The Bankruptcy Abuse Prevention & Consumer Protection Act, enacted in 2005, changed the federal law to the disadvantage of debtors. Now, the guidelines imposed are more stringent as to whether debtors may liquidate their debts through Chapter 7, or whether they must enter a repayment plan through Chapter 13. Now, among other things, a stricter financial means test is required and it is easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case.
Basically, there are five chapters of bankruptcy under which a debtor may file. Chapter 7 is a liquidation bankruptcy proceeding, in which all non-exempt assets are turned over to the bankruptcy trustee who converts it to cash for distribution among the creditors. Thereafter, the debtor receives a discharge of liability for all dischargeable debts. Chapter 9 is a mechanism applicable only to municipalities. Chapter 11 is known as 'Reorganization,' by which businesses are allowed to continue their operations while repaying creditors through a court-approved plan of reorganization. Chapter 12 applies to family farmers. Chapter 13 provides debt relief for individuals or consumers. Unlike Chapter 7, it enables the debtor to keep valuable assets while making payments to creditors over the life of the plan, usually three to five years.
Southern California bankruptcy lawyers are specialists in the area of the law which provides legal methods for an individual or business to either extinguish debts by liquidating assets and distributing them among creditors, or develop a court-approved reorganization plan involving the repayment of creditors over time.