Which Chapter of Bankruptcy Should I File?
When going through financial hardship, filing for bankruptcy is among the promising options to achieve financial relief. Depending on your unique circumstances, you may be able to settle your debts and get the financial "fresh start" you deserve by filing for Chapter 7, Chapter 13, or Chapter 11 bankruptcy. A proficient California bankruptcy attorney can assess your unique situation and help determine the right chapter of bankruptcy that you should file.
With over 35 years of extensive knowledge, our attorney has the familiarity, diligence, and resources to advise clients in bankruptcy-related matters. At the Law Office of Robert L. Firth, our trained legal team can discuss your specific financial situation, help you understand the benefits and drawbacks of each bankruptcy chapter, and determine the ideal one for you to file. We're proud to serve clients across Cathedral City, Palm Desert, Rancho Mirage, Palm Springs, and throughout the Coachella Valley, California.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy or "liquidation" bankruptcy helps individuals, families, and business owners who are going through financial adversity eliminate most of their general unsecured debts and achieve a financial clean slate.
In Chapter 7 bankruptcy, the California court will appoint a bankruptcy trustee (an independent contractor) to oversee your entire case. The trustee will collect and sell all of your non-exempt assets. The net proceeds from the sale will be used to settle some or all your creditors.
Non-exempt assets are property and assets that can be sold in a Chapter 7 case. Examples include vacation homes, second vehicles, family heirlooms, second homes, stocks, bank accounts, bonds, cash, and other investments. However, you will be allowed to keep your exempt assets. These include your primary home, clothing, furniture pieces, car, and household appliances.
Additionally, qualifying for Chapter 7 bankruptcy in California requires passing the bankruptcy "means test" and attending creditor counseling courses. The bankruptcy means test will evaluate your financial history, remove expenses and payments, and determine your amount of disposable income. You will automatically pass the bankruptcy means test if your income is lower than the median income for your household size in California. Thus, you can proceed with your Chapter 7 filing.
Below is the median income for various household sizes in California:
One-person household — $65,895
Two-member household — $87,355
Three-member household — $97,092
Four-member household — $111,535
*Add $9,900 for each household in excess of four members.
The figures listed above are for cases filed on or after May 15, 2022, but they're updated regularly.
When Is Chapter 7 a Good Option?
Chapter 7 may be a good option for you if:
You have credit card balances, medical bills, and personal loans that can be discharged or eliminated.
You own little amount of property or assets.
Your income is lower than the median income for your household size in your state.
A knowledgeable Chapter 7 bankruptcy attorney can review your unique financial situation and decide if Chapter 7 is right for you.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also referred to as "wage earner's" bankruptcy, is available for individuals who earn a decent income but are overwhelmed with debts. In a Chapter 13 case, you will propose a reasonable repayment plan to pay back your debts using your potential earnings. The repayment plan will be structured over a period of 3 to 5 years.
Furthermore, the California court must confirm the repayment plan before it becomes permanent. Once approved, you must start making payments to your bankruptcy trustee immediately. The Chapter 13 repayment plan allows you to repay all or part of your debts over the three-to-five-year period using your future earnings. Most importantly, you will retain your assets, including your vehicles and home.
To qualify for Chapter 13 bankruptcy in California:
You must have a "regular source of income."
Your income is more than the median income for your household size in the state.
When Is Chapter 13 a Good Option?
Chapter 13 may be a good option for you if:
You have a regular source of income to pay into the repayment plan.
You own several assets and property and don't intend to lose any of them.
Most of your debts are domestic support debts, student loans, or non-dischargeable tax.
An experienced lawyer can evaluate your financial condition and help determine whether you should file for Chapter 13 bankruptcy.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy or "reorganization" bankruptcy is available for businesses that need to restructure or reorganize their debts, assets, and affairs. Furthermore, the Chapter 11 bankruptcy case requires the debtor (corporation or business) to propose a reorganization plan to their creditor. The reorganization plan will outline how the debtor intends to pay back their debts.
Also, the proposed reorganization plan will allow the business to settle its debts using potential revenue while keeping the business running. Creditors will be classified into:
Priority debt creditors,
Unsecured debt creditors, and
Secured debt creditors.
Both the creditor and the court must approve the proposed reorganization plan. The major drawback is that filing for Chapter 11 is costly and time-consuming.
Chapter 11 bankruptcy works best for partnerships and Limited Liability Companies (LLCs). Regardless, you may qualify for Chapter 11 bankruptcy if:
Your unsecured debt or secured debt is more than the debt limits for Chapter 13 bankruptcy filing.
You are a small business owner that requires additional time to restructure your debts, finances, and other affairs.
When Is Chapter 11 a Good Option?
Chapter 11 is a good option if:
You're a corporation or large business.
You have more debt to restructure than allowed under Chapter 13, "debt limits."
You want to keep your business afloat while reorganizing your debts, affairs, and assets.
A competent attorney can help evaluate your financial situation and determine whether Chapter 11 is a good financial relief option to reorganize your business.
Reclaim Your Financial Future
Filing for bankruptcy in California is a big decision that needs a thorough assessment. For your bankruptcy petition to be successful, you need to understand your possible options, determine your eligibility, complete and submit your forms, and attend court proceedings. Therefore, when thinking about filing for bankruptcy, you must speak with a trusted bankruptcy attorney for dedicated legal direction and to evaluate your available options.
At the Law Office of Robert L. Firth, our attorneys are committed to helping clients achieve debt relief and reclaim their financial future. As your legal counsel, we can familiarize you with the benefits and drawbacks of each bankruptcy option and decide the ideal choice for your financial situation. Also, we can steer you through the complex procedures involved in the bankruptcy filing and put you on the path toward a stable financial future.
Contact the Law Office of Robert L. Firth today to schedule a simple case assessment with reliable bankruptcy attorneys. Our loyal legal team has the personalized legal counsel, assistance, and brilliant advocacy you need to make informed decisions about bankruptcy and your financial condition. We proudly serve clients across Cathedral City, Palm Desert, Rancho Mirage, Palm Springs, Desert Hot Springs, and throughout the Coachella Valley, California.