Mark Hauser Explains Bankruptcy Filing and Details Options for Debtors Considering This Action

5 min readMar 26, 2024

Mark Hauser-Co-managing partner at Hauser Private Equity

Navigating economic uncertainty can be an ongoing challenge. Continued high inflation, rising personal debt, and potential job losses are causing concern among Americans in varied income ranges. When an individual or family feels they cannot meet their financial obligations, they may consider bankruptcy as a solution.

However, filing for bankruptcy isn’t a move to be taken lightly. Private equity principal Mark Hauser discusses bankruptcy’s purpose and outlines the process. He also explains this financial decision’s pros and cons along with potentially viable alternatives.

The Concept of Bankruptcy

When an individual (or two spouses) are no longer able to pay their debts, they may decide to file for bankruptcy. Once the debtor makes this choice, Mark Hauser says they can select from two courses of action.

First, the debtor can liquidate their assets to retire their applicable debts (a Chapter 7 bankruptcy). Alternatively, they can design a repayment plan for these debts (a Chapter 13 bankruptcy). The latter is also called a reorganization bankruptcy.

Each bankruptcy filing involves a debtor with a unique financial situation and debt exposures. The bankruptcy type, case complexity, and other factors together determine the bankruptcy proceeding’s cost.

Filing With (or Without) Legal Assistance

Debtors can file for bankruptcy without legal assistance (called filing pro se). However, bankruptcy is a legal proceeding with far-reaching financial and legal consequences. Making the wrong choice could be costly.

Therefore, private equity expert Mark Hauser strongly recommends that debtors enlist the help of a bankruptcy attorney. Debtors unable to pay for the attorney’s services may qualify for free legal assistance.

Two Types of Personal Bankruptcy

Individuals (or two spouses) can file for one of two bankruptcy types. Private equity principal Mark Hauser notes that each bankruptcy type corresponds to the same-named U.S. Bankruptcy Code chapter.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is also called a liquidation bankruptcy. Debtors who seek to qualify for a Chapter 7 bankruptcy must meet specific low-income criteria or pass a means test. These applicants must also satisfy other requirements.

In a Chapter 7 bankruptcy, the debtor sells some assets to pay off a portion of their debts. A court trustee manages the asset liquidation and sends the proceeds to the debtor’s creditors. The process usually lasts four to six months.

Chapter 13 Bankruptcy

Some individuals (or two spouses) may exceed income caps for a Chapter 7 bankruptcy. These debtors can file for a Chapter 13 bankruptcy (or a wage earner’s program). Here, debtors with consistent income can create a realistic debt repayment schedule. Payments generally last for three to five years, depending on the debtor’s income level. A Chapter 13 bankruptcy enables the debtor to retain their personal assets.

A Chapter 13 bankruptcy doesn’t require a means test, although the debtor must satisfy other specific requirements. The debtor suggests a monthly repayment program dependent on their income level. If creditors don’t agree to the suggested monthly payment, the debtor must negotiate an acceptable figure.

Snapshot of the Bankruptcy Process

All United States bankruptcy cases are handled through the federal courts. A bankruptcy case begins when an individual (or two spouses) brings a petition to the bankruptcy court. A bankruptcy judge decides whether each debtor qualifies for bankruptcy filing.

Assuming the judge allows the case to proceed, the debtor’s assets receive an objective evaluation. Depending on the bankruptcy type, the debtor’s assets may be allocated to partial payment of their outstanding debt. The United States Trustee Program of the Department of Justice appoints a trustee to handle each bankruptcy case’s logistics.

Once the wheels are in motion, the debtor’s creditors must immediately stop any in-process collection attempts. Examples include a mortgage foreclosure, wage garnishment, and asset repossession.

Bankruptcy Advantages and Disadvantages

Filing for personal bankruptcy can provide a debtor with several defined advantages. However, this financial strategy also has well-known downsides. Private equity expert Mark Hauser recommends that debtors carefully evaluate their options before making a decision.

Advantages of Filing for Bankruptcy

Filing for bankruptcy is certainly a drastic step. However, private equity expert Mark Hauser notes that this strategy offers three significant advantages.

First, a bankruptcy filing immediately stops creditors’ collection efforts. Individuals faced with nasty collection calls, wage garnishments, and lawsuits will see these actions cease.

Second, some types of bankruptcy filings discharge certain unsecured debt. To illustrate, credit card debt is generally discharged during a Chapter 7 bankruptcy. A Chapter 7 bankruptcy also permits the discharge of medical debt.

Finally, a bankruptcy filing often enables the debtor to obtain a workable repayment plan. They may have previously been unable to arrive at a resolution with their creditors.

Disadvantages of Filing for Bankruptcy

While filing for bankruptcy has some advantages, this financial strategy also has several downsides. Private equity expert Mark Hauser details three disadvantages of filing for personal bankruptcy. For starters, bankruptcy approval isn’t guaranteed, as the bankruptcy judge could reject an individual’s application.

First, although bankruptcy can eliminate some unsecured debt, other debts are not eligible for discharge. To illustrate, the U.S. Bankruptcy Code contains numerous debts excluded from discharge. Examples include child support and alimony, certain tax liens, and debts not included in the bankruptcy filing.

Second, if a debtor holds secured debt and is involved in a Chapter 7 bankruptcy, they have only two options. They must keep making loan payments for the secured property, which is likely very difficult in a bankruptcy situation. To eliminate the secured debt, the lender will regain ownership of the property.

Finally, filing for bankruptcy drastically impacts a debtor’s credit score. Depending on the bankruptcy type, the filing will remain on their credit report for 7 to 10 years. As a result, they will find it difficult to obtain a credit card or mortgage loan. Renting an apartment may be more problematic. In the worst case, they may be forced to postpone important financial decisions until they can repair their credit.

4 Potential Bankruptcy Alternatives

Debtors concerned about bankruptcy’s far-reaching implications may wish to try other debt management strategies first. Some options can damage personal credit to a lesser degree than bankruptcy. These four options are worth consideration.

Debt Consolidation Plan
Debt Management Program
Debt Restructuring Program
Debt Forbearance or Debt Deferment

Navigating a Bankruptcy Decision

Before a debtor decides to file for bankruptcy, they should carefully evaluate all their debt resolution options. During this process, private equity expert Mark Hauser recommends that debtors consult with a qualified financial advisor. This resourceful professional can determine each option’s potential impact, allowing the debtor to select the best strategy for their specific situation.

Originally published at https://www.mid-day.com on March 26, 2024.