What’s Bankruptcy?

what's bankruptcy

What’s Bankruptcy?

what's bankruptcyBankruptcy is a term that is used quite often but many use it incorrectly.  Bankruptcy is an extremely large part of the American legal system and is important for both individuals and business owners to understand the legal understandings of it.

If you as an individual personally go bankrupt, multiple things are implicated. One of the main considerations, or fears, is if a person files bankruptcy that all of their assets will disappear in the proceedings.  In Arizona, you are allowed an exemption for assets, up to $150,000 of equity in your home and up to $5,000 of equity in one car if you are a single person or in one or two cars up to $10,000 for married couples.  While bankruptcy proceedings are meant to liquefy assets and to repay creditors, the state of Arizona does not want to leave individuals destitute.  This would go against the purpose of the bankruptcy proceedings.  This is why exemptions in a house or car is allowed.

If you file Chapter 7 bankruptcy and you are current and remain current on monthly payments, you usually may keep the car and house.  If you are filing a Chapter 13 bankruptcy car loans are usually paid through the bankruptcy plan, as well as backed mortgage payments. Regular monthly mortgage payments should be continued after the bankruptcy filings.

What Does Bankruptcy Require?

Bankruptcy requires a person to lists assets, including personal property, homes, and any cars, boats, etc.  Generally, when filing bankruptcy in Arizona no one from the court will come to your house and search through your things.  You are required to list your possession in your bankruptcy filings.  This is under oath and under penalty of perjury.

Filing for bankruptcy will show up on your personal financial records. Many individuals fear filing for bankruptcy because they are concerned this filing will reflect negatively when trying to finance for a car or home.  Generally however, many people will find it easier to get financed after receiving Chapter 7 discharge. Debt in relation to income has improved after bankruptcy which is advantageous for the potentially lessee.

Some people hold the misconception that filing for bankruptcy is relatively quick and easy.  While the American court system and Arizona have worked hard to streamline the process and make it easier for individuals, it is a serious process and requires a person to be meticulous in what they report.  Legal counsel will make it easier for a person to file bankruptcy and to ensure a person can come out in the best manner.

What Can’t Bankruptcy Help with?

Bankruptcy is also not a complete “do-over”.  While many debts can be discharged, certain debts will not.  Student loans, criminal or civil penalties, and child support obligations are not discharged.  Certain types of taxes will not be discharged and any assets, like a house or car that you want to keep, must continue to be paid on.

Many people also fear the potential embarrassment of attending a bankruptcy proceedings.  In Arizona, you will be required to attend a meeting of creditors, but often creditors rarely show up.  Your lawyer will be able to attend with you.  The court appointed trustee will ask simple questions that are not intended to embarrass.

These are just a few misconceptions that individuals have about bankruptcy.  Bankruptcy can be an extremely helpful proceeding for those in a stressful situation.

Click here for information on the personal and external reasons people file bankruptcy.