Bankruptcy is a court-supervised legal process that helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect financially troubled businesses.
In California, bankruptcy is governed by both federal and state laws. The federal Bankruptcy Code provides the framework for bankruptcy proceedings and is designed to give individuals and businesses a chance to eliminate or repay their debts under the protection of the bankruptcy court. There are several types of bankruptcy, including Chapter 7 (liquidation), Chapter 11 (business reorganization), and Chapter 13 (individual debt adjustment). Chapter 7 allows for the sale of non-exempt assets to pay creditors, while Chapter 13 involves creating a repayment plan to pay off debts over time. Chapter 11 is typically used by businesses to reorganize and continue operating. California has its own set of exemptions that determine what property an individual can keep in a Chapter 7 bankruptcy and may affect the details of a Chapter 13 repayment plan. It's important for those considering bankruptcy to consult with an attorney to understand how these laws apply to their specific situation and to navigate the complex legal process.