Bankruptcy Law Research Guide

Library Photo

Jill Sturgeon
Law Library Fellow

Disclaimer: This guide is intended as a research guide only and does not constitute legal advice. This guide is not exhaustive of all materials related to bankruptcy law and is only meant to be a beginning point for your research. For specific legal issues and questions you should seek the advice of a licensed, experienced, bankruptcy attorney.

Overview

Bankruptcy Basics

Other Bankruptcy Related Issues

Bankruptcy Basics

What is bankruptcy?

Bankruptcy is a legal process that provides individuals and other entities with debt relief. Congress is empowered by the United States Constitution art. I, § 8, to enact bankruptcy laws. These laws are contained in Title 11 of the United States Code.

The United States Bankruptcy Courts Bankruptcy Basics website states the purpose of U.S. bankruptcy law as follows:

A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a 1934 decision:

“[I]t gives to the honest but unfortunate debtor … a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

What type of bankruptcy relief is available?

Chapter 7

Chapter 7 bankruptcy involves liquidation of a debtor’s assets. The debtor is required to turn over all nonexempt assets to the bankruptcy trustee, who must sell the property and distribute the proceeds to creditors. (In reality, sales of assets seldom occur in Chapter 7 bankruptcy because most debtors who file Chapter 7 have few nonexempt assets.) Finally, the debtor is discharged from all dischargeable debts. Click here for the Chapter 7 Bankruptcy page.

Chapter 13

Chapter 13 allows individual debtors with regular income to reorganize their debts. The debtor is allowed to keep most of his or her property, and must repay creditors through the bankruptcy trustee over a period of time, usually three to five years. Click here for the Chapter 13 Bankruptcy page.

Other

Other types of bankruptcy relief are available for particular entities. Chapter 11 is available for business reorganization, Chapter 12 for family farms, Chapter 9 for municipalities, and Chapter 15 for bankruptcies involving assets, debtors, or creditors in more than one country.

Chapter 7 Bankruptcy

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy involves liquidation of a debtor’s assets. The debtor turns over all nonexempt assets to the bankruptcy trustee who sells the property and distributes the proceeds to creditors. In exchange, the debtor is discharged from all dischargeable debts. In reality, most Chapter 7 filers have no non-exempt assets, so no sale of assets will occur in most Chapter 7 bankruptcies.

What type of property is exempt for purposes of liquidation?

Certain property of an individual debtor is protected from the claims of creditors because it is exempt under federal bankruptcy law or the state law of the debtor’s home state. 11 U.S.C. § 522(b). If property is “exempt”, it means the debtor may keep the property and does not have to turn it over to the bankruptcy trustee

The Bankruptcy Code permits each state to adopt its own exemption law in place of the federal exemptions. In these jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or the exemptions available under state law. However, Arizona requires its residents to use state law exemptions, instead of federal exemptions. See the United States Bankruptcy Court for the District of Arizona Exemptions in Arizona website for information on Arizona exemptions.

How much does it cost to file a Chapter 7 bankruptcy?

The filing and administrative fee to file a Chapter 7 bankruptcy is $335.00, effective June 1, 2014. You can see if fees have changed here: www.uscourts.gov/bankruptcycourts/fees.html.

How long does it take to complete a Chapter 7 bankruptcy?

After filing, it generally takes between four to six months to complete the bankruptcy and receive a discharge.

Who is eligible to file for Chapter 7 bankruptcy?

Individuals, partnerships, corporations and other business entities may be eligible for Chapter 7 relief, though only individuals are entitled to a discharge of debts. If an individual’s current monthly income is more than the state’s median income, the individual must pass a means test in order to qualify for Chapter 7 relief. Individuals are required to undergo credit counseling before obtaining a final discharge. For more information, see the bankruptcy court website, or contact an attorney.

What is the process?

The process is described in detail on the United States Bankruptcy Courts Bankruptcy Basics, How Chapter 7 Works website. You can find information specific to bankruptcy in Arizona at the Bankruptcy Court for the District of Arizona, including local rules, forms, and where to file.

Chapter 13 Bankruptcy

What is Chapter 13 bankruptcy?

Chapter 13 of the Bankruptcy Code allows individuals or businesses with regular income to reorganize debts. The debtor is allowed to keep most property and pay creditors through the bankruptcy trustee over a period of time, usually three to five years.

How much does it cost to file a Chapter 13 bankruptcy?

The filing and administrative fee to file a Chapter 13 bankruptcy is $310.00, effective June 1, 2014. You can see if fees have changed here: www.uscourts.gov/bankruptcycourts/fees.html.

Who is eligible to file for Chapter 13 bankruptcy?

Any person is eligible for chapter 13 relief as long as her unsecured debts are less than $383,175 and secured debts are less than $1,149,525. 11 U.S.C. § 109(e).

A debtor may not file under Chapter 13 or any other chapter if a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or willful failure to comply with orders of the court, and may not refile within 180 days of voluntary dismissal of a prior petition when creditors sought relief from the bankruptcy court. 11 U.S.C. §§ 109(g), 362(d) and (e).

What is the process?

The process is described in detail on the United States Bankruptcy Court’s Bankruptcy Basics, How Chapter 13 Works website.

Consequences of Filing Bankruptcy

Effect on Credit Report

Under the provisions of the Fair Credit Reporting Act, a bankruptcy can now remain on a debtor’s credit report for 10 years. 15 U.S.C. § 1681c(a)(1). For more information, see the Fair Credit Reporting Act website.

Effect on Ability to Borrow Money

Whether a debtor will be able to borrow money, or borrow money at a reasonable interest rate, depends on the financial situation of the individual debtor.

The American Bankruptcy Institute has helpful information on questions related to the end of your bankruptcy case.

Employment Discrimination

11 U.S.C. § 525(a) prevents a private employer from firing or discriminating against a person because she has declared bankruptcy.

Discrimination by Governmental Entities

11 U.S.C. § 525(a) also prevents governmental units from discriminating against bankruptcy filers in regard to employment or benefits.

Attorneys

Do I need an attorney to file a Chapter 7 bankruptcy?

You are not required to have an attorney to file for bankruptcy. You have the right to represent yourself in any type of bankruptcy proceeding. People who represent themselves are referred to as “pro se” filers.

However, according to the District of Arizona Bankruptcy Court FAQs section, it is difficult to successfully file for bankruptcy without the aid of an attorney. In order to file successfully, you have to familiarize yourself with United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the local rules of the District of Arizona Bankruptcy Court, and the bankruptcy forms.

If you do not fill out the forms correctly or disclose all the required information, you might lose important rights and/or fail to maximize your debt relief. Also, if you do not follow the various bankruptcy rules, your case could be dismissed.

However, there are a number of self-help resources available. See the Bankruptcy Self Help page.

Do I need an attorney to file Chapter 13 bankruptcy?

Filing for Chapter 13 bankruptcy relief and getting a plan confirmed is a complicated process. Failure to meet the technical requirements of the law and follow the federal and local bankruptcy rules will result in dismissal. Even most self-help bankruptcy books recommend consulting with an attorney throughout the various steps of the process.

How can I find a local attorney?

There are many lawyer referral services available online.

Can I find a local attorney if I do not have much money?

Arizona has a number of legal aid services available. Often these pro bono organizations have income requirements to qualify for assistance. You can check their websites or call the organizations for more information.

Bankruptcy Self Help

Where can I get some advice online for filing pro se in Arizona?

The District of Arizona Bankruptcy Court has a site to assist pro se filers.

Where do I get bankruptcy forms online?

Official bankruptcy forms and instructions are available from the United States Bankruptcy Courts website.

Where can I find the bankruptcy law online?

The bankruptcy law is codified in the United States Bankruptcy Code.

Where can I find the Bankruptcy Court rules online?

The Federal Rules of Bankruptcy Procedure are available from the Legal Information Institute.

For Arizona, the local rules are available from the District of Arizona Bankruptcy Court.

Where can I find more bankruptcy assistance online?

Check the Bankruptcy Resources page for more online links.

Law Library resources

When using a resource, make sure the information is still applicable. Fees and amounts for eligibility are updated periodically, and there was a major change to the Bankruptcy Code in October, 2005, as well as minor adjustments since then. The court’s website can be used to verify that you have the most up-to-date numbers. Also, check the catalog or ask a librarian if there are newer editions of the works listed below.

  • Bankruptcy Abuse Prevention and Protection Act of 2005, Henry Sommer (Matthew Bender 2005). Location: KF 1511.597 .R47 2005.
  • Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Law and Explanation, Sheila Williams & George Basharis (Aspen Publishers 2005). Location: KF 1511.597 .W55 2005.
  • Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, Stephen Elias & Kathleen Michon (12th ed., Nolo 2014). Location: KF 1524.85 .E39 2014.
  • Consumer Bankruptcy Law and Practice, Henry J. Sommer (10th ed., National Consumer Law Center 2012). Location: KF 1524 .S65 2012.
  • How to File for Chapter 7 Bankruptcy, Stephen Elias, Albin Renauer & Baran Bulkat (18th ed., Nolo 2013). Location: Law Reference KF 1524.85 .E4 2013.
  • How to Survive and Prosper After a Financial Misfortune, Tracy A. Carr (Atlantic Publishing 2011). Location: Law Reference KF 1524.85 C37 2011.
  • The New Bankruptcy: Will It Work For You? Stephen Elias & Leon Bayer (5th ed., Nolo 2013). Location: Law Reference KF 1524.6 .E43 2013.

Other resources

There are a number of companies that sell bankruptcy forms or kits on the Internet, in bookstores, or in legal forms stores. Before buying a product, make sure it contains the most recent forms and filing information.

Other companies sell software for preparing bankruptcy petitions using a computer. Most of these software programs are marketed to bankruptcy attorneys and can be rather expensive. However, there are some programs that cost less than $50.00 and are designed to assist individual filers.

Alternatives To Bankruptcy

Creditor Negotiation

One option is to contact your creditors yourself and see if it is possible to work out an arrangement to satisfy the debt. You might be able to convince the creditor to lower your interest rate, extend the repayment time, lower the monthly minimum due, or settle the debt for a lump sum payment. Creditors are not normally under any obligation to alter the terms of the initial loan agreement, but it never hurts to ask.

Consumer Credit Counseling Agencies

An option for those who do not want to contact creditors directly is to use the services of a nonprofit credit or debt counseling agency. These agencies provide a variety of services such as financial assessment, debt management plans, counseling, and consumer education.

An agency can work with your creditors to set up a debt management plan. They contact your creditors and work out an agreement for you to pay off your unsecured debts through the agency. Often, the agency can get creditors to lower interest rates or waive fees. Then, you pay the agency each month for a certain number of months and the agency distributes the money to your creditors. At the end of the plan, your debts are normally paid off.

It is very important to choose a reputable credit counseling agency. The Federal Trade Commission Fiscal Fitness website provides advice about choosing a credit counseling agency.

In addition, the United States Bankruptcy Trustee Program’s Credit Counseling & Debtor Education Information website provides a list of credit counseling agencies for each state that are approved to provide the debt counseling required of bankruptcy filers. These agencies also provide credit counseling services to the non-bankruptcy filing public.

Debt-Negotiating Companies

Another option is to use the services of a commercial debt-negotiating company. Even though some businesses of this type claim to be non-profit, most are for-profit companies which charge debtors for their services, unlike consumer credit counseling agencies. The Federal Trade Commission Fiscal Fitness website advises consumers to exercise caution in dealing with such companies.

Doing Nothing

Sometimes, doing nothing is the best approach. Declaring bankruptcy costs money, and working out an arrangement with creditors will require you to have some extra cash or future income to pay off debts.

If you are a person with few assets and limited income, your creditors might not consider it worthwhile to sue you. Or, if a creditor does sue and get a judgment against you, the creditor will only be able to enforce the judgment if you have assets that can be seized or garnished. Normally, a creditor cannot take essentials such as clothing, ordinary household furnishings, personal effects, Social Security payments, unemployment benefits, or public assistance benefits. Also, there are limitations on wage garnishments. See the Garnishment page for more information.

Garnishment

A garnishment action allows a party who has obtained a money judgment (including an order of support) against a debtor to collect the money directly from a third party such as an employer or bank. A court order for garnishment is also called a writ of garnishment.

There are two types of garnishments in Arizona. One type allows a creditor to garnish wages from an employer ( A.R.S. § 12-1598.03) and the other allows a creditor to garnish money or other property held by a third party, such as a bank. ( A.R.S. § 12-1572).

Arizona law provides terms for the three different parties to a garnishment in A.R.S. § 12-1570 et seq.:

  1. The party who gets a money judgment in court against a debtor and who applies to the court for the writ of garnishment is called a judgment creditor.
  2. The party who owes money to the judgment creditor is called the judgment debtor.
  3. The third party who controls the debtor’s property (such as an employer or bank) is called the garnishee.

What happens when a creditor applies for a writ of garnishment?

Wage garnishment

The judgment debtor receives notice from the judgment creditor. The judgment creditor must deliver to the judgment debtor a copy of the writ and the initial notice and request for hearing form within three days after service of the summons and writ of garnishment on the garnishee. A.R.S. § 12-1598.04.

Non-wage garnishment

The judgment debtor receives notice from the garnishee instead of the judgment creditor. Once a garnishee (bank or property holder) is served with notice of the garnishment, the garnishee must deliver a copy of the summons and writ of garnishment, a copy of the underlying judgment, and the notice and request for hearing form to the debtor within three days. A.R.S. § 12-1574.

What can I do to stop the garnishment?

Object to the garnishment and request a hearing

For a wage garnishment, any party can file a written objection and a request for a hearing. A party can object to the garnishment, the answer of the garnishee, or the nonexempt earning statement within 10 days after receipt of the answer or the nonexempt earnings statement. A.R.S. § 12-1598.07(A). The objector must state the grounds for the objection. A.R.S. § 12-1598.07(C). The judgment debtor will receive a copy of the objection/request for hearing form from the judgment creditor. However, the court, justice of the peace, or city or town magistrate will also supply the judgment debtor with a notice a garnishment and an objection/request for a hearing form for free. Additionally, the form is contained in A.R.S. § 12-1598.16.

The procedure is similar for non-wage garnishments. For a wage garnishment, any party can file a written objection and request for a hearing. A party can object to the garnishment, the answer of the garnishee, or the nonexempt earning statement within 10 days after receipt of the answer or the nonexempt earnings statement. A.R.S. § 12-1580(A). A party can object to the garnishment or make a claim that the property is exempt by filing a request for hearing form. The objector must state the grounds for the objection. A.R.S. § 12-1580(C). The judgment debtor will receive a copy of the request for hearing form from the judgment creditor. However, the court, justice of the peace, or city or town magistrate will also supply the judgment debtor with a notice of garnishment, and a request for hearing form for free. Additionally, the form is contained in A.R.S. § 12-1596.

Work out a payment arrangement with the judgment creditor

It might be possible to halt the garnishment by contacting the judgment creditor and working out an alternative payment arrangement. However, the creditor is under no obligation to discuss or accept alternative arrangements.

Declare bankruptcy

Filing for bankruptcy invokes an automatic stay that stops most collection efforts including garnishments. 11 U.S.C § 362. Creditors are prevented from taking any actions to collect debts until the stay is lifted by the bankruptcy court. See the Bankruptcy page for more information.

Are there limitations to what can be garnished?

Wage garnishments

Exempt earnings are not subject to garnishment. According to A.R.S. § 12-1598, exempt earnings are those which are not subject to judicial process (including garnishment) according to federal and state law.

15 U.S.C. § 1673 is one such statute that restricts the amount that can be garnished. The maximum amount that can be garnished cannot exceed the lesser of:

  1. 25 per centum of disposable earnings for that week, or
  2. the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage prescribed by section 206(a)(1) of Title 29 in effect at the time the earnings are payable, whichever is less. 15 U.S.C. § 1673

Non-wage garnishment

A variety of limitations are placed on non-wage garnishments.

The statutory exemptions for non-wage garnishments pursuant to A.R.S. § 12-1596(C) include:

  1. One hundred fifty dollars ($150.00) in a bank, savings and loan association or credit union account (Three hundred dollars for married account holders);
  2. Temporary assistance for needy families;
  3. Supplemental Security Income (SSI);
  4. Social Security benefits (SSA);
  5. United States department of veterans affairs benefits (VA);
  6. Certain pension benefits and retirement funds;
  7. Workers’ Compensation benefits; and
  8. Some insurance proceeds.

Further, the statutory exemptions pursuant to A.R.S. § 12-1596(C) include:

  1. Household goods, furniture and appliances;
  2. Up to one thousand five hundred dollars ($1,500.00) equity value for each owner of a car or truck (Three thousand dollars equity value if the owner is physically handicapped);
  3. Wearing apparel, musical instruments, televisions or stereos and other personal items;
  4. Tools and equipment used in a commercial activity, trade, business or profession.

Statutes of Limitation

Statutes of limitation

State law limits the amount of time a creditor has to sue to collect a debt or enforce a money judgment. Once the time has passed, a creditor has no further collection remedy available.

Sometimes a creditor will make a last effort to collect a debt before the limitations period expires. This explains why a debtor is sometimes contacted by a creditor who appeared to give up collection efforts years ago.

These laws differ from state to state, so it is important to determine the applicable state law.

How do I determine which state’s statute of limitations applies to my debt?

Unless a contract or agreement was both signed and performed all in one state, determining which state law applies to a particular debt can be complicated. To make the determination, some courts focus on the place where the contract was entered into or performed, but the modern trend is to apply the law of the state that has the most significant relationship to the transaction and the parties. Restatement (Second) of Conflict of Laws § 188(1).

Often, contracts or loan agreements contain forum selection or “choice of laws” clauses. These clauses state that the parties to the contract agree to allow the contract to be governed by the law of a particular state, and agree to enforce the contract only in the courts of that state. Courts generally enforce these agreements unless they are unfair or unreasonable.

What are the statutes of limitations to sue to collect a debt in Arizona?

There is a six year statute of limitation to sue on a contract in writing ( A.R.S. § 12-548) and a three year limitation period for an oral debt or stated or open account ( A.R.S. § 12-543).

What is the statute of limitation on enforcing a judgment in Arizona?

After a creditor has successfully sued and obtained a judgment, the creditor has five years from the entry of judgment to enforce it ( A.R.S. § 12-1551(B)) unless the judgment is renewed. A judgment may be renewed by filing an action to enforce the judgment ( A.R.S. § 12-1611) or by filing an affidavit with the court within ninety days before the expiration of the five year period ( A.R.S. § 12-1612).

Bankruptcy Resources

Law Library resources

When using a resource, be aware of the date of publication to make sure the information is still applicable. You can also check the catalog or ask a librarian whether there are newer editions of the works listed below.

Bankruptcy

  • Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, Stephen Elias & Kathleen Michon (12th ed., Nolo 2014). Location: KF 1524.85 .E39 2014.
  • The Complete Bankruptcy Guide for Consumers and Small Businesses : Everything You Need to Know Explained so You Can Understand It, by Sandy Baker (Atlantic Publishing 2011). Location: Law Reference HG3766 .B216 2011.
  • Consumer Bankruptcy Law and Practice, Henry J. Sommer (10th ed., National Consumer Law Center 2012). Location: KF 1524 .S65 2012.
  • How to File for Chapter 7 Bankruptcy, Stephen Elias, Albin Renauer & Baran Bulkat (18th ed., Nolo 2013). Location: Law Reference KF 1524.85 .E4 2013.
  • How to Survive and Prosper After a Financial Misfortune, Tracy A. Carr (Atlantic Publishing 2011). Location: Law Reference KF 1524.85 C37 2011.
  • The New Bankruptcy: Will It Work For You? Stephen Elias & Leon Bayer (5th ed., Nolo 2013). Location: Law Reference KF 1524.6 .E43 2013.

Debt Difficulties

  • Consumer Protection Handbook, ABA Section of Antitrust Law (American Bar Association 2004). Location: Law KF 1609 .C644 2004.
  • The Debt Collector's Handbook : Collecting Debts, Finding Assets, Enforcing Judgments, and Beating Your Creditors, David J. Cook (American Bar Association 2014). Location Law KF1024 .C66 2014.
  • The National Consumer Law Center Guide to Surviving Debt, Deanne Loonin & John Rao (2008 ed., National Consumer Law Center). Location: Law Reference KF 1040.L66 2008.

Internet resources

Other resources

There are a number of companies that sell bankruptcy forms or kits through the Internet, bookstores, or legal forms stores. Before buying a product, you should make sure it contains the most recent forms and filing information.

Other companies sell software for preparing bankruptcy petitions using a computer. Most of these software programs are marketed to bankruptcy attorneys and can be rather expensive. However, there are some programs which cost less than $50.00 and are designed to assist individual filers.

Page Updated:  5 March 2015

Research Category