Debt Settlement: An Alternative To Bankruptcy For Arizona Residents

According to the United States Courts, which tracks bankruptcy statistics by state, Arizona 11,964 bankruptcy filings in 2021.According to the Federal Reserve Bank of New York, which tracks household debt statistics by state, as of the second quarter of 2021, the average household debt in Arizona was $50,184. The types of debt that households in Arizona carry include: Mortgage debt: $32,860, Auto loans: $6,687, Credit card debt: $4,894, Student loans: $6,157, and Other debt (such as personal loans, medical debt, etc.): $3,587.

Bankruptcy Laws In Arizona

Bankruptcy laws in Arizona are primarily governed by federal law under the United States Bankruptcy Code, but there are also some state-specific laws that apply. The bankruptcy process in Arizona is similar to that in other states, with the same basic steps involved, including:

1. Filing for bankruptcy: Individuals or businesses must file a bankruptcy petition with the bankruptcy court in their jurisdiction.
2. Automatic stay: When a bankruptcy petition is filed, an automatic stay goes into effect, which stops most collection actions against the debtor, including foreclosure, wage garnishment, and repossession.
3. Meeting of creditors: A meeting of creditors, also known as a 341 hearing, is held to allow the debtor and creditors to discuss the bankruptcy case.
4. Discharge: If the bankruptcy case is successful, the debtor may receive a discharge of certain debts, meaning they are no longer responsible for paying those debts.

Some Arizona-specific bankruptcy laws include:

1. Property exemptions: Arizona has its own set of exemptions for property that may be exempt from bankruptcy proceedings, including a homestead exemption for a primary residence.
2. Means testing: Arizona has its own median income levels for means testing in Chapter 7 bankruptcy cases.
3. Credit counseling: Arizona requires individuals filing for bankruptcy to undergo credit counseling before filing and debtor education after filing.

What Types Of Bankruptcy Are There For Individuals And Businesses?

There are two main types of bankruptcy that individuals can file for under the United States Bankruptcy Code:

1. Chapter 7 bankruptcy: This is also known as “liquidation” bankruptcy. In a Chapter 7 bankruptcy, the debtor’s non-exempt assets are sold to pay off creditors, and the remaining eligible debts are discharged. Individuals who file for Chapter 7 bankruptcy must meet certain income requirements and pass a means test.
2. Chapter 13 bankruptcy: This is also known as a “wage earner” bankruptcy. In a Chapter 13 bankruptcy, the debtor develops a repayment plan to pay off some or all of their debts over a period of three to five years. This type of bankruptcy is often used by individuals who have regular income and want to keep their assets, such as their home or car.

In addition to these two main types of bankruptcy, there are also other types of bankruptcy available for certain circumstances. For example, Chapter 11 bankruptcy is primarily used by businesses but can be filed by individuals with a significant amount of debt. Chapter 12 bankruptcy is designed for family farmers and fishermen, and Chapter 15 bankruptcy is used for cross-border bankruptcies involving foreign countries.

Learn More about the 3 main types of bankruptcy

Things To Keep In Mind When Considering Business Bankruptcy In Arizona

If you are considering business bankruptcy in Arizona, there are several things to keep in mind:

1. Types of bankruptcy: Businesses can file for either Chapter 7 bankruptcy or Chapter 11 bankruptcy. Chapter 7 bankruptcy involves liquidating the business assets to pay off creditors, while Chapter 11 bankruptcy involves reorganizing the business and developing a plan to repay creditors over time.
2. Eligibility: Not all businesses are eligible for bankruptcy, and eligibility requirements can vary depending on the type of bankruptcy being considered. For example, to file for Chapter 11 bankruptcy, the business must be able to show that it has a viable plan for reorganization.
3. Automatic stay: Filing for bankruptcy triggers an automatic stay, which stops most collection actions against the business, including lawsuits, foreclosure, and repossession. This can provide temporary relief and allow the business to reorganize and develop a plan for repayment.
4. Creditors’ rights: Creditors may have the right to object to the business’s bankruptcy filing or to the proposed repayment plan, so it’s important to be aware of their rights.
5. Impact on personal liability: Depending on the structure of the business, the owner or owners may be personally liable for some or all of the business’s debts. Filing for bankruptcy can help discharge those debts. It’s important to understand the potential impact on personal liability.
6. Rebuilding credit: Filing for bankruptcy can have a significant impact on a business’s credit rating, and it may take time to rebuild credit after the bankruptcy is complete.

What Debts Are Not Discharged In Bankruptcy?

While bankruptcy can provide significant debt relief, not all types of debt can be discharged through bankruptcy. Some debts that may not be dischargeable in bankruptcy include:

1. Certain taxes: Some tax debts, including income tax debts that are less than three years old, cannot be discharged in bankruptcy. However, certain older tax debts may be eligible for discharge.
2. Student loans: Generally, student loans cannot be discharged in bankruptcy unless the debtor can prove undue hardship.
3. Domestic support obligations: Debts related to child support or spousal support cannot be discharged in bankruptcy.
4. Debts from fraud or illegal activities: Debts incurred through fraud, theft, or other illegal activities cannot be discharged in bankruptcy.
5. Fines and penalties: Court fines, traffic tickets, and other fines and penalties cannot be discharged in bankruptcy.
6. Debts not listed on the bankruptcy petition: If a debt is not listed on the bankruptcy petition, it may not be dischargeable in bankruptcy.

How Does Bankruptcy In Arizona Affect Tax Debts?

Bankruptcy can potentially affect tax debts in Arizona, but the specifics depend on the type of bankruptcy being filed and the nature of the tax debt. Here are some general points to keep in mind:

1. Chapter 7 bankruptcy: If you file for Chapter 7 bankruptcy in Arizona, some tax debts may be discharged if they meet certain criteria. For example, income tax debts that are at least three years old and meet other requirements may be eligible for discharge. However, if you have a tax lien on your property, the bankruptcy may not eliminate the lien.
2. Chapter 13 bankruptcy: If you file for Chapter 13 bankruptcy in Arizona, you may be able to include tax debts in your repayment plan. This can allow you to pay off the debt over time and potentially avoid penalties and interest.
3. Tax liens: Bankruptcy can potentially affect tax liens, but the specifics depend on the circumstances. If you have a tax lien on your property, filing for bankruptcy may not eliminate the lien, but it may allow you to reorganize your debt and potentially pay off the lien over time.

How Bankruptcy In Arizona Affects Your Credit Score And The Approval Of Future Loans

Filing for bankruptcy in Arizona can have a significant impact on your credit score. When you file for bankruptcy, a bankruptcy notation will appear on your credit report, indicating that you have filed for bankruptcy. This notation can stay on your credit report for up to ten years, depending on the type of bankruptcy you file. In addition, bankruptcy can cause your credit score to decrease significantly, potentially by 200 points or more. This is because bankruptcy indicates to creditors that you have had significant financial difficulties and may be at higher risk of defaulting on future debts. Filing for bankruptcy in Arizona can have a significant impact on your ability to get a loan in the future. After bankruptcy, it may be difficult to obtain credit cards, loans, or other forms of credit because lenders may view you as a high-risk borrower.

Statute Of Limitations For Collections In Arizona

In Arizona, the statute of limitations for collections on most types of debts is six years. This means that creditors have six years from the date of your last payment or acknowledgement of the debt to file a lawsuit to collect the debt. Once the statute of limitations has expired, creditors are generally barred from filing a lawsuit to collect the debt.

Cons Of Bankruptcy In Arizona

While bankruptcy can provide significant debt relief for individuals and businesses in Arizona, there are also some potential drawbacks to consider. Here are some cons of filing for bankruptcy in Arizona:

1. Impact on credit: Filing for bankruptcy can significantly impact your credit score and remain on your credit report for up to 10 years. This can make it difficult to obtain credit or loans in the future.
2. Cost: While bankruptcy can provide relief from debts, there are also costs associated with filing, including court fees, attorney fees, and other administrative costs.
3. Loss of assets: Depending on the type of bankruptcy you file, you may be required to liquidate assets to pay off debts. This can result in the loss of property or other assets.
4. Public record: Bankruptcy is a matter of public record, and filing for bankruptcy can have personal and professional implications.
5. Limited relief for certain debts: Bankruptcy may not provide relief for certain types of debts, such as student loans or certain tax debts.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Why people regret filing bankruptcy:

People may regret filing for bankruptcy for various reasons, including:

1. Impact on credit: Bankruptcy can have a significant negative impact on your credit score and remain on your credit report for up to 10 years. This can make it difficult to obtain credit or loans in the future and may impact your ability to rent an apartment, get a job, or even get insurance.
2. Loss of assets: Depending on the type of bankruptcy you file, you may be required to liquidate assets to pay off debts. This can result in the loss of property or other assets.
3. Stigma: Bankruptcy can carry a social stigma, and some people may feel ashamed or embarrassed about having to file for bankruptcy.
4. Legal process: The bankruptcy process can be complex and time-consuming, requiring the assistance of an attorney and potentially involving court appearances.
5. Limited relief for certain debts: Bankruptcy may not provide relief for certain types of debts, such as student loans or certain tax debts.
6. Future limitations: Some people may regret filing for bankruptcy because it limits their ability to file for bankruptcy again in the future.

Will You Lose Your Home Or Car in Bankruptcy In Arizona?

Whether you will lose your home or car in bankruptcy in Arizona depends on several factors, including the type of bankruptcy you file and the equity you have in your home or car.

In Chapter 7 bankruptcy, the bankruptcy trustee may liquidate some of your assets to pay off creditors. However, Arizona has specific exemptions that may protect your home and car. Under Arizona law, you may be able to exempt up to $150,000 of equity in your primary residence, and up to $6,000 of equity in your vehicle. If your equity is within these exemption limits, you may be able to keep your home and car in a Chapter 7 bankruptcy.

In Chapter 13 bankruptcy, you create a repayment plan to pay off debts over a period of three to five years. You may be able to keep your home and car as long as you continue to make payments according to the plan.

What Happens If You Do Not Qualify For Bankruptcy In Arizona?

If you do not qualify for bankruptcy in Arizona, it means that you are unable to file for bankruptcy under the specific chapter that you are seeking. For example, if you do not pass the means test for Chapter 7 bankruptcy, you may not be eligible to file for Chapter 7 bankruptcy. However, you may still be eligible to file for Chapter 13 bankruptcy.

If you are not eligible for bankruptcy, you may need to consider an alternative option for dealing with your debts, such as debt settlement.

Learn more: What Are Your Options When You Don’t Qualify for Bankruptcy

Why Debt Settlement In Arizona Is A Better Option Than Bankruptcy

Here are some reasons why debt settlement may be a better option than bankruptcy for some people:

1. Avoiding the stigma of bankruptcy: Bankruptcy can carry a social stigma, and some people may feel ashamed or embarrassed about having to file for bankruptcy. Debt settlement can provide debt relief without the public record and social stigma associated with bankruptcy.
2. Potential for less damage to credit: Debt settlement may not have as long-lasting of an impact as bankruptcy. With debt settlement, a debt settlement firm will negotiate with your creditors to pay off a portion of your debt, which can result in a less negative impact on your credit score.
3. Keeping assets: In a Chapter 7 bankruptcy, you may be required to liquidate assets to pay off creditors. Debt settlement can provide debt relief without the loss of assets.
4. Lower cost: While both debt settlement and bankruptcy involve costs, debt settlement may be less expensive than bankruptcy, as there are no court fees or attorney fees associated with debt settlement.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

CuraDebt – The Alternative You Are Looking For

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