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When it comes to filing bankruptcy, there are two types of filings that are commonly used in the state of California – Chapter 7 is one such type. This type of filing is also referred to as a liquidation, as a part of the process is eliminating unsecured debt.
Unsecured debt is any form of debt that is not tied to a lien on an asset. For example, your car loan is secured debt since the value of the car provides security for the lender. Unsecured debt most often takes the form of credit card debt, pay advances, unsecured personal loans, money judgments, etc.
In order to file for Chapter 7 Bankruptcy, you must pass a “means test”, which takes into account your financial records, income, expenses, and debt. You must also hit a debt threshold in order to qualify for a Chapter 7 filing, which in general is half of your annual income. For example, if you make $40,000 a year and your debt totals more than $20,000, you have hit the debt threshold. Other qualifications include a complete lack of disposable income, a monthly income that is below the median level in California, and debt interference with other essential aspects of your life.
Businesses and Limited Liability Companies (LLC) can also file for Chapter 7 Bankruptcy, but it functions differently for a business than it does for an individual. In filing for Chapter 7, the business will have to be completely shut down. There is no way to file for Chapter 7 Bankruptcy as a business and continue operations. Once Chapter 7 Bankruptcy is filed, a bankruptcy trustee will sell off the company’s assets and distribute the funds to creditors based on their priority under bankruptcy law. The advantage of this type of filing is complete transparency. Creditors cannot chase funds if you have publicly and legally liquidated and distributed everything. The disadvantage is the lack of control. Once your business files for Chapter 7 Bankruptcy, the reigns are handed over to the bankruptcy trustee. Be forewarned, outstanding liability can transfer to individuals following the closure of business under Chapter 7, so consider your options carefully before filing.
We have handled hundreds if not thousands of Chapter 7 bankruptcy filings. We can dispel bankruptcy myths and guide you through this process with ease.
