Chapter 7 Liquidation in Tucson and Mesa, AZ

Chapter 7 bankruptcy, also referred to as liquidation bankruptcy, is a powerful legal tool that allows people to wipe out many forms of debt. The most common type of bankruptcy, Chapter 7 can clear most unsecured debts which refer to debts without collateral. Though this can provide significant debt relief, it also has long-lasting effects on credit scores. A Chapter 7 bankruptcy can remain on your credit report for up to 7 years, making it difficult to qualify for new lines of credit. But financial health and stability are entirely possible after filing a Chapter 7 bankruptcy by taking the steps to rebuild credit. 

How Does Chapter 7 Bankruptcy Work?

A Chapter 7 bankruptcy can eliminate most forms of debt including: credit card debt, car loans, medical bills, personal loans, utility bills, and claims from debt collection agencies. Debts that are not eligible for erasure include: child support, student loans, back taxes, alimony, and court fees. When you file for a Chapter 7 bankruptcy, the court places an automatic (and temporary) stay on your debts. This prevents creditors from collecting payments, seizing property, foreclosing homes, garnishing wages, etc. The courts then appoint a trustee to oversee your case. 

The trustee reviews your finances, assets, and manages the sale of your nonexempt property to pay your debts (more on this shortly). The trustee also facilitates a meeting between you and your creditors to discuss the details of your filing. This process typically lasts 4-6 months from when you initially file. The court will discharge remaining eligible debts which means that you no longer have to repay them.  

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What Assets Can You Keep?

It is important to remember that filing for bankruptcy does not mean that you will lose everything you own. People are able to keep some assets through bankruptcy exemptions which depend on your state exemption laws. Every state has established bankruptcy laws that define exemptions. Additionally, there are also federal bankruptcy exemption laws. Some states require you to use your state exemption lists and other states let you choose between using state or federal exemption lists. 

An exempt asset means that it cannot be seized or repossessed to pay debts owed to creditors. There are different types of exemptions that can cover property (cars, homes, furniture) up to a specific dollar amount or it can provide complete coverage for the total value of the asset. 

Who Qualifies for a Chapter 7 Bankruptcy?

To qualify for a Chapter 7 bankruptcy, people must meet the following requirements: 

  • The average of your monthly income from the previous 6 months has to be less than the median income for the same sized household in the state you are filing in or; you need to be able to pass a means test that assesses income, assets, and expenses to determine if you are able to make payments to creditors. 
  • Within 180 days before filing, you are required to complete a credit counseling course. 
  • No previous filings for a Chapter 7 bankruptcy during the past 8 years. 
  • No previous filings for a Chapter 13  bankruptcy during the past 6 years. 
  • Cannot have previously filed for bankruptcy in the previous 180 days that was dismissed. You would have to wait 181 days before filing again. 

How Do You File a Chapter 7 Bankruptcy?

There are several components of filing a Chapter 7 bankruptcy and it can be a complicated process that involves substantial paperwork. You can choose to file independently or hire a lawyer to provide legal counsel and support. There are also organizations that may be able to provide these services for free. The main steps of filing include:

  • Complete credit counseling course: this must be completed within 180 days of filing and with an approved credit counseling agency. 

  • File forms: bankruptcy forms require listing property, assets, exceptions, creditors, and additional financial information. There is also a fee to file the forms, though you can petition to waive it. 

  • Send verification documents to the trustee: after the court receives your filing, you will send additional documents (bank statement, paychecks, tax returns, etc.) to the trustee who will verify the information. 

  • Attend a creditor meeting: this happens with the trustee and creditors to discuss your filing. 

  • Attend budget counseling course: within 60 days of the creditors’ meeting, you are required to complete a second course. 

  • Wait for discharge notice: after the creditor meeting and completing the course, the court will discharge your debts. 

Filing for a Chapter 7 bankruptcy takes time and can be overwhelming. But it offers a fresh financial start for people struggling with debt. Contact us to learn more!