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CHAPTER 7 BANKRUPTCY

Chapter 7 Bankruptcy under United States Bankruptcy Code, found in the Title 11 United States Code, is referred to as a “liquidation” bankruptcy.  Generally, unsecured creditors, such as credit cards, medical bills, deficiencies, and the like, will not be paid.  There are certain types of debts which are not discharged under Chapter 7 bankruptcy, such as those that arise as alimony and child support under divorce court orders, sales taxes, pay roll taxes, recent income taxes, and student loans.  These are generally not discharged under a Chapter 7 bankruptcy proceeding.

Consequences of Filing Chapter 7 Bankruptcy

There are some disadvantages to filing Chapter 7 bankruptcy in Arizona which include:

First, Debtors must turn over to the Bankruptcy Court appointed Trustee any property that is not protected by the law.  Those items which are protected, or “exempt” in Arizona include $150,000 of equity in one’s residence, a motor vehicle, furniture, wedding rings, tools of the trade, retirement accounts, and several other items.  If a Debtor has non-exempt assets, such as a personal injury claim, tax refunds, boats, jet skis, ATV’s, or the like, the Trustee will take ownership of those items, and sell them, using the funds to pay creditors.

Second, the effect on one’s credit report is approximately a lower score of 100 to 120 points, but that is obtained when the bankruptcy discharge hits the credit reporting agencies, which is about 5 months after filing the bankruptcy case. In our office, we can show you how to rebuild your credit score, and have seen clients get back to a 700 score in as little as a year after their discharge.

Third, as to secured debts, such as real property and vehicles, Chapter 7 allows Debtors to keep those assets as long as they continue to make the required monthly payments already established.  We find that many of our clients have been misinformed about their assets, and are concerned about filing bankruptcy, because they feel they may lose their homes or vehicles.  This is simply not the case if they continue to make their monthly payments to the creditor.