CFP

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Regulations and Requirements - Consumer Protection Laws

Bankruptcy

The last resort
Bankruptcy is the state of insolvency or the inability to pay off your debts. Individuals and business faced with this situation may seek relief from their debts by filing for legal bankruptcy. Filing for bankruptcy should not be taken lightly and only considered as a last resort measure to gain relief from overwhelming debt.

Types of bankruptcy
There are two types of personal bankruptcy most commonly used. They are Chapter 13 and Chapter 7. Two other less commonly used types of bankruptcy are Chapter 11, used primarily for businesses, and Chapter 12, which applies only to family farms.

  1. Chapter 7 - Also known as straight bankruptcy, it involves liquidating all assets that are not exempt. Exempt property includes cars, work-related tools and basic household furnishings. Chapter 7 results in a complete discharge of debts. A person can file for Chapter 7 only once every eight years.
    The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for individuals to file for Chapter 7 bankruptcy. Individuals and families with incomes above median levels in their home states and who can pay back at least $6,000 over five years are required to file for Chapter 13 rather than Chapter 7.
  2. Chapter 13 - Debtors are given a repayment plan. Chapter 13 allows filers to keep property that they might otherwise loose. Debtors in Chapter 13 are subject to mandatory education in personal finance management.

Debts exempt from discharge
Personal bankruptcy does not erase the following types of debts:
  • Child support
  • Alimony
  • Back taxes
  • Student loan debt
Consumer Protection Laws (Contd.)
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