The Law Offices Of Fife & Cesta, PLC is a Mesa, Arizona bankruptcy law firm that provides bankruptcy services to clients around Arizona. They have issued this over 60 page guide to getting through bankruptcy as a service for their bankruptcy clients and for anyone examining the options offered by filing for debt relief under the federal Bankruptcy code.

1. BANKRUPTCY FACTS
EVERYTHING YOU WANTED TO KNOW
ABOUT BANKRUPTCY
BUT WERE AFRAID TO ASK

2. Bankruptcy Facts
Everything You Wanted To Know About Bankruptcy But Were Afraid To
Ask
Consumer Education Series
1st Edition
Author: Thomas J. Cesta, Esq.
Contributing Editor: William W. Fife III, Esq.
For information, please contact:
Law Offices of Fife & Cesta, PLC
1811 S. Alma School Road, Suite 270
Mesa, AZ 85210
Main Number: (480) 850-6541
Fax Number: (866) 352-7974
www.FifeCestaLaw.com
Copyright 2012
All rights reserved. No part of this publication may be reproduced or
transmitted in any form or by any means, electronic or mechanical,
including photocopy, recording, email, or any information storage and
retrieval system, without the express written permission.
LEGAL DISCLAIMER
This firm is a debt relief agency as prescribed by the U.S. Bankruptcy
Code. We also help people eliminate their debts.
This book does not constitute legal advice. If you would like to obtain
legal advice you should meet with an attorney to review your
particular facts and circumstances.
2

3. Contents
Contents 3
Bankruptcy Myths 5
Myth 1 I will lose everything if I file for bankruptcy. 6
Myth 2 Bankruptcy will hurt my credit. 7
Myth 3 If I file for bankruptcy I will not be able to buy a
home or car for 10 years. 7
Myth 4 No one will give me a credit card again. 8
Myth 5 Only bad people do not pay their bills. 9
Myth 6 I caused the problem, not the bank. 10
Myth 7 Banks only lend to people who can easily afford
to pay back the loan. 11
Myth 8 Bankruptcy is bad for the country. 12
Myth 9 Bankruptcy is immoral. 12
Myth 10 Bankruptcy will hurt the banks. 14
The Positive Credit Impact of Bankruptcy 15
How Much Does A Bankruptcy Hurt My Credit Score? 15
How Long Will It Take To Bring My Credit Score Back
Up? 18
3

4. But What About Obtaining Credit? Will The Bankruptcy
Affect My Ability To Get A Loan? 19
What Types Of Loans Will I Be Able To Get After
Bankruptcy? 21
When Will My Creditors Stop Harassing Me? 23
Why File If I Can Still Scrape By? 25
The Difference Between Chapter 7 And Chapter 13—
Which One Is Right For Me? 32
Chapter 7 Bankruptcy 33
Chapter 13 Bankruptcy 35
WHAT TYPE DO I QUALIFY TO FILE? 38
Will I Lose My Property? 40
Do I have to give up my car? 41
My house is upside down, do I have to give it up?
Should I? 43
How Much Will Bankruptcy Cost? 46
Bankruptcy Dos And Don'ts 50
Wrapping Up 53
About the Authors 54
4

5. Bankruptcy Myths
Do Not Let Assumptions Stop You From
Learning About Your Options In Bankruptcy
Bankruptcy—the prospect sounds so much worse than it
is. Most consumers fear bankruptcy, even to the point of
complete financial ruin. Businesses on the other hand
see bankruptcy for what it really is—a financial tool to
get back on track.
Bankruptcy is an important decision, not to be taken
lightly. However, many people have opinions about
bankruptcy which are just not valid. The following are 10
of the most common bankruptcy myths feared by our
clients.
5

6. Myth 1
I will lose everything if I file for
bankruptcy.
Fact: In most cases you will keep your car and your
household goods, and most other things you own; even
your savings can be protected prior to filing. Every state
either has exemptions or uses the federal exemptions.
Exemptions are protections provided by law that protect
assets from being taken by creditors or lost through
bankruptcy. These exemptions are fairly realistic and
most of your property will be protected. Anything that is
not protected you probably already sold to make ends
meet. And if you didn’t sell it yet, you still can prior to
filing for bankruptcy to use for fees, or to spend on
something exempt.
Your bankruptcy attorney can help you decide how to
cover your assets.1 For more information on this topic,
see Chapter 5: Will I Lose My Property?
1
Only an attorney can advise you on your exemptions. If you prepare your case
on your own, or use a document preparer, you may lose more from missed
exemptions, or by not properly protecting assets, than an attorney would have
cost you. Penny-wise, but pound-foolish, as they say.
6

7. Myth 2
Bankruptcy will hurt my credit.
Fact: Your credit is usually already bad because of late
payments, high balances, charged-off accounts,
collections accounts a foreclosure, or repossession, etc.
However, the average consumer that files bankruptcy
will see their post-petition credit score increase 100 or
more points in one year or less after the bankruptcy
discharge. And with good management, you could be
back in the 700s in two years. For more information on
this topic, see Chapter 2: The Positive Credit Impact of
Bankruptcy.
Myth 3
If I file for bankruptcy I will not be able to
buy a home or car for 10 years.
Fact: You may qualify for an FHA home loan as early as 2
years after your discharge.2 Car loans are frequently
obtained while the bankruptcy is still pending. Earlier
2
FHA has other limitations on loans that do not relate to the bankruptcy. This
article does not purport to identify all of the FHA requirements.
7

8. loans may have a higher interest rate, but you can usually
refinance these in about a year. Often only about a year
after the discharge you can get a loan with an interest
rate at least comparable to what you would have gotten
before filing, maybe better. For more information on this
topic, see Chapter 2: The Positive Credit Impact of
Bankruptcy.
Myth 4
No one will give me a credit card again.
Fact: Most filers get credit card offers within weeks of
filing for bankruptcy protection. Think of it this way:
when you get the discharge, you will not be able to
obtain another Chapter 7 bankruptcy discharge for 8
years, or Chapter 13 for 4 years. In short, you are a
better risk than someone who has not filed. For more
information on this topic, see Chapter 2: The Positive
Credit Impact of Bankruptcy.
8

9. Myth 5
Only bad people do not pay their bills.
Fact: Many good people have found themselves unable
to repay a debt, often because of a change in finances, or
because of something the bank did to make it more
difficult. Some of your Heroes may well be on that list.
Abraham Lincoln filed for bankruptcy long before he
became our 16th President. So did Rembrandt, Mark
Twain, Oscar Wilde, PT Barnum, Debbie Reynolds,
Mickey Rooney, Dorothy Hamill, Johnny Unitas, Burt
Reynolds, Larry King, Donald Trump, and Dave Ramsey,
to name a few. Most people who apply for bankruptcy
protection are simply drowning in debt. Most will never
need to file bankruptcy again. For them, it is a choice
between maximizing the bank’s bottom line, and
providing for their family. Bankruptcy is the solution
they need.
9

10. Myth 6
I caused the problem, not the bank.
Fact: Most consumers blame themselves for having
financial difficulty, and most feel that they owe the
companies that took a chance on lending them money.
However, credit card companies, banks and other
financial institutions do not have your best interest at
heart. They are in it for the money. Your difficulties
maximize the profits for banks and financial institutions.
Most consumers do not have a degree in finance. The
banks exploit this. Banking policies and procedures are
set by people who have graduate level degrees in finance
in order to maximize profit. For example, due dates are
seldom the same day each month, which makes it harder
to schedule the payment and results in more frequent
late payments, and late fees. It is not an even playing
field. It is a bit like playing poker where you only see
your cards, but the other player gets to see your cards
and theirs.
10

11. Myth 7
Banks only lend to people who can easily
afford to pay back the loan.
Fact: Most of us believe that a company will not lend us
money unless we can afford to repay it. The truth is, the
more difficult it is for us to repay the loan, the more
money the companies will make from lending to us.
Although the risk is higher, so is the reward.
It makes perfect sense that banks make more money on
people who have difficulty repaying the loan. When
money is already tight borrowers are more likely to make
a late payment; and the bank then charges late fees, and
may also raise the interest rate, often by double or triple
the introductory rate. Banks may also lower the credit
limit and then charge over-the-limit fees. Banks justify
this by saying you have proven to be a bad risk so the
decreased credit limit and increased interest rate
protects them. But in fact the increase in interest rate
just makes the loan harder to repay, and makes the
minimum payment higher. This means more late
payments and more bank profits.
11

12. Myth 8
Bankruptcy is bad for the country.
Fact: Bankruptcy and Consumer Debt are neither good
nor bad. Consumers with debt make banks rich, but the
consumers cannot afford to buy new clothes and other
consumables. Consumers who get a bankruptcy
discharge are often able to afford to spend money with
local companies: and local companies need to sell
product in order to continue to retain employees. These
consumers can also better afford to send their kids to
college, which means higher incomes for the kids, and
more money to spend in the economy.
Myth 9
Bankruptcy is immoral.
Each consumer should seek their own guidance on this
one. Let’s face it, attorneys are not often thought of as a
source for moral guidance. Seriously though, the bible
and the Koran both instruct on debt forgiveness.
12

13. Bankruptcy is an important decision, not to be taken
lightly. But financial questions are only moral issues
when it is a choice between legal and illegal. After that,
it is just a math problem. Businesses understand this;
and intuitively, so do we as consumers, when it is a
business filing for bankruptcy. A business is in business
to make money. If some of the business’ obligations are
preventing the business from turning a profit to benefit
the shareholders, then the business needs to address the
situation. Occasionally, bankruptcy is the best method.
It is harder to see this as just math problem when it is
personal, but individuals and families must also consider
the bottom line. When the household cannot make ends
meet, something will be left unpaid. Unlike businesses,
real people cannot live without food and water; and in
modern society we also need electricity, gas,
transportation, clothes, etc. Children need an education
and adults must plan for retirement. Some individuals
and families need to do something extreme to restore
their financial health. Sometimes the best solution is
bankruptcy.
13

14. Myth 10
Bankruptcy will hurt the banks.
Fact: Most bankruptcy filers have been paying their debts
for 5 years before even considering the bankruptcy
option. In the typical credit card situation, this will mean
about 25% interest, and minimum payments designed to
pay back the debt over a 25 to 30 year period. In such
cases the banks will have already recovered 109% of the
original principal before a bankruptcy is ever filed.3 Your
bankruptcy will only mean less profit to the bank, and
also a write-off.
Rather than simply fearing the myths surrounding
bankruptcy, schedule a free consultation today and learn
the truth about bankruptcy.
Call now to schedule a free consultation.
(480) 850-6541
3
See the following section, Bankruptcy, A Financial Option
14

15. 4
The Positive Credit Impact
of Bankruptcy
How Much Does A Bankruptcy Hurt My
Credit Score?
Let’s face it, one of the biggest fears about bankruptcy is
your future access to credit. A quick Google Search
suggests that bankruptcy is going to drop your credit
score by 100 to 300 points. But is that really true?
4
Image courtesy of Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net
15

16. The truth is that most people who are considering filing
for bankruptcy have already been struggling to pay their
bills, and many have been late on their payments
multiple times, or they have stopped paying some or all
of their bills altogether. Payment history with multiple
late or unpaid accounts has already driven the credit
score down. The bankruptcy may be the latest negative
mark, but it is only a part of the reason for the lower
score.
Also, the lower the score is, the less the bankruptcy can
impact it. FICO scores are from 300 to 850. But, a 300 is
actually a very difficult score to get. There are 5
categories FICO considers to determine your score. You
have to bottom out in every category to get 300. Most
bankruptcy filers are already in the low 500s at the time
of filing. And while bankruptcy is a negative mark as an
adverse public record, it is a positive mark in that it not
only reduces the amount owed, but it also stops the
reporting of late payments.
16

17. The Five FICO Categories
It is likely true that if you have a credit score of 800, that
you can expect a 300 point drop; but someone with a
credit score of 800 that is considering bankruptcy is
probably someone that has been robbing from their
retirement accounts and savings to pay the creditors.
And most of the time this is money they would get to
keep in a bankruptcy. But if they do not file for
bankruptcy, at some point the money will run out and
the late payments will happen. When that starts
happening, the credit score will drop anyway.
Even if there is an initial drop in your credit score, the
financial companies want you to believe that it is
permanent. This ignores the element of time. In fact,
17

18. any initial drop will be quickly erased because of positive
changes, such as having less debt and no longer having
late payments.
Your credit score will not change overnight, but it will
take less time than you think. Once the discharge is
recorded, your credit score will begin to improve. The
impact of the bankruptcy depends on how long it has
been since the discharge was entered. Over time your
credit score will go up even without doing anything.
How Long Will It Take To Bring My Credit
Score Back Up?
You can usually expect to have a score back in the mid
600s within a year. It is even possible to get into the
700s in two years, though it is more likely that you will be
in the upper 600s in that timeframe. The bankruptcy
filing will stay on your credit for 7 to 10 years, depending
on which chapter you filed. However, the older the
information is, the less impact it has on your score.
18

19. But What About Obtaining Credit? Will
The Bankruptcy Affect My Ability To Get A
Loan?
Generally, the answer is no, though it will affect what the
terms of the loan will be. Almost everyone who files gets
credit card offers as soon as the discharge is entered.
Some people even get offers before the discharge is
entered. And most people get car loan offers before the
discharge is entered.
The reason for this is that creditors treat credit like crack,
and they see us as addicts. Someone entering
bankruptcy has chosen to enter a treatment program
that will get them off credit, and back onto solid financial
ground. But your creditors do not want you to recover.
They want you addicted because it is how they earn a
profit. So even before you complete the treatment
program they will start plying you with a free taste of
credit.
And this tactic works, mostly because people filing for
bankruptcy think they will never have credit again. So
19

20. when the creditors make their offers, many people feel
lucky to have the chance to use credit again.
It is a good plan for your creditors. If you file a Chapter 7
case, you will not be able to file another for 8 years.
Because of this, if you default, the creditor can sue you
and garnish wages, and there is little you can do to stop
them, so they have less risk. You will be able to file a
Chapter 13 in 4 years, but a Chapter 13 requires you to
make monthly payment through the bankruptcy court for
three to five years; so, a creditor may still get paid.
Also, even though the bankruptcy makes you a better
risk, because you have less debt to pay and few options if
you cannot pay, the creditors will still be able to impose
high interest rates. However, if you can wait a year
before getting a loan your credit will have improved so
that the interest rate you have to pay is not as high; and
after 6 months in the new loan you may even be able to
refinance for a rate which is lower.
20

21. One important note is that some lenders will try to ding
you twice for the same information. Your credit score
takes the bankruptcy into account. If the lender is saying
that it needs to consider the score AND the bankruptcy,
you might want to try another lender.
What Types Of Loans Will I Be Able To Get
After Bankruptcy?
Most loans will be available to you as soon as your
discharge is entered. However, it will take a few years
before you will be able to get a mortgage. For an FHA
loan, you will need to wait two years after your
discharge, and meet other eligibility requirements. Some
conventional loans will take longer. However, as stated
above car loans and credit cards will usually be available
immediately.
A bankruptcy is not something anyone wants to need.
But filing bankruptcy is the fresh start many people do
need. If you are struggling to pay your bills, then before
you dip into your savings, which are likely exempt, you
21

22. should consider whether you are going to truly be able to
solve the problem that way, or whether you are just
postponing the inevitable.
Everyone’s situation is unique. At the very least you
should seek a consultation with a qualified bankruptcy
attorney to learn about how a bankruptcy will affect you
in your present condition.
Call now to schedule a free consultation.
(480) 850-6541
22

23. 5
When Will My Creditors
Stop Harassing Me?
If you are being hounded by collection calls and letters,
retaining an attorney is an important step to getting the
peace of mind you need. Upon retaining an attorney and
notifying the creditors that you have retained an
attorney for the purpose of filing for bankruptcy, most
creditors are barred by federal law from contacting you
further to collect on the debt. Instead the collector has
5
Image courtesy of Idea go / FreeDigitalPhotos.net
23

24. to contact your attorney to discuss the matter. So, the
numerous calls you are receiving and are afraid to
answer, can stop right away.
If a creditor knows you have retained an attorney for the
purpose of filing bankruptcy and has not yet filed a law
suit against you, many creditors will opt to wait before
taking any further litigation action. Upon retaining an
attorney for bankruptcy, the goal should be to file your
case within three months. Any longer than three months
and you run the risk of the creditor pursuing litigation
against you for the debt.
If you are being sued or already are being garnished by a
creditor who obtained a judgment against you, you need
to act fast and get a bankruptcy filed. Retaining an
attorney will not stop the law suit, nor will retaining an
attorney stop a garnishment. Only filing for bankruptcy,
with the power of the automatic stay, will prevent the
law suit from continuing or stopping the garnishment.
24

25. 6
Why File If I Can Still Scrape
By?
Whether you should consider bankruptcy depends on
many factors, not the least of which is what chapter you
would need to file. Although there are six types of
6
Image courtesy of scottchan / FreeDigitalPhotos.net
25

26. bankruptcy under the US Bankruptcy Code, there are
only two types that most people will need to consider:
Chapter 7 or Chapter 13.
A Chapter 7 bankruptcy discharges debts, but no liens;
and you may have to give up some assets. A Chapter 13
bankruptcy also discharges debts, but it can extinguish
some liens, and reduce what you owe with some others.
You can also usually keep all of your non-exempt assets.
However, a Chapter 13 bankruptcy also requires you to
make periodic payments of your disposable income to a
bankruptcy trustee for a period of three to five years, but
a Chapter 7 does not. Also, a Chapter 7 is essentially
complete in 3 to 6 months, but a Chapter 13 takes 3 to 5
years.7
In evaluating what chapter you are eligible to file, an
attorney will conduct a means test calculation. This
calculation subtracts expenses from income, to
determine disposable income. If there is little or only a
7
See the following section for a more complete discussion of the differences
between Chapter 7 and Chapter 13.
26

27. minimal amount to pay the creditors, then you may well
qualify for a chapter 7 bankruptcy.
However, what chapter you qualify to file is not the end
of the question. It is also important to consider the
amount of debt that will be discharged. If you only have
$100 disposable income, but you also only have $5,000
unsecured debt, you would probably be wise to attempt
to negotiate the debt, or continue to make payments
rather than file for bankruptcy.
In contrast, if you have $500 disposable income, but
$80,000 in general unsecured debt a bankruptcy might
be the right option. In this case, you will usually be filing
a chapter 13 which will require you to pay into a plan. If
you make 60 monthly payments of $500, you will pay
$30,000, but you will then get a discharge of the
remaining $50,000.00 of debt.
It could also be true that you will have enough disposable
income and little enough unsecured debt and other
obligations to have a 100% plan—that is, a plan that pays
27

28. 100% of the unsecured creditor claims. However, this
may also be very beneficial to you.
Consider these examples:
A consumer, let’s call him Michael owes $40,000.00 in
credit card debts. His credit cards have interest rates of
25% (not unusual after a few late payments). At this
rate, in order to pay off the debt in just 10 short years, he
will need to pay $909.97 a month. The interest alone is
$833.33 for the first month. That means that if Michael
pays $833.33 each month, the principal will never be
reduced and he will owe the debt for the rest of his life.
The average “minimum payment” required by credit card
companies is designed to require 25 to 30 years of
payments. If Michael paid $833.83, it would be just
enough to pay off the cards in 30 years. After 5 years of
paying $833.83 a month Michael would have paid
$50,029.81, but he would still owe $39,941.66. This is
28

29. because $49,971.46 of what he paid would have been
interest.
Also, every time Michael was late with his payments he
would incur late fees on top of the regular payment; and
every late payment would hurt his credit.
If Michael has little enough disposable income that he
qualifies for a Chapter 7 bankruptcy, then he could file a
Chapter 7 and the debt would be discharged in about 3
to 6 months. But if Michael had enough disposable
income that he needed to file a Chapter 13, Michael
would still benefit from the bankruptcy.
To pay off the debt in 30 years without filing bankruptcy,
Michael would need to have at least $833.83 disposable
income a month. But 30 years is a long time to wait for
solvency. What if Michael had this amount, but instead
filed bankruptcy. Assume that Michael will pay $2,500 in
attorneys’ fees as part of his plan, and 8% to the Trustee
for administering the plan.
29

30. Michael has enough disposable income to be in a 100%
plan. This is because interest is frozen for most of your
general unsecured creditors. Michael would pay all of his
disposable income each month, $833.83, and in about 55
months he would pay off the general unsecured creditors
and get his discharge.8
So Michael has a choice: pay his creditors $833.83 for 30
years; or file a Chapter 13 bankruptcy and be done in less
than 5.
A bankruptcy discharge brings you back to “zero”; but
from negative, zero looks pretty good. After the
discharge, you can save or invest any disposable income
you have, building your nest egg, rather than the
banker’s.
Another important consideration is whether there are
liens you would also like to strip, or secured debts you
would like to reduce. If Michael had a first and second
8
There are many factors that affect how many payments will be required, too
many to cover in this example. However, no chapter 13 plan will be more than 60
months in length before the discharge can be issued, even if the plan pays less
than 100%.
30

31. mortgage on his home, and he owed more for the first
mortgage than the home was worth, Michael could also
remove the lien held by the second mortgage as part of
the Chapter 13.
And if Michael had a vehicle for which he owed more
than it was worth, he could also do a cramdown, in which
what he owes on the vehicle is reduced to the value of
the vehicle.9 Even if Michael qualified for a Chapter 7, he
may still want to file a Chapter 13 just to take advantage
of a lien strip and cramdown.
Every jurisdiction has different filing guidelines and
exemptions. To determine the pros and cons of filing,
meet with an experience bankruptcy attorney today.
Call now to schedule a free consultation.
(480) 850-6541
9
There are important specifics to consider regarding lien strips and cramdowns.
Be sure to discuss these options with your bankruptcy attorney.
31

32. 10
The Difference Between
Chapter 7 And Chapter 13—
Which One Is Right For Me?
Although there are six types of bankruptcy under the US
Bankruptcy Code, there are only two types that most
consumers will need to consider: Chapter 7 and Chapter
13.
A Chapter 7 bankruptcy discharges debts, but no liens;
and you may have to give up some assets. A Chapter 13
10
Image courtesy of Gregory Szarkiewicz / FreeDigitalPhotos.net
32

33. bankruptcy also discharges debts, but it can extinguish
some liens, and reduce what you owe with some others.
You can also usually keep all of your assets. However, a
Chapter 13 bankruptcy also requires you to make
periodic payments of your disposable income to the
Trustee, but a Chapter 7 does not. Also, a Chapter 7 is
essentially complete in 3 to 6 months, but a Chapter 13
takes 3 to 5 years.
The following sections give more details of what to
expect in each bankruptcy chapter.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is a basic liquidation. This means
that you discharge your debts 11 without needing to pay
into a Plan. In order to get this discharge, you will have
to surrender any assets that are not exempt. However,
every state has exemption laws; and most petitioners
11
Not all debts are subject to discharge. Some debts, like child support, most
taxes, and student loans automatically survive; whereas others can be declared
non-dischargeable, if the creditor actively opposes the discharge, though this is a
rare occurrence.
33

34. usually have few assets that are not exempt. You will get
to keep any exempt assets.
The Chapter 7 discharges personal liability, but not liens.
So property which is secured will remain secured. You
can surrender the security, a car with a loan against it for
example; but if you want to keep the car, you will have to
pay it off or continue to make payments to that
creditor.12
Once you complete your pre-filing class13 you will file
your petition. About a week later you will get a letter
from the Trustee asking you to complete a questionnaire
and asking for copies of certain documents. You will
then attend a 341 hearing with the Trustee and us about
4 weeks after filing. Besides completing a financial
management course, this is often the last thing you need
to do in your case. Your discharge can be entered 60
12
There are specific processes for each of these. Consult your attorney to discuss
these options.
13
The Consumer Credit Counseling course is required to be completed before
filing for both a Chapter 7 and a Chapter 13 bankruptcy, and not more than 180
days prior to filing. However, this course is available online, takes about 90
minutes, and can be completed in your own home.
34

35. days after the 341 hearing, and is usually issued within 60
to 75 days.
If the Trustee determined that you had no assets to
liquidate, then the Trustee will issue a report and request
to be relieved from further obligations as trustee. Once
this happens, your case will be closed. However, if the
Trustee feels that there are assets that can be liquidated,
like income tax refunds for the year in which the
bankruptcy was filed or for any years prior that you have
not already received and spent the refund, then the
Trustee will keep the case open until the funds are
received and distributed. After the distribution, the case
will be closed.
Chapter 13 Bankruptcy
A Chapter 13 will usually last for 3 to 5 years. Upon filing,
you will also receive a questionnaire and document
request from the Trustee; and you will attend a 341
hearing.
35

36. Your attorney and you will prepare a Plan. The Plan will
specify what payments you will make, and how often.
Plans can be very simple, with the same amount due
each month for a number of months, or very complex,
with several periods, or even every month having a
different payment amount due. However, the simpler
the Plan is, the easier it will be to get it confirmed.
Once the Trustee receives the Plan, the Trustee will
review it and make recommendations. You will then
discuss these with your attorney, and either addresses
these in the Stipulated Order of Confirmation, or with an
Amended Plan. However, once your Plan is confirmed,
you will generally simply complete its terms. However, if
you have unexpected difficulties, you can file to modify
your Plan.
Your case will not be longer than 5 years, though it could
be shorter if your plan is a 100% repayment plan.14 The
Plan requires you to commit all of your disposable
income for the Plan Period. However, there are pretty
14
For a discussion of how a 100% payment plan is still a huge benefit for you, see
the section above titled Why File If I Can Still Scrape By.
36

37. reasonable expense guidelines. You can also usually
keep all or most of your assets, whether or not these are
exempt. 15
Keeping your assets is important, but there are more
significant advantages to a Chapter 13 Plan. One is that if
you have a vehicle and you owe more than it is worth,
then if you entered into the loan more than 910 days
before your petition was filed, you can reduce what you
owe for the vehicle down to its present value. If, for
example, you owe $25,000.00 for a vehicle, but it is only
worth $15,000.00, then you can pay for it through the
Plan and reduce your payments.
Another significant advantage to a Chapter 13 is a lien
strip for a residence. With your residence, if you have
more than one mortgage, but the home is worth less
than the first mortgage, you treat ALL junior mortgages
as unsecured debts. This will allow you to pay for your
15
While this is an advantage, this is not usually the best reason to be in a Chapter
13. This is because there are usually few assets that are not exempt, and also
because you will have to make plan payments for 3 to 5 years.
37

38. commitment period, and at the end of that time the lien
will also be discharged.16
WHAT TYPE DO I QUALIFY TO FILE?
We will perform a means test calculation to determine
what your options are. The means test determines if you
must file a Chapter 13, or if you can take your pick of
either a Chapter 7 or a Chapter 13.
There are three ways to qualify under the test. The first
is to determine whether your income is less than or
equal to the median for your size household, and if so
you can file either type of bankruptcy.17 This is state
specific, and the guidelines can change every six months.
If your income is greater, then we subtract your allowed
expenses from your income to determine your
disposable income. If this calculation leaves you in the
negative, or up to no more than $117.08 per month, then
16
There are specific requirements to ensure that this is handled properly. Make
sure you hire an attorney with experience handling this issue.
17
This is a discussion of the Means test only. There may be other limitations to
consider, such as prior bankruptcy filings.
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39. you still qualify to file either. If the calculation leaves you
with more than $195.42, then you must file a Chapter 13.
But if you are between these numbers you may still
qualify to file either, depending on how much general
unsecured debt will be discharged.
There are many factors to consider, and the most
important things your attorney can do for you are to help
you understand the pros and cons of filing bankruptcy,
determine what chapters you can file under, and the
impact each chapter will have for you.
Call now to schedule a free consultation.
(480) 850-6541
39

40. 18
Will I Lose My Property?
Whether or not you will keep most things is largely up to
you. Every state has exemption laws so that you will
retain many things following bankruptcy. Which laws
apply depends on how long you have been in the
jurisdiction before filing, and where you were before. As
long as you have been in Arizona for the last two years,
Arizona’s laws apply. Some, if not all of your equity in
your vehicle will be protected, as well as your household
18
Image courtesy of digitalart / FreeDigitalPhotos.net
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41. goods, your big screen t.v., business equipment,
retirement accounts, etc.
However, if some asset is not exempt or partially
exempt, you may be able to prepare before filing your
petition so that you protect the value of the asset.
Perhaps you sell non-exempt assets, then buy exempt
ones. Or instead, you may choose to retain the non-
exempt asset, and agree to pay the value of it to the
Trustee.
With prior planning, most of your assets can be
protected.
Do I have to give up my car?
In most cases, the answer is no.
The exemption in an automobile is $5,000.00, or
$10,000.00 if you are disabled and have handicap plates.
Each petitioner gets one automobile exemption, but a
filing couple can put the entire amount on one vehicle.
41

42. If yours is a joint filing, and you have two cars, and one is
worth $2,000.00 and the other is worth $8,000.00, then
the $2,000.00 vehicle will be fully protected, but the
other will only be protected up to $5,000.00. However, if
you have a $2,000.00 lien against the $2,000.00 vehicle,
and no lien on the $8,000.00 vehicle, then you can fully
protect it. Or if instead you have a $3,000.00 lien against
the $8,000.00 vehicle and no lien on the other, then you
can fully protect both. And if both have liens, then both
will be protected.
Likewise, if you have a car worth $100,000.00, but you
owe $95,000.00, then your $5,000.00 exemption fully
protects your equity.
Even if your vehicle is not fully protected, we can
negotiate with the Trustee to determine how you will
pay for the non-exempt portion and keep the
automobile. But if you want to let the vehicle go, you
can choose to do that too.
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43. My house is upside down, do I have to give
it up? Should I? (Can I?)
You do not have to give up your home either, but you
may want to. In the current housing market, many
homes are worth substantially less than the mortgage
remaining. Often, homeowners have a first and second
mortgage, but even the first is upside down. If you owe
more for the first mortgage than the home is worth, you
can strip the second mortgage.
But an important consideration is whether this is the
right thing to do. This is a difficult issue. Often the
decision involves concerns of shame, what will the
neighbors think when I let the house go, or concerns of
pride, I put umpteen thousand dollars into this home, so
if I leave I wash it all down the drain, and even concerns
of family, my kids are growing up here, I don’t want to
make it hard on them.
These are all important concerns, but it is equally
important to consider the basis for buying the home in
the first place. The two things buying a home rather than
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44. renting gives to us is security and equity. A home that is
considerably upside down gives us neither of these. You
might also want to revise your thinking. Are your
neighbors opinions worth more than your family’s
financial future? Isn’t the money you spent already
gone? Is moving harder than paying for college?
Consider this: A family owns a home worth $150,000.00,
but they owe $250,000.00. Their payments will reduce
the principal of the loan over time. If equity increases at
3% per year, the home will once again be worth what
they owe in roughly 126 months, or 10.5 years.19 At that
point the home will be worth $206,000.00, and they will
owe the same.
If they need to borrow money, such as needing money
for their children’s college, they will not be able to use
the home as collateral in this period. And it will still take
19
Historically, real estate is said to increase in value by 6% per year. This cannot
actually be true or we would all be living in million dollar homes. As cities change,
the equity increase slows, and may even stop or slide backward. The recent
housing bubble actually caused homes to lose more value than they gained.
However, at some point most homes should start to gain back some of these
losses.
44

45. another 4 years before they have sufficient equity to
borrow enough for a year or two of college.
If instead they surrendered the home in the bankruptcy,
then they could buy another home two years after the
discharge. If we consider the same amount of growth,
then two years from now the home will be worth
$159,264.00. If we then looked ahead 8.5 years so that
we are at the same point the home will be worth the
same $206,000.00, but they will only owe $138,000.00.
Instead of being at the breakeven point, they will have
$68,000.00 equity—enough to afford college.
Another important consideration is the monthly
payment. At 6% the mortgage for $250,000.00 costs
$1500 a month; while the mortgage for $159,264 costs
just $955 a month.
Bankruptcy does not require you to give up your home, it
just gives you the option.
Call now to schedule a free consultation.
(480) 850-6541
45

46. 20
How Much Will Bankruptcy
Cost?
There are different things that make up the cost of
bankruptcy. Your attorney will need to obtain a credit
report as part of the process. You will need to take a
pre-filing class, and a post-filing class. And while both of
these can be completed online in the comfort of your
20
Image courtesy of Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net
46

47. home in less than two hours each, they do add to the
cost.
There is a filing fee charged by the Court, which varies
depending on the type of case filed, and the Court
periodically changes the amount. There may also be a
charge for reaffirmation agreements, lien strips,
cramdowns, etc.
You will also find that the price can vary significantly
from firm to firm. Surprisingly, you are likely to find that
the high volume filing firms, which typically offer little
direct communication with your attorney, will often cost
much more than smaller firms.
If the firm you are dealing with advertises that they have
filed some unbelievable number of cases, when the
attorneys in the firm have only been practicing a few
years, and/or the firm has only been around a few years,
you might want to ask yourself if you are likely to get the
kind of customer service you would like to have. Are you
a client or a number to add to the advertising.
47

48. You should expect to pay for good representation. You
could go to a certified document preparer and get your
bankruptcy case much cheaper. But a document
preparer is not allowed to give you legal advice. So if you
have property which is not exempt, the document
preparer cannot advise you on how to protect the value.
You are likely to save money at the outset, but spend a
lot more by the time everything is complete.
That said, good representation should not be that
expensive. The total cost for everything, including the
filing fee, classes, credit report and attorney’s fees
should not be more than $2,100.00 for a Chapter 7
bankruptcy. A Chapter 13 will cost more because there is
much more involved. However, the attorney’s fees still
should not usually be more than $4,000.00. If the
attorney is suddenly willing to discount fees when you
bring it up, how much is the attorney trying to profit
from your misfortune? Is this an attorney that is trying
to help you, or himself?
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49. Some cases will cost more than this because of complex
issues involved. However, having 10 creditors versus 5,
or having a car loan and home loan, does not increase
the complexity of a case enough to justify higher rates.
Unless you have a significant number of creditors (more
than 50), or pending lawsuits involving allegations of
fraud against you, you probably should not pay much
more than the amounts stated above.
Call today to schedule your
Free Consultation.
(480) 850-6541
49

50. Bankruptcy Dos And Don'ts
Before you file your bankruptcy, it is important to
prepare. Remember, your attorney is there to minimize
the impact of filing, and your attorney will be able to give
you the most help only if you do not hold anything back.
Also, because of confidentiality rules, you should feel
comfortable being completely up front. With this in
mind:
 DO disclose everything you own in your paperwork.
 DO tell your attorney if you are about to receive a tax
return or an inheritance.
 DO tell your attorney about liens or judgments you
may have.
 DO tell your attorney about your small business,
sole-proprietorship, or hobby.
 DO keep your attorney up-to date with your address,
phone number & email address.
50

51.  DO appear in court and bring your social security card
and driver's license.
☒ DON'T leave out Bank, Checking, Savings, Brokerage,
Credit Union accounts.
☒ DON'T use your credit cards or do balance transfers.
☒ DON'T take Credit Card Cash Advances or use
convenience checks.
☒ DON'T pay money to Family or Friends
☒ DON'T tell a creditor that you intend to pay.
☒ DON'T give or gift property to anyone.
☒ DON'T pay more than $600 on any past due bill
within 90 days of filing.
☒ DON'T transfer property to anyone.
☒ DON'T cash out retirement plans or 401k's.
☒ DON'T take out a second mortgage, or borrow
money.
☒ DON'T gamble.
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52. ☒ DON'T hide assets or debts.
☒ DON'T put your money in your kids' bank accounts.
☒ DON'T omit or 'save' a credit card for after your
bankruptcy.
☒ DON'T fail to list debt to family or other "insiders."
☒ DON'T write bad checks.
☒ DON'T make major financial decisions without
talking to your attorney.
☒ DON'T misrepresent facts to your attorney.
☒ DON'T run up your credit cards in advance of filing
bankruptcy.
There are many more factors that go into preparing to
file for bankruptcy. For more in depth information, call
today to schedule a free consultation.
Call now to schedule a free consultation.
(480) 850-6541
52

53. Wrapping Up
Some final thoughts to take away are that bankruptcy
can not only give you breathing room in the short term,
but it can give you the freedom to build for the future.
Once you discharge your debts, you can save for
retirement, for your children’s education, or both.
Bankruptcy can let you dump under-performing assets,
like a home or car. And because you have very little time
to wait before buying a home that is worth what you
owe, you will be able to see the value of a bankruptcy
very quickly.
Our bankruptcy firm offers a free bankruptcy
consultation in which we will go over your situation in
detail and cover all of the advantages and disadvantages.
Call today to schedule your
(480) 850-6541
Free Consultation.
53

54. About the Authors
Thomas Cesta and William Fife are both attorneys in
Arizona. Although they had worked elsewhere first, Tom
and Will began working together in 2007, while working
for a local respected firm in Phoenix.
Tom and Will both have a background working in the
credit card and banking industries, where they learned
first-hand how credit card companies treat consumers.
They each came away from this experience with a strong
commitment to communication and good customer
service, as well as a firm understanding of the help most
families need.
At the Law Offices of Fife & Cesta, PLC you will receive
direct customer care. We will not only return your calls
and emails promptly, we encourage you to contact us so
that we can give you the best representation possible.
54

55. Attorney Thomas J. Cesta
Education:
ASU, Tempe. B.A., 1996
Capital University Law School,
J.D., 2001
Admissions and Memberships:
Arizona Bar Association;
All Arizona State Courts;
U.S. District Court, Arizona;
National Association of
Consumer Bankruptcy Attorneys;
Ohio Bar Association, (Inactive Membership);
Arizona State Bar Fee Arbitration Committee.
Biography
Although Tom was born in Columbus, Ohio, his family
eventually settled in Arizona when Tom was seven. After
high school in Mesa, Tom was a medic/paratrooper in
the 82nd Airborne, US Army, from 1987 to 1990, he
served at Fort Letterman Army Medical Center in 1991
during Operation Desert Storm, and he then joined the
Navy and was assigned as a Marine Corps Corpsman.
Tom was on the Dean’s list every year in Law School,
earning two concentrations. Tom is an active member of
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56. the Arizona State Bar Fee Arbitration Committee,
arbitrating fee disputes between attorneys and their
clients.
Before becoming an attorney Tom worked in customer
service. Tom recognizes that law is also a customer
service industry.
Tom and his wife Rachel have four children.
Email for Thomas: tcesta@fifecestalaw.com
56

57. Attorney William W. Fife III
Education:
ASU, Tempe. B.S., Cum
Laude, Major, Justice
Studies, Minor, Political
Science, 2001. Political
Science Junior Fellow.
ASU Law School, J.D., 2005
Admissions and Memberships:
All Arizona state courts; U.S. District Court, Arizona;
Arizona Bar Association; National Association of
Consumer Bankruptcy Attorneys; American Bankruptcy
Institute; Association of Credit and Collection
Professionals.
Biography
While attending ASU for his undergraduate degree,
William was selected as a Junior Fellow in the Political
Science Department, collecting data on military coup
d’états in Sub-Saharan Africa and researching the
stability of nations in that region. William attended
Mississippi College on scholarship for his first year of law
school, and earned the highest overall grade in his Torts
57

58. class. Upon completing his first year of law school,
William returned to Arizona to complete his law degree
at Arizona State University.
William is an Arizona native, born and raised in Mesa.
Following high school, William served a mission for the
LDS Church in Rostov-Na-Donu, Russia. In his free time
William enjoys spending time with his wife and their two
daughters.
Email for William: wfife@fifecestalaw.com
58

59. 59

60. Law Offices of Fife & Cesta, PLC
1811 S. Alma School Road, Suite 270
Mesa, AZ 85210
www.FifeCestaLaw.com
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