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

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 — and choosing the wrong one can cost you time, money, and property.

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. It's the most common type of bankruptcy in Arizona — roughly 70% of all filings.

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

If you're above the median, you may still qualify after applying deductions for mortgage, car payments, health insurance, child care, and taxes. If your remaining disposable income is under ~$160/month, you pass.

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 ($12,000 for married couples filing jointly)
• Personal property: Up to $6,000 total
• Retirement accounts: Fully protected (no limit)
• Tools of trade: Up to $5,000
• Wages: 75% of disposable earnings protected

In practice, about 95% of Chapter 7 cases in Arizona are "no-asset" — meaning the trustee finds nothing to liquidate and you keep everything you own.

What Debts Get Eliminated

Chapter 7 discharges most unsecured debts:

• Credit card balances
• Medical bills
• Personal loans
• Utility arrears
• Old lease obligations
• Most lawsuit judgments

What Debts Survive

Some debts cannot be discharged in any chapter:

• Student loans (unless you prove "undue hardship" — very rare)
• Child support and alimony
• Recent tax debts (generally under 3 years old)
• Debts from fraud or DUI-related injuries
• Court fines and restitution

Timeline

1. File petition → automatic stay stops all collections immediately
2. Meeting of creditors (~30 days after filing)
3. Discharge (~60 days after meeting)
4. Total: ~3-4 months from filing to fresh start

Costs

• Filing fee: $338
• Attorney fees: $1,000-$2,000 (most Arizona firms)
• Credit counseling courses: $25-50 (two required — one before filing, one after)

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. A trustee collects your monthly payment and distributes it to creditors.

Who Qualifies

• Regular income required (W-2, self-employment, Social Security, pension all count)
• Unsecured debts under ~$465,000
• Secured debts under ~$1,395,000
• Current on tax filings for the past 4 years

Best For

• Homeowners behind on mortgage — Chapter 13 stops foreclosure and lets you cure arrears over the plan
• People above the means test threshold — if you don't qualify for Chapter 7
• Those with non-exempt property — you keep everything in Chapter 13
• People with debts not dischargeable in Chapter 7 — some debts can be restructured
• Cosigner protection — the automatic stay extends to cosigners in Chapter 13

How the Repayment Plan Works

Your monthly payment is based on your disposable income — what's left after necessary expenses. The plan must:

• Pay secured creditors (mortgage, car) in full
• Pay priority debts (recent taxes, support obligations) in full
• Pay unsecured creditors at least as much as they'd receive in a Chapter 7 liquidation

In many Arizona cases, unsecured creditors receive pennies on the dollar — sometimes 0%. The remaining balance is discharged at plan completion.

Timeline

• 3-year plan if household income is below the state median
• 5-year plan if above the median
• Monthly payments to a trustee who distributes to creditors

Costs

• Filing fee: $313
• Attorney fees: $2,500-$4,500 (usually paid through the plan itself)
• Credit counseling courses: $25-50

Quick Comparison

| Factor | Chapter 7 | Chapter 13 | |--------|-----------|------------| | Timeline | 3-4 months | 3-5 years | | Debts eliminated | Most unsecured | Remaining balance after plan | | Keep property | Only exempt property | All property | | Income requirement | Below means test | Regular income | | Stop foreclosure | Temporary | Yes (catch up via plan) | | Credit report impact | 10 years | 7 years | | Filing fee | $338 | $313 | | Attorney fees | $1,000-$2,000 | $2,500-$4,500 | | Cosigner protection | No | Yes |

Which Is Right For Your Situation?

| Your Situation | Recommended Chapter | |----------------|-------------------| | Low income, mostly credit card/medical debt | Chapter 7 | | Behind on mortgage, want to keep your home | Chapter 13 | | Income above means test threshold | Chapter 13 | | Significant non-exempt property | Chapter 13 | | Need fastest possible fresh start | Chapter 7 | | Cosigner on debts you want to protect | Chapter 13 | | Recent high-value assets or transfers | Chapter 13 (avoids scrutiny) |

The Automatic Stay: Immediate Relief

Both chapters trigger the automatic stay the moment you file. This federal court order immediately stops:

• Wage garnishment
• Foreclosure proceedings
• Repossession
• Creditor lawsuits
• Harassing phone calls and letters
• Utility shutoffs

The stay takes effect the same day your petition is filed with the court — sometimes within hours of your attorney submitting the paperwork.

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. Many firms offer a same-day assessment to determine which chapter best fits your circumstances.