Bankruptcy is a way individuals and businesses can legally pursue the means to eliminate or restructure their debts. It provides relief to those who are struggling under the burden of debt and cannot reasonably repay their creditors. But can anyone file for bankruptcy?
Who Can File for Bankruptcy?
The simple answer is, anyone can file bankruptcy. Individuals, partnerships, corporations, and other types of business entities can file for bankruptcy. However, the requirements for filing and the types of bankruptcy available vary depending on the entity.
For individuals, there are two main types of bankruptcy:
- Chapter 7 bankruptcy is sometimes referred to as “liquidation” bankruptcy because the court-appointed trustee may sell some of the debtor’s non-exempt assets to repay creditors. However, most often,the debtor’s assets may be exempt from liquidation, and most unsecured debts (such as credit card debts and medical bills) are discharged or eliminated. To qualify for Chapter 7 bankruptcy, the debtor must pass a means test that compares their income to the median income in their state. If the debtor’s income is below the median, they automatically qualify for Chapter 7 bankruptcy. If their income is above the median, they must pass a second means test that considers their expenses and other factors to determine their eligibility.
- Chapter 13 bankruptcy involves a repayment plan that lasts three to five years. The debtor must have a regular income and their debts must fall within certain limits. In a Chapter 13 bankruptcy, the debtor repays their debts over time according to a court-approved plan. Often, the debtor only has to repay a portion of the initial debt. At the end of the repayment period, the court discharges any remaining unsecured debts.
For businesses, Chapter 11 bankruptcy is the most common type of bankruptcy. It allows businesses to restructure their debts and continue operating, rather than liquidating their assets and shutting down. Chapter 11 bankruptcy is a complex process that involves negotiating with creditors, creating a repayment plan, and getting court approval.
Are There Any Restrictions on Filing for Bankruptcy?
While almost anyone can file for bankruptcy, there are some restrictions and limitations.
First, the bankruptcy court will not discharge certain debts, such as most taxes, child support,and alimony payments.
Second, there are certain time limits before a debtor can file for bankruptcy if filed previously. For example, if the debtor received a discharge under Chapter 7 bankruptcy, they must wait eight years before they can file for Chapter 7 again or four years before filing a Chapter 13. If the debtor received a discharge under Chapter 13, they must wait two years to file Chapter 13 again, or up to six years before filing Chapter 7.
Third, if the debtor has engaged in certain types of fraudulent behavior, such as hiding assets or lying on their bankruptcy petition, the Bankruptcy Court may bar them from filing for bankruptcy.
Getting Help Filing Bankruptcy
So, yes, anyone can file for bankruptcy under certain eligibility requirements and limitations. But it is important to consult with an experienced bankruptcy attorney to determine your eligibility for bankruptcy and your best options for debt relief. A bankruptcy attorney can help you navigate the complex process of filing for bankruptcy and can advise you on the best course of action for your specific financial situation.
Brock and Stout’s bankruptcy attorneys have over 25 years of experience helping clients achieve financial fresh starts. Contact us for a free evaluation of your financial situation to see how we could help you.