What Determines If Bankruptcy Is Right For You?

One of the first questions many clients have for a bankruptcy attorney is often about whether the process is the right choice for them. A bankruptcy lawyer can't make the decision for you, but they can point out what might determine how you'll proceed.


If you're thinking about filing for Chapter 7, the simplest factor is usually income. Petitioners who make less than their state's median income automatically qualify for Chapter 7 bankruptcy. The only bar to this is if you have filed a Chapter 7 case within the last 8 years and the court granted it.

Bear in mind this doesn't mean folks over the median income can't file. It just means the filers below that threshold get a fast track. Those over the threshold will have to provide proof of income, and they'll likely also have to show they have severe debt levels.

Judges usually base income qualifications on a filers' recent tax returns. However, if you experienced a recent drop in income, you may be able to present your last few months' pay stubs as proof. If you didn't file taxes or earn taxable income, then you'll have to present other evidence of what your situation is, such as records of Social Security, unemployment, or disability payments.


Another factor is whether you have sufficient debts to justify bankruptcy. There is no hard standard on this front. However, a person filing for Chapter 7 should be able to demonstrate that they can't reasonably expect to ever pay down their debts under the circumstances.

Individuals filing Chapter 13 and businesses filing Chapter 11 will have to do a little more. These are restructuring processes. A petitioner asks the court to reduce their debt load in exchange for making and following a payment plan.

Note that the type of debt matters, too. Generally, Chapter 13 is best for people with secured debts. These are things like car loans and home mortgages where the lender can take back a piece of real property to settle the matter. You can't ask to keep secured property in most Chapter 7 scenarios.

Creditor Objections

This is almost exclusively an issue in Chapter 11 filings, and those largely involve businesses and individuals with debt loads over $1 million. If you're in that situation, though, your creditors have the right to object. Also, they can propose a plan that's different from yours. Folks filing Chapter 7 virtually never encounter this, and the Chapter 13 process ignores all but the most serious objections.