Tough economic times have caused millions of American consumers to experience extreme financial problems and out-of-control debt. Consumer bankruptcy may be a viable solution for those consumers who just need a financial fresh start. Consumer bankruptcy was designed to provide consumers who are overwhelmed with debt a way to reduce, eliminate, or reasonably pay back debt to their creditors depending on the type of bankruptcy they file.
Chapter 7 Liquidation (Straight) Bankruptcy
For consumers who do not have substantial assets, a Chapter 7 liquidation (straight) bankruptcy may be the best solution. The bankruptcy court will erase (discharge) most of the consumer’s unsecured debts, except those debts that cannot be discharged in bankruptcy. Examples of generally non-dischargeable debt include student loans, spousal support, child support, and freshly-assessed income tax debts. However, where Chapter 7 bankruptcy is a good idea, an average consumer may also be able to keep most of his or her assets that can be exempted. A consumer may even be able to keep his or her home and/or car in a Chapter 7 bankruptcy. Non-exempt property will be liquidated (taken and sold) to pay off creditors.
Chapter 13 Reorganization Bankruptcy
Consumers who wish to keep all their assets or who have significant assets that cannot be exempt from sale may be a good fit for a Chapter 13 reorganization bankruptcy. Chapter 13 bankruptcy gives consumers the option to enter into a court-approved repayment plan over a 3 to 5 year period. During this period of time, the consumer’s income after accounting for reasonable expenses will fund the Chapter 13 Plan to pay off creditors a portion of what is owed. Usually, at the end of the repayment period, the remaining unsecured debt will be discharged just like in Chapter 7.
The Bankruptcy Automatic Stay
Federal and state fair debt collection laws give consumers protections from abusive and illegal debt collection practices. Many times they are not enough protection and many unscrupulous debt collectors will continue to violate the consumer protection laws on a daily if not hourly basis. One way to stop creditors or debt collectors who have pushed the situation to lawsuits is to file a bankruptcy.
A bankruptcy can be intended to call a “time out” and give a consumer a breathing chance to resolve debt collection lawsuits, wage garnishment, asset repossession, bank account seizures, etc. More and more consumers facing lawsuits, judgments, execution, or repossession are in need of the “automatic stay,” a court order that stays (stops) all actions to collect debt while the consumer obtains breathing room. The automatic stay forbids all creditors and debt collectors – all persons – from attempting any further collections until the bankruptcy court has ordered otherwise.
If creditors or debt collectors intentionally violate the bankruptcy laws, they can be held in contempt of court and may face fines and costs. Because the primary, immediate benefit of a bankruptcy is the automatic stay, bankruptcy courts look very unfavorably upon persons who continue collections despite the automatic stay.
A Bankruptcy is Very Complex and Should be Filed by an Attorney
Bankruptcy is governed by a myriad of federal laws coupled with state laws. It is complex and should not be attempted without the advice of an attorney. Mistakes made in bankruptcy can be and often are catastrophic.
Moreover, a bankruptcy may not even be necessary after a comprehensive consultation with a Consumer Rights Attorney. Some consumers may find that they just need to get debt collectors off their back while they come up with a plan. Other consumers may need a defense against an unjust debt collection lawsuit. Still, others may just need to talk out their problems with a professional.
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