Bankruptcy Chapter 7

There are two main types of bankruptcy, Chapter 7 and Chapter 13. In either case, the court will appoint a trustee, whose job is to investigate what assets you have available to help pay your creditors.  Whatever you can afford to pay your creditors, you do; very often, especially in Chapter 7, you don't have to pay anything. In exchange, you receive a "discharge," which is a Federal court order wiping out your debts.

Chapter 7 is the most common type of bankruptcy case. This is called a "liquidation" case as opposed to Chapter 13's "reorganization" case. If you file for Chapter 7, "liquidation" means that you will be allowed to keep your exempt property, but if you have non-exempt property, the trustee might sell (or liquidate) that property to pay your debts. Luckily, in 90% of Chapter 7 cases, all of the property is exempt, and the debtor doesn't have to give up anything.

Examples of exempt assets under Arizona law include:

• $150,000 of equity in your home.  Most Arizona homeowners have little or no equity, which means that the home is completely exempt, and the trustee cannot take it.  Mortgage lenders, however, still have the right to demand payments.
• $5,000 of equity in your car, or $10,000 if you are disabled.  If you are married and have two cars, each of you can take this exemption.  Again, if you are leasing your car or paying off a loan on it, you probably have little or no equity, so the trustee cannot take it but you still have to make lease or loan payments.
• A reasonably generous allowance for clothing, personal items, and household goods.
• Retirement savings, with very few exceptions.

Most debts are discharged in Chapter 7. There are some exceptions, though, including student loans, child support, alimony, and debts that resulted from fraud. Credit card usage within a short time before filing might not be discharged. Finally, taxes are complicated: some taxes are discharged and some aren't. If a debt is not discharged, then you would still be responsible for paying it back after you receive the bankruptcy discharge of your other debts. You should definitely consult an attorney if you are considering a bankruptcy filing and you have debts that fall into any of these categories.