Chapter 13 Bankruptcy Law in Arizona
Chapter 13 bankruptcy can be the right move for some Arizona residents. It’s sometimes known as the “wage earners” bankruptcy because you show the courts that you are able to make a monthly payment plan to pay back your debts over the course of about three to five years.
This type of bankruptcy can ensure that you get to keep your home from foreclosure if you’re currently facing foreclosure threats due to missed payments. Plus, Chapter 13 bankruptcy can help you stop accruing additional debt due to interest on your loans.
How Chapter 13 bankruptcy works in Arizona
When you file Chapter 13 bankruptcy in Arizona, the courts will work with you to set up a payment plan that fits the amount of debt you owe along with your current income level. These will be the terms of your repayment of the loan.
If you uphold your end of the deal as far as the repayment plan, at the end of the term, all remaining debt is released.
How does Arizona determine the payment plan?
To determine your payment plan under Chapter 13 bankruptcy payment plan, the courts use the Arizona Means Test. If you make more than the median household size in Arizona, then you qualify for Chapter 7 bankruptcy, which is a different process.
The Arizona Means Test will take into account your disposable income as well as your total unsecured debts to determine an appropriate payment plan. All income will be taken into account for the Arizona Means Test, including your salary, pensions, interest, dividends, rental property income, etc.
You’ll then subtract necessary expenses from that total income to come to a reasonable number that you can repay to your unsecured creditors as part of your bankruptcy payment plan.
In cases where your totally monthly income for the upcoming 60 months equals less than $7,475, you will then be eligible for Chapter 7 bankruptcy. If your 60-month income is between $7,475 and $12,475, you will need further calculations to determine whether or not Chapter 13 bankruptcy is the right next step for you. A bankruptcy attorney can help you know what proper next steps look like if you fall in this range.
What happens if I fail to make a payment on the plan?
In some cases, individuals experience a change in income or financial situation throughout the three- to five-year payment plan. If this happens, you can submit further documentation to the courts to prove the change or hardship you are experiencing to suspend payments or modify them.
Suspension of payments is a temporary agreement that you make with the courts to make up your missed payments at a later date. This can solve your problem of not being able to make payments due to some temporary hardship or change in income.
At times, you can convert your Chapter 13 to Chapter 7 bankruptcy if you can prove you were eligible for Chapter 7 at the time of your filing. To be eligible for Chapter 7 you must not have filed for bankruptcy in the past eight years.
Not only will the courts look at whether or not you were eligible for Chapter 7 at the time of your original filing, but you must also retake the Arizona Means Test at your current income levels to prove that you still qualify for Chapter 7.
Common reasons for being able to convert your Chapter 13 payment plan to Chapter 7 is due to an increase in your household size, loss of a job or decrease in hours you are able to work, or the fact that you have become disabled.
The best next step in determining whether or not Chapter 13 bankruptcy is right for you or not is to talk to an Arizona bankruptcy attorney. An attorney will walk you through your options and help you take the right next steps in the process that works best for you.
Click here for information on medical debt and bankruptcy in Arizona.