Filing for Personal Bankruptcy and Alternatives
Nobody sets out to file for bankruptcy, but unexpected life circumstances and an unpredictable economy lead to unforeseen circumstances. Business and personal bankruptcy can be the solution to a great number of financial issues including lawsuits, foreclosures, judgments, bank levies, wage garnishments and even certain regulatory actions. It is a tool Congress intended business owners and individuals to use, when necessary, to keep our economy growing and to prevent individuals from being crushed by the burden of debt.
Liquidation and reorganization can be confusing and often counter-intuitive. There are different “chapters” to consider and it is important to have proper legal guidance throughout the process to avoid losing assets or prolonging your case. Chapter 7 was intended to be a fairly quick and painless process of eliminating debt, while Chapter 11 and Chapter 13 are “reorganization” platforms where creditors are paid back a percentage of debts over time.
At McFarlin LLP, we have helped thousands of clients eliminate the burden of debt. Your financial recovery can begin today with a free consultation by calling (888) 728-0044. Our skilled and affordable Orange County attorneys will analyze your financial situation and help guide you to the best solution.
What Are the Types of Bankruptcy?
Both individuals and corporations can both file for liquidation and reorganization, although individual bankruptcy is by far the most common. By filing, a “debtor” receives the protection of the “automatic stay” which prevents any further collection activity by creditors.
Knowing which chapter to file can be tricky, but is an important decision. It is always advisable to speak to a professional before filing anything with the Court, as sometimes, once something is filed it cannot be undone.
There are three primary alternatives for filing for consumers and businesses. Each one has its advantages and its restrictions. Although each alternative is introduced below, this should by no means be considered a thorough discussion of each, but rather a general overview.
Chapter 7 is the most common and just about anyone can qualify to file a Chapter 7. As with other chapters, once the Chapter 7 case is filed, creditors must cease any and all collection activities including lawsuits, foreclosure, collection calls or demands, bank levies and wage garnishments. Over 90 percent of Chapter 7 cases in California are “no asset” cases, meaning the debtor (individual or business) is able to keep all their assets, property and possessions while discharging (eliminating) all their qualifying debts. This is true relief from the burdens of debt and the unreasonable demands of creditors.
While this form is most commonly used by large corporations, individuals are also eligible to file. Chapter 11 allows a debtor to remain in control of his or her business operations, while proposing a repayment plan for creditors.
Chapter 11 can be a great relief for businesses and individuals who qualify but it is also a long and arduous process which can be quite expensive for an individual to undertake. The Court and U.S. Trustee’s office is very much involved in chapter 11 cases and the burdens on debtors can be significant in regard to accounting and banking documents and information.
Chapter 13 involves an individual reorganizing their finances under the bankruptcy code. The debtor essentially proposes a plan of repayment for creditors which the court must approve as fair, equitable and affordable. Debtors may propose a plan which pays back only a small percentage of debts, the plan is based on “ability to pay” not hitting a particular percentage repayment. Debtors must have enough disposable income to “fund” the plan and therefore qualify for Chapter 13, along with meeting other guidelines.
Chapter 13 can also be used as a tool to stop foreclosure and repay back mortgage payments over five years. As long as the debtor has the ability to make a full mortgage payment plus a payment towards paying back “arrears” over time, chapter 13 can be a great solution for both homeowners and lenders to avoid foreclosure.
Our Lawyers Are Ready to Help You
If you are struggling with the burden of debt and cannot meet the demands of creditors, call McFarlin LLP at (888) 728-0044. Our skilled Irvine personal bankruptcy attorneys have represented thousands of consumers like you and can guide you to the best solution. You can be debt free again, call us for a free consultation and analysis of your financial circumstances by one of our experienced attorneys.