Introduction
Bankruptcy is a legal procedure that addresses complex consumer and business debts. While there are regulations under the federal Bankruptcy Code regarding these cases, Arizona state law identifies assets a debtor may shield from creditors. Arizona residents may see this as a convenient solution. Filing for bankruptcy can help stop aggressive debt collectors, discharge qualifying unsecured debts, protect tax-exempt Arizona property, and provide reorganization of particular financial obligations. However, filing for bankruptcy only offers a quick fix. It does not eliminate unqualified debt, guarantee full protection of properties, discharge every lien, or stop a secured creditor from permanently repossessing collateral.
Individuals with consumer debt pursue either Chapter 7 or Chapter 13 bankruptcy filing. Chapter 7 discharges qualifying unsecured debts with the possibility of liquidating nonexempt assets. On the other hand, Chapter 13 provides an option of debt reorganization in a period of three to five years to eligible individuals through a court order or bankruptcy mediation. Determining the proper legal remedy will depend on the monthly income, protection sought for the debtor’s property, unsecured consumer debts, financial goals, and bankruptcy history over the last six to ten years.
Bankruptcy Can Stop or Delay Most Collection Activity
The automatic stay is triggered soon after the filing of a bankruptcy petition. It primarily bans creditors from continuing collection operations for prior unsecured debts of qualified debtors.
The automatic stay may stop or suspend:
- Collection calls, letters, and demands
- Credit card and medical-debt lawsuits
- Enforcement of many existing judgments
- Most wage garnishments
- Bank-account levies
- Repossession efforts
- Foreclosure proceedings
- Utility shutoffs, at least temporarily
- Collection of certain tax debts
- Attempts to collect a residential lease debt
The stay is automatic in most cases. Creditors who are notified of the bankruptcy must cease any collection efforts involved in the bankruptcy petition.
Example: Credit-card garnishment
When wage garnishment is carried out, filing for bankruptcy will halt the garnishment while the automatic stay is in effect. The discharged credit card debt is no longer subject to garnishment by the creditor.
Example: Pending foreclosure
The stay postpones a preceding scheduled trustee’s sale in the event that a homeowner files for bankruptcy. Filing under Chapter 13 gives the homeowner an opportunity to make up missed payments. In this situation, mortgage foreclosure can be prevented, and the homeowner might be offered a repayment plan. Regular mortgage payments must still be made in the midst of all these.
Be vigilant, as some lenders seek the court to lift the stay. Bankruptcy filing does not fully extinguish the mortgage lien for debtors who fail to make due payments, whose collateral declines in value, or those who are unable or unwilling to reach a repayment plan.
Important limitations on the automatic stay
Although it is broad, the automatic stay is not absolute. There are several exceptions to this Federal law. Bankruptcy cannot absolve you from the following:
- An indictment
- Specific family law proceedings
- Some measures related to taxes
- Certain eviction proceedings
- Actions a creditor takes subsequent to the grant of relief from the stay
Dismissed bankruptcy cases of a debtor in the previous year may affect the application for the stay. There are instances when a repeat filer receives only a stay with a duration of 30 days. However, repeat filers sometimes encounter situations when a court order is required for a stay to take effect.
Consequently, bankruptcy does not provide an absolute solution to a debtor’s financial crisis, nor does it absolve one of one’s financial obligations. Beating the deadline, dismissed bankruptcy cases, and active court orders can materially affect the protection available.
Conclusion
Bankruptcy is a legal remedy that Arizona residents can avail for financial relief. It can halt most collection activities, discharge qualified unsecured debts, and provide protection to exempt properties.
However, bankruptcy cannot absolve you of criminal prosecution, court orders related to family law, tax obligations, eviction proceedings, or subsequent actions by creditors following the grant of stay relief.