What Are the Different Kinds of Bankruptcy?

Many people who struggle with an increasing level of unpayable debt will face this critical question: “Should I file for bankruptcy?” Bankruptcy may seem extreme, but in many cases, it is the most viable option to come out of a financially stressful situation. Each year in the United States, there are nearly one million individual and corporate bankruptcy cases. Once you decide to go ahead with bankruptcy, the next step is to decide which type of bankruptcy fits your situation. This article will describe the different types of bankruptcy so that you can make an informed decision about this crucial financial step.

Chapter 7 Bankruptcy  

In California, Chapter 7 bankruptcy also goes by individual bankruptcy because individuals use it more than businesses. Its advantage lies in its simplicity and a relatively faster process of liquidation. Under Chapter 7 bankruptcy, you will have to submit all your non-exempt assets to a trustee.

The California Bankruptcy Court requires an individual to pass the means test to qualify for a Chapter 7 individual bankruptcy. If the judge in a bankruptcy court believes that you have the means to repay your creditors, they may dismiss your bankruptcy filing, and you might have to switch to Chapter 13 bankruptcy.

Chapter 13 Bankruptcy 

Unlike Chapter 7 bankruptcy, a Chapter 13 bankruptcy does not involve immediately discharging part of the debt or turning over your non-exempt assets to a trustee. Instead of the Trustee selling your belongings, the trustee will receive monthly payments. In Chapter 13 bankruptcy, you must make a financial plan to repay your creditors (at least a small percentage of what you owe them). This plan’s configuration depends on what you can afford to repay over three to five years. 

As part of the plan, you will continue to make debt repayments to a trustee, who will, in turn, send that money to your creditors. Your attorney should attend every hearing to get this plan confirmed. It is up to the judge whether to accept your debt repayment proposal.

Chapter 11 Bankruptcy 

Chapter 11 bankruptcy is also known as a corporate bankruptcy because companies use it when they run into financial trouble. Chapter 11 bankruptcy allows a debt-ridden business to reorganize and restructure its finances while letting the business survive. This type of chapter 11 bankruptcy allows corporations to continue its business operations while repaying or renegotiating their existing debt. Here, there are provisions for restructuring debt obligations and renegotiating collective bargaining agreements. 

Same as Chapter 13 bankruptcy, a Chapter 11 bankruptcy will allow for the creation of a debt repayment plan. However, in this case, the creditors have the power to accept or reject the proposal. This type can be a more prolonged and complicated bankruptcy process, but it works well for many companies, as they get a renewed opportunity to restore their business. 

Consult With an Experienced California Bankruptcy Lawyer

Are you asking yourself that dreaded question, “Should I file for bankruptcy?” Stop interrogating yourself and start taking steps toward a new financial future by hiring an experienced and professional bankruptcy lawyer in California. At Bankruptcy Near Me, LLC, a private firm, we have years of experience in bankruptcy, and we can help you navigate the intricacies of bankruptcy law. Call us today at 301-550-5048 for a free consultation.