What Qualifies You for Bankruptcies?
Facing overwhelming debt can be one of the most stressful experiences in life, leaving you uncertain about your financial future and unsure of where to turn. Bankruptcy is a legal process designed to help individuals, couples, and businesses regain control over their finances, either by eliminating certain debts or restructuring repayment terms. However, not everyone automatically qualifies for bankruptcy, and determining your eligibility requires a careful review of your income, assets, debts, and long-term goals.
At Macco & Corey P.C., we guide clients through every step of the bankruptcy process with clarity, compassion, and decades of proven experience. As one of Long Island’s most respected bankruptcy law firms, led by attorneys who also serve as court-appointed bankruptcy trustees, we bring unmatched insight into how bankruptcy cases are evaluated and resolved. From your first consultation, our team works to understand your unique circumstances, explain your legal options, and develop a strategy that aligns with your needs.
There are several types of bankruptcy available under U.S. law, each suited for different financial situations. Chapter 7 bankruptcy, often called “liquidation” bankruptcy, allows qualified individuals or businesses to discharge unsecured debts, providing a fresh start. Chapter 13 bankruptcy, sometimes referred to as a “wage earner’s plan,” enables those with steady income to reorganize their debts into a manageable repayment plan over three to five years—often stopping foreclosure or repossession in the process. For businesses and certain individuals with more complex debt structures, Chapter 11 bankruptcy offers a way to restructure obligations while continuing operations.
Determining which type of bankruptcy you qualify for, and whether it is truly your best option, requires a detailed review of your financial profile. That’s where Macco & Corey P.C. excels. We take the time to assess your income, debt levels, and assets, apply the appropriate legal tests, and guide you toward the solution that will provide the greatest relief and the strongest foundation for your future.
Choosing Macco & Corey P.C. means choosing a legal team with over seven decades of combined bankruptcy experience, a history of filing thousands of successful petitions, and a reputation for integrity and personalized service. We not only help you navigate the complex legal requirements but also provide the reassurance and confidence you need to move forward. With our guidance, you can approach the bankruptcy process informed, prepared, and ready to take the first step toward financial recovery.
Understanding Bankruptcy: Definition and Context
Bankruptcy is more than just a legal filing; it is a structured process under federal law designed to give individuals and businesses a chance to reset their financial circumstances when debts become unmanageable. While it can provide significant relief, the type of bankruptcy you choose will shape your experience, obligations, and long-term financial outlook. The U.S. Bankruptcy Code offers several chapters, but the three most common for individuals and businesses are Chapters 7, 11, and 13. Each has its own purpose, eligibility rules, and procedures.
Chapter 7 Bankruptcy – Liquidation for a Fresh Start
Chapter 7 is often considered the most direct path to debt relief. It is intended for individuals or businesses who cannot realistically repay their debts. In this process, a court-appointed trustee reviews your non-exempt assets, property that is not protected under bankruptcy exemption laws, and may sell them to repay creditors. Many filers are surprised to learn that exemptions can protect most or all of their property, such as a primary residence, personal belongings, or retirement accounts. Once the process is complete, most unsecured debts (like credit card balances, medical bills, and personal loans) are discharged, meaning you are no longer legally obligated to pay them. However, certain obligations, such as student loans, child support, and recent tax debts, typically remain.
Chapter 11 Bankruptcy – Reorganization for Businesses and High-Debt Individuals
Chapter 11 is best known as a business reorganization tool, but it is also available to individuals with substantial debts that exceed Chapter 13 limits. This chapter allows a business to continue operating while restructuring its financial obligations under a court-approved plan. The goal is to create a sustainable repayment strategy that satisfies creditors while preserving the business’s ability to generate income. Chapter 11 can be complex and time-consuming, often involving negotiations with multiple creditors and detailed financial disclosures. For individuals, it can be a lifeline when other bankruptcy options are unavailable due to debt size or asset complexity.
Chapter 13 Bankruptcy – Repayment and Protection for Wage Earners
Chapter 13 is designed for individuals with a steady income who want to repay some or all of their debts over time while keeping their assets. Instead of liquidating property, you work with your attorney to create a three- to five-year repayment plan based on your income, expenses, and the types of debt you owe. This chapter is particularly useful for stopping foreclosure, catching up on missed mortgage or car payments, and consolidating unsecured debts into one manageable monthly payment. At the end of the repayment term, any remaining qualifying unsecured debt is typically discharged.
Each of these bankruptcy types serves a different purpose, and the right choice depends on your financial situation, your goals, and the legal requirements for eligibility. Understanding these distinctions is essential before moving forward, as the chapter you file under will determine both the process you follow and the relief you receive.
Common Myths and Misconceptions Regarding Bankruptcy
Bankruptcy is often surrounded by misinformation that can discourage people from seeking the relief they need. Clearing up these myths is an important step toward making an informed decision about your financial future.
Myth 1: Filing for bankruptcy means you will lose everything you own.
Many people believe that bankruptcy automatically means forfeiting all property. In reality, both federal and state laws provide exemptions that protect certain assets. This often includes your home, vehicle, personal belongings, and retirement accounts. In many cases, filers keep most or all of their property.
Myth 2: Bankruptcy permanently ruins your credit.
While bankruptcy will appear on your credit report for several years, it does not permanently prevent you from rebuilding your credit. Many individuals begin improving their credit scores within one to two years after discharge, and some even qualify for new credit or loans sooner than expected.
Myth 3: Only financially irresponsible people file for bankruptcy.
Life events such as job loss, medical emergencies, divorce, or economic downturns are common reasons for filing, not reckless spending. Bankruptcy is a legal tool designed to help people recover from situations often beyond their control.
Myth 4: You can only file for bankruptcy once.
While there are waiting periods between filings, you can file more than once if circumstances require it. The timing depends on the type of bankruptcy previously filed and the chapter you wish to file under now.
Myth 5: Bankruptcy eliminates all debts.
Bankruptcy can discharge many unsecured debts, but certain obligations, such as child support, alimony, most student loans, and some taxes, are generally not wiped out. An experienced bankruptcy attorney can help you understand exactly which debts will be affected.
By separating fact from fiction, you can approach the bankruptcy process with a clearer understanding of your options and the potential benefits it can provide.
Eligibility for Bankruptcy
Determining whether you qualify for bankruptcy is one of the most important steps in the process. Each chapter of the Bankruptcy Code has its own requirements based on income, debt levels, and financial circumstances. Understanding these criteria helps ensure you choose the right path and avoid unnecessary delays or complications in your case.
Qualifying for Chapter 7 Bankruptcy
To file under Chapter 7, you must pass the means test, which compares your average monthly income over the past six months to the median income for a household of your size in your state. If your income is below the median, you typically qualify. If it is above, you may still be eligible if your disposable income, after allowable expenses, is insufficient to repay your debts. You must also complete a credit counseling course from an approved provider before filing. Chapter 7 is generally best suited for those with significant unsecured debt and few non-exempt assets.
Qualifying for Chapter 13 Bankruptcy
Chapter 13 is available to individuals (not businesses) who have a regular income and whose debts fall within certain limits set by federal law. As of 2025, these limits are periodically adjusted, but generally include a maximum amount for both secured and unsecured debts. You must propose a repayment plan showing how you will make monthly payments for three to five years. This chapter is often chosen by those who are behind on mortgage or car payments but want to keep their property while catching up over time.
Qualifying for Chapter 11 Bankruptcy
Chapter 11 is open to both businesses and individuals, regardless of income level, and does not have the same strict debt limits as Chapter 13. It is typically used by businesses seeking to reorganize while continuing operations, or by individuals whose debts exceed Chapter 13 thresholds. To qualify, you must be able to propose a feasible reorganization plan that satisfies the court and your creditors. Because Chapter 11 is more complex and costly, it is generally reserved for situations involving substantial assets, high debt, or intricate financial structures.
Key Considerations in a Bankruptcy Case
When beginning a bankruptcy case, it is important to understand the legal and financial details that can directly affect the outcome. Under the Bankruptcy Code, the process is designed to balance relief for debtors with fair treatment of creditors. Before filing for bankruptcy, you must complete a credit counseling session through an approved credit counseling agency, which ensures that all alternatives have been reviewed. Once your petition is filed with the bankruptcy court, an automatic stay halts collection efforts from creditors, including bill collectors and lawsuits.
A bankruptcy attorney will guide you in disclosing your debtor’s assets, income, and obligations. This includes secured debts such as car loans or mortgage payments, and unsecured debts like credit card debt or medical bills. In Chapter 13 cases, you may propose a debt repayment plan or payment plan, while in Chapter 7 cases, some property may be sold through liquidation to satisfy unsecured creditors. Certain obligations, like child support and most taxes, remain even after a bankruptcy discharge.
Eligibility is often determined through the means test, which compares your income against the state median and evaluates your disposable income. Completing the means test form accurately is essential; mistakes in the means test calculation can affect your ability to qualify for chapter 7 bankruptcy. If your current monthly income is too high, you may still pursue Chapter 13, where a court-approved debt management plan allows you to repay debts over several calendar months or years.
Other important factors include your credit record and credit history, which are impacted for up to seven years, though many individuals rebuild credit sooner. A financial advisor may also assist in planning beyond the bankruptcy process to avoid future financial pitfalls. In rare cases involving business entities, private trustees, or large assets, proceedings may be handled differently by the United States Courts and overseen by a bankruptcy judge.
Because the rules are complex, professional guidance is crucial. A skilled attorney can provide legal representation, explain how personal liability is treated, and even negotiate a reaffirmation agreement if you wish to keep certain secured debts like a motor vehicle loan. Whether you have credit card bills, unpaid taxes, or personal injury caused obligations, filing for bankruptcy can create a structured path forward and the relief you need.
The Bankruptcy Filing Process
Filing for bankruptcy is a structured legal procedure with strict rules, deadlines, and documentation requirements. While the process can seem overwhelming at first, understanding the steps involved, and having experienced legal guidance, can make it far more manageable.
Key Steps in Filing for Bankruptcy
Initial Consultation and Case Evaluation: The process begins with a thorough review of your financial situation. This includes analyzing your income, expenses, assets, debts, and recent financial transactions to determine whether bankruptcy is the right solution and, if so, which chapter best fits your needs.
Credit Counseling Requirement: Before filing, you must complete a credit counseling course from an approved provider. This course provides an overview of your debt relief options and is a mandatory prerequisite under federal law.
Preparing and Filing the Petition: Your bankruptcy petition includes detailed schedules of your assets, liabilities, income, expenses, and a statement of financial affairs. Once filed with the bankruptcy court, an automatic stay goes into effect, stopping most collection actions, lawsuits, wage garnishments, and foreclosure proceedings.
Meeting of Creditors (341 Meeting): About a month after filing, you will attend a meeting with the bankruptcy trustee and any creditors who choose to appear. You will answer questions under oath about your financial situation and the information in your petition.
Plan Confirmation or Discharge: In Chapter 7 cases, the trustee will determine whether any non-exempt assets can be liquidated, and qualifying debts will be discharged once the process is complete. In Chapter 13 or Chapter 11 cases, the court must approve your repayment or reorganization plan, after which you will make payments according to the approved schedule.
Financial Management Course and Case Closure: Before receiving a discharge, you must complete a debtor education course. Once all requirements are met, the court will close your case, and you can begin rebuilding your financial life.
Necessary Documentation and Preparation
Bankruptcy requires full transparency about your financial affairs. Common documents include:
- Recent pay stubs or proof of income
- Federal and state tax returns (usually for the past two years)
- Bank statements and investment account records
- Mortgage and vehicle loan documents
- Credit card and medical bills
- A list of all assets, including real estate, vehicles, and personal property
- Records of recent large transactions or property transfers
Accurate and complete documentation is critical. Errors or omissions can delay your case or even result in denial of discharge.
Macco & Corey P.C.’s Role in the Filing Process
At Macco & Corey P.C., we handle every aspect of the filing process with precision and care. From the moment you contact us, we work to gather the necessary financial information, ensure all required forms are completed accurately, and file your petition on time. Our attorneys, who also serve as bankruptcy trustees, understand exactly what the court and trustees look for, allowing us to anticipate potential issues before they arise.
We prepare you for the 341 meeting, represent you in all court proceedings, and negotiate with creditors when necessary. Throughout the process, we remain your advocate, ensuring your rights are protected and that you achieve the maximum relief available under the law. With our guidance, you can move through the bankruptcy process confidently, knowing you have a team committed to securing the best possible outcome for your financial future.
Frequently Asked Questions About Bankruptcy Qualifications
1. How do I know if I qualify for bankruptcy?
Eligibility depends on your income, debts, and financial situation. A means test is used for Chapter 7, while Chapter 13 and Chapter 11 have different requirements.
2. Can I file for bankruptcy if I have a high income?
Yes, but you may need to file under Chapter 13 or Chapter 11 instead of Chapter 7.
3. Are there debt limits for bankruptcy?
Chapter 13 has specific secured and unsecured debt limits, while Chapter 7 and Chapter 11 do not have the same restrictions.
4. Do I have to be behind on payments to qualify?
No. You can file even if you are current on payments, but bankruptcy is usually considered when debts are unmanageable.
5. Will all my debts be discharged?
Not all. Student loans, child support, and certain taxes usually remain.
The attorneys at Macco & Corey P.C have well over 70 years of experience between them. This includes almost 30 years as partners in our Suffolk County-based practice, focused exclusively on bankruptcy and insolvency matters. Between private practice and service as trustees, our partners estimate we have been involved in over 100,000 bankruptcy cases. Contact us to put our expertise in bankruptcy to work for you and your unique financial situation.