Provided by the Bankruptcy Division of

Bankruptcy for Individuals

What types of bankruptcies are available to me?

The most common types of bankruptcies available to individuals are Chapter 7 and Chapter 13. Both provide for some possible payments to your creditors, supervision by a trustee, and possible discharge of your debts.

Chapter 7, also known as straight or liquidation bankruptcy, is designed for filers who have few assets they want to keep, or exempted from liquidation, while the valuable assets may be liquidated and used to pay off the debt, discharging the filers obligation to pay. Click here to learn more about Chapter 7 or to review the California Exemption Chart.

Chapter 13, also known as reorganization bankruptcy, is available to filers who have many valuable assets they want to keep including a home or car or earn too much to qualify for a Chapter 7, and the debts are restructured into a payment plan over 3-5 years where a percentage of the debts are repaid. Click here to learn more about Chapter 13.

Chapter 11, also known as corporate reorganization bankruptcy, is available to corporations since they do not qualify for a Chapter 13. It is also used for individual filers who exceed the maximum debt limits allowed in Chapter 13. Click here to learn more about Chapter 11.

I can’t afford the bills I have, how am I going to pay the attorney’s fees?

You may be wondering how you are going to come up with the money to hire an attorney and pay the filing fee if you already feel like you can’t pay the bills you have. It costs less than you might expect.

Consider the following example: If your unsecured debt is $35,000 and your minimum payment is calculated as Interest + 1% of the balance, then your monthly credit card payment is around $930 per month. This isn’t taking into account the possibility of a late payment causing the interest rates to increase. If you continued to pay just the minimum, without any new purchases or increases in your interest rate, it would take you 37 years to pay off the debt. 37 years! For about the same amount as two of these credit card payments you could hire a qualified local attorney and file for a discharge under Chapter 7. In as little as 4 months, you can take back control of your finances and put this difficult time behind you with a fresh start.

Let’s consider this same scenario as a debt settlement option: If you are able to negotiate your $35,000 debt down by 50% or $17,500, but your interest rate is raised to 20%, your monthly payments may be around $460.00. Better, but it will still take you well over 30 years to pay off the debt at the minimum monthly payment and you will pay hefty fees upfront and monthly maintenance fees to the debt settlement company with no guarantees for success.

Most importantly, how will bankruptcy impact my credit?

There is no clear answer to this question. If you are already behind on your bills, then your credit may already be damaged and a bankruptcy probably won’t make things much worse. Other than having the bankruptcy on your credit record for up to ten years from the date of filing, you may be in a better position to pay your living expenses if it wipes out your old debts. You will stop those harassing debt collectors and most likely be able to get new credit. If you do feel like you are being harassed, see Debt Collection FAQs for Consumers under our Resources section. The good news is that you cannot be denied public utilities, employment, student loans, or a driver’s license as a result of filing for bankruptcy.

The first step in considering bankruptcy is reviewing your current financial situation.

Ask yourself the following:

• Are creditors calling non-stop at home or at work?
• Do I have payments that are more than 30 days past due?
• Are my wages being garnished?
• Are there attachments on my bank account?
• Do I have any lawsuits pending against me?
• Do I have outstanding medical bills that are not covered by my insurance?
• Do I owe income taxes that I am not able to pay?
• Has any of my property been repossessed such as my car or home?
• Do I owe more than I can reasonably pay off in 5 years, excluding my home or car debts?
• Are most of my debts unsecured debts like credit cards, medical bills, etc.
• Do I posses little or no assets or property?
• Do I have little or no savings?
• Are your financial troubles negatively impacting your health and wellbeing or your relationship?

If you answered yes to any of the above, then you may want to seriously consider bankruptcy. Call The Law Offices of Tobias M. Lester at 415-230-5365 to schedule a free one-hour consultation to review your specific situation and determine if a Chapter 7 or Chapter 13 bankruptcy is right for you. We have convenient client meeting centers to serve you in Walnut Creek, Pleasant Hill, San Francisco, and San Jose.