Certified Bankruptcy Specialist
A petition for bankruptcy

Understanding Which Type of Bankruptcy is Right For You

Bankruptcy has been a method of debt relief steeped in stereotypes and confusion for those unfamiliar with the process. With several chapters designed to supplement numerous financial needs, it is easy to get lost in all the legal jargon. Our California debt relief team outlines each of the main chapters of bankruptcy below and the purposes they each serve.

Chapter 7

Chapter 7 is known as the “straight” or “liquidation” chapter of bankruptcy. This chapter is one of the quickest ways of eliminating multiple types of debts. The filer usually can keep most, if not all, of their assets. Sometimes not all assets are exempt, however. Unexempt assets can be surrendered or may be bought back by the filer from the trustee.
Here is a brief list of some of the most common debts that can be discharged by Chapter 7 bankruptcies:

  • Credit card debt
  • Medical debt
  • Personal unsecured debts
  • Past-due rent from an old lease
  • Debts arising from civil judgments
  • Debts arising from surrendered assets

This chapter is normally meant for debtors that have an overwhelming amount of a variety of debts that can be eligible for discharge. One of the biggest advantages to filing under Chapter 7 is, as previously stated, it is the fastest chapter of bankruptcy for consumers. Taking around four to six months to complete, it allows debtors to eliminate all eligible debts permanently and gain the fresh start they have been looking for.

Chapter 11

Chapter 11 Bankruptcy is designed for small business owners or business partnerships. Filing for Chapter 11 allows business owners to reorganize the business’s debt and keep the business running while paying back creditors over a period of time. In Chapter 11, a plan of reorganization is approved by the court. Chapter 11 bankruptcy can take between three to five years to complete, depending on the length of the plan. Chapter 11 gives filers the time needed to get their financial affairs in order.
Although Chapter 11 is typically filed by businesses, you don’t have to be a business owner to be eligible for the chapter. Chapter 11 bankruptcy is also beneficial for those that:

  • Do not meet the debt requirements to file for Chapter 13 bankruptcy as an individual
  • Wish to keep their business running during the bankruptcy process
  • Wish to avoid liquidating their property

There are several advantages that Chapter 11 has over other chapters of bankruptcy, some of which include:

  • The business owner or individual filer acts as the trustee, responsible for overseeing the case and making plan payments to creditors
  • Making smaller payments to creditors
  • Keeping the business running and profitable while paying off debts
  • Lowering high-interest loans
  • Avoiding liens, lawsuits, levies, and foreclosures

Chapter 13

The Chapter 13 process is similar to that of Chapter 11, although primarily utilized by consumers, where the filer’s debt is reorganized through a court-approved payment plan. This payment plan not only extends the life of the filer’s payments but also does not require them to liquidate any of their assets, and prevents actions such as repossessions and foreclosures.

These payments are made to an appointed trustee, who then distributes the funds to the proper creditors or lenders. This chapter also takes a longer period of time to complete, usually three to five years, giving filers an ample amount of time to catch up on and pay off all existing debts.

Contact Our Los Angeles Bankruptcy Team Today

We understand how stressful and overwhelming your financial situation may be. Through compassionate and personalized services, we are equipped to guide you through the bankruptcy process and find freedom from your debts.

If you would like to learn more about how bankruptcy can help you, contact us today through our website, or give us a call at (310) 846-8454 to schedule a consultation today!