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What is Consumer Bankruptcy?

Nicole Madison
Nicole Madison
Nicole Madison
Nicole Madison

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.

Consumer bankruptcy involves filing a petition with the court to discharge debts.
Consumer bankruptcy involves filing a petition with the court to discharge debts.

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.

People who file for Chapter 7 bankruptcy must demonstrate their inability to pay their debts.
People who file for Chapter 7 bankruptcy must demonstrate their inability to pay their debts.

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.

High credit card debt is one of the leading causes of consumer bankruptcy.
High credit card debt is one of the leading causes of consumer bankruptcy.

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.

Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a WiseGEEK writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

Learn more...
Nicole Madison
Nicole Madison

Nicole’s thirst for knowledge inspired her to become a WiseGEEK writer, and she focuses primarily on topics such as homeschooling, parenting, health, science, and business. When not writing or spending time with her four children, Nicole enjoys reading, camping, and going to the beach.

Learn more...

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    • Consumer bankruptcy involves filing a petition with the court to discharge debts.
      By: woodsy
      Consumer bankruptcy involves filing a petition with the court to discharge debts.
    • People who file for Chapter 7 bankruptcy must demonstrate their inability to pay their debts.
      By: slasnyi
      People who file for Chapter 7 bankruptcy must demonstrate their inability to pay their debts.
    • High credit card debt is one of the leading causes of consumer bankruptcy.
      By: Merkuri2
      High credit card debt is one of the leading causes of consumer bankruptcy.