Different Types of Bankruptcy

bankrupt-img1ADLI Law Group understands the delicate nature of filing for bankruptcy and strives to provide quality legal services when it comes to dealing with bankruptcy. Our services entail representation of debtors and creditors in chapter 7, 11, and 13 bankruptcy procedures. Let’s explore what exactly are the three chapters of bankruptcy in California.

Chapter 7

Though bankruptcy may not be an ideal situation, it can be beneficial when it comes to protecting your finances and help to stabilize your financial future. A chapter 7 bankruptcy is known as a “fresh start” because you are wiped out of your debts because a liquidation of all of your assets is given to the trustee. A trustee is an individual who has been appointed by the Justice Department or by the creditors in the case of bankruptcy. The trustee then is able to sell the assets. However, there are certain debts, like child support, student loans, certain taxes, and other debts that may not be discharged. Certain debts, like your car or house, can be secured debts if a
“Reaffirmation Agreement” is signed. This means that you can not wipe out the debt for those assets for another eight years and will have to continue to owe the debt dued on those. Further, the debt must be brought to current, or all past charges or missed payments must be paid back in order to reaffirm it. Now, to determine whether or not you qualify for a chapter 7 bankruptcy, the 2005 Bankruptcy Act states that your income and expenses need to be analyzed under the means test. In applying the means test, your average income 6 months prior to filing for bankruptcy will be viewed. It will then be compared to the median income for California, and if your income is below the median, you will be classified to chapter 7 bankruptcy.

Chapter 11

A Chapter 11 bankruptcy provides the potential to allow the debtor to continue operating their business and keep it alive. The way this is achieved is through a proposed plan created by the debtor to pay the creditors over time and a reorganization plan to keep the business alive. That is why Chapter 11 bankruptcy is termed the “reorganization” bankruptcy. A chapter 11 bankruptcy does not put the personal assets of the debtor at risk, and instead encourages the reorganization plan to help create a path to clearing debt. In getting a chapter 11 bankruptcy, a petition must first be submitted to the bankruptcy court that serves the area. The petition may be voluntary or involuntary. In addition to the petition, a debtor may be asked to to file a schedule of assets and liabilities, schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs. The disclosure statement, a document containing information about assets, liabilities, and business affairs, as well as the reorganization plan, must be filed with the court. The reorganization plan must embody a classification of claims, as well as a outlined and detailed explanation on how the reorganization plan will deal with each of the claims.

Chapter 13

A chapter 13 bankruptcy is a common avenue for debtors to provide protection against the collection and wage garnishment efforts from a creditor. It’s used to help keep secured assets, like a house or car. A debtor, similar to chapter 11, creates and chooses a payment plan to repay the creditor. This allows the debtor to keep all property, regardless if it is exempt or not. Determining the amount that must be repaid is dependent upon various factors, like the disposable income from the debtor. This is determined by the California means test, the same test used in chapter 7 bankruptcies. Chapter 13 allows for a debtor to repay the collector in a longer time frame, and can be filed at any time or repeatedly. The repayment plan must be presented in front of a judge who either confirms or denies the repayment plan. Though it may make debt last for three to five years, chapter 13 debt allows you to have immediate protection and can ensure that foreclosure on your home may not occur.

Bankruptcy is definitely a rough time for any business or individual, and it’s an important reality to accept. ADLI is here to help and deal with bankruptcy in a delicate, efficient, and effective manner. We explore the many avenues of bankruptcy, like chapter 7, 11, or 13, and are ready to help representation either the debtor or the collector in the bankruptcy process. Our seasoned team of lawyers strive to provide quality legal counseling or litigation services To learn more about our bankruptcy services, go here. If you’re ready to tackle bankruptcy, contact ADLI today!