Bankruptcy may be an option that can help you get out of debt

March 01, 2013

Bankruptcy may be an option that can help you get out of debt

Article provided by The Law Offices of William D. Black
Visit us at http://www.billblacklaw.com

Many Arizona residents who feel overwhelmed by debt are reluctant to file for bankruptcy. However, bankruptcy might be the best way out of a difficult financial situation, leaving a debtor in a position to make a new start.

Many opt for bankruptcy

Bankruptcy was a route taken by over 1.2 million Americans in 2012, according to the U.S. Bankruptcy Courts. In Arizona, 28,514 bankruptcies were filed in 2012, down from 36,556 the year before. The 22 percent decline in Arizona bankruptcies from 2011 to 2012 beat the national decline in that time span, which came in at 13.4 percent. This could be an indication that the state's economic recovery is ahead of the nation as a whole.

Bankruptcy types

Individuals can file for bankruptcy under either Chapter 7 or Chapter 13 of the bankruptcy code. The two types of bankruptcy differ in how debt is eliminated and what happens to assets.

Chapter 7 bankruptcy is sometimes called liquidation bankruptcy. In most cases, a filer's debts can be completely discharged depending on the type of the debts. For example, student loans, tax debts and secured debts can be more difficult or impossible to discharge through bankruptcy.

In some high-asset cases the outcome may be different. These are cases in which the person or entity has several homes, high-income or a multitude of high-value assets which may be included in the bankruptcy estate and liquidated to pay off some of the outstanding debts. Chapter 7 is not an option for everyone. Filing for Chapter 7 bankruptcy is possible only if the filer meets income eligibility guidelines and certain other criteria.

Chapter 13 bankruptcy is also an option for individuals who want to file bankruptcy. In a Chapter 13 bankruptcy, the court approves a repayment plan for the filer's debts and usually does not require the debtor to liquidate assets. For people who have substantial assets they want to keep, and enough income to make monthly payments on debts, Chapter 13 is generally a better choice.

When a debtor files for Chapter 13 bankruptcy, also called reorganization bankruptcy, the goal is to reorganize the assets and work out a plan that will pay creditors over a span of about three to five years. The repayment plan takes into account the filer's income and the value of some of the filer's property.

The property that is considered while designing the payment plan is called non-exempt property. The value of the filer's non-exempt property is calculated in order to determine how much creditors will receive. The repayment plan must pay out at least as much to the creditors as the non-exempt property is worth.

Exemptions

It is a common misconception that people who file bankruptcy lose most of their property. In reality, federal and state laws prohibit certain property from being subject to creditor's claims during a bankruptcy. This kind of property is called exempt property, and federal law and the laws of each state define exactly what constitutes exempt property.

Usually exempt property includes, among others, the family home, personal belongings such as clothing and jewelry, basic household furnishings and the family car.

Determining which property is exempt from collection is extremely important. During a Chapter 7 bankruptcy, exempt property is protected from liquidation. During a Chapter 13 bankruptcy, the debtor's exempt property is not taken into account when the payment plan is designed.

If you are considering bankruptcy, it is important to get the facts regarding exemptions. An experienced bankruptcy attorney knows how state and federal laws define these exemptions for Chapter 7 and Chapter 13 petitions so that your property will be protected.

If you would like more information about bankruptcy, speak with an experienced bankruptcy attorney. An attorney can discuss your options and start you on the path towards dealing with debt and moving forward with your life.