Consumer Bankruptcy

Consumer Bankruptcy

In the past 24 years, attorney Fred E. Walker has helped more than 10,000 people in Austin, Cedar Park, San Marcos, Georgetown, Round Rock, and other Texas communities obtain debt relief under U.S. bankruptcy laws.

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 allows the debtor to be relieved of some or all of his or her debts. Although in many ways bankruptcy can give a person a fresh start, it is important to remember that bankruptcy can also negatively affect his or her credit rating and make it hard to obtain credit in the future. The experienced lawyers at Fred Walker in Austin, Texas 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 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.

With the 2005 changes to the federal bankruptcy laws came a new requirement that debtors receive credit counseling from an approved agency in the 180 days before filing for bankruptcy under any chapter, with some 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 type chosen by consumers. The Chapter 7 proceedings begin with the debtor’s filing of a petition with the bankruptcy court, which triggers the “automatic stay”-bankruptcy terminology for the cessation of all debt-collection activity. The court appoints a trustee who oversees the case and liquidates the debtor’s assets to pay off the debts. However, the debtor’s assets may be exempt or already subject to valid liens, so there would be no assets to liquidate. If there are assets, the trustee collects the sales proceeds to pay debts to the extent possible. When all of the proceeds are distributed, 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, such as taxes, domestic support obligations, 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 stable income, believes the crisis is temporary, and wants to repay at least some debt. The debtor must have less than $307,675 in unsecured debt and $922,975 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. The debtor proposes a debt repayment plan, to which creditors 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, which releases him or her from all debts dealt with by the plan.
A Comparison

Chapter 13 has certain advantages over Chapter 7 in consumer bankruptcies. For example, there is no waiting period before a consumer can file for bankruptcy again after filing for Chapter 13 relief. Also, Chapter 13 allows the debtor to discharge more types of debts. And under Chapter 7, the court may order that all of the consumer’s assets be sold, whereas under Chapter 13 the debtor may be able to retain more of his or her 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 chapter under certain circumstances.

Conclusion

Bankruptcy can be an expensive process and has serious long-term effects. There are alternatives to bankruptcy, such as negotiating informally with creditors to develop a plan for repayment or working with a credit counselor. Whether you are a debtor or a creditor, it is essential to seek the counsel of an experienced bankruptcy attorney like those at Fred Walker in Austin, Texas in order to best protect your financial well-being.