Things have been bad for a long time. Here in Arizona bankruptcy filings have been near 40,000 per year for several years. However, this year things seem to be improving. Bankruptcy filings are down – significantly. That means one of two things is happening: (1) things are getting better; and/or (2) a large number of people have already filed for bankruptcy and don’t qualify to file again right now!
It is probably a combination of both.
An improving economy can impact your bankruptcy case. Here are a few ways that you might now be thinking of:
Higher Income Makes Qualifying for Chapter 7 Bankruptcy More Difficult
It is always good to get a raise, right? If you are needing to file a chapter 7 bankruptcy you must qualify for it based upon your household size and income. If you make more money than the typical household of your size in Arizona, then you may not qualify for a chapter bankruptcy but may end up filing a chapter 13 instead.
If you are close there are numerous deductions we can make to keep you in a chapter 7 case, but if your income goes up too much (it is even kind of weird saying that), then you may end up in a chapter 13 bankruptcy. And remember, chapter 13 cases are typically 5 years long while a chapter 7 bankruptcy is usually about 5 months long.
More Equity in Your Home Could Cause Problems
Over the past 5 years it was rare to see anyone here in Arizona who actually had equity in their home. Now, slowly, things are starting to improve. I am actually seeing clients come in who have equity in their homes and we have had to dust off the homestead exemption once again to protect that equity.
In Arizona the homestead exemption is $150,000. This means that your house can be worth $150,000 more than what you owe on it and it will still be protected in a chapter 7 bankruptcy.
The Days of Eliminating Your Second Mortgage in Bankruptcy May be Coming to an End
With the downturn in the economy many people filed a chapter 13 bankruptcy because they could eliminate a second mortgage or a home equity line of credit through the chapter 13 process. In order for this to work the value of your home had to be less than what you owed on your first mortgage. For example, if your house was worth $100,000 and you owed $150,000 on your first mortgage, then you could eliminate your second mortgage or HELOC.
Now, with the improving economy I am seeing more and more people who will not be able to take advantage of this procedure because their house is worth more than what they owe on their first mortgage.
An improving economy is a good thing, but it may change the chapter of bankruptcy that you need/want to file and may limit some of the tools that many people have taken advantage of over the last 5 years.