Some Things To Know About Bankruptcy - The Different Options

When consumers consider filing a bankruptcy case, it’s important to be aware of some basic information about the types of bankruptcies available. A knowledgeable bankruptcy attorney may further elaborate on the following information about the types of bankruptcies and answer any questions.

*Chapter 7

A Chapter 7 bankruptcy, or simply known as a “Chapter 7,” is typically a “liquidation” of any of a debtor’s non-exempt assets to pay general unsecured creditors. In this type of case, a debtor may keep any exempt assets, as well as redeem, reaffirm, or surrender any property that is collateral for a secured debt. In return, a debtor receives a Chapter 7 discharge of any eligible debts. If a debtor does not have any non-exempt property, he or she may conceivably file a Chapter 7 case and lose next to nothing.

The debts typically discharged in a Chapter 7 are for credit cards, medical bills, and unsecured loans. Prospective Chapter 7 debtors must meet the requirements of a means test which determines whether they are eligible of a Chapter 7. If not eligible, usually because they have too much disposable income, debtors must file a Chapter 13 bankruptcy case. The entire process of filing a Chapter 7 bankruptcy case and receiving a discharge takes approximately three to four months.

*Chapter 13

A Chapter 13 bankruptcy, or simply known as a “Chapter 13,” is typically a “reorganization” of a debtor’s assets and liabilities subjecting the debtor to a three to five-year repayment plan. There is no requirement to liquidate any property but there is a requirement that unsecured creditors receive some payment if a debtor has disposable income. Only natural persons may file a Chapter 13 case.

A prospective debtor’s eligibility for a Chapter 13 is often a result of “failing” the means test because a debtor has too much disposable income based on the calculations of the means test. An experienced and qualified bankruptcy attorney may assist in making this complicated calculation and determining eligibility for a Chapter 7 or Chapter 13.

Chapter 11

A Chapter 11 bankruptcy, or simply known as a “Chapter 11,” is typically a “reorganization” and is available to artificial persons, i.e., corporations, partnerships, and LLCs. Because these business entities are not eligible to file Chapter 13 cases, Chapter 11 provides a mechanism for reorganization. Most consumers only use a Chapter 11 under certain, special circumstances such as exceeding the prescribed debt limits of a Chapter 13 case.

Thus, the type of bankruptcy utilized is generally based on assets and income. If a prospective debtor has too much disposable income and non-exempt assets, a Chapter 13 case may be the preferred option. A knowledgeable bankruptcy attorney may assist in making this analysis.

The experienced Sacramento metropolitan area/Northern California defense attorneys at the Montefalcon Law Offices are here to help you if your financial position necessitates the consideration of a bankruptcy case filing under Chapter 7, 11, or 13. Contact us online or schedule a free consultation at any of our three conveniently located offices. Telephone our downtown Sacramento office at (916) 444 0440, our south Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929.