Chapter 7 vs Chapter 13 Bankruptcy in Arizona: Which Is Right for You?

Choosing the right bankruptcy chapter is one of the most important decisions you'll make. Arizona residents have two main options: Chapter 7 (liquidation) and Chapter 13 (reorganization). Each serves different financial situations and goals.

Quick Comparison

| Factor | Chapter 7 | Chapter 13 | |--------|-----------|------------| | Timeline | 3-4 months | 3-5 years | | Asset risk | Non-exempt assets may be sold | Keep all assets | | Income requirement | Must pass means test | Regular income required | | Debt discharge | Most unsecured debts eliminated | Remaining debts discharged after plan | | Cost | $338 filing fee + attorney fees | $313 filing fee + attorney fees | | Credit impact | 10 years on credit report | 7 years on credit report |

Chapter 7 Bankruptcy: The Fresh Start

Who Qualifies?

To file Chapter 7 in Arizona, you must:

Pass the means test (income below Arizona median or disposable income insufficient to repay debts)
Complete credit counseling within 180 days before filing
Not have received a Chapter 7 discharge in the past 8 years

Arizona Median Income (2026)

Household size determines eligibility:

1 person: $63,749
2 people: $78,329
3 people: $86,360
4 people: $97,694
Add $9,000 for each additional person

The Chapter 7 Process in Arizona

Pre-filing credit counseling (required)
File petition with Arizona bankruptcy court
Automatic stay stops creditor actions immediately
341 Meeting of Creditors (typically 20-40 days after filing)
Trustee review of assets and exemptions
Discharge (typically 60-90 days after 341 meeting)

Debts Discharged in Chapter 7

Credit card balances
Medical bills
Personal loans
Past-due rent
Utility bills
Some older tax debts
Deficiency balances from repossessions

Debts NOT Discharged

Recent income taxes
Child support and alimony
Student loans (usually)
Debts from fraud or willful injury
Certain luxury purchases before filing

Chapter 13 Bankruptcy: The Reorganization

Who Benefits Most?

Chapter 13 is ideal for Arizona residents who:

Have regular income
Want to keep a home with mortgage arrears
Have significant non-exempt assets
Owe taxes that need to be paid over time
Have co-signers they want to protect
Previously filed Chapter 7 within 8 years

The Chapter 13 Process

File petition and proposed repayment plan
Automatic stay protects you immediately
Trustee review and plan confirmation hearing
Make monthly payments to the trustee for 3-5 years
Complete required courses
Receive discharge of remaining eligible debts

Arizona Chapter 13 Plan Requirements

Your repayment plan must:

Pay priority debts in full (taxes, child support)
Pay secured creditors at least the value of collateral
Pay disposable income to unsecured creditors
Be feasible based on your actual income and expenses

Chapter 13 Plan Payment Example

Scenario: Phoenix family with $80,000 income, $15,000 credit card debt, $8,000 behind on mortgage

| Component | Monthly Amount | |-----------|---------------| | Trustee fee (3-10%) | $150 | | Mortgage arrears ($8,000 ÷ 60 months) | $133 | | Secured car loan | $350 | | Priority tax debt | $200 | | Unsecured creditors (disposable income) | $400 | | Total plan payment | $1,233/month |

After 5 years, remaining unsecured debt is discharged.

Key Differences in Arizona

Foreclosure Protection

Chapter 7: Temporarily delays foreclosure (3-4 months)
Chapter 13: Stops foreclosure permanently if you catch up on mortgage arrears through your plan

Vehicle Loans

Chapter 7: Reaffirm debt, redeem vehicle, or surrender
Chapter 13: May "cram down" loan to vehicle value if loan is older than 910 days

Tax Debt

Chapter 7: Discharges older income tax debts meeting specific criteria
Chapter 13: Pays priority taxes in full through plan; discharges penalties and older non-priority taxes

Second Mortgages

Chapter 7: Lien remains; must continue paying
Chapter 13: May "strip off" unsecured second mortgages if home value is less than first mortgage balance

Making Your Decision: Key Questions

Consider Chapter 7 if you:

Have primarily unsecured debts
Pass the means test
Don't have significant assets you want to keep
Need the fastest debt relief possible
Haven't filed Chapter 7 in 8 years

Consider Chapter 13 if you:

Are behind on mortgage or car payments
Have regular income to fund a plan
Want to keep non-exempt assets
Have co-signers to protect
Owe taxes or child support arrears
Previously filed Chapter 7

The Role of an Arizona Bankruptcy Attorney

While some people file "pro se" (without an attorney), the success rate is significantly lower. An experienced Arizona bankruptcy lawyer will:

Analyze your complete financial picture
Recommend the optimal chapter for your situation
Maximize your exemptions to protect assets
Prepare accurate schedules to avoid dismissal
Represent you at the 341 meeting
Handle creditor objections
Ensure proper discharge

Arizona-Specific Considerations

Community Property State

Arizona is a community property state, which affects how debts are treated:

Debts incurred during marriage are generally community obligations
Both spouses may be liable for debts incurred by either spouse during marriage
Special rules apply if only one spouse files

Arizona Exemptions

Choosing between chapters also depends on available Arizona exemptions:

$250,000 homestead exemption
$6,000 vehicle exemption ($12,000 if disabled)
$6,000 household goods exemption
Full retirement account protection

Next Steps

Gather financial documents (pay stubs, tax returns, asset valuations, debt statements)
Complete pre-filing credit counseling
Consult with an Arizona bankruptcy attorney for personalized advice
Choose your chapter based on professional guidance
File your petition and begin your fresh financial start

Filing bankruptcy is a significant decision with long-term consequences. This guide provides general information, but every situation is unique. Consult with a licensed Arizona bankruptcy attorney to understand how bankruptcy laws apply to your specific circumstances.

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