There are actually several types of bankruptcies, each with their pluses and minuses. Individual consumers are primarily eligible to file for Chapter 7 or Chapter 13 bankruptcy, and occasionally for Chapter 11 bankruptcy. There is also another option called Chapter 12 bankruptcy, but it is rare in Los Angeles. It’s appropriate for farmers and fishermen.
Chapter 7 bankruptcy is what is known as an individual liquidation. Basically, you wipe everything out and you start over. Chapter 13 is what is known as an individual reorganization, and with this option you basically pay back some of your debt over time. Chapter 11 bankruptcy is usually for businesses. However, if you have a large amount of debt as an individual, then you may not qualify for Chapter 13 bankruptcy. Which leaves filing as Chapter 11 as a possibility. And again, Chapter 12 exists, but it is mainly for farmers and fishermen.
What all of these options have in common is that they are designed to help you stop repossession, stop foreclosure, stop lawsuits and perhaps even get your car back.
One of the big benefits of filing for bankruptcy is that once you file for bankruptcy you have what is called an “automatic stay.” It immediately stops all legal action against you and your property. With the automatic stay in place, I advise all my clients to answer the phone. The reason for this is that creditors often contact people without knowing they are in bankruptcy. So the best course of action is to let them know the situation — that is actually the best way to end the calls.