Frequently Asked Questions about Chapter 13 Bankruptcy in Arizona

Chapter 13 bankruptcy is the less common and lesser understood bankruptcy method. Though it is not utilized as frequently as Chapter 7, Chapter 13 bankruptcy provides the ideal financial tool for some debtors.  The following is a list of frequently asked questions concerning Chapter 13 bankruptcy in Arizona.  While this list will not replace the individualized advice of a licensed Mesa bankruptcy attorney, it can provide a starting point for those considering filing under Chapter 13.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is commonly referred to as restructuring bankruptcy or reorganization bankruptcy because it allows a financially struggling individual or sole proprietor to essentially restructure their debt into a manageable repayment plan.  Chapter 13 will not eliminate most of your debt; rather, you will repay some or all of your debts in accordance with a plan you propose to the court.

The benefit of Chapter 13 bankruptcy is that it allows you to reschedule and extend debts so that they become manageable.  You may be able to lower the payments, and can stop efforts at foreclosure or repossession.

Who qualifies for Chapter 13 bankruptcy?

Only individuals, husband and wives if filing jointly, and sole proprietors can file for Chapter 13 bankruptcy.  Corporations, limited liability corporations, and partnerships must file under Chapter 11 and are not permitted to utilize Chapter 13.

Additionally, your debts cannot be too high under Chapter 13.  You cannot qualify for this form of bankruptcy if your secured debts exceed approximately $1,100,000 or your unsecured debts are more than roughly $360,000.

Those interested in filing for bankruptcy under Chapter 13 must have steady, sufficient income.  If your monthly income, minus reasonable living expenses, will not allow you to repay the debts in accordance with your proposed plan, the court will not accept the plan.

Finally, you must meet all current child support and alimony payments, and file annual income and expense reports to prevent dismissal of your Chapter 13 case.

How do I begin the Chapter 13 process?

Any bankruptcy process should begin with a consultation with a knowledgeable bankruptcy attorney.  Bankruptcy is a serious matter that should not be entered into absent the advice and assistance of an experienced attorney.

With your attorney’s guidance, a Chapter 13 bankruptcy is initiated through the filing of a petition in your local bankruptcy court.  The petition must include a list of all assets and liabilities; current income and expenses; copies of tax returns; certificate of credit counseling; and a debt repayment plan, among other documents.

The complete list of documents required under Chapter 13 is often daunting to would be filers, as is the prospect of developing a repayment plan that you will have to abide by for the next three to five years.  Rest assured, however, that with the assistance of a skilled attorney, Chapter 13 can be a stress free process from which you successfully emerge debt free.

What happens after I file for Chapter 13 bankruptcy?

Once your petition is filed, all collection efforts on the part of the creditors will stop.  This includes any garnishment of wages.  A trustee will be appointed to your case.  This trustee is an impartial individual who will serve as the person to collect payments and make distributions to creditors. Next, your bankruptcy attorney will draft and file a proposed debt repayment plan, detailing your plan to repay the debts as required over the next three to five years.  Thereafter, the trustee will hold a meeting of the creditors, which you must attend and participate in.  During the meeting, any potential problems with the repayment plan are addressed and necessary changes made.  The court must then assess and agree to the repayment plan.  From there, repayment will begin soon after and you must satisfactorily pay the trustee in accordance with the plan.