Consumer Debt and Bankruptcy: Your Options
Consumer Debt and Bankruptcy: Your Options
Consumer Debt and Bankruptcy: Your Options. The easily availability of consumer debt in the United States (U.S.) has significantly increased debt amounts by more consumers, especially those with low to moderate income. This makes these families and individuals most vulnerable to financial difficulties when they suffer income interruptions or emergency expenses when it comes to staying a float debt payment.
Creditors can also aggressively come after debtors with foreclosures, repossessions, garnishments, collection harassment, etc. In many of these cases, bankruptcy becomes the only option for relief for people under immense financial pressure to then reorder their finances and have a fresh start.
A voluntary bankruptcy case is a legal proceeding pursued by a debtor who seeks relief by a federal statute, the Bankruptcy Code. A bankruptcy petition is filed with the U.S. District Court, which is then automatically referred to the bankruptcy court for the district.
Purpose of Bankruptcy:
- A fresh start for consumer debtor
- Equitable distribution of assets to creditors
The Supreme Court describes the fresh start for the consumer debtor as “a new opportunity in life, unhampered by the pressure and discouragement of preexisting debt.” It helps avoid discouragement that would prevent an individual from ever reestablishing themselves as a working member of society and striving to be a functional member of U.S. capitalist economy. In actuality, bankruptcy serves as the safety net for those members who do not fare well in the race for achieving the American Dream. On the flip side, it also offers and supports risk taking and growth for new enterprises by lessening liability and a new start in case of failure.
When it comes to equitable distribution of assets to creditors, the goal is to fairly distribute whatever assets the debtor has according to statutes which guarantees similar treatment
Most commonly sought out relief available through bankruptcy:
- Liquidation, Chapter 7 also known as a straight bankruptcy is when all nonexempt assets of a debtor are converted into cash and distributed to creditors. When the bankruptcy proceeding ends, the debtor receives a discharge that absolves the debtor of any responsibility of paying most debts and provides other protections.
- Reorganization, Chapter 11 and Chapter 13 also known as an adjustment of debtor’s financial affairs. Chapter 13 is the most beneficial for most consumer debtors as it remains less expensive and offers protections not found under Chapter 11. In a Chapter 11 bankruptcy, creditors have the right to vote on or approve of the companies proposed reorganization. In a Chapter 13 a debtor proposes a payment plan for some or all of the debt that is then carried out with court supervision and protections for the debtor such as protection of property from creditors. As in Chapter 7, the debtor receives a discharge from personal liability for most debt.
What It Means For You, the consumer debtor
The question at the forefront of any individual considering bankruptcy should be: what can I keep and what must I let go of?
This is where we come to what is known as the bankruptcy estate. The bankruptcy estate describes the aggregation of property rights that are administered by the court in a bankruptcy case.
At the start of the bankruptcy filing, the bankruptcy estate is created and for all intents and purposes becomes the legal owner of the debtor’s property rights and interests, with some exceptions and exemptions. An important point to remember is that when you owe money on a house or other property such as a car (secured loans), the mortgage company or bank can’t come after you if that loan was discharged in bankruptcy. However, the company has a right to the property itself unless you pay the debt, which means that it can foreclose or repossess the property if you can’t make the payments.
About the Trustee
A trustee is appointed to every bankruptcy case under Chapter 7 and Chapter 13 of the Code. The trustee’s basic role is to represent the interests of the creditors.
A trustee represents the interests of the people and creditors to whom money is owed. A trustee’s function is oversee the administrative functions such as appointing and supervising trustees, convening the meeting of creditors, and monitoring fees charged by bankruptcy attorneys. Each state has trustees that are appointed by the court to your bankruptcy case.
The trustee’s duties can include:
- Collecting property of the bankruptcy estate
- Objecting to a claim of exemptions when appropriate
- Objecting to a discharge
- Liquidating all nonexempt property (meaning, selling nonexempt property and turning it into cash)
- Distributing cash to creditors with valid claims
- Making a final accounting to the court and to the United States trustee
- Sending notices to all alimony or spousal support creditors
In a chapter 13, the trustee must also:
- Attend all hearings on the value of property subject to liens or on confirmation or modification of a debtor’s plan
- Receive and disburse payments according to the debtor’s plan
- Make sure the debtor is making payments
- Advise the debtor on certain non-legal matters
- Assist the debtor in carrying out the plan
In a Chapter 13 bankruptcy, the trustee gets paid a percentage of the payment you make. Usually this percentage is between 4-10% of the total amount you pay into your case. In a Chapter 7 bankruptcy, the trustee gets paid out of the filing fee you pay when you file for bankruptcy. In addition, the trustee gets paid a percentage of any property that they convert into to cash (or liquidate).
If you are ready to begin working toward a fresh start, I hope that I have been able to throw light on some of the basics of bankruptcy for you and to give you a better understanding of some of the terms and legal jargon involved in bankruptcy cases.
In order to serve you further, we encourage you to consider calling our office to set up your free consultation today. Whether it is protecting as much of your property as you are legally allowed or knowing whether chapter 7 or chapter 13 are your best course of action. At Trezza & Associates our representation of thousands of clients gives us the experience you can count on to ensure that you take full advantage of when and how to file your bankruptcy case. We will take the time to educate you on the information you need to make the best decisions to get your fresh financial start. Contact us today in Tucson or Phoenix to learn more about how the bankruptcy process can help you and your family out of financial distress.