I own a California business, do I file under federal or California bankruptcy law?

In the state of California, as in other states in the US, bankruptcy provisions mostly consist of federal bankruptcy law, but California bankruptcy law does exist. There are a few rules and laws which are specified on a state level, and the provisions in a particular state will override federal considerations on those issues. Knowing what provisions may apply in your bankruptcy case is a matter of speaking with a qualified lawyer in your area.

Federal vs. California Bankruptcy Law

Typically, state-level provision regulations apply to exemptions from the bankruptcy, meaning what property (and what value of it) a person or business is allowed to keep when filing for bankruptcy will likely be governed by California bankruptcy law. This is primarily an issue for Chapter 7 bankruptcy, which requires the debtor who is filing bankruptcy to turn over assets. In California bankruptcy law, for example, the debtor in a Chapter 7 bankruptcy is offered what are referred to as two “systems” of provisions, each specifying different rules related to exemption levels. Which system a California bankruptcy falls under will depend on which is more beneficial for the debtor; the business or individual will be asked to choose one system when filing. 

Other states may use federal bankruptcy law provisions for exemptions, or may have their own particular bankcruptcy law provisions in place on a state level as well. The general difference to be expected state-to-state is that the levels, types, and amounts of property which may be kept separate from the bankruptcy, and not subject to liquidation, will vary. However, this mainly becomes an issue in Chapter 7 bankruptcy. If you are filing business bankruptcy, which is usually done under a Chapter 11 bankruptcy (especially for larger businesses) then you may not have to worry a great deal about California bankruptcy law, since the provisions regarding a Chapter 11 restructuring are set on the federal level. 

Getting Help

Bankruptcy can be a confusing time for a business and for individuals. To make sure you and your business are legally protected, you should strongly consider speaking with a lawyer