The Basics of Consumer Bankruptcy

The rules of consumer bankruptcy were subject to changes under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This act resulted in substantial changes to the bankruptcy code. These changes, while they are broad, apply mainly to bankruptcy cases filed on or after October 17, 2005.

The Bankruptcy Code is codified as Title 11 of the United States Code. It has been amended multiple times since its enactment. The code allows for a uniform federal law which governs all bankruptcy cases. This means that it, mostly, does not matter in which state one files for bankruptcy, the rules will be the same.

The procedures for bankruptcy are governed by the Federal Rules of Bankruptcy Procedure. These rules are frequently called the "Bankruptcy Rules". These rules contain a set of official forms for use in bankruptcy cases. The Code and Rules set out a formal legal procedure for dealing with the debts of individuals of businesses.

A large portion of the bankruptcy process is conducted away from the courthouse. There typically is not much time spent in court. A debtor generally won't even appear once the process is underway unless there is an objection raised to some part of the arrangement.

Chapter 7

Chapter 7 bankruptcy is known as Liquidation. It is an orderly, court-supervised procedure involving a trustee. The trustee takes over the assets of the debtor's estate, reduces the assets to cash, and distributes the cash to creditors. The debtor, however, has the right to retain certain exempt properties and the rights of secured creditors.

Generally, there is little non-exempt property in chapter 7 cases. Because of this, there may be little actual liquidation of the debtor's assets. These are known as "no-asset cases."

A creditor holding an unsecured claim will get money from the bankruptcy estate only if the case is an asset case and the creditor has filed a proof of claim with the bankruptcy court.

In chapter 7 cases, the debtor will generally receive an immediate discharge of debts.

Chapter 13

Chapter 13 bankruptcy is known as Adjustment of Debts of an Individual with Regular Income. It is specifically designed for a debtor who has a regular source of income, like a job. It is also used for people who do not qualify for chapter 7 bankruptcy due to the means test.

This form of bankruptcy is frequently preferable to chapter 7 because it allows a debtor to keep a valuable asset like a house and because it allows a debtor to repay creditors over time. The time is determined by income and other factors but is generally between 3 and 5 years.

A chapter 13 debtor retains possession of property in the estate and makes payments to creditors, via the trustee, based on the debtor's anticipated income over the life of the plan. This form of bankruptcy does not allow for an immediate discharge of debts. Instead, the debts are discharged after the debtor completes the payments required under the plan.

Debtors under chapter 13 bankruptcy are protected from lawsuits, garnishments, and other actions by creditors while the plan is in effect. Another benefit is that the discharge is broader under chapter 13 than under chapter 7.

Joseph Devine

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