Is an Arizona Chapter 13 Bankruptcy Right for You? Part II

Chapter 13 bankruptcy is commonly referred to as the "restructuring chapter." It allows debtors struggling with debt to reorganize their debt into a manageable, court approved repayment plan. Chapter 13 bankruptcy can halt a foreclosure in its tracks and the thousands of filers that chose this method every month find that it enables them to keep their homes and businesses while still finding relief from debt.

This form of bankruptcy is used less commonly than Chapter 7, and fewer people fully understand the Chapter 13 process. In Part II of this two part series, we continue our list of questions designed to assist you in making the critical decision as to whether an Arizona Chapter 13 bankruptcy is right for you. Your answers to these questions can be discussed in further detail with your knowledgeable Arizona bankruptcy attorney.

4. Do you have substantial property at risk?

Under Chapter 7 bankruptcy, a debtor will be forced to liquidate all non-exempt property to repay creditors. Exempt property in Arizona includes:

• Bank deposits of $300
• Homestead or residential property, equity up to $150,000
• Insurance benefits
• Motor vehicles, of up to $6,000 or $12,000 for elderly or disabled debtor, or a dependent or elderly or disabled spouse of the debtor
• Pension and retirement benefits
• Personal property, including:
• household furniture and appliances of up to $6,000
• up to $1,000 total in computer, burial plot, guns, bicycle, sewing machine, or bible
• clothing of up to $500
• $800 in animals
• $400 in musical instruments
• engagement and wedding rings of up to a $2,000 value
• $250 in books
• $150 for watches
• youth teaching materials
• certain health aids
• Tools of the trade, of up to $5,000
• Unemployment
• Wages—25% of disposable earnings or earnings in excess of 30 times the federal minimum wage, whichever is lesser
• Worker's compensation

If most of your assets fall into the above list, you would be wise to at least consider a Chapter 7 bankruptcy because it may offer you more debt relief. If, however, your assets exceed the above list, you may wish to consider a Chapter 13 bankruptcy. Under Chapter 13, you will generally be able to keep all of the equity in your home and vehicles, as well as maintain personal property. Those facing foreclosure will have the ability to make up for missed mortgage payments and start off fresh. Chapter 13 can allow you to keep those assets you treasure most.

Chapter 13 bankruptcy is more complex than Chapter 7 and is rarely filed without the assistance of an experienced bankruptcy lawyer in Mesa or Phoenix bankruptcy attorney.

5. Can you survive on a tight budget for several years?

The success of most Chapter 13 cases hinges on the ability of the individual to develop and stick to an extremely strict budget for three to five years. Make an honest assessment of your own financial discipline and long-term expected disposable income.

6. Are you underwater on a second mortgage?

If you owe more on your home on the first mortgage then it is valued at, it may be possible to "strip" the second mortgage in a Chapter 13 bankruptcy. Essentially, during a Chapter 13 bankruptcy, the second mortgage will be treated like unsecured debt and may not be required to be paid back. For underwater homeowners, this is a major advantage of a Chapter 13 bankruptcy.