There are two main types of bankruptcy filings. The first is a Liquidation Bankruptcy, for which you would file a Chapter 7 bankruptcy case. The second is a Reorganization Bankruptcy, for which you would file either a Chapter 13 bankruptcy case. or a Chapter 11 bankruptcy case. Chapter 13 bankruptcy cases are mainly for individuals who need to shed their debt while keeping some assets. Chapter 11 bankruptcy cases are mainly for businesses who need to shed their debt while remaining in business, or for individuals who are not eligible for a Chapter 7or Chapter 13 filing. Below is a general overview of these two types of bankruptcies.
Liquidation Bankruptcy (Chapter 7):
In a liquidation bankruptcy, you must surrender any property you own that is not “exempt” under Arizona law. Arizona law allows borrowers to “exempt” certain assets from their creditors. This means you have a certain amount of property that you can keep, even in bankruptcy. A list of the property that is “exempt” in Arizona can be found on the Arizona Bankruptcy Court’s website. However, when you have property secured by a loan (like a car, furniture, or a home) and the amount of the loan is more than the value of the property, this property can be kept as long as you stay current on the loan payments. The main advantage of a liquidation bankruptcy is that you can receive a discharge of your debts within a few months and without any additional payment. However, you may not be able to keep all the assets that you want.
Reorganization Bankruptcy (Chapter 11 and Chapter 13):
In a Chapter 13 reorganization bankruptcy, you are permitted to propose a Reorganization Plan that details payments to your creditors over the following 3-5 years. You must pay your “disposable income” to the Reorganization Plan each month, as calculated by the bankruptcy laws. Reorganization bankruptcy is much more flexible than a Chapter 7 liquidation bankruptcy and can allow you to keep certain assets that you would lose if you had filed a Chapter 7 bankruptcy. A home, cars, or other secured assets may be kept even if you are behind on the payments. You will have 3-5 years to catch up the payments in order to keep the asset. The main advantage of a reorganization bankruptcy is that you may be able to structure your Reorganization Plan to keep the assets you do not want to lose. However, reorganization bankruptcies are somewhat more expensive and you will be involved with the bankruptcy for a minimum of 3 years and a maximum of 5 years.
Chapter 11 reorganization bankruptcy is intended for businesses, but is also used for individuals who have a very large amount of debt. The reorganization plan is a 5 year repayment and there are many more rules to follow than in a Chapter 13 bankruptcy. Additionally, it is much more expensive than a Chapter 13 bankruptcy due to its complexity.
The Butler Law Office has over thirty three years of experience and can help you make a decision that will be best for you!