What Is Bankruptcy?

Basic information on Chapter 7 bankruptcy.

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Chapter 7 Bankruptcies can be described as "liquidations".

If you own property that isn't exempt under your state's laws, it may be taken and sold ("liquidated") to pay back some of your debt.

Chapter 7 bankruptcy has numerous rules -- and exceptions to those rules -- about what kinds of debts are covered, who can file, and what property you can and cannot keep.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy can be filed by individuals (called a "consumer" Chapter 7 bankruptcy) or businesses (called a "business" Chapter 7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months.

Property liquidation. In Chapter 7 bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as exempt under the state or federal laws available to you (such as your clothes, car, and household furnishings). Many debtors who file for Chapter 7 bankruptcy are pleased to learn that all of their property is exempt.

Secured debt. If you owe money on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Eligibility for Chapter 7. Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient to fund a Chapter 13 repayment plan -- after subtracting certain allowed expenses and monthly payments for certain debts -- you won't be allowed to use Chapter 7 bankruptcy.

Bankruptcy doesn't work on some kinds of debts. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts, that cannot be wiped out in bankruptcy.

For more information on Chapter 7 bankruptcy, see How to File for Chapter 7 Bankruptcy, by attorney Stephen Elias, attorney Albin Renauer, and Robin Leonard, J.D. (Nolo).

Bankruptcy FAQ                           Back to Top

What exactly is bankruptcy? Will it wipe out all my debts?

What is the difference between Chapter 7 and Chapter 13 bankruptcy? Which one lets me keep my property?

Am I free to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy? Which type of bankruptcy should I use?

What exactly is bankruptcy? Will it wipe out all my debts?    

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as "liquidation" (Chapter 7) or "reorganization" (Chapter 13). Under a Chapter 7 bankruptcy, you ask the bankruptcy court to wipe out (discharge) the debts you owe. Under a Chapter 13 bankruptcy, you file a plan with the bankruptcy court proposing how you will repay your creditors. You must repay some debts in full; others may be repaid only partially or not at all, depending on what you can afford.

Document Preparation Specialists, LLC does not prepare Chapter 13 bankruptcies.  We will however refer you to an attorney to assist you with this type of filing if you chose to do so.

When you file either kind of bankruptcy, a court order called an "automatic stay" goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.

Certain debts cannot be discharged in bankruptcy; you will continue to owe them just as if you had never filed for bankruptcy. These debts include back child support, alimony, and certain kinds of tax debts. Student loans will not be discharged unless you can show that repaying the debt would be an undue burden, which is a very tough standard to meet. And other types of debts might not be discharged if a creditor convinces the court that the debt should survive your bankruptcy.            Back to FAQs                          Back to Top

What is the difference between Chapter 7 and Chapter 13 bankruptcy? Which one lets me keep my property?                        

In Chapter 7 bankruptcy, you ask the bankruptcy court to discharge most of the debts you owe. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection (see below), sell it, and distribute the proceeds to your creditors.

In Chapter 13 bankruptcy, you file a repayment plan with the bankruptcy court to pay back all or a portion of your debts over time. The amount you'll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own.

You lose no property in Chapter 13 bankruptcy, because you fund your repayment plan through your income. In Chapter 7 bankruptcy, you select property you are eligible to keep from a list of state exemptions. Although state exemption laws differ, states typically allow you to keep these types of property in a Chapter 7 bankruptcy:

• Equity in your home, called a homestead exemption. In Arizona you can exempt up to $150,000 of equity.
• Insurance. You usually get to keep the cash value of your policies.
• Retirement plans. Most retirement benefits are protected in bankruptcy.
• Personal property. You'll be able to keep most household goods, furniture, furnishings, clothing (other than furs), appliances, books and musical instruments. You may be able to keep jewelry only worth up to $1,000 or so. Most states let you keep a vehicle as long as your equity doesn't exceed several thousand dollars. And many states give you a "wild card" amount of money -- often $1,000 or more -- that you can apply toward any property.
• Public benefits. All public benefits, such as welfare, Social Security, and unemployment insurance, are fully protected.
• Tools used on your job. You'll probably be able to keep up to a few thousand dollars worth of the tools used in your trade or profession.     Back to FAQs   Back to Top

Am I free to choose between Chapter 7 bankruptcy and Chapter 13 bankruptcy? Which type of bankruptcy should I use?              

If you meet the eligibility requirements for both types of bankruptcy, then you can choose the type of bankruptcy that makes the most sense for your situation. However, you may not have a choice.

Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period.

Also, if you have secured debts of more than $1,010,650 and unsecured debts of more than $336,900, for example, then you cannot use Chapter 13 bankruptcy.

Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements; Chapter 7 is a popular choice because, unlike Chapter 13, it doesn't require filers to pay back any portion of their debts.

However, Chapter 13 might be a better choice, depending on your situation. For example, if you are behind on your mortgage and want to keep your house, you can include your missed payments in your Chapter 13 plan and repay them over time. In Chapter 7, you would have to make up the whole past due amount right away -- and you might lose your house, if your equity exceeds the exemption amount available to you.     
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Divorce without children       $179                  
Divorce with children             $279   
 
We understand this is a difficult time for you.  With over 10 years of professional, courteous experience assisting people with their divorce petitions let us help you with all the document preparation, process service and filing.  Whether you come to our office or we come to you, most uncontested divorces can be completed within 75 days of your first visit to us, in many cases even fewer days.
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Living Trust                            $399     

Many people believe a Will is all you need, but a Will still requires some type of Probate process.  It may be simplified because there aren't many assets to divide.  But there is still a significant amount of paperwork required to get access to bank accounts and to transfer personal property like a car.  There is even more paperwork required when you need to transfer real property, like a house or land.  A properly funded Living Trust avoids the costly and time consuming process of Probate.

Our Living Trust package includes the following documents:

Living Trust
Living Will
Pour Over Will
Healthcare Power of Attorney
Financial Power of Attorney
Quit Claim Deed discounted to $49, add'l deeds done for $69 ea.

We offer this same low price for singles or married couples because we believe this is an important step in estate planning.
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LLC/Incorporation Profit/non-Profit    $199

Let us process all of your documents for forming your business, including LLCs, Incorporation for Profit and non-Profit.  We can be your one stop shop from start to finish handling all filing and publishing requirements.
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Child Support Modification    $199

Circumstances change, career moves, job changes, the kids grow up.  Any of these can create the need to modify your original child support orders.  We will be happy to assist you with all the document requirements to facilitate the changes you need.
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Will                                          $  99       

We think everyone should have a will.  That's why we offer a simple will for the low price of $99 and if your spouse or significant other each get a will on the same visit we will charge you only $50 for the second will.
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Paternity                                $279   
                
In todays world fathers are taking up more and more responsibility in raising their children and in some cases Mom and Dad were never married.  Paternity is a way to establish child support and visitation for fathers that want to accept those responsibilities.  Paternity is also a way for mothers to ask courts to force fathers to take that responsibility.
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Probate                         call for pricing 

The death of a loved one is always a difficult time for families.  All the planning and work that go into the memorial and funeral can be exhausting.  Then you need to deal with paying the bills and dividing the assets left behind.  Many people believe a Will is all you need, but a Will still requires some type of Probate process.  It may be simplified because there aren't many assets to divide.  But there is still a significant amount of paperwork required to get access to bank accounts and to transfer personal property like a car.  There is even more paperwork required when you need to transfer real property, like a house or land.  We have extensive experience with all the documents required to smoothly handle this transfer and make the process of an uncontested Probate as easy as possible.
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Beneficiary Deed                $  69                   
Quit Claim Deed                 $  69    
Warranty Deed                                $  69

Property changes hands from time to time.  Sale, divorce, a gift or an inheritance may require that a deed be modified to reflect the new owners.  We have the experience you need to make sure the documents are done correctly and then recorded properly to complete the transfer of real property.
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Living Will/Healthcare Directive     $99      

We've all read in the paper or seen on the news some of the stories about family members disagreeing on what to do for a loved one being kept alive on a machine.  Let us prepare a Living Will, also called a Healthcare Directive, for you so you can let your loved ones know your wishes in case the unimaginable happens.  We will also prepare a Living Will for your spouse or significant other for only $50 when ordered and paid for on the same visit to our office.
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Power of Attorney                        $ 99   
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Qualified Domestic Relations Order   $449             
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Legal Separation without children           $179  
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Legal Separation with children            $279                   
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Affidavits                      call for pricing 
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Filing fees, process service fees publishing fees, recording fees excluded.  Please phone for information on current court fees and deferral applications.
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