What Will Happen and When it Will Happen Once You File Bankruptcy
The bankruptcy starts when you file a bankruptcy petition; that is the same whether it is a chapter 7 or chapter 13 bankruptcy. Before filing a petition for either bankruptcy chapter 7 or 13, the debtor must complete a credit counseling course. We must have that certificate; otherwise, we cannot file the bankruptcy petition. After we file the bankruptcy petition, the court will set what is called the creditor’s meeting or a 341 meeting. At the 341, which I will attend with you, a person named the bankruptcy trustee will put the debtor under oath and ask certain questions.
Most of these hearings are very standard and routine with nothing unusual happening. Sometimes, however, debtors are in for a rude shock if they are not prepared. For example, before the creditor’s meeting, the bankruptcy trustee will look at your bank and financial records to see if the information on the petition is correct; or the bankrupty trustee may be the bringer of bad news. One case in point, once when I went to a 341 meeting, the trustee asked the debtor why did he file bankruptcy as a single debtor even though he was married. Apparently, the debtor did not know that because Arizona is a community property state, the nonfiling spouse is automatically obligated on most debts even though the debt was only taken out on the name of the debtor. For example, if the husband gets a credit card in his name only, the wife will owe that debt if only the husband files bankruptcy and the wife does not. The same is true for car loans, but it is not true for personal guarantees and real estate transactions.
If the 341 meeting goes fine, then the debtor must take his second course and file that with the court. Once that is filed, the court will discharge the debtor about 4 months from the date of filing. That is typically how a chapter 7 bankruptcy case transpires.
In a chapter 13 bankruptcy, there is an additional step in that the bankruptcy debtor must also go to a confirmation hearing. At the confirmation hearing, the bankruptcy court will either approve or disapprove the debtor’s chapter 13 repayment plan.
The benefit of the chapter 7 discharge is that it discharges 100% of your unsecured nonpriority debt. That means things like credit cards, medical bills, and repossessed motor vehicles cannot longer be a debt against you. Priority debt like taxes and student loans still remain.
A chapter 13 discharge is a little different. It still discharges your debt, but once you complete your chapter 13 plan, on average you will have paid about 20% to 25% of your unsecured nonpriority debt. That, of coures, is more than a chapter 7 bankruptcy.
The most common question I receive is should I do a chapter 7 or a chapter 13, and what I tell all my clients is not surprisingly “it depends.” The benefit of a chapter 7 is that it is faster, easier, cheaper, and much shorter than a chapter 13 and it discharges a greater percentage of your debt. However, if you have a house or property that you want to keep, or if you have a junior unsecured loan on your house, of if you make too much money for a chapter 7 bankruptcy, then chapter 13 is a viable option.
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AZ Bankruptcy 
