The following information is provided
to give the reader a general understanding of Chapter 7 bankruptcy law
and procedures. The information provided is not intended as a comprehensive
discussion on Chapter 7 Bankruptcy Law upon which a debtor may reasonable rely. Each fact
situation is different, thus each bankruptcy case is different and
must be addressed accordingly. Bankruptcy law and procedure is very
complicated and a debtor is strongly urged to seek professional legal
advice before filing a bankruptcy petition.
Bankruptcy is a Federal process and is based on the Federal Bankruptcy
Code 11 U.S.C 101 et al, as well as various Arizona Statutes. The
goal of a Chapter 7 bankruptcy case is to discharge those debts that
are in fact dischargeable as noted in the Code and Statutes.
Dischargeable debt includes, but is not limited to; most credit card
debt, business and personal loans, medical bills, and deficiencies
arising from repossessions. However, debt incurred within 90 days
prior to the filing of a bankruptcy petition is presumed to be
As there is dischargeable debt, there are some financial liabilities
that are not dischargeable. Types of non-dischargeable debts include,
but are not limited to; alimony/child support obligations, DUI/DWI
damage awards, criminal fines and/or restitutions, most taxes, and
The fact that a debtor files for bankruptcy protection does not mean
the Bankruptcy Court or creditors will come to your home and take away
your assets. In Arizona, debtors have the benefit of statutes that
exempt from attachments certain assets up to specific dollar amounts.
The largest exemption is for a personal residence called the homestead
exemption and it exempts $100,000 in equity from attachment. Other
examples of allowable exemptions available (the amounts differ as
applied to a single person or married couple filing a joint petition)
include; $5,000 equity in a vehicle, $4000 in household goods, and
$2500 in tools of the trade. There are other exemptions available for
things such as wedding rings, family bible and pictures, a watch,
typewriter, bike, even cemetery plots and of course your pets. Since
there are numerous exemptions available it is critically important
that you provide the Court with a detailed accounting and basic
evaluation of value for ALL your assets.
The flipside to exempt property is
that certain assets may not be exempt (non-dischargeable) and thus are
subject to attachment and sale to pay creditors. Examples of
non-exempt assets include, but are not limited to; real property that
is not a personal residence, stocks, bonds, annuities, if someone owes
you money, business interests, valuable collections, sports’ season
tickets, personal injury lawsuit settlements, motorcycles, ATVs,
quads, boats, motors, RV vehicles, and of course tax refunds including
a prorate claim against any refund you may receive for this years’
taxes (filed next year).
Now a little about the bankruptcy process after the bankruptcy
documents are prepared and filed with the Bankruptcy Court. The
Chapter 7 filing fee is $209.00 and is generally paid when the
bankruptcy documents are filed, although debtors may request a payment
The day a debtor files his/her
bankruptcy documents the “Automatic Stay” goes into effect.
Practically the Automatic Stay means creditors must, by federal law,
cease and desist any and all collection efforts they are currently
engaged in against debtor. Creditors are notified by the Bankruptcy
Court that a bankruptcy case has been filed, however, the notice may
take several weeks resulting in inadvertent violations of the
automatic stay. Intentional creditor violations of the automatic stay
is an actionable violation of federal law.
Approximately six weeks after your
bankruptcy Petition is filed the debtor will have a mandatory
appearance before the Bankruptcy Court called a “341/Meeting of
Creditors”. The 341 has two essential purposes. Per the Bankruptcy
Code; the Court must actually see the debtor and determine proof of
identity. To this end the debtor must bring to the 341 a picture ID
and proof of his/her Social Security number. The 2nd
purpose of the 341 is that the Code requires that the debtor verify
under oath that the information contained in their bankruptcy
documents is in fact true and accurate to the best of their knowledge.
Generally creditors do not attend the 341 however they have the right
to appear and question you under oath as does the Trustee who presides
over the 341.
Approximately ninety days after the
341/Meeting of Creditors hearing you will receive your discharge
letter in the mail and your case is essentially over at that point.
However, post-discharge issues can and do occur and must be addressed.
Let me reiterate, bankruptcy law and
procedure is very complicated and filing a bankruptcy case should be
considered only after all other available options are exhausted. If,
upon careful consideration, bankruptcy protection is warranted it is
imperative that a debtor seek professional legal advice so as to avoid
the many bankruptcy pitfalls awaiting the unwary. The old adage
of being "pennywise and pound foolish" could not be more appropriate
in the bankruptcy case context. Retaining an attorney will
usually result in savings that far outweigh the fee charged.
The author maintains a statewide practice in all
Arizona Courts, including the U.S. District Court, District of
Arizona. The Law Office of DAVID W. REICHEL serves Maricopa and
surrounding counties, conveniently located in Mesa at 86 W. University
Drive, Suite 101C.