Chapter 7 Bankruptcy is the most common form of bankruptcy and is generally filed by individuals and married couples. This bankruptcy is also available to corporations, partnerships, and limited liability companies. All individual bankruptcy petitioners must take a means test to determine whether or not they are eligible to file for Chapter 7 bankruptcy. The means test compares your personal income with the median Arizona income. If you are below the median Arizona income, you are eligible for Chapter 7; if you are above the median income, other factors such as expenses will be taken into consideration. If, after the means test, you are determined to be not eligible for Chapter 7, you will have to file for Chapter 13 or Chapter 11.
In a Chapter 7 Bankruptcy a court-appointed trustee liquidates (sells) your non-exempt assets and divides the money between creditors. All remaining debts are then discharged. Chapter 7 does not normally discharge (eliminate) student loans, tax debts, alimony, child support, secured debts and criminal fines.
When you file for Chapter 7, an automatic stay is immediately issued which prevents creditors from collecting debts and repossessing your property. There is a Court hearing (341 hearing) approximately 40 days after you file where your creditors can appear and ask you questions (generally the hearing takes only 5 minutes and there are no creditors present). A trustee is appointed to collect all non-exempt assets. The trustee then sells the non-exempt assets and divides the proceeds among your creditors. Most people loose almost nothing. Exempt assets are not subject to being taken and sold. Once the bankruptcy is complete all of your dischargeable debts will be discharged (eliminated).
If you received a Chapter 7 bankruptcy discharge within the last eight years, or a Chapter 13 discharge within the last six years, you can't file a Chapter 7 bankruptcy.
Chapter 13 Banktuptcy
Chapter 13 Bankruptcy is generally used by individuals and sole proprietorships who do not qualify for or want to file a Chapter 7 bankruptcy. It allows the individual or business to keep their property and pay off their debt on a schedule over three to five years. A court-appointed trustee a paid a set amount each month. The trustee then distributes funds to creditors.
Chapter 13 Bankruptcy involves creating a restructuring (payback) plan. This plan may allow debtors to create an arrangement by which they can pay their back mortgage payments over time and remain in their home. A Plan must be created to pay off your debt within a three to five-year period. The main requirement for filing Chapter 13 Bankruptcy is that you have enough regular income to cover your monthly expenses as well as the payments required under the restructuring plan. This means that you must be able to pay your monthly mortgage payments on time and stay on top of paying off debt according to your plan.
With our economy there have been losses in the value of homes. If you have a second mortgage and your first mortgage is equal to or more than the value of your home due to devaluation, you may be able to utilize Chapter 13 to eliminate the payments on your second mortgage. Because there is not enough equity in the home to secure both mortgages the second mortgage can be reclassified as unsecured debt. In a Chapter 13 restructuring plan unsecured debt takes last priority and can sometimes go unpaid.
WHY FILE A CHAPTER 13 BANKRUPTCY?
A debtor cannot obtain a discharge in a Chapter 13 case if the debtor obtained a discharge in a Chapter 7 Bankruptcy case filed within the past 4 years, or a Chapter 13 Bankruptcy case filed within the past 2 years.
If you have non-exempt property that you want to keep. When you file for Chapter 7 bankruptcy, you get to keep only your exempt property (property specifically exempt by Arizona law or federal law) . In a Chapter 7 Bankruptcy, the Trustee takes all of your non-exempt and then he sells it and distributes the proceeds to the creditors. In Chapter 13 Bankruptcy, you don't give up any property. You repay your debts out of your income.
If you want to repay your debts, but you need the protection of the bankruptcy court to do so. This could happen if creditors are going after you.
If you are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in a Chapter 13 bankruptcy.
If you have tax obligations, student loans, or other debts that can’t be discharged in a Chapter 7 Bankruptcy. You can include these debts in your Chapter 13 plan and pay them off over time.
WHAT CAN YOU KEEP IF YOU FILE A CHAPTER 7 BANKRUPTCY?
Arizona has specific items that you are allowed to keep after you file a Bankruptcy.
If you want to keep an item that has a lien, mortgage or security interest against it, you must either reaffirm the debt or continue to make payments and be current with your obligation. You cannot keep a secured item and not pay the debt. In other words, you can't get something for nothing.
If you have items that are not on the list, the Bankruptcy Trustee can take these items from you and sell them and use the money to make payments to your creditors.
The following is a list of the items that you are allowed to keep after you file a Bankruptcy. This list may have changed since it was made and you should talk with your Attorney about the Bankruptcy Exemptions.
ARIZONA STATE EXEMPTION STATUTES
FEDERAL BANKRUPTCY EXEMPTIONS ARE NOT AVAILABLE
All law references are to Arizona Revised Statutes unless otherwise noted.
NOTE: Doubling is permitted for noted exemptions by Arizona Revised Statutes § 33-1121.01.
HOMESTEAD
Real property; an apartment or mobile home you occupy to $150,000; A.R.S. § 33-1101
the amount of the homestead may be limited to $125,000 if it was purchased by the debtor within 1,215 days before filing bankruptcy.
sale proceeds exempt 18 months after sale or until new home purchased, whichever occurs first (husband and wife may not double) 33-1101
Must record homestead declaration before attempted sale of home 33-1102
PERSONAL PROPERTY (to $4,000 total, per person) 33-1123
husband and wife may double all personal property exemptions
Household furniture, furnishings and appliances personally used by debtor in an amount not to exceed $4,000 (fair market value):
– one kitchen and one dining room table with four chairs
each, plus one additional chair for each dependent of the debtor who resides in the household if the debtor and dependents exceed four in number
– one living room couch
– one living room chair, plus one additional chair for each department of the debtor who resides in the household
– three living room coffee or end tables
– three living room lamps
– one living room carpet or rug
– two beds, plus one additional bed for each dependent of the debtor who resides in the household – one bed-table, dresser and lamp for each bed allowed above
– bedding for each bed allowed above
– pictures, oil paintings and drawings, drawn or painted by debtor and family portraits in their necessary frames
– one television set or radio or stereo
– one radio alarm clock
– one stove
– one refrigerator
– one washing machine
– one clothes dryer
– one vacuum cleaner
All food, fuel and provisions for debtor’s individual or family use to last up to six months A.R.S. § 33-1124
All wearing apparel used primarily for personal, family or household purposes with a fair market value not to exceed $500 A.R.S. § 33-1125(1)
All musical instruments for debtor’s individual or family use with an aggregate fair market value not to exceed $250 A.R.S. § 33-1125(2)
Domestic pets, horses, milk cows and poultry with a fair market value not to exceed $500 A.R.S. § 33-1125(3)
All engagement and wedding rings with a fair market value not to exceed $1,000 A.R.S. § 33-1125(4)
Debtor’s library, including books, manuals, published materials and personal documents not with a fair market value not to exceed $250 A.R.S. § 33-1125(5)
One watch with a fair market value not to exceed $100 A.R.S. § 33-1125(6)
One typewriter, one bicycle, one sewing machine, a family bible, a burial plot, one shotgun or one rifle or one pistol, with a fair market value not to exceed $500 A.R.S. § 33-1125(7)
One car with a fair market value not to exceed $5,000. If debtor is physically disabled, the fair market value of the motor vehicle shall not exceed $10,000. A.R.S. § 33-1125(8)
Professional prescribed prostheses for debtor or a dependent of the debtor, including a wheelchair A.R.S. § 33-1125(9)
Life insurance proceeds not to exceed $20,000 if payable to surviving spouse or child upon the life of a deceased spouse, parent or legal guardian. A.R.S. § 33-1126(A)(1)
Minor child’s earnings unless debt to be discharged was contracted for the special benefit of the minor child. A.R.S. § 33-1126(A)(2)
Child support or spousal maintenance received pursuant to a court order. A.R.S. § 33-1126(A)(3)
All money, proceeds or benefits from employer health, accident, disability insurance benefits or similar employer benefit program. A.R.S. § 33-1126(A)(4)
All proceeds from destruction of or damage to exempt property and all proceeds or benefits arising from fire or other insurance on exempt property. A.R.S. § 33-1126(A)(5)
Cash surrender value of life insurance policies where for a continuous unexpired period of two years such policies have been owned by a debtor and have named as beneficiary the debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer. A.R.S. § 33-1126(A)(6) and A.R.S.§ 20-1131(D)
An annuity contract where for a continuous unexpired period of two years such contract has been owned by a debtor and has named as beneficiary the debtor, debtor’s surviving spouse, child, parent, brother or sister, or any other dependent family member, except for the amount of any premium that is avoidable by a creditor as a fraudulent transfer A.R.S. § 33-1126(A)(7)
Any claim for damages for levy upon or sale under execution of exempt personal property or for wrongful taking or detention of exempt personal property. Does not apply to annuities, nor to cash surrender values increased by premium payments made within two years in excess of the average annual premium paid during the previous three years. A.R.S. § 33-1126(A)(8)
Bank deposit not to exceed $150. This sum is not exempt from normal service charges assessed by the bank holding the funds. A.R.S. § 33-1126(A)(9)
Benefits from ERISA-qualified retirement plan or deferred compensation plan except those amounts contributed within 120 days before a debtor files for bankruptcy. Does not apply to an alternate payee under a qualified domestic relations order. Not exempt from orders resulting from a judgment for child support arrearages or child support debt. A.R.S. § 33-1126(B)
Prepaid rent, including security deposits as provided in §33-1321(A) for debtor’s residence, not exceeding the lesser of $1,000 or 1½ month’s rent where debtor has not claimed a homestead exemption. Not exempt from orders resulting from a judgment for child support arrearages or child support debt. A.R.S. § 33-1126(C)
Exemptions listed in § 33-1126 are not exempt property from orders resulting from a judgment for child support arrearages or child support debt A.R.S. § 33-1126(D)
Group life insurance policy or proceeds A.R.S. § 20-1132
Library and philosophical and chemical or other apparatus used for instruction of youth in any university, college, seminary of learning, or school A.R.S. § 33-1127
Tools, equipment, instruments and books of debtor or debtor’s spouse primarily used and necessary to carry on the commercial activity, trade, business or profession of debtor or debtor’s spouse, with a fair market value not to exceed $2,500. Tools does not include a motor vehicle primarily used for personal, family or household purposes such as transportation to debtor’s employment. A.R.S. § 33-1130(1)
Farm machinery, utensils, implements of husbandry, feed, seed, grain and animals belonging to debtor, with a value not to exceed $2,500, where debtor’s primary income is derived from farming A.R.S. § 33-1130(2)
All arms, uniforms and accoutrements required by law to be kept by a debtor A.R.S. § 33-1130(3)
Seventy-five percent (75%) of disposable earnings. Only one half of disposable income may be claimed exempt in response to an order for support of any person. These exemptions do not apply in a Chapter 13 bankruptcy filing. “Disposable earnings” means that remaining portion of a debtor’s wages, salary or compensation for his personal services, including bonuses and commissions, or otherwise, and includes payments pursuant to a pension or retirement program or deferred compensation plan, after deducting from such earnings those amounts required by law to be withheld. A.R.S. § 33-1131(B),(C), (D)
Waiver of exemption rights void and unenforceable unless specifically provided in § 33-1122 and when done with notice A.R.S. § 33-1132
Arizona Board of Regents members – benefits, annuities and employee and employer contributions established by the Arizona Board of Regents pursuant to A.R.S. § 15-1628 A.R.S. § 15-1628(I)
IRAs In re Herrscher, 121 B.R. 29 (D. Ariz. 1990)
Police Officers Pension. Exemption does not apply to court orders which are the result of a judgment for arrearages of child support or for a child support debt. A.R.S. § 9-931
Fire Fighters’ Relief and Pension Fund and distributive portions therefrom. Exemption does not apply to court orders which are the result of a judgment for arrearages of child support or for a child support debt. A.R.S. § 9-968
Arizona State Retirement System – state employee’s survivor benefits before retirement A.R.S. § 38-762
Public Safety Personnel Retirement System – benefits, employee contributions or employer contributions, including interest, earnings and all other credits A.R.S. § 38-850(C)
Arizona Rangers’ Pension A.R.S. § 41-955
PUBLIC BENEFITS
Unemployment compensation benefits are exempt where proceeds are not commingled with other funds, except debts incurred for necessaries furnished to the individual or his or her spouse or dependents during the time when the individual was employed A.R.S. § 23-783
Workers’ compensation benefits A.R.S. § 23-1068
Welfare assistance benefits A.R.S. § 46-208
Federal Non-bankruptcy Exemptions
RETIREMENT BENEFITS
Government employees’ retirement payments 5 U.S.C. § 8346(a) Annuities paid to members of the armed services, based on retirement or retainer pay 10 U.S.C. § 1440
Foreign service employees – Benefits, annuities, or payments to survivors of foreign service employees under the Foreign Service Retirement and Disability System 22 U.S.C. § 4060(c)
Special pensions awarded to persons on the Army, Navy, Air Force and Coast Guard Medal of Honor roll 38 U.S.C. § 1562(c)
Payments of benefits due or to become due under any law administered by the Veterans’ Administration 38 U.S.C. § 3101
Retirement annuities paid pursuant to the Railroad Retirement Act of 1974, 45 U.S.C. §§ 231 et seq. 45 U.S.C. § 231m
Social security benefits 42 U.S.C. § 407-20-
Central Intelligence Agency retirement benefit payments 50 U.S.C. § 403
SURVIVORS’ BENEFITS
Military survivor annuities paid pursuant to the Survivor Benefits Plan 10 U.S.C. § 1450(i)
Annuities paid to survivors of a Justice or judge of the United States, a Director of the Administrative Office of the United States Courts, a Director of the Federal Judicial Center, or an administrative assistant to the Chief Justice of the United States. 28 U.S.C. § 376(n)
Benefits paid to surviving spouses of lighthouse service personnel 33 U.S.C. § 775
DEATH & DISABILITY BENEFITS
Disability and death benefits paid to federal government employees as a result of work injuries 5 U.S.C. § 8130
75% of earned but unpaid wages 15 U.S.C. § 1673
Death and disability payments paid pursuant to the Longshoremen’s and Harbor Workers’ Compensation Act 33 U.S.C. § 916
Seamen’s clothing 46 U.S.C. § 1110
Seamen’s wages exempt except from execution other than for the support of a spouse or minor children 46 U.S.C. § 1111(a)
Compensation paid for injury or death resulting from a war risk hazard under the War Hazards Compensation Act, 42U.S.C. § 1701 et seq.42 U.S.C. § 1717
MONEY, BENEFITS, PROCEEDS
A United States service member’s deposits in a savings institution while the depositor is on permanent duty outside of the United States 10 U.S.C. § 1035(d)
Payments of benefits due or to become due under Servicemen’s Group Life Insurance or Veterans’ Group Life Insurance 38 U.S.C. § 770(g)
Benefits due or to become due under servicemen’s group life insurance 38 U.S.C. § 1970(g)
Veterans’ benefits 38 U.S.C. § 5301(a)
Exempts from offset by federal government agencies an amount not to exceed $9,000 owing to a debtor under the Social Security Act, the Black Lung Benefits Act, or laws administered by the Railroad Retirement Board. 31 U.S.C. §3716(c)(3)(A)(i)
The Secretary of Treasury “shall exempt from administrative offset ... payments under means-tested programs when requested by the head of the respective agency,” and the Secretary is given discretion to exempt from administrative offset such other payments that are requested for exemption by the “head of a payment certifying agency.” 31 U.S.C. §3716(c)(3)(B)
Railroad workers’ unemployment insurance benefits 45 U.S.C. § 352(e)
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Information contained in this web site is for informational purposes only and does not constitute legal advice and should not be considered as legal authority, and does not create an attorney-client relationship. You should not rely on this material without seeking professional help from an attorney.
