Consumer Bankruptcy Basics
Get the information you need to make informed decisions regarding bankruptcy. Contact Great Lakes Bankruptcy Center, PLLC. We know bankruptcy and can help you get immediate debt relief.
When an individual falls desperately behind in his or her debt payments, one option may be to declare bankruptcy, a legal proceeding in a federal bankruptcy court that relieves the debtor of some or all of his or her debts. While bankruptcy may not be the best option for everyone, bankruptcy can provide people with the fresh start they need.
The experienced lawyers at Great Lakes Bankruptcy Center, PLLC in Warren, Michigan can advise you whether bankruptcy may be the right move for you.
Bankruptcy Choices for Consumers
Consumers, like businesses, have options in terms of which type of bankruptcy to pursue. These options are set forth in separate chapters of the federal bankruptcy law - called the Bankruptcy Code - and they are commonly referred to by their chapter numbers. Consumers most commonly file either under Chapter 7 or Chapter 13, with a very few filed under Chapter 11.
The 2005 changes to the federal bankruptcy laws created a new requirement that debtors receive credit counseling from an approved agency in the 180 days before filing for bankruptcy under any chapter, with few exceptions.
Most consumer bankruptcy cases are initiated voluntarily by consumers, but under certain circumstances, can arise involuntarily when creditors force debtors into bankruptcy.
Chapter 7 bankruptcies, sometimes called "straight bankruptcy" or "liquidation bankruptcy" (don't let this term scare you), are the most common type chosen by consumers. The Chapter 7 bankruptcy proceedings begin with the debtor's filing of a Bankruptcy Petition with the U.S. Bankruptcy Court, which triggers the automatic stay - bankruptcy terminology for the immediate cessation of all debt-collection activity. The Bankruptcy Court then appoints a trustee who oversees the case and liquidates the debtor's nonexempt assets (usually there are none) to pay off eligible debts to the extent possible.
Not all of the debtor's assets will be sold in a Chapter 7 bankruptcy case because the Bankruptcy Code specifies that certain property is exempt from liquidation. For most consumers contemplating bankruptcy, all of their property is exempt, so their debts will be discharged without the loss of any property. This situation is commonly called a "no-asset" case.
Once the trustee has collected the nonexempt assets (if any) and has paid creditors from the proceeds, any remaining unpaid debts are discharged -- bankruptcy terminology meaning that the debt no longer exist and the debtor has no further obligation to pay them. Certain debts, however, are nondischargeable and remain valid, such as some taxes, most domestic support obligations (child support and alimony) and damages resulting from a debtor's willful or malicious acts.
Alternatively, a consumer may choose to file for relief under Chapter 13 of the Bankruptcy Code if he or she has stable income and chooses to repay at least a portion of the debts owed over time. The debtor may elect to file a Chapter 13 bankruptcy, even though they may qualify for a Chapter 7 bankruptcy. This would be done for their purpose of protecting assets that would be subject to liquidation by the Chapter 7 Bankruptcy Trustee, or for the purpose of restructuring the debts owed on secured collateral that the debtor wishes to keep (Homes, cars, etc.).
A Chapter 13 bankruptcy proceeding, called a wage-earner plan, is also initiated by filing a Bankruptcy Petition and also stops creditors from collecting on outstanding debts. The debtor proposes a debt repayment plan, to which creditors may object. If the court approves the plan, however, the creditors cannot take any action outside the plan's scope to collect their debts. Once the plan is completed, the debtor is entitled to a discharge of any remaining debts, which then releases them from all debts addressed by the Chapter 13 bankruptcy.
Chapter 13 bankruptcy can have certain advantages over Chapter 7 bankruptcy in some cases. For example, Chapter 13 allows the debtor to discharge more types of debts. Although many consumers have only assets exempt from the liquidation requirement under Chapter 7, some may have assets that would otherwise be subject to seizure and liquidation by the Chapter 7 bankruptcy trustee. For those consumers, Chapter 13 may allow them to retain more of their assets. A consumer's choice between Chapter 7 and Chapter 13 is not necessarily permanent; once proceedings have begun, a case may be converted to a different bankruptcy chapter, under certain circumstances.
Sometimes consumers find themselves in a financial situation that makes filing for bankruptcy their best option. Any decision to file for bankruptcy should be made carefully and only after consulting an experienced bankruptcy attorney.
Contact Great Lakes Bankruptcy Center, PLLC in Warren, Michigan to learn more about your options to protect your financial well-being and preserve your peace of mind.
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DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter. Answers to your specific questions regarding bankruptcy are only a phone call away.