Filing for bankruptcy can be scary, but it doesn’t have to be. In fact, declaring bankruptcy can be just what your financial situation needs so you can reset the clock, escape the clutches of predatory creditors, and get some breathing room to reassess your options.
Declaring bankruptcy in Arkansas carries a few critical differences from doing so in other states. In this article, a Fort Smith bankruptcy attorney discusses the pros and cons of declaring bankruptcy in Arkansas so you can work on determining the right path for you and your financial situation.
Is Filing for Bankruptcy Different in Arkansas?
In general, filing for bankruptcy in Arkansas is no different from doing so in other states because filing for bankruptcy is a federal process. However, Arkansas has specific exemption laws that will need to be taken into consideration.
Declaring Chapter 7 vs. Chapter 13 Bankruptcy in Arkansas
The State of Arkansas allows you to declare two types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy. These are the most common types of consumer bankruptcy filings in the United States.
Chapter 7 Bankruptcy
Also called liquidation bankruptcy, Chapter 7 bankruptcy focuses on liquidating your holdings to pay off creditors/debtors as much as possible. However, most Chapter 7 bankruptcy filers don’t lose their homes or vehicles thanks to Arkansas bankruptcy exemptions.
Chapter 7 bankruptcy is cheaper and faster compared to Chapter 13 bankruptcy, but it’s only available to those who qualify. Furthermore, the bankruptcy stays on your credit report for 10 years.
Chapter 13 Bankruptcy
Also called wage earner plans, Chapter 13 bankruptcy requires you to pay back at least a portion of unsecured debts using a payment plan. Chapter 13 bankruptcy is slower and more expensive than Chapter 7 bankruptcy, but it allows filers to keep their assets in most cases.
You don’t have to qualify for Chapter 13 bankruptcy, and it only stays on your credit report for 7 years. However, Chapter 7 bankruptcy provides more significant financial advantages than Chapter 13 bankruptcy.
Pros of Declaring Chapter 7 Bankruptcy in Arkansas
Most Arkansas residents file for Chapter 7 bankruptcy instead of Chapter 13 bankruptcy when they are in dire financial straits. Declaring Chapter 7 bankruptcy carries certain advantages and disadvantages you should be aware of. That way, you can seek the advice of experienced bankruptcy attorneys about the best plan for your needs.
Pro #1: A Fresh Start
Chapter 7 bankruptcy in Arkansas allows you to start fresh without any debts to your name. It essentially wipes your credit report clean. While this does mean you will need to rebuild your credit report from scratch (and the bankruptcy itself will stay on the report for 10 years), sometimes wiping the slate clean is the best strategic choice going forward.
Pro #2: Protection Against Creditors
Declaring Chapter 7 bankruptcy in Arkansas gives you protection against your creditors or debtors. You don’t have to worry about wage garnishment or creditors continuing their collection efforts against you or your family members. You will keep any wages that you earn or any property that you acquire after bankruptcy. For example, if you file for bankruptcy successfully and get a paycheck a week later, that money does not go to a creditor, debtor, or court—it’s yours.
Pro #3: No Debt Minimums
Unlike many other states, Chapter 7 bankruptcy in Arkansas doesn’t require any minimum amount of debt. That means you can file for Chapter 7 bankruptcy regardless of how much debt you have in your name.
Pro #4: Exemptions
Arkansas state law allows several important exemptions to property that may be liquidated to pay for your debts.
The Arkansas Homestead Exemption allows you to protect either:
- Any real or personal property that you use as a residence worth up to $800 if you are single or $1250 if you are married, or
- An unlimited amount of equity in one-quarter urban acre or 80 rural acres
Arkansas State law provides other bankruptcy exemptions, such as:
- Up to $1200 of equity in a motor vehicle
- Some amount of personal property, including all clothing
- Certain public benefits, like worker’s compensation or an employment compensation
- Important tools of your trade, such as implements or books for your profession
Pro #5: Quickness
Chapter 7 bankruptcy filings are usually quick to resolve in Arkansas. The majority of cases are completely discharged between 3 and 6 months. If your financial burdens are causing you a lot of stress, filing for Chapter 7 bankruptcy can put the matter behind you very quickly.
Cons of Declaring Chapter 7 Bankruptcy in Arkansas
Although declaring Chapter 7 bankruptcy can be beneficial, there are some risks to keep in mind before choosing this path.
Con #1: Loss of Non-Exempt Property
Any non-exempt property is subject to being sold by the bankruptcy trustee. This can include valuable property that isn’t covered by Arkansas bankruptcy exemptions.
Con #2: Co-Signer Risks
If any of your loans have a co-signer, that co-signer may still have debt under their name unless they also choose to file for bankruptcy.
Con #3: No Foreclosure Protection
Arkansas does not prevent you from facing foreclosure on your home. Filing for Chapter 7 bankruptcy creates a temporary stay of the foreclosure process, but that stay goes away when the bankruptcy filing process is complete. Therefore, you cannot file for bankruptcy to keep your home if it is under the threat of foreclosure in addition to your other financial burdens.
Call Milligan Law Offices for an Initial Consultation
The legal team at Milligan Law Offices can help you understand the risks and advantages of declaring Chapter 7 bankruptcy in Arkansas. We can also explain more of the differences between Chapter 7 and Chapter 13 bankruptcy so you can make the best decision for your family and your finances.
If you need bankruptcy assistance, call us at (479) 783-2213 or request an initial consultation online.