What is Consumer Bankruptcy

Bankruptcy matters are generally classified into two broad categories: business bankruptcy and consumer bankruptcy. Both individuals and organizations can file for business bankruptcy, but only for business-related debts. In comparison, consumer bankruptcy is reserved for debts associated with individual expenses, such as credit card debt, mortgage debt, or other non-business debts.

Thus, most people file under consumer bankruptcy laws, unless they have a significant amount of business debts. Consumer bankruptcy may be further divided into several categories, the most common of which is Chapter 7 bankruptcy and Chapter 13 bankruptcy.

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Chapter 7 bankruptcy is also known as "straight" or "liquidation" bankruptcy. Here the person's assets will be sold or "liquified", with the proceeds going toward debt payment. It also allows the person to have some or all of their debts discharged or forgiven, thus allowing them to start over financially. Chapter 13 bankruptcy is also called "reorganization" or "repayment plan" bankruptcy. In this type of filing, the debts are not discharged; rather, the person is given some time to reorganize their debt and to follow a new financial plan. Read more.


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Finding the Right Consumer Bankruptcy Lawyer

Deciding whether to file under Chapter 7 or Chapter 13 depends on what type of debt you have. Not all debt is dischargeable, such as certain types of student loans. If you have mostly non-dischargeable debt, Chapter 13 may be more appropriate for you.

In any consumer bankruptcy hearing, a main challenge is dealing with creditors. Some creditors may require you to provide a "proof of claim" which verifies the amount of debt that you owe them. The proof of claim is very important, as it establishes the creditor's rights in collecting on your assets. Without a proof of claim, an unsecured creditor may not share in the proceeds from liquidation (Chapter 7), nor can they receive funds in from a repayment plan (Chapter 13).

It is likely that there will be several parties involved in a typical consumer bankruptcy proceeding. This is because one person may have debts with several different creditors or credit companies. Thus, it may be necessary to work with a bankruptcy attorney to protect your interests. Your attorney can help you prepare documents such as a proof of claim. They can provide you with valuable advice throughout the entire process, to ensure the best outcome for your needs.


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