Filing for bankruptcy sounds incredibly intimidating, and it often has exactly the type of negative impact on credit reports that many fear.
But it can also be a necessary way to stop digging deeper into debt and start building a way out of whatever financial mess you might find yourself in.
Understanding Bankruptcy Rates in California
In addition to being the only way out for a wide range of individuals and businesses that find themselves in financial trouble, looking at overall bankruptcy rates can provide mountains of insight into the quality of the economy of a particular state.
California had more bankruptcy filings than any other state in 2021 through May. You could certainly argue that the state with the largest population should have the most people filing for bankruptcy, but California still posted nearly twice as many bankruptcy filings as some of the next largest states in terms of population.
The most common explanation for the high bankruptcy rates in California is the high cost of living that residents must contend with. After that, you could start talking about income disparities and taxes. But at the end of the day, the numbers show that bankruptcy is way more common here in the Golden State than anywhere else in the country.
Chapter 7 Bankruptcy Rates in California
Chapter 7 bankruptcy deals exclusively with unsecured debt. In these cases, individuals can gather and sell their nonexempt assets to settle what they can of their unsecured debts and then walk away from whatever remains. This is the most common chapter for individuals.
As of May, 87% of the bankruptcies filed in California in 2021 were chapter 7 bankruptcies, and that number works out to over 16,000 cases.
Chapter 11 Bankruptcy Rates in California
Companies most commonly file chapter 11 bankruptcy as this chapter allows them to continue to operate while working out a debt repayment plan with the court system. In many cases, businesses will refer to their time in chapter 11 as a “reorganizing” or “restructuring.”
Through May of 2021, the state of California had recorded just short of 250 chapter 11 bankruptcy filings for the year.
Chapter 13 Bankruptcy Rates in California
Typically used by both individuals and businesses, chapter 13 bankruptcy filings are utilized by filers that earn too much income to qualify for chapter 7. In most cases, these filers will be able to retain their nonexempt assets and work out a 3-5 year repayment plan for their outstanding obligations.
It’s also worth noting that many bankruptcy attorneys charge much lower rates for chapter 13 bankruptcy filings than they do for chapter 7 or chapter 11.
The remaining 11% of 2021 bankruptcy filings in California through May of 2021 fell into the chapter 13 bucket, which works out to be about just over 2,000 cases.
While the percentage splits between the types of bankruptcies here in California are almost the same as the splits in New York, there is no denying that we have way more of each kind of bankruptcy out west.
Make sure that you are factoring these numbers for any credit or collection activities you conduct in California throughout the next few months.
