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One Top Ten Urban Myth About Chapter 7 Bankruptcy in Arizona: The Liquidation Myth!

By Joseph McDaniel, Esq.

Here's the myth: if you file a Chapter 7 Liquidation Bankruptcy, you lose everything! Clothes, shoes, cars, house, plates and food. Even medicine!

Here's the reality: about 97% of the people who file bankruptcy in Arizona lose nothing at all to the bankruptcy trustee. Those are called no-asset cases, and they are the overwhelming majority of Chapter 7 Bankruptcy cases in Arizona.

The bankruptcy exemptions in Arizona are one of the reasons for the large percentage of no-asset bankruptcy cases in Arizona.

Because if an asset is exempt, the trustee doesn't have the right to collect it, liquidate it, and use the money to pay creditors according to the priorities of bankruptcy distribution.

There's a second reason that so little is collected by a Chapter 7 Bankruptcy Trustee in Arizona. And that is the fact that often, an otherwise non-exempt asset is over-encumbered. For instance, you may have a dumptruck that would be non-exempt, and fair game for the trustee to grab and sell. But if it's worth ten thousand dollars, and the bank has a lien on the truck for twelve thousand dollars, there's no reason for the trustee to grab that truck.

You'll still have to make peace with the bank, but generally it just wants to get paid according to the contract.

There's a third reason for the large number of  no asset cases, and that's...The Secret Bankruptcy Exemption that's not on any list of exempt property in Arizona!

And the fourth reason for so many no-asset cases? Well, a debtor who retains an experienced bankruptcy attorney in Arizona knows the exemptions, and will probably sell the three-wheeler prior to filing, and use the money to buy food, make a payment on the house, and get some medicine for the baby.

Full post as published by Arizona Bankruptcy Attorney Blog on January 31, 2011 (boomark / email).