Generally, a person or business can consider bankruptcy if their debts are greater than their assets plus income. Bankruptcy is not a decision to be taken lightly as your assets can be sold off and obtaining credit in the future can become very difficult. If you are considering filing for bankruptcy you must determine which Chapter you are eligible for. Each Chapter comes with its own set of rules and qualifying criteria. Remember, no matter which Chapter you ultimately file under, it is extremely important to retain an attorney to help you navigate through the bankruptcy process.
If you filing for Chapter 7 as an individual, the court will apply a means test to determine your income level if your current income is above the median income level of your state. If your income is above the median level the bankruptcy court will run through a series of calculations; this test is not something you need to study for. People with business debts do not take the mean test.
To conduct the means test, first the court deducts certain monthly expenses from your average monthly income over the last six months to determine your disposable income. The court will then decide if you have enough disposable income to make monthly payments on your debt. If you are able to make monthly payments you will not be eligible for Chapter 7 and have to file for Chapter 13 bankruptcy. Chapter 7 is reserved for those with low income or an inability to pay down debt gradually.
If you are a family farmer of fisherman you will probably be eligible for Chapter 12 bankruptcy. You must have regular annual income in order to qualify. Chapter 12 works similarly to Chapter 13 bankruptcy but is less complicated and expensive. Chapter 15 is the newest bankruptcy option, but is only available if you, your assets, or creditors are from other countries. If you do not qualify for Chapter 7, 12, or 15 bankruptcy you will qualify for Chapter 13.
If you are filing bankruptcy for a business, or are as an individual active in managing a business you can qualify for Chapter 11 bankruptcy. Chapter 11 is referred to as reorganization and will allow your business to stay alive and pay creditors over time.
Keep in mind there is a limit to how frequently you can declare bankruptcy. If you have recently filed for bankruptcy you must wait a few more years before filing again. The exact time limit depends on your situation. If you are considering declaring bankruptcy you can contact Stone Law at 732-444-6303 or leave us a message on our website.