United States
Hong KongConsumer protection and bankruptcy, briefly
Chapter 7 liquidates non-exempt assets and discharges qualifying debts; Chapter 13 reorganizes into a repayment plan over three to five years. Student loans, most taxes, alimony and child support generally survive a discharge.
A small topic with a few facts that are easy to test, and one of them matters to you personally as a CFP candidate.
The two consumer chapters
| Chapter 7 | Chapter 13 | |
|---|---|---|
| What it does | Liquidation | Reorganization |
| Non-exempt assets | Sold to pay creditors | Retained |
| Duration | Months | Three to five years |
| Eligibility | Subject to a means test | Requires regular income |
| Keeping a house | Harder | Easier - arrears cured through the plan |
| Credit report | Longer | Shorter |
Chapter 13 is the route for a client with income who wants to keep a home. Chapter 7 is faster and costs the non-exempt assets.
What is not discharged
- Most student loans, absent an undue hardship finding.
- Recent income taxes, and certain other tax obligations.
- Alimony and child support.
- Debts from fraud, wilful injury, or drink-driving liability.
- Court fines and criminal restitution.
Student loans are the row questions use, because it is the assumption clients most often arrive with.
Exemptions
Federal and state exemption schemes protect specified assets, and states vary enormously - homestead exemptions in particular.
Qualified retirement plan assets receive substantial protection, which is a planning point rather than a technicality: a client considering draining a retirement account to avoid bankruptcy is often destroying the one protected asset they have.
A CFP professional filing for bankruptcy must report it, and a candidate's bankruptcy history is considered under the Fitness Standards. This is a rare place where the material has direct personal consequences for you.
The consumer statutes
Recognition rather than detail. The Fair Credit Reporting Act on credit report accuracy and disputes. The Fair Debt Collection Practices Act on collector conduct. The Truth in Lending Act on disclosure of credit terms and the annual percentage rate. The Equal Credit Opportunity Act on discrimination.
Questions ask which statute governs a described situation, so knowing what each covers is enough.
Every dollar limit here is indexed annually and several were changed by recent legislation. Confirm the current figure against the IRS or the relevant authority before relying on it, and expect the exam to test the rule rather than the number.
Common questions
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 liquidates non-exempt assets and discharges qualifying debts within months. Chapter 13 reorganizes debts into a repayment plan over three to five years and lets the client keep assets.
Are student loans discharged in bankruptcy?
Generally not, absent a finding of undue hardship. It is the assumption clients most often arrive with and the reason questions use it.
What else survives a discharge?
Recent income taxes and certain other tax obligations, alimony and child support, debts from fraud or wilful injury, drink-driving liability, and court fines and restitution.
Are retirement accounts protected?
Qualified plan assets receive substantial protection, which is why draining one to avoid bankruptcy often destroys the client's best-protected asset.
Does bankruptcy affect CFP certification?
Yes. A CFP professional must report a bankruptcy filing to CFP Board, and a candidate's bankruptcy history is considered under the Fitness Standards.