Sometimes life may lead you to economic hardship as a result of economic slowdowns, job cuts, divorces, deaths in the family and various other personal events from which help is needed.

There are many options on how to resolve your financial issues.

Bankruptcy is the legal process designed for individuals and businesses who are unable to repay some or all of their debts.


Bankruptcy law is the balance between relieving the obligations of debtors (a person or business who owes money) to satisfy their needs for a fresh start and the rights of creditors (those to whom money is owed) right to be paid.

About collection actions

Once your bankruptcy case is filed, there will be an Automatic Stay. This is a judicial order that will prohibit creditors from proceeding with all collection actions. If your creditor continues with collection actions they might have to pay penalties for damages and contempt of court. The automatic stay continues until the discharge is entered or the case is closed, or by separate order of the bankruptcy court.

In the given event that there is no equity in real estate and the debtor is not making their monthly mortgage/secured debt payments, which are required, the bank secured by the property can seek to request a foreclosure on the property. This is a way for creditors to seek “relief” from the automatic stay.


The Different Bankruptcy Chapters

There are different types of chapters in Bankruptcy. The one you may file for depends on the specifics of your situation and what you are eligible for.

Individuals may file for Chapters 7 and 13. Businesses may file for Chapter 7 to liquidate or Chapter 11 to reorganize. There are other Chapters for railroads, municipalities and foreign insolvency proceedings, but they will not be examined here.

What Happens If I Owe Taxes?

Not all debts are dischargeable in bankruptcy. Congress has excluded many debts from discharge, such as domestic support obligations, some tax obligations less than 3 years old, student loans and others. Some debts are dischargeable unless the creditor takes action to object to them by a deadline in the bankruptcy case. Could be debts incurred through fraud, willful and malicious damage to property, breach of fiduciary duty and others.

Chapter 7 Bankruptcy:

An individual or a business debtor may file for bankruptcy Chapter 7 when they simply do not have enough income or assets to pay their debts with. Thus, if you qualify for Chapter 7, you do not have to make any payments and you get rid of all dischargeable debts. The trade-off is that in Chapter 7 you give up any non-exempt assets/property that you own or to which you own the rights.

Every state has different exemption laws that protect different assets in different amounts. Which state’s (or federal) exemption law applies in a case depends on where the debtor has resided for 2.5 years prior to filing the case.

Chapter 13 Bankruptcy:

Chapter 13 is for individuals who plan on repaying their debts to make installments to creditors over 36 – 60 months. The length depends on need and income received in the 6 months prior to filing the case.

Corporations and partnerships cannot file Chapter 13.

You get to keep all your assets/property in a Chapter 13. Nonetheless, you must pay out to the creditors at least as much as they would have gotten if your case was filed under Chapter 7.

The repayment can be anywhere from 0% to 100% of unsecured debts, depending on:

  1. The amount of non-exempt assets;
  2. Ability to make payments
  3. Amount of necessary debts being paid 100%. Some debts must be paid 100% in a Chapter 13. For example, if you are catching up on past due mortgage payments, those must be paid in full over the course of the Plan.

Chapter 11 Bankruptcy:

An individual cannot file under Chapter 11 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court. Chapter 11 is very similar to Chapter 13, but there are a few differences:

  1. In Chapter 11, creditors do get a vote on the proposed plan (except in the newly created “small business case” subchapter).
  2. Enough votes have to be received, otherwise you may be required to pay 100% of the debts over time or make a contribution of “new value” to the payment plan.
  3. There are monthly reporting requirements and quarterly fees which must be paid to the US Trustee.

Should You File Bankruptcy And If So, Which Chapter?

Sometimes your solution may not be bankruptcy. We have helped clients resolve their financial matters by not recommending that they declare bankruptcy. Sometimes we recommend short sales, consolidation, sales of assets, and other alternatives to bankruptcy when it makes sense.

Therefore, if you are looking for a firm that can help you explore your financial options before filing for bankruptcy, contact Moreno & Associates at (760) 631-5330 for Vista, CA office or (619) 422-4885 for Chula Vista, CA office. Our experienced attorney will discuss all of your options and explore which ones make sense for you!