Chapter 7 vs Chapter 13 Bankruptcy in Arizona: Which One Fits Your Situation

Chapter 7 vs Chapter 13 bankruptcy in Arizona comes down to one core question. Does the filer need to sell nonexempt assets to wipe out debt? Or can they keep those assets and repay creditors over time instead? Both chapters live under Title 11 of the U.S. Code, and both can eliminate debt. However, they work in opposite directions.

Chapter 7 bankruptcy Arizona filers use most often: the liquidation option

Chapter 7 discharges most unsecured debt within a few months, usually without a repayment plan. First, a trustee reviews the filer’s assets and sells anything that isn’t covered by an exemption. In practice, though, most Chapter 7 filers in Arizona keep everything they own. That’s because Arizona’s exemptions are generous, including a large homestead exemption for home equity. So nonexempt property is the exception here, not the rule. Ultimately, eligibility hinges on passing the means test, which compares household income against the Arizona median for a household of the same size.

Chapter 13: the repayment option

Unlike Chapter 7, Chapter 13 doesn’t liquidate assets. Instead, the filer proposes a repayment plan, usually running three to five years, that pays creditors some or all of what’s owed based on disposable income. This chapter suits people who earn too much to pass the Chapter 7 means test. It also fits anyone who has fallen behind on a mortgage and wants to catch up while keeping the home. Similarly, it works for someone who owns nonexempt property they’d lose under Chapter 7 and want to protect instead.

Why income usually decides the chapter

Generally, the means test sorts most filers into the right chapter before anything else gets decided. If income sits at or below the Arizona median, that generally clears Chapter 7 without further calculation. But income above the median triggers a deeper look at disposable income after allowed expenses. As a result, a large enough surplus can push a filer into Chapter 13, whether they wanted that chapter or not.

Assets change the calculation too

Even a filer who qualifies for Chapter 7 on income alone might still prefer Chapter 13, for other reasons. For instance, owning property that exceeds Arizona’s exemption limits is one factor. Falling behind on a secured debt like a car loan or mortgage is another, since the plan allows catching up instead of risking the collateral. Additionally, Chapter 13 reaches further than Chapter 7 on certain debts — some tax and support obligations can get folded into the plan even though they aren’t dischargeable outright.

The bottom line

Overall, Chapter 7 vs Chapter 13 in Arizona usually resolves around income and assets. Chapter 7 clears debt faster for filers who pass the means test and have little nonexempt property. By contrast, Chapter 13 protects assets and catches up secured debt for filers who don’t qualify for Chapter 7 outright, or who have something specific worth protecting through a structured repayment plan.

Keep reading

• The Arizona Bankruptcy Means Test: How It Decides Which Chapter You Qualify For
• Arizona’s Homestead Exemption in Bankruptcy: How Much Home Equity You Keep
• Chapter 13 Repayment Plan Arizona: How the Payment Gets Calculated
• After Bankruptcy Discharge Arizona: What Actually Resets
• Expunge a Criminal Record in Arizona: Set-Aside vs. Sealing Explained

This article explains Arizona’s general bankruptcy chapter options. It is general information, not legal advice. Which chapter fits depends on individual income and assets — confirm with a qualified attorney.