Many small businesses find it challenging to survive in times of crisis. The COVID-19 situation in California has forced many organizations to shut down. To get out of debt, San Diego businesses and individuals look for solutions in such times of economic recession. The standard method of debt relief for them is filing for bankruptcy.
It is advisable to contact a bankruptcy lawyer in San Diego before deciding which type of bankruptcy to file. Generally, individuals and businesses opt for either Chapter 7 or Chapter 13 Bankruptcy. Every individual should understand the fundamental differences between these two Bankruptcies to make the right choice. Efficient help can be available from bankruptcy attorneys who are available in every region. A bankruptcy attorney in Chula Vista is the right person to advise on the matter for a Chula Vista resident. If the fees for a bankruptcy lawyer in San Diego are not affordable, one can approach Legal Aid San Diego for appropriate advice.
Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is perfect for individuals and sole proprietorships. This Bankruptcy is a reorganization bankruptcy that results in the restructuring of debts. Those who are not eligible to file a Chapter 7 Bankruptcy have to file Chapter 13 Bankruptcy.
Individuals with a mortgage prefer to go for Chapter 13 Bankruptcy as it prevents a home foreclosure. Similarly, a business with sufficient assets would not like to go for a liquidation bankruptcy like Chapter 7. They would prefer to retain their assets, opt to restructure their debts and reorganize their business.
Chapter 7 Bankruptcy
When the business does not have any foreseeable future, there is no option but to liquidate it. Under such circumstances, Chapter 7 Bankruptcy should be the ideal solution. One chooses this option when the business’s debts are so overwhelming that restructuring them is not viable. Chapter 7 Bankruptcy San Diego is the perfect option when the enterprise does not have any substantial assets.
One has to satisfy specific conditions to be eligible to file for bankruptcy under Chapter 7. Every applicant is subject to a means test. If the individual’s income is over a specific threshold level, they fail the means test, and Chapter 7 Bankruptcy is not approved. The approval of the Chapter 7 Bankruptcy dissolves the business entirely.
The bankruptcy court appoints a bankruptcy trustee to take over the businesses’ assets and distribute them among the creditors. After the process and payment to the trustee, the individual/business gets discharged from the debts. One should note that individuals and sole proprietorship concerns get a discharge, whereas partnerships and corporations do not. Businesses have another option in Chapter 11 Bankruptcy as it offers a better chance to them to turn things around.
Chapter 11 Bankruptcy
Chapter 11 Bankruptcy is ideal for partnerships and corporations as they do not get a discharge under Chapter 7. Even sole proprietors having high-income levels to qualify for Chapter 13 can also file Chapter 11 Bankruptcy.
This option allows the business to reorganize and continue its operations under a court-appointed trustee. The organization has to file a detailed reorganization plan explaining how it will deal with its creditors. The business entity can recover assets, terminate contracts, and repay portions of its debts when returning to profitability. The plan is presented to the creditors, who will vote on it. The court approves the program if it finds it fair and equitable.
Compared to Chapter 7 and Chapter 13 Bankruptcies, Chapter 11 Bankruptcy is a complex arrangement and does not succeed all the time. It usually takes a year to get the plan approved.
The Step-by-step Process Of Filing Bankruptcy
Several steps are involved in a California bankruptcy filing process. With the help of an attorney, it becomes more comfortable and less time-consuming. Here is a brief listing of the steps involved in the bankruptcy filing.
Collecting necessary documents
Various documents must be gathered as the first step to filing bankruptcy. They include asset information and income verification documents, details of creditors, and tax returns.
Preparing and submitting the forms
The petition and schedules must be filled in and submitted along with the prescribed fee. The attorney can help to fill in all the details accurately.
Provide statements to trustee
Necessary documents, especially state tax returns information, must be provided to a trustee appointed for the case.
Attend a 341 meeting
After the form submission, the debtor has to attend a 341 hearing. The trustee will ask various questions to the debtor in the session.
The debtor must attend a second counseling session after the 341 meeting. They must file a B23 form after the session as proof of course completion.
Filing for bankruptcy is a preferred way to get out of debt in San Diego. However, the individual or business should qualify for filing the right type of bankruptcy. Individuals and sole proprietorship concerns can opt for either Chapter 7 or Chapter 13, depending on whether they seek liquidation or reorganization, respectively. Partnership firms and corporations are better off considering filing Chapter 11 as it helps them continue with the business and repay the debts simultaneously under an approved restructuring plan.