Chapter 7 Frequently Asked Questions

The following information deals with Chapter 7 bankruptcy. The information referenced in this section is provided for general discussion purposes only and should neither be construed as legal advice nor as a complete discussion of all the issues related to the area of Chapter 7 consumer bankruptcy. Every individual, family, and business is different and we urge readers to contact Arboleda Brechner regarding specific information about their case.

What Is A Discharge?

A Chapter 7 discharge is an order signed by the bankruptcy court that declares all of your eligible debt to be discharged. The Order of Discharge creates a permanent injunction barring a creditor whose debt has been discharged from attempting to later collect the debt.

What Is A Chapter 7 Trustee?

In Arizona, there is a panel composed of Chapter 7 Trustees. It is a blind draw as to which Trustee from the panel will be assigned to any given case. Each of the Chapter 7 Trustees have significant experience in bankruptcy law. It is the Trustee's responsibility to examine the debtor under oath and to review all paperwork filed with the bankruptcy court. The Chapter 7 Trustee is responsible for converting to money the non-exempt assets of the debtor. After administrative expenses are paid, the remaining money is distributed to the creditors according to the provisions of the Bankruptcy Code.

What Happens At The Meeting Of Creditors?

The meeting of creditors is actually a sworn examination of the party filing for bankruptcy - the debtor.  It is a scheduled meeting conducted by the Chapter 7 Trustee at which time the debtor is examined under oath concerning his or her assets and debts.

Creditors who choose to attend the meeting of creditors are allowed to ask questions concerning anything relevant to the case. As a practical matter, creditors typically do not  attend the meeting of creditors. All debtors must attend the meeting of creditors.

What Is A Reaffirmation Agreement?

Because most debt is discharged in bankruptcy, mortgage companies and other finance companies typically want the debtor to sign a document known as a Reaffirmation Agreement. By signing this agreement, the debtor agrees to waive his or her Chapter 7 discharge and agrees to continue to make payments as called for in the original loan. If the debtor stops paying after a Reaffirmation Agreement is signed, then the asset in question can be foreclosed on or repossessed and a deficiency judgment granted for the remaining amount left on the loan. If a debtor changes his or her mind and wishes to terminate or rescind a Reaffirmation Agreement after signing it, the debtor has sixty days to file a rescission agreement after a Chapter 7 reaffirmation is executed and filed with the Bankruptcy Clerk. In Arizona, however, it is not necessary to sign a reaffirmation agreement in order to keep your car or home.  As such, reaffirmation agreements are usually unnecessary in Arizona

What Is An Exemption?

Certain assets have what is known as an “exempt” status. This means that the debtor can protect them from creditors as well as the Chapter 7 Trustee. Exemptions do not apply to a mortgage or purchase money lien voluntarily placed on the asset by the debtor.

What Is A Redemption?

An asset can be purchased from the creditor by paying its present market value in a lump sum payment. The balance of the debt will then be discharged.

Are All Debts Dischargeable?

No. The most common non-dischargeable debts include spousal support or alimony, child support, certain marital property settlement agreements, certain income tax liabilities, and many student loans. Other debts whose liability was created by fraud or embezzlement may also not be dischargeable if challenged. 

Can I Discharge My Taxes?

Yes.  In many instances your tax liabilities can be discharged in bankruptcy. 

Do I Have To Name All Of My Creditors?

Yes. Bankruptcy law requires debtors to make a full and complete disclosure of anybody whom the debtor owes money. Bankruptcy schedules are signed under penalty of perjury and the debtor will be asked under oath at the meeting of creditors if all debts have been disclosed.

Can I Transfer Ownership Of An Asset To Avoid Bankruptcy?

No. Transfers within one year of filing Chapter 7 bankruptcy almost always violate Arizona’s fraudulent transfer statute as well as the federal Bankruptcy Code. A debtor who has been found to have made such a transfer may lose his or her entire discharge, and be subject to criminal prosecution as well.

Can Creditors Ask To Have Their Debt Designated As Non-Dischargeable?

Yes. Creditors can ask that specific debts be held to be non-dischargeable.

Can The Bankruptcy Trustee Or A Creditor Object To A Chapter 7 discharge?

Yes.  If an objection is made and the court sustains the objection, the debt in question  cannot be discharged in bankruptcy.  An objection is typically filed in situations where the debtor has transferred an asset within one year of a bankruptcy filing with the intent to hinder, delay, or defraud creditors or the Chapter 7 Trustee.

How Does Bankruptcy Affect My Credit?

A Chapter 7 bankruptcy can be kept in the public records section of your credit bureau report for ten years. While bankruptcy often provides debtors with a fresh start, there will be some initial difficulties encountered in terms of rebuilding credit.

Can My Employer Fire Me For Filing Bankruptcy?

No. The Bankruptcy Code prohibits public and private employer from discriminating against any employee who files bankruptcy. Please contact the AB Firm today with additional questions about the effect of bankruptcy on your job.