Types of Bankruptcy

There are several chapters under which an individual or business can file for bankruptcy in California:

1. Chapter 7 Bankruptcy: Also known as liquidation bankruptcy, Chapter 7 allows individuals and businesses to discharge their debts by liquidating non-exempt assets. The proceeds from the liquidation are used to pay off creditors. Some property exemptions are determined by California state law.

2. Chapter 13 Bankruptcy: This chapter is a reorganization bankruptcy that allows individuals with regular income to create a repayment plan to pay off their debts over a period of three to five years. Chapter 13 can help prevent foreclosure and repossession of assets.

3. Chapter 11 Bankruptcy: This chapter is commonly used by businesses seeking to reorganize their debts and continue operations. Individuals with substantial debts can also file for Chapter 11.

4. Exemptions: Each state has its own set of exemptions that determine which assets a debtor is allowed to keep during bankruptcy. California has its own set of exemptions that debtors can choose from. Some common exemptions in California include those for homestead (primary residence), vehicles, retirement accounts, and personal property.

5. Means Test: The means test is used to determine if an individual qualifies for Chapter 7 bankruptcy or if they should consider Chapter 13 instead. It assesses an individual's income, expenses, and household size to determine eligibility.

6. Credit Counseling and Debtor Education: Before filing for bankruptcy, individuals are required to complete credit counseling from an approved agency. Additionally, after filing, they must complete a debtor education course.

7. Automatic Stay: When a bankruptcy petition is filed, an automatic stay goes into effect, which halts most collection actions by creditors. This includes foreclosure, repossession, wage garnishment, and creditor harassment.

8. Bankruptcy Court and Trustees: Bankruptcy cases in California are handled by the U.S. Bankruptcy Court for the Central, Eastern, Northern, and Southern Districts of California. Bankruptcy trustees are appointed to oversee the administration of bankruptcy cases and ensure compliance with bankruptcy laws.

9. Property Exemptions: As mentioned earlier, California has its own set of property exemptions that debtors can use to protect their assets during bankruptcy. These exemptions may vary depending on the specific circumstances of the debtor.