Consumer Bankruptcy

Consumers have several options open when choosing to declare bankruptcy. Chapter 7 of the federal Bankruptcy Code lays out the procedure for a liquidation bankruptcy. In a Chapter 7 bankruptcy, the debtor files a petition with the bankruptcy court. This action leads to an automatic stay, which prevents creditors from taking further action to collect their debts. The bankruptcy court will appoint a third party called a trustee. The trustee liquidates the debtor's assets, and uses any funds collected to pay debts. Often, the debtor's assets are already subject to a lien or exempt from bankruptcy. Any debts remaining after the distribution of funds are discharged, which frees the debtor from any requirement to pay them. However, some debts cannot be discharged through bankruptcy. These include taxes, debts resulting from fraud or malicious acts, and some debts incurred shortly before filing for bankruptcy.

Since the bankruptcy reform of 2005, consumers cannot choose Chapter 7 automatically. If they have enough income, they will be required to choose a Chapter 13 bankruptcy.

A Chapter 13 or reorganization bankruptcy is a better choice for some consumers, when they have a stable income, believe their financial problems are temporary, and want to repay some debt. To be eligible for Chapter 13 bankruptcy, an individual or organization must have less than $307,675 in unsecured debt and $922,975 in secured debt. These numbers change every three years.

As with a Chapter 7 bankruptcy, the debtor files a petition which leads to an automatic stay. The debtor must then file a payment plan, which can take three or five years. Creditors are allowed to give feedback on this plan, but cannot take any further action if it is approved by the bankruptcy court. Once the plan is approved and completed, the debtor's debts are discharged.

Chapter 13 has several advantages over Chapter 7 for many debtors, including:
No 8-year waiting period before filing again for bankruptcy.
Allows discharge of more types of debt.
Allows debtors to retain more assets.

Debtors can choose to switch their bankruptcy from one chapter to another, but cannot switch back. It is possible for creditors to attempt to force a debtor into bankruptcy. However, this requires a minimum number of creditors and a minimum amount of debt. If courts decide against the creditors, they can face tough penalties and be held liable for court costs and damages.

Debtors and creditors can both benefit from the counsel of an experienced bankruptcy law attorney. The bankruptcy process can be expensive and complicated, and has long-term ramifications. An attorney can help to get you through this process, or advise you on alternatives like counseling or developing a payment plan.

DISCLAIMER: The information you obtain at our firm web site is not, nor is it intended to be, legal advice. It is recommended that you should consult an attorney for individual advice regarding your own situation.

If you would like to schedule a initial consultation contact an Iowa bankruptcy attorney representing clients in Iowa City, Iowa  at the Day Rettig Peiffer, P. C.. Give us a call at (866) 472-3270 or email us at info@drpjlaw.com.