Personal bankruptcy is a legal process for an individual or legally married couple to deal with overwhelming debt. It is done under the provisions of the United States Bankruptcy Code. Since the Code is a federal statute, a bankruptcy case is a federal case — there is no such thing as a California bankruptcy case.
The Code is divided into chapters. Different chapters accomplish different things. The chapters available to individual debts are 7, 11, 12, and 13. Chapter 12 is designed for a debtor who is a family farmer or commercial fisherman. However, for all intents and purposes Chapter 12 cases don’t exist in the Central District of California, so we won’t discuss them here.
- Chapter 7 Bankruptcy
- Chapter 11 for Individuals and Married Couples
- Chapter 13 Bankruptcy
- Effect on Your Credit
- Choosing the Right Bankruptcy Lawyer
- Asset Protection Through Bankruptcy
- Materials to Gather for My First Meeting
- Will I Have to Go to Court?
Chapter 7 is the most commonly used chapter. The big picture goal is to erase debts without the creditors receiving anything. Because this is a big hit to the creditors, there are three main limitations: (a) there is a limitation on qualifying for Chapter 7 relief — Congress has given us a three part test to determine eligibility; (b) there is a limitation on what the debtor gets to keep; and (c) some kinds of debts are not dischargeable in a Chapter 7.
Chapter 13 involves a multi-year debt repayment plan that is administered by the Bankruptcy Court. The plan has to satisfy three main requirements — there are others, but these are the make or break ones — (a) the plan must pay the general unsecured creditors at least as much as they would have received in a Chapter 7 (i.e., the value of the nonexempt assets); (b) the plan must either pay the general unsecured creditors in full, or the debtor must devote all disposable monthly income to plan payments; and (c) the plan must repay certain special creditors in full.
Chapter 11 also involves a multi-year debt repayment plan. However, while it has some of the same requirements and features of Chapter 13, it is much more complicated than a Chapter 13. For that reason, it is sometimes referred to as a Chapter 13 on steroids.
If you are unsure which chapter is best for you, get help from a bankruptcy attorney who is a board-certified specialist in bankruptcy law. Call the Law Offices of Nicholas Gebelt at (562) 777-9159 to discuss your options.
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