Tucson, AZ – People are scared when they hear the word bankruptcy because they instantly imagine themselves out on the streets with only the clothes on their backs. This is a common misconception. Bankruptcy laws are not meant to throw people out on the street. They are meant to help them relieve most of their debts, ready for a fresh start. Many of your assets will indeed be liquidated, but there are also exemptions allowing you to keep your house and your car.
If you’re struggling with debts, do the smart thing. Schedule a meeting with some experienced lawyers and let them guide you through the process. It’s not as bad as you think.
What is Chapter 7 bankruptcy?
Arizona residents who file for bankruptcy under Chapter 7 can be discharged of most of their debts. Their non-exempt assets will be liquidated by the trustee. Chapter 7 is often the first choice for people filing for bankruptcy as it allows them to forget about credit card debts, unpaid utility bills, medical bills, etc. It works best for people who don’t have much to lose during the liquidation phase.
If you own a second home, an RV, or an art collection, skilled Tucson bankruptcy lawyers may advise you to file under Chapter 13. This is known as a reorganization bankruptcy. You are not discharged from your debts. They are rescheduled and you’ll get up to 5 years to repay them. None of your assets will be sold during that time. You need to think very hard when making such a commitment, though. If you cannot keep up with the monthly payments you’ll be back to square one.
Can I keep my house if I file for bankruptcy?
In Arizona, you can. Arizona bankruptcy lawyers all say that the state homestead exemption is far more generous than the federal one.
According to the law, you can protect up to $150,000 in equity of a home, condo, or mobile home. If you’re married and file as a couple, the amount gets doubled so you can protect up to $300,000 in home equity.
Under the federal homestead exemption, you can only protect $25,150 in home equity for your primary dwelling, or $50,300 if filing as a couple.
Can I keep my car if I file for Chapter 7 bankruptcy in Arizona?
Seasoned Tucson bankruptcy lawyers will tell you that it depends. You may be able to keep your car, but it’s up to you if it’s worth it.
Arizona’s motor vehicle exemption allows you to protect up to $6,000 in equity for one car or up to $12,000 for an elderly or disabled individual.
You need to keep in mind, though, that a car loan is a secured debt, which cannot be discharged under Chapter 7. The company or the lender has a lien on the car and, if you stop making payments, they can repossess the vehicle. If you don’t want to keep the car, simply stop making payments and they’ll eventually take it back and sell it.
On the other hand, if you want to keep the car, your lawyers will help you work out an agreement with the lender. Technically, filing for bankruptcy is considered a breach of contract, and the lender is entitled to repossess the car even if you’re up to date with your payments. To keep the car you’ll have to sign a ‘reaffirmation agreement’. This is a document stating that you remain responsible for the car loan and will continue to make payments even though you filed for bankruptcy.
Also, since you’ll be dealing with lawyers and court clerks, now would be a good time to educate yourself a bit on legal matters.
A good lawyer can explain what other exemptions you can use to protect some of your personal property, your social security or disability benefits.