With a Chapter 7, all or most unsecured debt is liquidated. Unsecured debt includes debts such as credit cards, payday loans, and medical bills. In most Chapter 7 bankruptcies, the person filing is able to keep their secured items such as their vehicles and home. Although Chapter 7 is an option, there are certain guidelines the debtor must meet in order to qualify.
Chapter 13 is much easier to qualify for and provides many more options. Chapter 13 is a reorganization of debt where the debtor pays a monthly payment to a trustee, who then distributes the funds to creditors. One misconception about this type of bankruptcy is that all creditors must be paid in full. Most debtors pay only a fraction of the debt owed to unsecured creditors. With a Chapter 13, debtors can stop foreclosures and be considered current once bankruptcy is filed. The past due amount is included in the reorganization and is paid to the lender through the trustee. Another option Chapter 13 may provide is the opportunity to cramdown your vehicle. In a cramdown, the principal balance of your vehicle is reduced to the vehicle's current market value.
Arizona bankruptcy law will allow for some property to be exempt or protect it from creditors when you file. You may exempt any property that falls into one of those categories up to the dollar amount listed. You will be able to keep this exempted property after you file bankruptcy. Please note that there are certain debts which you will not be able to erase in bankruptcy. Please consult with our bankruptcy attorney for detailed information on this subject.
An exemption limit applies to any equity you have in the property. Equity is the difference between the value of the property and what is owed on the property. For example, a car valued at $5000 with a loan of $4500 has an equity value of only $500.
If the property is secured by a loan, such as a car or home, and you are current on the payments, the equity is covered by your exemptions, and you elect to keep making payments on the loan you generally can keep this property through the bankruptcy. In a Chapter 7 if all the equity is not covered by your exemptions the trustee may elect to liquidate this asset and distribute the assets. Generally, in this case, you would be entitled to the value of your exemption in the asset as a cash payment.
Bankruptcy law allows married couples filing jointly to each claim a full set of exemptions, unless otherwise noted. To keep non-exempt property, a debtor must generally pay the trustee the value of the non-exempt property.