Consumer Bankruptcy
When considering
bankruptcy, the debtor will need to collect and present information to the
attorney they retain. This blog provides
information that may assist a debtor before filing.
Step 1: Gather and Organize
Gather all bills, statements,
invoices, promissory notes, lawsuits, and anything that looks like you owe
money for review. It is important to
organize your finances and tax returns for the last two (2) years so a legal
professional can analyze your bankruptcy relief options. Don’t forget to include monies you owe or owed
to you by other people, including family members.
There are two main types of consumer
debt, secured and unsecured. A secured
creditor is where collateral secures the loan.
For example a home mortgage or automobile loan is a secured debt. An unsecured creditor is general debt you
have acquired, usually credit cards, medical bills, and student loans.
Put together a realistic monthly
budget of gross income and expenses.
This is half the battle in exploring bankruptcy options so take special
care in putting together accurate information in this area. Ongoing bills such as home loans, utilities,
etc. should continue to be paid if you wish to keep such items during your
bankruptcy.
Step 2: Get Familiar with
Legalese and the Bankruptcy Process
Common bankruptcy terms to
get you started:
·
Bankruptcy
- A legal proceeding in federal court in which an individual or business may be
discharged from all or a portion of their debts.
·
Debtor
- The person or business filing bankruptcy.
·
Trustee
- A person ordered by the court to administer a debtor's estate.
·
Creditor
– Those entities to which a debtor owes money or property. Creditors may have
claims against the debtor.
·
Proof
of Claim - A proof of claim is a written statement filed with the court
describing the debt that a creditor claims the debtor may owe them.
The two (2) main chapters of consumer
bankruptcy are as follows:
A.
Chapter
7 – Liquidation
- The purpose of a chapter 7 is to allow a person to
obtain a fresh start, free from creditors and free from the pressures of
over-whelming debt. Under chapter 7, a trustee may take possession of
non-exempt property assets, convert them to cash and distribute the funds
to creditors. After filing for relief, an individual debtor may receive a
discharge of debts.
- A discharge permanently prohibits creditors from attempting to collect those debts listed by the debtor on the bankruptcy schedules. However, some debts are non-dischargeable. They include certain taxes, student loans, alimony, and child support.
B.
Chapter
13 - Individual Wage Earner
- The purpose of a chapter 13 bankruptcy is to allow an
individual debtor with a regular income to pay back debts using their
income and enabling a debtor to keep certain assets. A person who operates
a small business as a sole proprietor may also file under this chapter.
- Under a chapter 13 bankruptcy filing, the debtor must
promptly file a repayment plan and obtain the court's approval of the
plan. Any creditor may object to the plan. The debtor, along with the
appointed trustee, must work out any objections to the plan before the
court will approve it. The typical repayment period of a chapter 13 is 3
or 5 years. The debtor makes regular payments to the trustee and the
trustee distributes these monies to creditors according to the terms of
the plan.
- After completion of the plan, the debts are discharged (with some exceptions) and the debtor is no longer obligated to pay them.
Call Robert J. Sayfie, P.C.
at 616-774-9244, or visit www.sayfie.com
