Consumer Bankruptcy can be a powerful remedy for consumers facing mortgage foreclosure or suffering under the weight of unmanageable debt. Bankruptcy is the legal discharge of debt and it protects the consumer debtor from further efforts to collect the debt. The primary purpose of consumer bankruptcy is to allow individuals and families to recover from their economic setbacks and have an economic fresh start. Additionally, bankruptcy functions to ensure that all of a consumer’s creditors are treated equally and fairly. The most commonly used forms of consumer bankruptcy today are Chapter 7 and Chapter 13. Both require that the consumer debtor disclose all assets and liabilities to the court.
Chapter 7 is the simplest and quickest form of consumer bankruptcy. It provides an uncomplicated and cost effective pathway to an economic fresh start for qualifying consumer debtors. In Chapter 7 the debtor is discharged from all liability for all dischargeable debts and surrenders all non-exempt property to the bankruptcy trustee. For the majority of chapter 7 consumer debtors there is little or no non-exempt property to be surrendered. In Florida we are fortunate to have an absolute homestead protection which means that home equity is exempt from the claims of a debtor’s creditors unless it was pledged as security for the debt. Our office works with our clients to maximize the benefit of the exemptions in order to preserve the property which is most important to the individual client. Lastly, Chapter 7 is a relatively quick process in which most of our clients receive their bankruptcy discharge within 6 months of the date their bankruptcy is filed. The principal advantage of Chapter 7 is that the debtor emerges from bankruptcy without any future obligations on his or her discharged debts.
Chapter 13 is a very flexible and powerful form of consumer bankruptcy which permits a great deal of flexibility and individualization in reorganizing and discharging our client’s debts in order to bring them to a promising economic fresh start. This case often used by individuals who want to catch up past due mortgage or car loan payments and keep their assets. Utilizing Chapter 13 we can often prevent or cure mortgage foreclosure problems. It also can allow us to lower car payments and strip out negative equity in vehicles, and sometimes even mobile homes.
Chapter 13 bankruptcy involves the formulation of a plan (i.e.: budget) in which the consumer debtor agrees to pay, through the bankruptcy trustee, to the creditors, any disposable income following payment of reasonable and necessary expenses. If the court approves the plan of payment, the debts may be settled in this manner, even if the creditors are not willing to go along with the plan. If the debtor makes the payments as required, he or she will not have to surrender property to the trustee.
Certain types of debts, such as child support, alimony, some federal income taxes, and all employer withholding taxes often cannot be discharged in bankruptcy. Generally, student loans cannot be discharged absent a showing of undue hardship. The debtor’s wrongful conduct may also make some debts non-dischargeable in a liquidation bankruptcy, such as incurring credit card charges when the debtor had no intent or ability to repay, or obtaining loans using false financial information. It is important that you discuss these types of debts in detail with your attorney in order to determine whether or not the debt can be discharged in a bankruptcy proceeding.