The bankruptcy code presents different types of bankruptcy, but if you intend to petition for personal bankruptcy, you are likely to file for bankruptcy under Chapter 7 (liquidation) or Chapter 13 (reorganization).
If you don’t have many assets, the liquidation bankruptcy chapter is probably the right fit for your situation. Debtors who want to file bankruptcy under Chapter 7 have to pass or be exempted from the means test. If you’re considering bankruptcy, it’s also important to note that Chapter 7 filers do not really hand over their assets and funds to the bankruptcy trustee in charge of bankruptcy proceedings since the majority of Chapter 7 bankruptcy cases are “no-asset.”
No-Asset Bankruptcy Case
No-asset bankruptcy filings usually result in creditors not getting paid since there’s nothing to liquidate, so the bankruptcy process does not generate proceeds. The debtor filing for bankruptcy is allowed to hold on to his or her assets since they are included in the list of bankruptcy exemptions either provided by state law or by federal law.
Besides this, no creditor can collect on what the debtor was unable to pay since such a bankruptcy filing usually leads to the discharge of most debts. The creditors will get a notification from the bankruptcy court, informing them that they can’t collect on the filer’s debts, so it’s not necessary for them to file a proof of claim.
Keep in mind, however, that there are certain debts that are not dischargeable in bankruptcies. Debts like taxes, child support, and student loans cannot be discharged.
Exempt v. Non-Exempt
If you’re filing bankruptcy under Chapter 7, you have to surrender your non-exempt property to be included in your bankruptcy estate, which will be used to pay back people you owe. There are bankruptcy exemptions because the bankruptcy law provides that bankrupt debtors have something to help them last the duration of bankruptcy and to build on in their life after bankruptcy. These exemptions vary from state to state. They usually apply to necessary assets like homes and cars, but there are also wildcard exemptions, which apply to any personal property that bears considerable value.
State v. Federal
As mentioned, the list of exemptions for bankruptcy filers varies based on the bankruptcy laws of their state. There are some states that allow their filers to pick between state and federal bankruptcy exemptions. Other states do not present those provided by the federal government as an option. This information, of course, has an impact on the outcome of your bankruptcy and on the amount and quality of bankruptcy protection, you can enjoy.
Discovery of Undisclosed Assets
If your trustee in bankruptcy finds in the course of the investigation that you failed to disclose some non-exempt assets, your creditors will be informed so they can submit proofs of claim in order to collect from these. If the omission is found to be intentional, you can face the penalty for it and have your bankruptcy petition challenged.
Remember, if you have non-exempt assets you want to hold onto, the right solution for you is probably a Chapter 13 bankruptcy. Passing or being exempted from the means test does not make you ineligible to file for bankruptcy under it. To know your best bankruptcy options, it’s best to consult a bankruptcy lawyer.
For a Smart Bankruptcy Filing, Contact an Arizona Bankruptcy Attorney Now!
If declaring bankruptcy will solve your financial problems, it serves you well to be guided by legal advice from the time before filing to every stage that ensues after filing. Bankruptcy lawyers can help their clients declare bankruptcy as a means to get out of debt and ease their financial distress. If you want as little trouble as possible to reach debt relief, call us at Zolman Law and arrange for a free legal consultation with one of our experienced Arizona bankruptcy attorneys