What Are the Three Important Types of Bankruptcies in California?

Most of us understand bankruptcy to be a mechanism where a debtor makes a new financial start to repay the maximum extent possible to his or her creditors. However most of us lack knowledge of the minute details of bankruptcy under the laws in California. There are three major types of bankruptcies which have derived their names from the title of the chapter as mentioned in the American Bankruptcy Code. These are Chapter 7, Chapter 11 and Chapter 13. All these are meant to liquidate a debtor's asset and make payments to the creditors. Let us now take a closer look at these three different types of bankruptcy in California.

Chapter 7

This is the most common bankruptcy filing procedure in California. Under this a trustee will collect all your assets and liquidate them in order to pay back to the creditors. This allows you to make a 'fresh start' with all your debts. Most people opt for Chapter 7 so that they can benefit from exemptions such as homestead and vehicles. However, this exemption often depends on your debt and on the discretionary powers of the trustee appointed in your case. During the liquidation process the net proceeds of the liquidation are distributed to your creditors while the trustee charges you a small commission for overseeing the distribution. In most cases Chapter 7 usually lasts about four to six months. In the end most debts are extinguished through a discharge of debts. This bankruptcy chapter doesn't apply to debts such as alimony, child support, fraudulent debts, certain taxes, student loans etc for which other chapters need to be used.

Chapter 11

Chapter 11 of bankruptcy is designed for business-related bankruptcies. This chapter of bankruptcy is preferred by most businesses as one in which, instead of paying off debts, using a single liquidation allows a business to function without draining its creditors. This is the reason it is often referred to as the rehabilitative bankruptcy process. Under this you will remain in charge of your business and will have to work with a trustee and a debtor in possession and reorganize the business model to make it profitable again and pay off the debts. Some of the assets might be liquidated to make the business profitable. However, if you fail to implement the business recovery plan prepared by the trustee, you can liquidate the assets and pay back the creditors.

Chapter 13

This is another bankruptcy chapter which is available for individuals, though it is for a longer plan when put against the debt repayment plan, which works from three to five years. This chapter of bankruptcy protects your regular income and also other assets such as your house and your car. Here a court-appointed trustee will chalk out a repayment plan and once your repayments have been made under the plan your debts will be discharged. However, if your bankruptcy petition has been rejected in the last 180 days you aren't eligible for this chapter. Under this chapter you will be protected from the debt collectors and also wage garnishments, lawsuits and telephone collection calls.

Apart from these three types of bankruptcies in California there are other types of bankruptcy code such as Chapter 9, Chapter 12 and Chapter 15. However, these are used rarely and apply only to specific circumstances. For example, Chapter 9 defines municipal bankruptcy while Chapter 15 deals with international bankruptcy cases. If you are planning to file for bankruptcy under the California law it is important that you consult a bankruptcy attorney who shall guide you with the entire process.

Attorneyforbankruptcy.com is a leading law firm of California where you can hire most experienced san jose chapter 7 bankruptcy lawyer and get information on consumer debt consolidation.