When you’re filing for bankruptcy in Arizona, you have two choices – Chapter 7 bankruptcy, or another type of bankruptcy, Chapter 13. There are pros and cons to each type. Here’s how to determine if Chapter 13 bankruptcy is good for you, based on the pros and cons.
Chapter 13 Bankruptcy Explained
Chapter 13 bankruptcy warrants some explanation. Understanding this type of bankruptcy can help you decide if it’s a good choice.
When filing bankruptcy, Chapter 13 allows you to develop a plan to repay some or all of your debts based on available disposable income. By paying in smaller installations you can manage your debt without going broke, and in the meantime, creditors cannot continue collection activity. Because of the setup of this bankruptcy, Chapter 13 has many benefits.
Benefits of Bankruptcy – Chapter 13
- A Chapter 13 bankruptcy allows you to keep your assets. When it comes to your home, because you are not liquidating, you can save your home from foreclosure by stopping foreclosure proceedings and fixing delinquent mortgage payments on a scheduled plan.
- With other secured debts (cars furniture, appliances etc.), you are able to reduce interest rates and are able to extend payments over time making your monthly payments more affordable. You can even “cram-down” or reduce the overall secured debt by paying what the asset is worth and not the debt owed against the asset (this includes Title and Registration Loans on vehicles).
- With respect to tax debt, if you cannot fully eliminate the tax debt because it is too new, you can still eliminate on-going interest and eliminate assessed penalties.
- Chapter 13 plan payments can be modified and you can dismiss a Chapter 13 plan at any time. Not so with a Chapter 7.
- If you see that you cannot complete a Chapter 13, you can convert your case to a Chapter 7 bankruptcy and include not only debt that existed at the time of the filing of the Chapter 13, but also post-filing debt can be included in the Chapter 7. For example, if you lose your job due to illness and have incurred substantial medical debt, you can convert your Chapter 13 to a Chapter 7 and include the new medical debt in the Chapter 7.
Through this type of bankruptcy, you will make monthly plan payments to a Chapter 13 trustee assigned to your case. He or she will distribute your payments to creditors so you do not contact them – a welcome relief for those who have been dealing with angry collections departments.
Cons of Bankruptcy – Chapter 13
There are always negative aspects to filing for bankruptcy in Arizona.
- When you file, you will be affecting your credit for several years. This is applicable no matter what type of bankruptcy you file, however.
- If your income increases, then your plan payments may also increase.
- If you inherit money or win the lottery or a personal injury claim, you can lose those assets.
- While in a Chapter 13 you must maintain a certain discipline in how you spend your money. In the long-run, maintaining such a discipline can become a positive factor when you complete your case, but may be difficult to achieve if you are not experienced in proper budgeting,
An experienced bankruptcy attorney can help you decide if a Chapter 13 bankruptcy is the best choice for your decision. Filing for bankruptcy in Arizona is a complex situation, so if you are considering this option it is important to get good legal advice. An attorney is one of your greatest assets when you are dealing with financial stress, and can make a big difference in the outcome of a bankruptcy filing.
This blog is intended as a general discussion of legal issues and not as a statement of fact, legal advice or a legal opinion. No attorney-client relationship is created by this blog. Do not act or rely upon law-related information in this communication without seeking the advice of an attorney licensed to practice in the relevant area.