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Consumer Bankruptcy

Two "types" of bankruptcies are available to the ordinary consumers. They are commonly referred to as a "Chapter 7" or "Chapter 13" bankruptcy. The differences between the two chapters can be confusing and some people do not have a choice when it comes to which chapter to file under.

Simply put, a Chapter 7 completely eliminates past debts that are considered dischargeable by the Court. It is often referred to as a "fresh start" bankruptcy because most, if not all, debts are completely wiped out. Minimum requirements to file a Chapter 7 include meeting the income requirement (passing the means test) and taking the credit counseling course.

A Chapter 13 involves a payment plan where the debtor voluntarily agrees to pay back (a portion) of his or her debts in an orderly fashion. The payment period could last between 3 and 5 years. During the payment plan period, creditors are not legally allowed to collect debt directly from the client, including sending bills, calling, bringing a law suit, or garnishing wages. It is an easy way to get out of debt for those who can afford some sort of repayment plan, even if the payment amount is very little.

After the case is filed (for either Chapters), there is a hearing (called the "Meeting of Creditors") where debtors are required to appear and testify under oath. There is also another course to take. A discharge of debt prevents creditors from ever taking action to collect past debts. Ultimately, the goal in any bankruptcy is to obtain a discharge order from the court.