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Should You File Bankruptcy?

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Do you have problems paying your debts? Are you threatened with garnishment, foreclosure or repossession? If so, you may want to consider bankruptcy as a way to deal with these problems.

You have the right under federal law to file for bankruptcy relief from your creditors. Bankruptcy is a legal proceeding in which a person can get a fresh financial start. Bankruptcy can be very useful and effective in resolving financial problems in certain cases. However, it is not the answer to all financial problems or the right step for everyone. Also, it can be very important to choose the right time to file for bankruptcy relief.

For instance, in general, you should always wait as long as possible before filing bankruptcy because you can do so only once every six years. In most cases, you will want to save this valuable option until you really need it. Also, you may not need to file bankruptcy even though creditors are threatening you because you may have no nonexempt property or wages. This means you have nothing the creditors can take from you. You can’t be put in jail for failing to pay your civil debts (other than fines or other court ordered amounts).

The only way to be sure bankruptcy is right for you is to discuss your situation with a lawyer familiar with bankruptcy. Every case is different, and laws change from time to time. This article gives you some basic information, but it does not substitute for consultation with an attorney.


Some things bankruptcy can do:

  • Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts.
  • Stop foreclosure of your home and allow you to catch up on missed payments.
  • Stop repossession of a car or other property, or, in some situations, force the creditor to return property even after it has been repossessed.
  • Stop wage garnishments.
  • Stop debt collection harassment.
  • Restore or prevent termination of utility service for nonpayment of previous bills (you will probably have to pay a deposit, but the deposit cannot be more than 1-1/2 to 2 times your previous regular bills according to the Arizona Administrative Code).
  • Get your drivers license back if it has been suspended because you didn’t pay court-ordered damages for a driving accident (unless you were driving under the influence of drugs or alcohol).

Some things bankruptcy can’t do:

  • Eliminate certain rights of secured creditors. Some examples of secured debts are car loans and home mortgages. You can force secured creditors to take payments over time, but generally, you cannot keep the collateral unless you continue to pay the debt.
  • Discharge debts that arise after the bankruptcy has been filed.
  • Discharge certain types of debts, such as child support, alimony (spousal maintenance), certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and most taxes.
  • Eliminate the obligation of a co-signer on your loan in most cases.

There are two forms of Bankruptcy:

Chapter 7

This is also known as a “fresh start” bankruptcy, or “liquidation”. Your debts are discharged (canceled), but you must give up any nonexempt property to the trustee to pay to your creditors. You can keep secured property if you are current on the payments and continue making the payments regularly.

Chapter 13

This is also called “reorganization”, “Wage earner plan.” Chapter 13 allows you to keep valuable property, such as your home or car, which you might otherwise lose due to past due payments. You can keep this type of property in Chapter 13 if you are able to make the necessary payments. Usually that will be the regular monthly payments plus a payment toward the arrears. In Chapter 13, you can have between three and five years to pay back the arrears.


Hire An Attorney

It is recommended that you hire a bankruptcy attorney.  This person will be experienced and knowledgeable about the applicable laws in your state and be prepared to represent you in this legal process.