Chapter 7 vs Chapter 13 Bankruptcy in Arizona: Which Is Right for You?
Understand the key differences between Chapter 7 and Chapter 13 bankruptcy in Arizona. Eligibility, timeline, and what happens to your property.
Two Paths to a Fresh Start
When Arizonans consider bankruptcy, the choice usually comes down to Chapter 7 (liquidation) or Chapter 13 (repayment plan). Both eliminate or restructure debt, but they work very differently.
Important: This article is for informational purposes only and does not constitute legal advice. Consult a licensed Arizona bankruptcy attorney for advice specific to your situation.
Chapter 7: Clean Slate
Chapter 7 wipes out most unsecured debts (credit cards, medical bills, personal loans) in approximately 3-4 months.
Who Qualifies
You must pass the means test. In Arizona, if your household income is below the state median, you automatically qualify:
- 1 person: ~$57,000/year
- 2 people: ~$70,000/year
- 3 people: ~$79,000/year
- 4 people: ~$94,000/year
What Happens to Your Property
Arizona has generous exemptions that protect most essential property:
- Homestead: Up to $250,000 in home equity
- Vehicle: Up to $6,000 per vehicle
- Personal property: Up to $6,000 total
- Retirement accounts: Fully protected (no limit)
Timeline
- File petition → automatic stay stops collections
- Meeting of creditors (~30 days after filing)
- Discharge (~60 days after meeting)
- Total: ~3-4 months
Chapter 13: Structured Repayment
Chapter 13 creates a 3-5 year repayment plan. You keep all your property and catch up on secured debts (mortgage, car loan) through the plan.
Who Qualifies
- Regular income required
- Unsecured debts under ~$465,000
- Secured debts under ~$1,395,000
- Current on tax filings
Best For
- Homeowners behind on mortgage (prevents foreclosure)
- People with income above the means test threshold
- Those with non-exempt property they want to keep
- People with debts not dischargeable in Chapter 7
Timeline
- 3-year plan (below-median income) or 5-year plan (above-median income)
- Monthly payments to a trustee who distributes to creditors
Quick Comparison
| Factor | Chapter 7 | Chapter 13 | |--------|-----------|------------| | Timeline | 3-4 months | 3-5 years | | Debts eliminated | Most unsecured | Remaining after plan | | Keep property | Only exempt | All | | Income requirement | Below means test | Regular income | | Stop foreclosure | Temporary | Yes (catch up via plan) | | Credit impact | 10 years | 7 years |
Next Steps
The right chapter depends on your specific financial situation — income, debts, property, and goals. A free consultation with an Arizona bankruptcy attorney can help you understand your options with no obligation.