Bankruptcy

Chapter 7 Bankruptcy

Chapter 7 bankruptcy or liquidation bankruptcy is the process by which many individuals or married couples attempt to get their credit debts discharged.

Chapter 7 bankruptcy is also used to assist in the shutdown of a corporate business and used to liquidate assets thereof and protect its officers and shareholders.

Chapter 7 bankruptcies have the following traits:

• They are short in duration, usually lasting about 120 days.

• Unsecured debt may be discharged so you never have to pay it back (only individuals have their debts discharged, corporations in bankruptcy do not receive a discharge). Unsecured debt is debt that is not attached to property or collateral (for instance, credit card debt). 

• Secured debt cannot be discharged, but it can be exempted and retained provided timely payments are made over the duration of the bankruptcy.

• Some debts may not be discharged: 1) most federal and state taxes, 2) debt created by fraud, 3) debts arising from embezzlement or larceny, 4) debts for child and spousal support, 5) debts for liability for willful and malicious injury, 6) debts for fines and punishments, 7) debts for educational loans, 8) debts for liability for driving while under the influence, and 9) debts denied or waived in a previous bankruptcy performed in the last six years.

• Chapter 7 bankruptcy can only be declared once every six years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a debt adjustment procedure for individuals with regular income.

Chapter 13 bankruptcy can only be filed by individuals; corporations and businesses may not file chapter 13.

Chapter 13 is often a very useful and beneficial method of reorganizing debts and may be used to stop foreclosures, repossessions, and often gives the debtor the ability to clear up debts that were not dischargeable in chapter 7.

Chapter 13 requires that the debtor propose a repayment plan to the court.  The elements of Chapter 13 bankruptcy include the following:

• A successful chapter 13 will last between 3 and 5 years. 

• Secured debt must be paid back by making timely payments, including interest, over the course of the bankruptcy.  In other words, an individual must continue making their home and car payments throughout the bankruptcy or they may be forced to return the property.

• Total amount of secured debt cannot exceed $922,975, and total amount of unsecured debt cannot exceed $307,675.

• Debtor must be able to prove that they have a steady source of income over the duration of the bankruptcy.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a reorganization procedure used by businesses, including sole proprietors, partnerships, and corporations.  A business debtor will attempt to save the business by proposing a plan to repay debts that has to be voted on and approved by creditors.  If the debtor is able to propose a plan that satisfies the creditors and the court the debtor may remain in control of the day to day operations of the business.

A plan often calls for the debtor to remain in business and to repay creditors from future earnings, from borrowings, or from sale of assets.

The key to a successful Chapter 11 bankruptcy case is pre-bankruptcy planning. 

<Links>

California Courts (http://www.courtinfo.ca.gov/courts/trial/)
US Bankruptcy Court (http://www.cacb.uscourts.gov/)
California Secretary of State Business Portal (http://www.ss.ca.gov/business/business.htm)