Chapter 7, Chapter 11, Chapter 13. So many types of bankruptcy, but which is which? It’s easy to get confused. For many, Chapter 7 is a race to the finish line.
Chapter 7 is a type of bankruptcy that eliminates most debts and lets you keep most of your property. Chapter 7 is the most common type of bankruptcy case filed in Arizona, primarily because it helps most people, most of the time.
How The Case Begins
The case officially starts by giving the Bankruptcy Court Clerk (depending on where in Arizona you live, this may happen in a variety of courthouses) a series of documents called a petition and schedules. These documents constitute a detailed financial statement and a request that you want the protection of the Bankruptcy Court. The protection is automatic. If you ask for it, you get it – no questions asked.
The Court order that is given at the time of filing is called the automatic stay. I like to think of it as the automatic stop. It stops all creditors from doing anything to collect money or take property. Abusive calls have to stop. Garnishments are stopped. Foreclosures and lawsuits are stopped.
The Chapter 7 Trustee
After the case is filed the Court appoints a bankruptcy trustee. Think of the Trustee as an investigator. It is the Trustee’s job to investigate your financial situation. This is usually just a paper investigation and includes reviewing tax returns, bank statements, paycheck stubs and related financial records.
The trustee runs a short hearing that you are required to attend. During this hearing, which may be held in a variety of locations around Arizona depending on where your case is filed, is when the trustee verifies that the information we used to prepare your bankruptcy filing is true.
The trustee is looking for property that you are not allowed to protect under the law. Most property is exempt, which means it can’t be taken from you.
Fortunately, most of the things most of us have are protected. The list includes your house, car, furniture, retirement account, pets, personal belongings, wedding and engagement rings, and tools of the trade.
If you own other investment or luxury items you will probably lose them if you file a Chapter 7 case. The proceeds of any property the Trustee takes is used to pay the Trustee, the Trustee’s lawyer, and then the balance is divided up between the creditors.
After The Hearing
After the hearing your creditors and the Trustee have 60 days to challenge your bankruptcy. If no one does so then the U.S. Bankruptcy Court for the State of Arizona will automatically approve the Chapter 7 by granting a Discharge Order. This usually takes about 30 additional days.
It is rare that a Chapter 7 case is challenged, especially in Arizona. The court system is designed to give honest people a fresh start in Chapter 7, and the judges in Arizona are mindful of that.
The Bottom Line About Chapter 7 In Arizona
I like to think of Chapter 7 as a trade. You get your debts forgiven, get to keep everything you earn after filing, but you have to give your creditors anything that you own or have owed to you that is not on the protected list. This fresh start is a legal right and a way to recover from the hardship caused by our unpredictable financial world.
Image credit: Dru Bloomfield – At Home in Scottsdale
