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Bankruptcy in California

Bankruptcy is a process established by federal laws and rules to assist individuals and companies who are unable to pay creditors. Declaring bankruptcy in the State of California frees sincere debtors from financial hardships and allows them to settle debts by liquidating their assets or systematically repaying creditors (reorganization). Bankruptcy filings and proceedings take place at any of the four U.S. Bankruptcy Courts based in California. The appropriate court to begin a case depends on the area where the debtor lives, has a business, or has a principal asset. For instance, persons residing or running a business in Calaveras, Tuolumne, or Stanislaus county must file for bankruptcy in the U.S. Bankruptcy Court, Eastern District of California (Modesto Division). The state courts have no authority to hear bankruptcy cases.

What is Chapter 11 Bankruptcy in California?

Chapter 11 bankruptcy is a form of bankruptcy that provides a means for corporations in California to restructure and reorganize their debt. Under this bankruptcy structure, the company creates a plan—subject to the approval of creditors—that allows for the repayment of all debts, including priority debts, unsecured debts, and secured debts. Details of the reorganization plan may include company downsizing, asset liquidation, and possible renegotiation of debt.

Either the debtor or creditors (three or more) may file a Chapter 11 bankruptcy. In the event of the latter, the debtor is granted anywhere from four to eighteen months to develop a reorganization plan. If the business is unable to do this within the provided period, creditors may create a reorganization plan.

A chapter 11 bankruptcy (sometimes referred to it as a “reorganization bankruptcy.”) offers some benefits to debtors such as a reduced monthly payment and a lowered interest rate. It also allows debtors to carry on operating their business—albeit with oversight from the bankruptcy court on all major decisions. Although Chapter 11 bankruptcies are more appropriate for sole proprietors, partnerships, and corporations; they can also be used by celebrities and athletes, depending on the debt condition. It provides an alternative for companies with significant debt who wish to avoid the option of total liquidation, provided under the Chapter 7 bankruptcy.

What is Chapter 7 Bankruptcy in California?

Chapter 7 Bankruptcy provides a structure via which California residents can pay off debts by liquidating assets, such as non-exempt property and real estate, vehicles, and jewelry. Because of this, accountants and lawyers sometimes refer to Chapter 7 bankruptcies as a “liquidation” or “straight bankruptcy.”

What is Chapter 13 Bankruptcy in California?

Chapter 13 Bankruptcy is a form of bankruptcy that allows Californian debtors to pay off debts while sticking to a supervised repayment plan. It’s restricted to only individuals and sole proprietors and not corporations or small businesses. Debtors may propose a repayment plan that runs from three to five years, depending on their current and future income. A Chapter 13 plan varies from other types of bankruptcy in that it reduces the risk of liquidation or repossession. Under this plan, a California resident may still be able to keep a home, car, or other valuable items.


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