Three Reasons to file a Chapter 7 bankruptcy instead of a Chapter 13 Bankruptcy?

One reason to file a Chapter 7 instead of a Chapter 13 is that, on average, the Chapter 7 is opened and closed very quickly.

Many of my clients’ bankruptcies are considered “open” by the Court, anywhere between five to nine months.  This is a very short timeframe when compared to the Chapter 13 reorganization, which lasts for a minimum of three years, up to a maximum of five years.

The quicker that the bankruptcy is over the quicker that you can start working to rebuild your credit and move past this chapter of your life.

Another good attribute of the Chapter 7 is that many of my clients lose nothing as a result of filing the bankruptcy.

Chapter 7 is a liquidation bankruptcy, meaning that if an individual owns property or assets that cannot be protected by applicable exemption laws they could be taken away and sold for the benefit of the creditors.  While that may worry some reading this, the good news is that somewhere upwards of 95% of all Chapter 7 cases result in the exemption laws protecting everything that the individual owns, leaving nothing the creditors.

So although Chapter 13 allows a filer to protect certain assets they may lose in a Chapter 7, it is usually a moot point because often times, you do not lose any assets whey you file a Chapter 7.

The final positive factor of the Chapter 7 over the Chapter 13 reorganization is simply that the Chapter 7 has no payment plan.

Often times my clients need a clean break from their debts that have weighed them down for years.  The Chapter 13 simply extends that time by at least 3 years and sometimes up to five years with a monthly payment to the Court.

The simplicity of the Chapter 7, which has no payment plan, is that you have a fresh start at life starting when the case is filed and the discharge finalized a short time later.

These are three of the top reasons that I will recommend a Chapter 7 to one of my clients over Chapter 13. Of course, there are always exceptions to the rule, so I recommend that you contact an attorney specializing in bankruptcy law to help you through the process and to assist you in making the best decision.

One of our most frequent questions from clients concerns bank accounts and how much money a person is allowed on the day a bankruptcy is filed and how to get their bank account low for the purpose of filing bankruptcy.  In the District of Arizona, we are able to exempt:

-One bank account for $150.00, if you are filing individually

-One bank account for $300.00, or two bank accounts for $150.00 each, if you are filing jointly as a married couple

(Or an equivalent amount of cash on hand, so you cannot simply withdraw money from the bank and hold on to the cash.)

A common concern is that this will affect direct deposits of paychecks, or automatic withdrawals that are scheduled.  There is no need to cancel your direct deposit or change your bill pay system because of your bankruptcy filing.  We will plan on filing your bankruptcy in the small window after you have had an opportunity to spend your pay check on necessary expenses, but before you get paid again.

We suggest that our clients stop writing paper checks two weeks prior to the bankruptcy being filed, because waiting on checks to clear from an account can cause unnecessary delays to filing.  Debit card usage, cashier’s checks and money orders are the preferred methods of withdrawal prior to filing.  If cash is withdrawn from an account, the cash must be spent, with receipts or documentation of how the money was spent.

When considering how to spend down bank account funds or cash on hand prior to filing, we give the following rule of thumb: If the purchase can be considered to be a regular cost-of-living expense, it is most likely not going to raise a red flag.  If the purchase would most likely be considered a luxury or a big-ticket item, we recommend that you avoid the purchase and consider a different way to spend the funds.

Here are several examples of acceptable spending prior to filing bankruptcy in Arizona:

-Groceries, household goods & supplies

-Paying utility bills, mortgage payments, car payments as scheduled

-Repairs on vehicles that are necessary, or part of regular “wear and tear” maintenance

-Home improvements that can be documented with “before and after” photos, as well as documentation of all expenses towards the repair

If you have detailed questions regarding filing bankruptcy and your bank account contact an experienced bankruptcy lawyer at Meyer Law.