Consumer Debt Relief Bankruptcy Option
A Consumer Debt Relief Bankruptcy option is one you might need to exercise when you have no other means to get out of extreme personal debt. This debt relief option applies when your financial situation is in terminal state. It is generally considered the option of last resort due to its long-term negative impact on your creditworthiness. Consumer bankruptcy law exists to help people who have taken on an unmanageable amount of debt to make a fresh start. But it isn’t a simple process and doesn’t always lead to a happy ending. Make sure that you are really, really sure about it.
The consequences of bankruptcy are significant, require careful consideration and legal advice should be consulted before taking this decision. You should be aware that your credit history and personal life will be negatively affected for an extended period of time. A consumer debt relief bankruptcy option should not be considered unless you have reviewed all other debt relief options.
Here is an overview of the consumer debt relief bankruptcy option and factors you should consider:
What Is Consumer Debt Relief Bankruptcy Option?
The consumer debt relief bankruptcy option is regarded as the ultimate debt relief solution. This is chosen only when other debt relief alternatives are unable to eliminate the debts of a consumer. It is a legal process which promises a fresh financial start to the individual by eliminating their outstanding debts, with some exceptions. But it has serious consequences, including long-term damage to your credit profile.
Bankruptcy cases are handled by federal courts per the U.S. Bankruptcy Code”. The Bankruptcy Code is divided into six different chapters (bankruptcy types) from which individuals, organizations or groups can choose.
The U.S. is divided into 90 bankruptcy districts, with each state having at least one. A US bankruptcy judge presides over every case and delivers a final decision. These judges decide whether or not a debtor will be awarded a discharge of debt and the chapter that will be used to declare it.
The two most common types of bankruptcy available to individuals are Chapter 7 and Chapter 13.
Bankruptcy filings in 2016 were less than 800,000 individuals filing in federal courts.
Debt Relief Bankruptcy Chapter 7 Basics
Chapter 7 is the basic liquidation bankruptcy for individuals and is the most popular. It’s goal is to liquidate all of the individual’s assets to pay off the consumer’s creditors.
A debtor must be prepared to lose property and/or subject it to liens and mortgages. Their court appointed bankruptcy trustee manages the liquidation of all nonexempt assets under law-mandated procedures and use the proceeds to pay creditors back. Most people who file bankruptcy can use asset exemption laws to their benefit and retain their property.
An individual must pass the means test if they have above-average income based on similar filings in their state. Also a consumer must also receive credit counseling months before filing for Chapter 7 (with few exceptions). The individual cannot have filed under Chapter 7 or any chapter if a prior bankruptcy petition recently was dismissed by the court.
The advantages of filing Chapter 7 bankruptcy include:
- A Shorter Process Versus Alternative Chapters | TIme Varies By State & Consumer Finances
- It Does Not Include Your Future Income | Future Earning Not Part Of Bankruptcy Estate
- Legal Fees Are Less
- Less Paperwork Versus Alternative Chapters
- No Payments To Creditors | Just Liquidation Of Nonexempt Assets
- Quicker Financial Recovery | Easier To Deal With After The Process Completed
Anyone who is not permitted to file Chapter 7 bankruptcy will be directed to Chapter 13. Chapter 13 bankruptcy, unlike the former, is a court-approved plan for an individual to repay all or part of his/her debts over a period of three to five years. This form of consumer debt relief bankruptcy option adjusts an individual’s debt obligations in a way that the consumer’s debts are repaid, as much as possible.
It is a typical form of debt consolidation for individuals with steady source of income. If the income is within the middle or high income bracket (means test), unsecured debts will not be immediately discharged. However the individual will be allowed to keep some of the valuable assets that would have been liquidated under a Chapter 7 bankruptcy. Because it does not require liquidating all assets, an individual may be able to keep his/her home, as long as the court mandated payments are continued.
Approval by the court depends whether the individual’s repayment plan meets the confirmation requirements as set out under the Chapter 13 bankruptcy code. Essentially the individual needs to prove to the bankruptcy court that he/she can afford to meet the payment obligations. If the individual’s income is too low or irregular, the court will not approve the bankruptcy filing. Conversely if the individual total debt burden is too high, will also prevent approval.
Advantages Of Filing Chapter 13 Bankruptcy:
- Option To Save Debtor’s Primary Residence | Foreclosure Proceedings Are Stopped
- Rescheduling Payment Of Secured Debts | Exception Is Primary Residence
- No Direct Contact With Creditors | Bankruptcy Trustee Works With Creditors & Payments
- Option To Extend Repayment Plan | Flexibility Of Repayment If Financial Conditions Change
- Acts As Consolidation Loan | Consumer Pays Off Debts Without Creditor Harassment
Consumer Debt Relief Bankruptcy Option Reality
Bankruptcy law exists to help people who have taken on an unmanageable amount of debt to make a fresh start. But it isn’t a simple process and doesn’t always lead to a happy ending. So before taking that very serious step, be sure to explore all your consumer debt relief alternatives.
An overview of the consumer debt relief bankruptcy option is presented. This includes 1) What Is The Consumer Debt Relief Bankruptcy Option?; 2) What Is Bankruptcy Chapter 7 Basics?; 3) What Is Bankruptcy Chapter 11 Basics?; and 4) What Is The Reality After Bankruptcy?
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