Consumer Bankruptcy

The federal bankruptcy laws are complex, but an experienced advocate can help you navigate them efficiently. If you are contemplating filing for bankruptcy, contact a lawyer.

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Consumer Bankruptcy

When an individual falls desperately behind in his or her debt payments, one option may be to declare bankruptcy. Bankruptcy is 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, in the right situations, it can provide people with a fresh start. An experienced bankruptcy lawyer at Gillespie & Murphy, P.A. in New Bern, NC, can advise you as to 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 U.S. Bankruptcy Code — and they are commonly referred to by their chapter numbers. Consumers most commonly file under Chapter 7 or Chapter 13.

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 a few limited 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

Chapter 7 bankruptcies, called "liquidation bankruptcies," are the most common. Chapter 7 proceedings begin with the debtor's filing of a petition with the bankruptcy court, which triggers an automatic stay of debt-collection activity. The court appoints a trustee who oversees the case and liquidates the debtor's nonexempt assets to pay off eligible debts to the extent possible.

It is important to note that not all of a debtor's assets will be sold in a Chapter 7 bankruptcy case. Federal and state laws specify that certain property is exempt from liquidation. For many consumers, all pr nearly all of their personal property is exempt or already subject to valid liens, so eligible debts will be discharged with little or no loss of property. This situation is called a no-asset case.

Once the trustee has sold any nonexempt assets and paid creditors from the proceeds, any remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, however, are nondischargeable and remain valid. These include back, current and future taxes, domestic support obligations (like child support and spousal support/alimony), most student loans, and damages resulting from a debtor's willful or malicious acts.

Chapter 13

Alternatively, a consumer may choose Chapter 13 if he or she has regular income, believes the financial crisis is temporary and wants to repay at least some debt. Under 11 U.S.C. § 109(e), the debtor must have less than $250,000 in unsecured debt and $750,000 in secured debt to be eligible for Chapter 13. A Chapter 13 proceeding, called a wage-earner plan, is also initiated by filing a petition and also stops creditors from trying to collect debts through the issuance of an automatic stay.

The debtor, working with his or her bankruptcy attorney, proposes a debt repayment plan, to which creditors or the assigned bankruptcy trustee may object. If the court approves the plan, however, the creditors can take no 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 eligible debts addressed in the bankruptcy filing. As in a Chapter 7 filing, Chapter 13 generally does not offer discharge for domestic support obligations, tax debts, many student loans and debts arising from the malicious or willful acts of the debtor.

A comparison

Chapter 13 has certain advantages over Chapter 7 in consumer bankruptcies. For example, Chapter 13 allows the debtor to discharge more types of debts. A debtor must also consider the types of assets that he or she possesses. Many average consumers only have assets that would be exempt from the liquidation requirements of Chapter 7, but some may have assets eligible for sale. These consumers may choose a Chapter 13 filing in order to retain more of their nonexempt belongings. The selection of either Chapter 7 or Chapter 13 is not necessarily permanent, however. In certain circumstances, a bankruptcy case can be converted to a different type of filing even after proceedings have begun.

Speak to a bankruptcy lawyer

Sometimes consumers find themselves in such dire financial situations that filing for bankruptcy is their best option. Any decision to file for bankruptcy should be made carefully and after consulting an experienced bankruptcy attorney. Contact Gillespie & Murphy, P.A. in New Bern, NC, to learn more about options to protect your financial well-being.

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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.

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