Gregory Malkin Attorneys at Law

Chapter 7 is known as liquidation bankruptcy. It allows you to wipe out (discharge) most of your debt; however, you must give up your non-exempt property in exchange. Non-exempt property is sold by the trustee and sold to pay creditors.

In a chapter 7 case, you can keep all property which the law says is “exempt” from the claim of creditors. In Arizona, we use exemptions under state law. These exemptions include:

• $150,000 in equity in your home;
• $5,000 in equity in one vehicle (doubles for married couples who file together);
• $4,000 in household goods (doubles for married couples who file together);
• $2,500 in things you need for your job (tools, etc.);
• $150 cash on hand or in the bank per filer. PLEASE NOTE THAT WHEN FILING A CHAPTER 7, IF YOU HAVE MORE THAN $150.00 IN YOUR BANK ACCOUNT ON THE DAY THAT YOU FILE, YOU WILL HAVE TO PAY THE TRUSTEE ANY AMOUNT OVER $150.00. THERE IS NO EXCEPTION TO THIS RULE.
• All your retirement money (except for funds contributed within 120 days prior to filing your petition)
• 75% of wages owed to you.

• You cannot eliminate rights of “secured” creditors. Secured creditors are those that have taken a mortgage or other lien on property as collateral for the loan. Common examples are mortgages and loans given to purchase a car or furniture. You generally can eliminate your obligation to pay any additional money if your property is taken, but cannot keep the collateral unless you continue to pay the debt.
• You cannot discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes.
• Debts that arise after the bankruptcy has been filed.
• Co-signer debts. When a relative or friend has co-signed a loan, the cosigner may still have to repay all or part of the loan if the consumer discharges the loan in bankruptcy.
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan.
• Debts resulting from “willful and malicious” harm.

In a chapter 13 case debtors with consistent income file a “plan” showing how they will pay off some of their past-due and current debts. Chapter 13 bankruptcy requires the debtor to commit all of his disposable income to the Chapter 13 plan for three to five years. You should consider filing a Chapter 13 plan if you:

• Own your home and are in danger of losing it.
• Are behind on debt payments, but can catch up if given some time;
• Have valuable property which is not exempt, but can afford to pay creditors from your income over time.

As long as your equity in the property is fully exempt, you will not lose your home or car during the bankruptcy case. If you property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to the creditors through the trustee.

If your creditors have a security interest in your home, automobile or other personal property and you intend to keep the property, you must continue to make timely payments. IF YOUR PAYMENTS WERE PREVIOUSLY MADE BY AUTOMATIC WITHDRAW, THAT SERVICE WILL BE DISCONTINUED AND LOCAL BRANCHES MAY NOT ACCEPT YOUR PAYMENT. YOU MUST INSTEAD MAIL IN THE PAYMENT WITH SUFFICIENT TIME TO AVOID LATE FEES.

There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth.

Yes! You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

Credit Counseling – You must receive budget and credit counseling from an approved credit counseling agency win 180 days before your bankruptcy case is filed. The agency will provide you with a certificate that must be filed with your petition. After your case is filed, you must complete a second course in personal finances within 70 days after your case is filed.

Utility services – public utilities cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you have to pay all bills that arise after your bankruptcy is filed. Further, they can cut off service if you do not pay the deposit.

Tax refunds – Federal and state tax refunds are routinely taken in Chapter 7 cases, and may affect plan payments in Chapter 13. If you anticipate receiving a refund for the following tax year, make sure to discuss this with an attorney.

Property transfers – Do not put property you own into someone else’s name to avoid having taken by creditors or the trustee. That kind of transfer is a fraud on creditors and can result in your discharge being denied.  In addition, the trustee can take the property from the person to whom it was transferred.

Payments to relatives or friends – Any payments of $600 or more made to relatives or business associates for money lent to you within one year before you file is considered a “preference.” The trustee may recover preferences from the person that was paid and divide the money between all of your creditors.