The past few years have been a rough economic time for many American consumers. More and more Pennsylvania residents seem to be faced with considering the possibility of filing for bankruptcy protection. Some may be confused about the process and wondering just what types of consumer bankruptcy protections there are. The U.S. Bankruptcy Code has established two basic types: Chapter 7 and Chapter 13 bankruptcy.
Under Chapter 7 bankruptcy, individuals typically own few assets other than basic essentials. These folks typically have a high amount of debt and are no longer able to make the payments for their basic expenses. They must qualify under a "means test" (meaning their income must be low enough after applicable expenses) in order to be eligible to file for Chapter 7 protection, since this form of bankruptcy allows consumers to have most of their unsecured debt discharged.
Chapter 13 bankruptcy, on the other hand, is the route usually taken by consumers who have more significant equity built up in property, which they want to keep. They might have steady income coming in but have fallen behind on their payments by reason of their debt burden. During this bankruptcy process, they get to keep their property while following a three- to five-year payment schedule approved by the court. At the end of that period, they should be caught back up on their debt payments.
Both types of bankruptcy protection can certainly help Pennsylvania consumers get a fresh financial start. The automatic stay granted during consumer bankruptcy also prohibits creditors from harassing consumers while they're catching back up on payments or having their debt discharged.
Bankruptcy may not be the right choice for all consumers, but it may be for some. Checking with experienced legal counsel is the best way to find out.
Source: Chicago Tribune, "The pros and cons of bankruptcy," Elliot Raphaelson, July 17, 2012