At Albright, Houtsma & Clark, LLC, we specialize in consumer bankruptcy. Our belief is that everyone deserves a fresh start in life, and filing for bankruptcy can be your path to a new beginning.

Bankruptcy is a federal process which allows consumers to have their qualifying debts forgiven. The law recognizes that bad things sometimes happen to good people, and sometimes there are circumstances beyond our control which can only be addressed through the cancellation of debt.

Filing for bankruptcy puts into effect an automatic stay, which stops creditors from trying to collect any debt from you. The automatic stay immediately stops creditor phone calls, collection letters, wage garnishments, lawsuits, bank levies, and all other types of harassment, intimidation and scare tactics by creditors.

Once a bankruptcy case is successfully completed, the consumer receives discharge information from the Bankruptcy Court. A Discharge is a legal release from debts. Creditors are left with no legal cause to contact you or pursue debts listed in the bankruptcy documents.

There are two common ways for the typical consumer to file for bankruptcy, Chapter 7 and Chapter 13. Chapter 7 is the most common type of bankruptcy. It allows a consumer to discharge debts completely through a relatively short process. Chapter 13 is a federal debt consolidation plan which allows you to rearrange your financial affairs and repay just a portion of your debts. In most cases, the idea is to allow you time to get back on your feet.

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Chapter 7

Chapter 7 is the most common type of bankruptcy and is sometimes referred to as "liquidation bankruptcy" or "straight bankruptcy". The basic purpose of chapter 7 is to provide you with a fresh start by wiping out all qualifying debts including credit cards, medical bills, repossession deficiencies, law suits as well as a variety of other debts. In chapter 7 there is no repayment required for most unsecured debts; your debts are wiped out completely and permanently. In about 99% of chapter 7 cases, the consumer keeps all property, and eliminates most debts. The entire process usually takes less than 4 months to complete. After the bankruptcy is over, the consumer may choose to selectively pay back debts, such as debts to family members, however repayment is not legally required.

In chapter 7 the typical consumer only has one meeting with the bankruptcy trustee. The purpose of the meeting is to give creditors a chance to ask questions, although it is very rare that a creditor shows up; it is mostly handled by attorneys. The trustee may also ask you questions about particular items on your petition usually focusing on assets or income. Most meetings take only a few minutes. Some consumers feel some level of anxiety or fear leading up to the meeting with the bankruptcy trustee, but there is no reason to fear the trustee. The trustee is looking for people who are hiding assets or trying to defraud the system, they don't want to harass or scare the common consumer. The meeting will take place in an ordinary conference room, and the trustee is not a judge; the setting is informal. After the meeting, the first thing most people say is "...that's it?...that was easy". Once the meeting with the trustee is done, the only thing left to do is keep your address current with the court, and wait for your discharge to come in the mail.

Chapter 13

Chapter 13 provides consumers with a way to consolidate debt under federal law and repay creditors a portion of what is owed over time. The idea behind chapter 13 is that the consumer makes sufficient income to pay all current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with creditor's demands. In chapter 13, living expenses are paid first, and then whatever is left over goes into the consolidation plan. The plan is not based on what you owe (in most cases); it is based on your ability to repay creditors. The calculation of your plan payments involves many variables, but most importantly it is based on your income and expenses. Whatever is left at the end of the month goes into the plan, even if it only pays creditors pennies on the dollar. Chapter 13 can be particularly useful for consumers with assets over the exemption amounts, or non-dischargeable debts.

In chapter 13, you must submit a plan in which you set out a budget detailing your take-home pay and monthly living expenses. Any excess income is paid to the bankruptcy trustee who then distributes money to creditors on a pro-rata basis. The plan lasts for 36 to 60 months, unless your debts are fully repaid in a shorter period of time. At the end of the chapter 13 plan, any amounts still owing on your unsecured debts are forgiven. Chapter 13 payments can be automatically withdrawn from your bank account by the trustee if you choose.

Chapter 13 and Mortgage Problems

Another benefit of chapter 13, specifically for homeowners, is back mortgage payments can be put into the chapter 13 plan and paid off over the plan period, rather than all at once. So long as you can continue to make regular post-petition mortgage payments, the bank can't foreclose on your house because you chose to put mortgage arrearages into a chapter 13 plan. In fact, chapter 13 was originally designed for this purpose, to prevent foreclosures.

Chapter 13 and Tax Debt

Typically, government debts are not dischargeable, however there are great benefits to putting tax debt into a chapter 13 plan. Chapter 13 freezes interest and penalties on taxes. This gives you a chance to budget out a repayment plan in real dollars; the payments you make go directly to reduce the principle. Most people trying to repay back taxes are fighting an uphill battle with interest and penalties working against them, but in chapter 13, you get a break from the government and pay off just what you owe on the day you filed the case.