Bankruptcy is governed by federal law, whether you're filing in Arizona or Maine. Even so, the state where you file makes a big difference in terms of certain details.
The United States Bankruptcy Court for the District of Arizona has courts in three locations: Phoenix, Tucson and Yuma. You can enter your zip code into the U.S. Courts' online locator to find which location you belong to. You file the bankruptcy petition and forms in that location's court. Flagstaff and Bullhead City each have a court, but only for holding hearings, to make it easier on outlying state residents.
In Chapter 7 bankruptcy, a trustee for the bankruptcy court takes control of your assets and liquidates them to pay your creditors. After your creditors get their share, the court discharges — wipes out — most of your remaining debts. Some debts, such as back child support, cannot be discharged.
When you file a Chapter 7 petition, you have to pass a means test. If your income is below the Arizona median for your family size, you pass. At time of publication, the figures are:
- One person family: $44,459.
- Two person: $55,116
- Three people: $58,867
- Four people: $68,900
- You add $8,100 for each individual above four.
If your income is above the median, you may still qualify if you show that you've had a sudden financial reversal, such as a job loss, or that your expenses or other financial issues are exceptional. Otherwise, the court will either re-file your petition as Chapter 13 or dismiss your filing completely.
Every state exempts some of your assets from liquidation. In Arizona, for example, $150,000 of equity in your house is exempt from sale in Chapter 7. Unless you have greater equity, your personal home is safe, provided you keep up the mortgage payments. Other exemptions include $6,000 in household furnishings and appliances, $500 in clothes, one computer worth $1,000 or less, and up to $300 in the bank. These exemptions are regularly adjusted to account for inflation.
When you submit your bankruptcy petition, you'll list your exempt assets on Schedule C, part of the standard paperwork.
In Chapter 13, you spend three to five years paying back your creditors before your remaining debts are discharged. Unlike Chapter 7, the trustee doesn't sell off your assets. If you can keep up your current mortgage and car payments, you can even use the payment plan to catch up on any back debt you owe on the loans.
The state median income figures here, too. If you're above the median, you'll pay your creditors all your disposable income for five years. If you fall below the median, you can usually stop after three years.
You must take a course in credit counseling in the six months before you file your petition or the court won't accept it. Before you receive your discharge, you also have to take a course in financial management, AKA debtor education. The Justice Department maintains lists of approved Arizona credit counseling providers and debtor education agencies.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.