Arizona Bankruptcy Laws and Procedure
While bankruptcy law is a federal mechanism, each state provides certain specifics when it comes to average income tests and dischargeable debts. Here is a brief explanation of the Arizona specifics.
Arizona Non-Dischargeable Debts
Before filing for bankruptcy, it is important to understand the potential debts that are non-dischargeable. This means regardless of what chapter you file under, the debts are not forgiven and the debtor is still obligated to pay on them. If the debtor files under Chapter 7, the debtor will still be responsible for the debts after the discharge of the other dischargeable debts. If the debtor files under Chapter 13, the debts are required to be paid in full under the repayment plan.
Arizona provides certain categories that are non-dischargeable debts.
- Back child support, alimony, and other debts related to family support;
- Debts for personal injury or death caused while driving under the influence;
- Student loans, unless repaying would cause an undue hardship on the debtor;
- Fines and penalties for violating the law, like traffic tickets and criminal restitution;
- Recent income tax debts *(within 3 years) and other tax debts; and
- Debts you forget to list in bankruptcy papers, unless the creditors learns of your bankruptcy case.
Ensuring all relevant paperwork is gathered before filing will ensure the last category is averted.
If the debtor is filing under Chapter 7, the following debts may be declared non-dischargeable by a court if the creditor of the debts challenges the request to discharge.
- Debts incurred by fraud;
- Credit purchases of $1,150 or more luxury goods or services made within 60 days of filing;
- Loans or cash advances of $1,150 or more taken within 60 days of filing;
- Debts from willful or malicious injury to another person or property;
- Debts from embezzlement or larceny; and
- Debts owed under a divorce decree or settlement.
Note that most of the above debts deal primarily from criminal conduct or imprudent decisions before filing. Keeping abreast of financial conduct and preventing these occurrences before filing is crucial.
Arizona Bankruptcy Means Test
To file under Chapter 7, the debtor must pass the Arizona bankruptcy means test. By “passing”, it means that the debtor falls under the median income in Arizona and is exempt from the test.
If the debtor does not “pass” and the debtor’s median income falls above the Arizona median income, the test will run a calculation to determine how much the debtor is required to pay back. The debtor will not be able to file under Chapter 7 and will have to file under Chapter 13.
There are a few exemptions under the means test. If the debts are not primary consumer debts, then the debtor is exempt. If the debtor is a disabled veteran the debts occurred while stationed on active duty, the debtor is exempt from the test.
The means test works by looking at the average household income of the debtor over the previous six months. Note, that it might be advantageous to look at the timing of filing. If income has declined for the debtor in the previous months, waiting to filing to ensure the median income is below the average would be helpful. Once the average monthly income is determined, it is multiplied by twelve to determine annual median income.
The Official from for the means text is #B22A-1. It can be found on the Arizona Bankruptcy website. If you fall under one of the exemptions, the form is Official Form B22A-1Supp which can also be found on the Arizona Bankruptcy website.
Knowing these two aspects of Arizona bankruptcy law is crucial to be full informed and knowledgeable before filing.
Click here for information on an introduction to Arizona bankruptcy court.