exempt property.
Some debts are considered so significant by Congress that they are not dischargeable.
Even if a debt is not dischargeable, the law requires that it be listed on a bankruptcy schedule.
Unless a court order is issued, fully secured creditors will keep their claim on the collateral.
Reorganizations for Individuals
Petition, Schedules, Statement of Affairs, and other documents are required to be filed with the Bankruptcy Court by the debtors.
Chapter 13 varies greatly from district to district, based on local customs and opinions regarding what is “fair” and in “good faith” by local trustees and judges.
- Chapter 9 (municipality)
- Chapter 11 (business)
- Chapter 15 (cross border bankruptcy)
Unlike liquidation, reorganization allows a business debtor to keep operating the business and keep assets that might otherwise be lost in a chapter 7 bankruptcy.
Reorganizations can be used to remove entirely unsecured mortgages or pay the fair market value of a property.
A debtor must have sufficient income to make a reorganization plan possible in order to be qualified for a reorganization bankruptcy.
With the filing of a chapter 7 bankruptcy, the debtor’s assets and liabilities are effectively frozen.
Unless a court order is issued, fully secured creditors will keep their claim on the collateral.
In contrast, a chapter 13 bankruptcy focuses on future income rather than current assets.
Some debts, such as student loans, survive a chapter 13 bankruptcy.
Exemptions, sometimes known as “exempt property,” are a key concept in both Chapter 7 and Chapter 13 bankruptcy. The Chapter 7 Trustee seizes all of your “non-exempt” property and sells it for the benefit of your unsecured creditors when you file for bankruptcy under Chapter 7. Your exempt property cannot be taken by the Trustee, and you are entitled to keep all of it. The exemption rules of the applicable state determine what property is “exempt” and what property is “non-exempt.” For bankruptcy purposes, each state has its own set of exemptions. Go to the main menu, Bankruptcy, Arizona Exemptions, for a link to Arizona exemptions. The exemptions are available in PDF format for download. Only Arizona residents are allowed to use these exemptions.
Arizona exemptions (YouTube video).
Arizona Exemptions can be found by clicking here
TRUE and FALSE. You can keep your home or car as long as its value is less than the exemption limits. You can also keep it if you pay the secured lender. Read the article on how to find a good attorney. Also, how expensive it is to hire a bad attorney.
No, you will be able to protect your exempt property
Certain property is deemed exempt and out of reach of your general creditors under the laws of the state where you live, as well as federal legislation. The list of exemptions is specific to the state in which you file bankruptcy and the length of time you lived there. If you own property that isn’t on the exemption list, you must give it over to the Trustee. Warning: To repay child support or alimony/maintenance, all of your property, including exempt property, may be sold.
A link to a list of properties that are exempt under Arizona law can be found in the main menu above.
Keep in mind that the 2005 Bankruptcy Reform Act made significant changes to the law regarding exemptions. To claim Arizona exemptions, you must have lived in Arizona for the previous two years. Otherwise, you’ll have to use the different exemptions.
Just because you live in Arizona when you file for bankruptcy doesn’t mean you’ll be able to claim Arizona exemptions.
As a result, you and your bankruptcy counsel must decide which state laws will determine your exempt assets before filing bankruptcy. The state exemption statute that applies to your bankruptcy is established by where you lived for the previous 730 days (two years) prior to filing your bankruptcy. If you did not live in Arizona for the entire two-year period prior to filing your bankruptcy, your bankruptcy exemptions will be those allowed by the state in which you lived for 180 (6 months) days immediately prior to the two-year period, or the state in which you lived for the greater portion of that 180-day period. Are you confused yet? Making a diagram of where you lived and when so we can talk about this issue.
For example, if a person has resided in Arizona for more than two years and files bankruptcy today, he or she may use the Arizona property exemptions. However, if that person did not live in Arizona for two years, he or she will have to rely on the exemptions of the state in which he or she spent the previous two years. It’s likely that the previous state’s exemptions are only available to residents. As a result, the individual filing for bankruptcy will have to rely on federal exemptions. In many circumstances, the bankruptcy exemptions provided by the previous state will be superior than those provided by Arizona law.
Consider the case of John. In January, John sells his Georgia home for $100,000 and relocates to Arizona. John buys an Arizona homestead for $100,000 in March of that year, obtains an Arizona driver’s license, and registers to vote in Arizona. John loses his job 14 months after coming to Arizona and declares bankruptcy. John’s bankruptcy would be subject to Georgia’s relatively limited exemption laws, and he might not be eligible for Arizona’s homestead protection (but laws change and so may this result).
All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)
Every customer who files Chapter 7 or 13 bankruptcy must take a credit counseling “briefing” and file a certificate of compliance with their bankruptcy.
There might be a very, very rare exception for emergency conditions, but they must still show that they attempted to obtain the class within the final 5 days of filing, and they must complete the course and produce a certificate of compliance within 30 days after filing their bankruptcy petition. Never presume that the court will allow this late filing; your bankruptcy will almost certainly be dismissed, and you will have to start over (plus there are other consequences).
A financial management class must also be completed within 45 days of filing your bankruptcy. Failure to do so will result in additional penalties and expenditures when it comes to getting your bankruptcy discharged. There will be fees charged for those classes, unless you cannot afford to pay such fees. Diane and Jay will walk you through the steps.
A word of caution about all of the companies who provide the certificates: their bankruptcy information is frequently inaccurate. You should speak with a bankruptcy lawyer in your state. We’ll tell you all you need to know about both of these classes.
Following your bankruptcy, you must take a Personal Financial Management class. THIS CLASS SHOULD NOT BE TAKEN BEFORE FILING FOR BANKRUPTCY.
Credit Counseling and Debtor Education classes must be approved by the US Trustee’s Office.
Secured debts are included separately from unsecured debts in bankruptcy proceedings.
Personal loans and credit cards issued by banks, such as Visa, MasterCard, American Express, or Discover, as well as other credit cards used to purchase consumable things, are examples of unsecured debts. Unsecured debts include car leases, medical expenses, and personal loans. Secured debts are those for which the creditor has a security interest in your property as collateral. Mortgages, vehicle loans, finance company loans (typically secured by household belongings), furniture, computers, and gadgets are examples of secured debts. If you paid for products with the store credit card, such as one from Home Depot, Best Buy, or another retailer, the business is likely to have a security interest in the items you bought, making it a secured creditor.
You must either reaffirm or redeem secured obligations or surrender secured property to the creditor after filing a Chapter 7 bankruptcy. You have the right to keep any secured property as long as you make timely payments on the loan for that property. If you choose to surrender secured property, however, the secured creditor will not be able to sue you or try to recover any money from you. Borrowers have been compelled to sign cross-collateralized agreements by several credit unions. This means that the borrower consented to their bank or savings union seizing their bank accounts in order to pay for the vehicle’s or credit card late payments.
If you’re not sure whether you signed these types of documents, go over the paperwork you signed when you bought your car or created your account. Before defaulting on a car loan, you should consider moving your money to a new bank.
Do not bank with Wells Fargo; they have been known to freeze accounts despite the fact that you owe them no money.
The “Mean’s Test” is a formula that assesses whether a person applying for bankruptcy has enough income to cover all of the allowable expenses, plus enough money to pay non-priority, unsecured creditors like credit cards.
The means test is a method devised by Congress to determine who is qualified to apply for bankruptcy under Chapter 7. People with incomes below the state median and debts that are predominantly not consumer obligations are exempt from the means test. This indicates that if 51 percent or more of the debts are commercial obligations, the potential debtor will not be subject to the means test.
The Debtor must calculate their “current monthly income,” which includes any money from spouses, rents (less costs), bonuses, and any “assistance” from family or friends. Allowable living expenditures and secured and priority debt payments are deducted from total income to arrive at a net income or monthly disposable income that can be utilized to pay down unsecured non-priority debts. If the net income, multiplied by 60, is larger than (1) either 25% of the nonpriority unsecured claims or $6,000, or (2) greater than $10,000, the chapter 7 can be contested. The debtor may be forced to convert the case to a chapter 13 or risk losing all bankruptcy protection. §707(b).
Basically, if a debtor can pay $100 per month to their unsecured creditors, their chapter 7 bankruptcy may be challenged. This law is interpreted differently by different courts.
To comprehend the Mean’s Test, you must first understand a few terms.
It is not current, monthly, or income. Instead, it’s your family’s entire income for the previous six months, plus monthly gifts and donations from others toward household expenses. Social security, maybe unemployment (to be assessed by a court), and benefits to war crimes/terrorism victims are not included in income. §101(10A). The total current monthly income is then deducted from the allowed expenses. The IRS Standards and 707(b)(2)(A)(ii) specify the expenses that are allowed. This last figure is referred to as the Debtor’s “monthly disposable income.” To assist you in gathering this information, our office will provide you with a form.
After calculating “monthly disposable income,” the Debtor must compare it to the median family income in the Debtor’s state.
The Debtor may file a chapter 7 if his or her “monthly disposable income” is less than the median family income. However, continue reading to the next paragraph.
Comparison of Schedules I and J:
Even though the Debtor passed the net current monthly income test, if the Debtor’s real monthly income, minus the allowable monthly costs, is greater than an unstated sum (which is not clearly defined), the Debtor may still have difficulty filing a chapter 7. When a Debtor has been unemployed for numerous months in the last six months, but suddenly earns more than is required to pay the allowable expenses, this situation can arise.
If the court concludes that the Debtor should not be in Chapter 7, the Debtor or their counsel may be sanctioned for reimbursement of the Trustee’s reasonable attorney fees expended in prosecuting the case. (Rule 9011 and 707(b)(4)(A)).
An executory contract is a legal word that refers to a contract between two parties that includes an obligation owed by at least one of them (such as a car lease or a residential lease). A lease agreement for a car or a home is the most typical example.
An executory contract can be assumed or rejected in Chapter 7 bankruptcy by the debtor or the trustee. Before the court delivers a bankruptcy discharge, which normally occurs 90 days after filing, a debtor must decide what to do with an executory contract.
A vehicle leasing is an example of an executory contract. If the debtor does not wish to keep the leased vehicle, he can return it to the leasing firm and be released from any further obligations. If the debtor wishes to keep the car, he or she must assume the lease and make timely payments. The lease assumption must be signed by both the debtor and the creditor, but the judge’s approval is not required. The leasing company can repossess the car if the debtor cannot make the lease payments, but it cannot sue the debtor for any deficiency.
Make sure you tell your lawyer about all of your liabilities, no matter how minor.
Even if you’re confident that claim will never be made against you, make a list of any claims that might be made against you. The debt should be listed and explained in the bankruptcy if you are a co-debtor on a note, have personally guaranteed any debt, or are liable on any mortgage. You must also indicate any bills that you are disputing. This includes any previous responsibilities to any mortgage firms for a repossessed home or even a short sale, as well as any mortgage insurance agencies (such as a VA loan). Include any obligations that someone pledged to pay for you, such as selling your property to someone who agreed to pay you, but the sale was completed without the debt being fully paid off.