Chapter 7 Or 13: I Can't Decide, Some Questions To Ask, Part 2

Federal law in Chapters 7, 11, and 13 of the Bankruptcy Code (Title 11), details the type of bankruptcy relief available in the United States. Today’s blog, the second in a series, addresses some questions that you should ask if you are unsure which type of bankruptcy is best for you.

Chapter 7 of the Bankruptcy Code regulates the procedure for liquidation under federal bankruptcy law. In contrast to chapter 7, chapters 11 and 13 govern the process of reorganization of a bankruptcy debtor. A bankruptcy filed under chapter 7 is the most common type of bankruptcy case filed in the United States.

Chapter 13 of the Bankruptcy Code provides for the adjustment of debts of an individual with regular income permitting a debtor to retain property and pay debts over a time period defined by federal law. By filing a chapter 13 bankruptcy case, debtors propose a repayment plan allowing them to make installment payments to creditors over a period of time lasting no less than three years and no longer than five years. A chapter bankruptcy permits a debtor to propose a plan of repayment to reorganize their financial affairs while utilizing the protections afforded by federal law.

*What type of debt do you have?

Individuals who operate a business as a sole proprietor must file an individual bankruptcy case and may not file a case in the name of the business. However, it is noteworthy that a debtor with primarily business debt is not required to complete the means test, which determines eligibility for a Chapter 7 bankruptcy case filing, if over 50% of debt is business debt rather than consumer debt (defined by federal bankruptcy law as a “consumer debt incurred by an individual primarily for a personal, family, or household purpose”). This gives Chapter 7 debtors with primarily business debts an advantage since they are eligible to file a Chapter 7 bankruptcy case without having to complete a complicated part of the process, the means test.

*Do you need to stop foreclosure?

Chapter 13 may be a powerful tool to stop foreclosure, thus preventing chapter 13 debtors from losing their homes. When filing a chapter 13, debtors may cure delinquent mortgage payments over the duration of their chapter 13 plan of repayment and reorganization, as long as they have the ability to timely make all future mortgage payments, including those that become due during the term of the chapter 13 plan.

An experienced Sacramento metropolitan area/Northern California bankruptcy attorney like Alberto Montefalcon is here to help you if your financial position requires the consideration of bankruptcy as a solution to once and for all solve immediate financial problems. Contact his office online or schedule a 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.