Russ Thompson Managing Partner Thompson Consumer Law Group
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Another important law enacted to protect consumer rights is federal bankruptcy law. If your debts have become unmanageable, you may wish to consider bankruptcy. Filing bankruptcy can help you by getting rid of debt that you are unable to pay, or by setting a plan to help you repay your debts over time. A bankruptcy case generally begins through the filing of a petition with the bankruptcy court. For a consumer bankruptcy, a petition may be filed by an individual or together with your spouse. All bankruptcy cases are filed in federal court pursuant to the U.S. Bankruptcy Code.
There are different types of bankruptcies, which are usually referred to by their chapter in the U.S. Bankruptcy Code. Thompson Consumer Law Group generally represents consumers in Chapter 7 and Chapter 13 bankruptcy, depending on the particular consumer’s situation.
Chapter 7 bankruptcy is generally the best option for consumers with a low income and few assets. Under this chapter, you essentially liquidate your assets in order to pay your creditors. Some assets are exempt, meaning you get to keep them. Property exemptions vary from state to state. You may choose to follow either state law or federal law, which may allow you to keep more possessions.
Your non-exempt assets will be sold off by the trustee appointed by the court. The money obtained from selling your assets will then be distributed to your creditors.
At the end of the process, much of your debt will be discharged. This means you will no longer be responsible to pay them. Importantly, certain debts, like child support and taxes, cannot be discharged. Others, like student loans, are extremely difficult to have discharged.
Chapter 7 bankruptcy stays on your credit report for 10 years. While it will have an immediate impact on your credit score, the score will improve over time as you rebuild your finances.
In order to qualify for Chapter 7, you must qualify under the U.S. Bankruptcy Court’s Chapter 7 means test. The means test compares a consumer’s income for the previous six months to the median income in the consumer’s state. If your average income is less than the median income, you qualify for Chapter 7. If it’s above the median, there is a second means test that may allow the consumer to qualify. The second means test measures income versus essential expenses to determine the consumer’s disposable income.
Chapter 13 bankruptcy is generally the best option for consumers who do not want to give up their property or do not qualify for Chapter 7 because their income is too high. However, a consumer can only file for Chapter 13 bankruptcy if the amount of debt does not exceed the set amount. In 2020, an individual’s unsecured debt must not exceed $394,725 and the amount of secured debt must be less than $1.184 million.
Chapter 13 bankruptcy allows consumers to retain their assets, while agreeing to pay their creditors over a period of 3-5 years. Once the plan is successfully completed, the remaining debts are erased. However, if the plan is not successfully completed, creditors can resume collecting the entire balance..
Interested in finding out if you qualify for bankruptcy?
If you are interested in pursing bankrupcy, we can evaluate your financial situation to see if you qualify for either Chapter 7 or Chapter 13 bankruptcy. To do so, please also send us any of the below information you have (don’t worry about what you don’t have, just send what you do):
- How much debt you think you owe (excluding student loans, taxes less than 3 years own, alimony, child support, restitution, and fines);
- Copies of any previous bankruptcy you may have filed;
- Your current credit report from Experian, Equifax, and TransUnion;
- The last month of bank statements for all open accounts (includes all savings and checking accounts); and,
- Any other documents you feel may be relevant