Which chapter is best for a California business bankruptcy?

If you are running a business in California, or anywhere else in the US for that matter, there are a few different potential options for declaring a California business bankruptcy. Options for bankruptcy in California come from different chapters of the federal bankruptcy code. Choosing which chapter is best can be tricky, however, it must be done on an individual basis depending on the circumstances of your particular business.

Your Options for California Business Bankruptcy Filing

The best option for a California business bankruptcy will depend on how your business is structured and on what you want out of that business bankruptcy. There are really three main options that you could potentially choose from, although these three options may not be available to every California business. These options include:

• Chapter 7: A personal Chapter 7 bankruptcy is appropriate for those whose incomes are below the California median and/or for those who pass a "means" test to show the lack of available income to repay debts. Chapter 7 personal bankruptcy is  often the best choice for those whose business is a sole proprietorship. In such cases, you and your business are one in the same and you won't be able to separate your business and personal assets and debts. The upside to Chapter 7 is you will have most, if not all, of your debts forgiven. The downside is you will be required to turn over all non-exempt assets for sale. 
• Chapter 13: A Chapter 13 bankruptcy is also appropriate for those who don't have significant legal separation between their personal finances and their business. This option is chosen by those who wish to keep their assets or by those who make too much in income to qualify for Chapter 7 eligibility. This option lets you and your business keep assets, but requires that a 3-5 year repayment plan be created and agreed to by creditors. 
• Chapter 11: A Chapter 11 bankruptcy is designed specifically for business bankruptcy. It allows for the restructuring of debts while a business maintains assets necessary to function. The control of the business, and its funds, may be vested in a trustee. This option is usually the most complex and expensive and is appropriate for larger businesses and/or businesses that have a separate legal identity than their owners, such as corporations. 

Getting Help

If your business is facing California business bankruptcy, you should consult with a lawyer. Your attorney can explain your options for filing bankruptcy in California so you can make the right choice for you and your business.