When considering whether to file bankruptcy it is important to take into account all of the options available. For many, the need for and advantages of bankruptcy are obvious. To others, it will be a last resort. As the debts pile up and the creditors hound you, it is important to consider what can be done. This article will provide basic information on the types of bankruptcies available to both consumers and businesses.

Chapter 7 – Liquidation

Chapter 7 is designed for debtors who are having financial difficulties and are not able to repay their debts. If your current monthly income is above the State Median Income you will be required to perform a Means Test to determine if you are eligible for this type of bankruptcy relief. If you do not meet the requirements of the Means Test then you may be precluded from filing a Chapter 7 and have the option of converting to Chapter 13 or filing a Chapter 13.

Under Chapter 7 a Trustee takes possession of all your property. You may claim certain property as exempt under Arizona law. A copy of the Arizona Exemption Law is attached to this notice. You can only exempt value of property that is not subject to the liens of your creditors. The Trustee then liquidates the non-exempt property and uses the proceeds to pay off your creditors according to priorities of the Bankruptcy Code.

The purpose of filing a Chapter 7 is to obtain a discharge of your existing debts. If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, your discharge may be denied by the Court, and the purpose for which you filed the bankruptcy petition will be defeated.

Even if you receive a discharge, there are some debts that are not discharged under the law. Therefore, you may still be responsible for such debts as certain taxes and student loans, alimony and support payments, criminal restitution, and debts for death or personal injury caused by driving while intoxicated with alcohol or drugs.

Under certain circumstances you may be able to keep property that you have purchased subject to a valid security interest. Some of these options include what is called redemption and the renewal or reaffirmation of an existing pre-bankruptcy debt. Your attorney can explain the options that are available to you.

Chapter 13 – Repayment of All or Part of the Debts of an Individual with Regular Income

Chapter 13 is designed for individuals with a regular and stable source of income who are temporarily unable to pay their debts but who desire to use their best efforts and good faith to pay them in installments over a period of time subject to the protections afforded by the Chapter 13 rules. You are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.

Under Chapter 13 you must file a plan with the Court to repay your creditors all or part of the money that you owe them, using your earnings or by the disposition and/or abandonment of certain collateral such as land and motor vehicles. You are protected from your creditors in most cases upon the filing of your case but your plan must be approved by the Court before it can take effect. Under Chapter 13, unlike Chapter 7, you may keep all of your property, both exempt and non-exempt, as long as you continue to make payments under the plan.

After completion of payments under the plan your debts are discharged except for any domestic support obligations, student loans, and certain taxes, among others.

Chapter 11 – Reorganization

Chapter 11 is designed primarily for the reorganization of businesses but is also available to consumer debtors. Its provisions are quite complicated, and any decision for an individual to file a Chapter 11 petition should be reviewed with an attorney. Most Chapter 11 cases are simply too expensive for the great majority of consumer debtors.

Chapter 12 Family Farmer

Chapter 12 is designed to permit family farmers to repay their debts over a period of time from future earnings and is in many ways similar to a Chapter 13. The eligibility requirements are restrictive, limiting its use to those whose income arises primarily from a family-owned farm.

Credit Counseling

Reputable credit counselors can advise you on managing your money and your debts. They may also be able to develop a plan to repay your debts. But, most credit counselors are not reputable and charge high fees and contributions that will cause you to fall deeper into debt. Furthermore, many misrepresent their non-profit status and/or their affiliations with religious or charitable organizations. The Kelly Law Firm, L.L.C. only recommends that a person seek the credit counseling services of a group that has been approved by the United States Trustee Department or the Bankruptcy Administrator.

Honesty is Required

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a case under this the bankruptcy code shall be subject to fine, imprisonment, or both and all information supplied by a debtor in connection with a case under this title is subject to examination by the Attorney General.

Final Thoughts
There is a general consensus in the legal community that the Bankruptcy Code has become much more complex since it was reformed in 2005. After the Bankruptcy Code was reformed, many attorneys decided to stop practicing bankruptcy law because of how complex the law became. Clearly, if licensed attorneys are baffled by the new law, clients should not rely on themselves or “licensed document preparers” to get through this difficult process. A qualified attorney, who will personally help you through this trying ordeal, should be employed. Like the old saying goes, you get what you pay for.

We are available to help you get through this difficult process.

Foreclosure seeks court authority to foreclose the  lien on the owner’s property. This allows the property to be sold at Sheriff’s sale.  There may be liens superior or junior to your lien, and you should consult with an attorney when looking into this. The lien will be satisfied through a Sheriff’s sale, if there is enough equity in the owner’s property.   Please be aware that there are nuances to foreclosure, including the ability of the first mortgage to foreclose in 90 days by trustee’s sale, a fairly short period of time.

The other collection procedure seeks a judgment against the owner personally.  This means that the judgment appears on the owner’s credit report and the owner must personally pay the required amount to remove.  It also permits you, with a judgment, to garnish wages, garnish bank accounts if they can be located, and require the judgment debtor to appear for a deposition concerning assets.  This track, through Justice Court, is generally less expensive than foreclosure.  With both foreclosure and personal judgments, we can enter into payment agreements at any time with an debt if it is in the best interests of the you.  The goal is to get paid.

Across the country, Courts are seeing more and more debt-collection cases flood the courtrooms. Most of the cases involve credit card collections, foreclosures, or evictions. This proverbial debt collection crisis is the result of the economic crash that occurred in 2008, which caused housing values to plummet and major lenders to shut their doors. In turn, this debt collection crisis has translated into more and more people filing for bankruptcy which includes both Chapter 7 bankruptcy and Chapter 11 bankruptcy. As a result, the way debt collection agencies and debt collection lawyerspractice has changed significantly. This article will address the issues that face the creditor in a bankruptcy and its impact on debt collection.

What happens if the debtor files for bankruptcy?

One of the most powerful features, and consequently one of the main reasons people pursue a bankruptcy to discharge their debt it, is that bankruptcy stops creditors from pursuing you for debt collection. Once filed, most collection activity must cease and go through the bankruptcy court. It goes without saying then that once a debtor files for bankruptcy you should consult with an experienced attorney to determine whether the debtor is eligible for bankruptcy relief. Your bankruptcy attorney should be familiar with the rules regarding Chapter 7 bankruptcy and Chapter 13 bankruptcy, or even Chapter 11 bankruptcy if the bankruptcy debtor wants to remain in bankruptcy because the debtors’ income exceeds the means test.

After the debtor files for bankruptcy an automatic stay goes into effect. The automatic stay prohibits bankruptcy creditors from taking any action to collect on the debt the bankruptcy debtor owes to the creditor. Again, there are a few exceptions to what kind of debt is discharged in a Chapter 7 bankruptcy and Chapter 13 bankruptcy, and the creditor should consult with an experienced bankruptcy attorney to determine whether debt collection can proceed. Once the bankruptcy creditor receive notice that the debtor has filed for bankruptcy, a lawyer experienced with debt collection and personal bankruptcy law will analyze the case and determine whether you can object to the debtors bankruptcy and file a motion to lift the automatic stay.

Whether a bankruptcy automatic stay can be put in place by the bankruptcy creditor depends on the type of bankruptcy that the bankruptcy debtor has filed. Since a Chapter 13 Bankruptcy is more favorable to a bankruptcy creditor, most debtors attempt to pursue filing a bankruptcy through Chapter 7. If this happens, all is not lost, as in certain instances a case initially filed under Chapter 7 can be converted to a Chapter 13 or dismissed.

In a Chapter 7 bankruptcy, the debtor surrenders all nonexempt property to an appointed bankruptcy court trustee. The Chapter 7 trustee then liquidates the property through sales, and the proceeds of the bankruptcy sale are distributed to priority creditors. After the priority creditors are paid, the remaining balance is divided amongst any unsecured creditors. In most Chapter 7 bankruptcy cases, assets rarely trickle all the way down into the hands of the unsecured creditors. Thus, most unsecured creditors would rather see a debtor pursue a Chapter 13 bankruptcy rather than file a Chapter 7 bankruptcy.

In Arizona, an individual is not eligible to file a Chapter 7 bankruptcy unless:

1. Their income for the six months prior to bankruptcy filing is less

than the median income for the same size household in Arizona, or

2. Their monthly “disposable income” (the amount of income left

over per month after subtracting living expenses per modified IRS

guidelines) is less than a minimal allowed amount (income is based on an

average of the six months prior to filing);

3. Their debts are not primarily “consumer debts.”

These rules do have exceptions, and determining whether a person is eligible for Chapter 7 bankruptcy requires a thorough investigation into their financial information.

Chapter 13 Bankruptcy and whether debt collection can proceed

If the debtor is unable to file a Chapter 7 bankruptcy, then they will usually find themselves in bankruptcy court under Chapter 13 of the bankruptcy code. Under Chapter 13, the bankruptcy debtor is seeking to reduce their debt, and negotiate a debt adjustment. The Chapter 13 bankruptcy differs from the Chapter 7 in a number of ways. Specifically, in a Chapter 13 bankruptcy the bankruptcy debtor must turn over all of their disposable income to the bankruptcy trustee for a period of three years, must disperse any increases in disposable income to those creditors, and must seek the bankruptcy court’s permission to engage in significant activities outside the ordinary course of business. Thus, most attempt to file under Chapter 7 of the bankruptcy code rather than Chapter 7.

In cases where the debtor has filed under Chapter 13, or it has been converted to a Chapter 13 from a Chapter 7 bankruptcy, an debt collection attorney has a number of options at their disposal when a debtor is seeking relief under the bankruptcy code. After filing a notice of appearance, a debt collection attorney should review the amount of debt that the debtor owes the bankruptcy creditor. The attorney should also check to see how many other creditors have a claim. Being proactive at this point is what can make or break your chances of recovering a substantial percentage of the debtor’s obligations.

As mentioned above, a Chapter 13 bankruptcy is more favorable to the creditor. Once filed, the debtor will propose a Chapter 13 plan of repayment, which can provide for full, partial, or no planned repayment of unsecured claims. Interestingly enough, a substantial portion of the payments promised to secured creditors under Chapter 13 plans are never made. Thus, it is important that the creditor and its debt collection attorney be familiar with the guidelines of Chapter 13 and Chapter 7 bankruptcies since a single question can turn a Chapter 13 into a Chapter 7 Bankruptcy. In doing so, the experienced debt collection attorney could save their clients thousands of dollars that would otherwise not be accessible in a Chapter 7 bankruptcy.

Increasing the chances of successful debt collection

In today’s economy, it is a race against the clock for creditors. With the passage of time comes the chance that the economic, psychological, and legal factors will strain a debtor to their limit and force them to file bankruptcy. A vast majority of debtors default on their obligations because they have an inability to pay. It is vital to your business to ensure that your collections procedures are efficient, and being handled by an experienced debt collection attorney.

For the purposes of successful debt collection, it is helpful for the creditor remember that by being proactive they may be able to obtain payment, whereas the same action at a later time can result in nothing. Therefore, it is vitally important to seek the advice of an experienced debt collection attorney that is versed in both debt collection law and in bankruptcy law.