What is Consumer Bankruptcy?
When an individual falls desperately behind in his or her debt payments, one option may be to declare bankruptcy, a legal proceeding in a federal bankruptcy court that relieves the debtor of some or all of his or her debts. While bankruptcy may not be the best option for everyone, in the right situations, it can provide people with a fresh start.
Bankruptcy Choices for Consumers
Consumers, like businesses, have options in terms of which type of bankruptcy to pursue. These options are set forth in separate chapters of the federal bankruptcy law – called the Bankruptcy Code – and they are commonly referred to by their chapter numbers. Consumers most commonly file either under Chapter 7 or Chapter 13, with very few filed under Chapter 11.
The 2005 changes to the federal bankruptcy laws created a new requirement that debtors receive credit counseling from an approved agency in the 180 days before filing for bankruptcy under any chapter, with some exceptions.
Most consumer bankruptcy cases are initiated voluntarily by consumers, but under certain circumstances, can arise involuntarily when creditors force debtors into bankruptcy.