Bankruptcy provides a legal means to a fresh financial start when you cannot pay your debts. You can file for bankruptcy as an individual, a family, or a business. Municipalities can also file for bankruptcy. The law describes various types of bankruptcy, commonly known as Chapters, including Chapter 7, Chapter 13, Chapter 11, Chapter 9, Chapter 12, and Chapter 15.
You have to fulfill some legal requirements to file for different Chapters. Some Chapters’ requirements are more suited for an individual. Others are more suited for businesses or corporations. Although bankruptcy is a viable option, it is essential to understand what it is, the different types of bankruptcy and who qualify to file for bankruptcy.
Los Angeles Bankruptcy Attorney has been helping individuals and businesses file for bankruptcy in Mission Viejo, Orange County, for a long time. We have over 20 years’ experience and fully understand the California bankruptcy law’s ins and outs. We are committed to helping you have the best deal and retain most of your assets. With us, you will find a partner who will walk with you every step of the process.
The Legal Definition of Bankruptcy
Bankruptcy is a legal process through which you can have a fresh financial start. You can file for bankruptcy as an individual, a family, or as a corporation. Before the court allows you to file for bankruptcy, it ensures you cannot pay back your debts. The court will scrutinize your income and the level of debt you owe. If it establishes you cannot repay your debts, it will accept your bankruptcy case.
The Process of Filing for Bankruptcy
Filing for bankruptcy is no mean feat. It will have consequences on your finances and your credit score. Before filing for bankruptcy, ask yourself some pertinent questions. Consider if you are genuinely unable to pay your debts. How long would it take to pay off the debts if you had the ability? And lastly, are you willing to put your credit history in jeopardy.
Filing for bankruptcy has a significant negative effect on your credit score. It becomes difficult to access loans, receive a credit card or an overdraft. Although it’s possible to repair your credit score after filing for bankruptcy, it’s usually an uphill task.
The first step in filing for bankruptcy in California is to attend a credit counseling course. You must present a certificate of completion to the court before you file for bankruptcy. If you are in Mission Viejo, you need an experienced attorney to understand how the Mission Viejo Bankruptcy process works.
Once you complete the credit counseling course, you have to fill a petition to file for bankruptcy. You will find the petition papers on the US courts website. Your bankruptcy attorney will help you fill out the petition and any other relevant documents depending on the type of bankruptcy you are filing.
Once the court accepts your petition to file for bankruptcy, it appoints a trustee. A trustee is an independent third party who oversees the process. The trustee will ensure you have listed all your assets to avoid any cases of fraud. The trustee also works as an intermediary between you and your creditors.
The law allows you as a debtor to come up with a repayment plan. Once the creditors accept your repayment plan, they cannot change or contend it later. However, you have to present your repayment plan to the court within 120 days from the day of filing for bankruptcy. If you fail to do so, you have to accept the creditors’ repayment plan, which might be unfavorable.
Different Types of Bankruptcy You Can File for in California
In California, you can file for various types of bankruptcy. If you are in California and, more specifically, in Mission Viejo, it is prudent to consult a Mission Viejo Bankruptcy lawyer to help you understand the best type of bankruptcy.
Types of bankruptcy include:
- Chapter 7 bankruptcy
- Chapter 13 bankruptcy
- Chapter 11 bankruptcy
- Chapter 12 bankruptcy
- Chapter 15 bankruptcy
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is by far the most common bankruptcy type in California. Under Chapter 7, you pay your creditors by selling off your assets. As earlier stated, the court appoints a trustee whose responsibility, among others, is to sell off your property and pay your creditors. Chapter 7 liquidation is also called liquidation bankruptcy, straight sell bankruptcy, or fresh start bankruptcy.
Although the court appoints a trustee to sell off your property, some of your assets are exempt. This means that the trustee can’t sell them off to repay your debts. Exempt assets are essential in your day-to-day life.
The federal government has its list of exempt properties. Similarly, different states have their lists of exempt assets. In some states, you can either use the state list or the federal list. But California is not one of them. In California, you must use the state list of exempt property. Some of the exempt properties according to California law include:
- Your primary residence
- The vehicle you use to go to work
- Property that you earn a living from
- Your pension account, military service accounts, and retirement plan account
- Household goods
The Documentation You Need to File for Chapter 7 Bankruptcy in California
If you are filing for bankruptcy in Mission Viejo, you need to consult an attorney. The attorney will assist you in gathering all the required documentation. Financial documents include your credit card statements, pay slips, bank statements, and loan documents.
You also need to produce a list of all your debtors, creditors, living expenses, property and property transfers. It’s vital to use the services of an accredited Mission Viejo Bankruptcy lawyer to help you gather all the required documents.
In California, you must attend a counseling session with an accredited credit counselor before filing for bankruptcy. You can either attend the counseling session in person, over the phone, or online. You can consult your lawyer on the best way to attend the sessions.
A credit counselor presents other alternatives that might help you avoid filing for bankruptcy. Before the court offers you a discharge, you must attend a course in financial management.
Mean Test in Filing for Chapter 7 Bankruptcy
Before you can file for Chapter 7 bankruptcy, you must pass the means test calculation. The test is meant to establish that you cannot pay the debts whatsoever. The test compares your income to the median income of other families that are the same size as your own in your state.
It becomes challenging to file for chapter 7 bankruptcy if you fail the means test. If you are in Mission Viejo, you can do so under extraordinary circumstances with the help of a qualified Mission Viejo Bankruptcy attorney. If you fail the means test, you can file for Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also called the wage earner’s plan. Unlike chapter 7 bankruptcy, with chapter 13, you keep your assets. In Chapter 13, insolvency, you negotiate a repayment plan with your creditors. But you have to meet specific criteria for you to qualify for Chapter 13 bankruptcy.
Your unsecured debt must be less than $394,000, and your secured debt must be less than $1,184,000 to qualify for chapter 13 bankruptcy. Unsecured debt means you have not attached any collateral as security for the loan. Some examples of unsecured debts include medical bills, credit card debt, among other similar debts.
With a secured debt, you attach collateral. The collateral might be a car or your house or boat. A secured loan means the creditor can repossess the collateral and sell it off to pay the loan.
Qualifications for Filing for Chapter 13 Bankruptcy
Similar to Chapter 7 bankruptcy, you must have undergone credit counseling. You should have undertaken the course within six months before filing for bankruptcy. You must show you can repay the debts under the new repayment plan. You must also show you can continue to meet other financial obligations like mortgage payments. The law doesn’t permit corporations and partnerships to file for chapter 13 bankruptcy.
Under Chapter 13, you use the payment plan to clear your debts. Under the plan, your debt is reorganized to enable you to pay your creditors. The plan is an excellent tool to help you pay for your house or motor vehicle payment arrears. If you are in Mission Viejo, consult a Mission Viejo Bankruptcy attorney to help you develop the most favorable Chapter 13 payment plan.
The court compares your income to your expenses. Any surplus is called disposable income, which you use to pay your creditors. The Chapter 13 payment plan usually lasts for three to five years. After the completion of the repayment plan, creditors can no longer demand payment. The court discharges your debt.
As with Chapter 7 bankruptcy, the court appoints a trustee to oversee the process. The trustee reviews the payment plan to ensure that it is proper. That is why you need to consult a lawyer if you are filing for bankruptcy in Mission Viejo. In most cases, the courts accept payment plans prepared through the help of a bankruptcy attorney.
The trustee is the intermediary between you and the creditors. You make payments to the trustee, who, in turn, distributes the payment to your creditors. The trustee does so according to the repayment plan. With chapter 13, you have to make these payments monthly. You can’t receive any more debt without the approval of the court. Once you complete your chapter 13 payment plan, the court will discharge any unsecured debt.
Chapter 11 Bankruptcy
Large corporations mainly use chapter 11 bankruptcy. Under Chapter 11 bankruptcy, the corporation reorganizes its debts. They keep their assets as they pay their creditors under a new repayment plan. Unlike chapter 13 bankruptcy, chapter 11 bankruptcy is complicated and expensive. That is why you should use the services of a well-versed Mission Viejo bankruptcy attorney if your corporation is based in Mission Viejo.
Due to the complexity of chapter 11 bankruptcy, many people presume that only large corporations file for chapter 11 bankruptcy. But you can file for Chapter 11 bankruptcy as an individual or a small corporation.
You can apply for Chapter 11 bankruptcy when you do not qualify for either Chapter 7 or Chapter 13 bankruptcy. If your unsecured debt exceeds $394,000 or your secured debts exceed $1,184,000, you might be forced to apply for chapter 11 bankruptcy.
Chapter 9 Bankruptcy
A municipality or a county files chapter 9 bankruptcy. Similar to other bankruptcy chapters, the municipality must seek other alternatives to avoid filing for bankruptcy. In California, some municipalities which have applied for chapter 9 bankruptcy in the recent past include Vallejo in 2008, Stockton in 2012, Mammoth Lake in 2012, and San Bernardino county in 2012.
Chapter 12 Bankruptcy
Chapter 12 is similar to chapter 13, with the difference being that Chapter 12 is for family farmers and fishermen. If you are a farmer or a fisherman, you can reorganize your loan with the creditors by filing for Chapter 12 bankruptcy.
Chapter 15 Bankruptcy
Chapter 15 bankruptcy is filed by companies that have assets in many countries, including the US. The chapter allows a foreign entity to file for insolvency in the United States. However, the company can only file for chapter 15 bankruptcy if it has an insolvency proceeding in the country it’s registered.
Call A Bankruptcy Attorney Near Me
Filing for bankruptcy gives you a fresh financial start. However, the process also does have some financial repercussions. When you file for bankruptcy, your credit score is affected, and building it back up takes considerable time and immense financial discipline.
Various Chapters of bankruptcy in California accommodate multiple classes of people and business. Large and small corporations, a sole proprietorship or a joint partnership business, can file for bankruptcy. But whichever the situation, it is advisable to consult the services of a bankruptcy attorney.
If you are looking to file for bankruptcy in Mission Viejo, do not hesitate to contact Los Angeles Bankruptcy Attorney. We have been filing for bankruptcy on behalf of clients for many years. Contact us at 424-285-5525.