Chapters of Bankruptcy: Long Beach Law Firm

Chapter 7

Our bankruptcy practice focuses on Chapter 7 and Chapter 13 bankruptcies. We represent both individuals and small businesses in Chapter 7. Chapter 7 is known as the liquidation chapter because individual debtors receive a discharge and their debts are then extinguished. The goal of a Chapter 7 bankruptcy where the debtor is a business is not to receive a discharge. Instead the business is liquidated and ceases to exist.

Chapter 13

Under Chapter 13, debtors pay back a portion or all of their debts through a repayment plan filed with the court. This repayment plan lasts between 3 and 5 years.

Which Chapter Is Appropriate For You

The chief inquiry to determine which chapter debtors should file under for a personal bankruptcy is whether their average gross monthly income during the six months before filing bankruptcy was less than, equal to, or above the median income of their demographic.

The demographic is determined by family size and the state in which the debtor is filing. For instance, the median income for a single person in California is $42,012. The median income for a family of two people is $53,506. For a family of three, the median income is $59,633, and it is $68,310 for a family of four. The median income figures are based on the Census Bureau's most recent statistics.

If the debtor's average gross monthly income during the six months prior to filing bankruptcy was equal to or below the median income, then the debtor most likely qualifies for a Chapter 7. If the debtor falls above the median income mark, then a comparison must be made between the debtor's net monthly income and net monthly expenses. The amount of money left over at the end of the month after paying monthly expenses, not including credit card debt, will determine the appropriate chapter for the debtor to file. The median income test is a key component of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The value of a debtor's non-exempt property can also determine the appropriate chapter for a debtor. However, this is usually only an issue for real property owners with a large amount of equity in their homes.

We can often ascertain which chapter our clients qualify for after a free telephone consultation.