What is Consumer Bankruptcy?

Consumer bankruptcy is an alternate term for personal bankruptcy. It is a process through which an individual or married couple can achieve debt relief. Bankruptcy proceedings typically eliminate a person’s debts altogether or allow him to make easier-to-handle payment arrangements under a court's protection. If a person’s debts have been discharged, or eliminated through bankruptcy, his creditors are not permitted to continue collection attempts.

When someone declares consumer bankruptcy, he files a petition with the court to discharge his debts. As part of the bankruptcy process, the court may require the liquidation of the debtor’s assets. This means his property is sold in order to meet some of his debt obligation. Fortunately, there are many types of property that may be exempt from liquidation during a bankruptcy proceeding. For example, clothing and furniture may be exempt from consumer bankruptcy liquidation; an individual’s car may be protected as well.

Some people have secured debts to consider during a consumer bankruptcy. For example, a debtor may have a car for which he is still paying a car loan. With the car loan company’s agreement, the debtor may continue to make his car loan payments and keep his vehicle. If either party doesn’t agree, the car loan company may repossess the debtor's car, or the debtor must pay the company a lump-sum amount that is equal to the car’s current value. Other secured debts may be handled similarly or discharged instead.

For some people, consumer bankruptcy results in the creation of a repayment plan rather than the simple elimination of debts. This option is typically used by those who are behind on payments yet have enough income to repay their debts over an extended period of time. If a court grants this type of consumer bankruptcy, the debtor may spread his repayments out over a long period of time. He may also keep property he might have lost without the bankruptcy. For example, creating a repayment plan as part of a bankruptcy proceeding may prevent a bank from foreclosing on the debtor’s home.

The types of consumer bankruptcy available depend on where the debtor lives. Generally, filing a bankruptcy petition puts a temporary stop to efforts to collect money owed or seize property in relation to debts. If the bankruptcy petition is denied, creditors may begin collection efforts right away. Likewise, they may continue to make collection attempts for anything that isn’t included in the bankruptcy petition or discharged as a result of it.


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