Chapter 7

Before deciding on the debt relief offered by bankruptcy protection, it is important to understand that there are several different types of bankruptcy available to Arizona debtors. Under chapter 7 of the bankruptcy code, a court appointed trustee is assigned to your case. It is the job of your trustee to cancel most (or all) of your debt, as well as liquidate any unprotected assets. Since the October 2005 changes to the bankruptcy code, qualifying for chapter 7 bankruptcy has become more difficult. Hiring an experienced Phoenix bankruptcy attorney can ensure you chapter 7 petition is filed without a hitch.

Frequently Asked Questions

How much does it cost to file chapter 7 bankruptcy? How long does it take?

Chapter 7 bankruptcy is often referred to as liquidation bankruptcy, and is used to rapidly eliminate most debt. The whole Chapter 7 bankruptcy process takes about four to six months, and commonly requires only one trip to the courthouse for attendance at the 341 meeting of creditors. Additional hearings may be needed for complicated cases, when reaffirming debts, and when creditors object to the bankruptcy.

There are several costs associated with filing for chapter 7 bankruptcy. Chapter 7 typically costs $299 in filing and administrative fees that are paid to the bankruptcy court. In addition, you must complete credit counseling with an agency approved by the United States Trustee. (For a list of approved agencies in each state, go to the Trustee’s website, , and click “Credit Counseling and Debtor Education.”) This cost is generally paid by the debtor or the debtor’s attorney. Fees charged by chapter 7 bankruptcy lawyers vary, though generally range from $1000 to $3000.

Who qualifies for chapter 7 bankruptcy? What excludes somebody from filing?

Your Chapter 7 bankruptcy won’t be approved if you previously obtained a bankruptcy discharge in the last six to eight years (depending on Chapter filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. This is determined by the means test.

The first step of the means test is straight-forward: If your current monthly income is less than the median income for a household of your size in your state, you pass. It gets more complicated when you fail the first step, and involves deducting specific monthly expenses from your “current monthly income” (your average income over the six calendar months before you file for bankruptcy) to arrive at your monthly “disposable income.” The higher your disposable income, the more likely you won’t be allowed to use Chapter 7 bankruptcy.

Certain bankruptcy filers are not required to take the means test. In addition, only certain debts and income sources are considered when calculating monthly disposable income. This is why it is important to consult with an experienced bankruptcy lawyer to determine whether you qualify.

Who is my bankruptcy trustee and what is their job?

You bankruptcy trustee is an individual randomly appointed by the bankruptcy court to process your case. It is a common misconception among debtors that the trustee is similar to a bankruptcy attorney, when in fact the trustee’s primary duty is to see that your creditors are paid as much as possible on what you owe them. In addition, the bankruptcy trustee is paid a percentage of all property they recover.

Upon filing, the trustee assigned to your case will examine your petition to ensure it is complete. In addition, they will look for any nonexempt property that can be liquidated for the benefit of creditors. The trustee will also the provided financial statements to see if any transactions can be undone to free up assets to distribute to your creditors. Most cases don’t involve the liquidation of assets, as all property is protected by the bankruptcy exemptions..

What happens to my debt after I file for bankruptcy?

Most pre-petition unsecured debt is erased in bankruptcy. This means that, once your case is processed, you are no longer responsible for the debt. There are some exceptions to the general rule, as the following debts may be difficult or impossible to eliminate in bankruptcy:

  • Child support and alimony
  • Personal injury or death judgments
  • Student Loans
  • Income tax debts and all other tax debts
  • Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution

Secured debts are treated differently in bankruptcy. If you’ve pledged property as collateral for a loan, the loan is called a secured debt and these debts are usually not eliminated in bankruptcy. Common secured debts include vehicles and real estate, though some credit card debt and other purchases are also secured. In most cases, if you are current on your payments, you are allowed to keep the property. This is not true in cases where the items in question have enough equity to justify their sale.  Contact an attorney at Ariano & Associates, PLLC to find out whether bankruptcy or an alternative such as debt settlement is your best option.