Chapter 7 is available to both individuals and businesses. For individuals though, there are limitations on Chapter 7 eligibility based upon income. If, a person’s income is such that their Chapter 7 filing constitutes an abuse, then the bankruptcy court may dismiss or convert the case to a repayment plan under Chapter 13 or Chapter 11 of the Bankruptcy Code.

To determine an individual’s eligibility for Chapter 7, they must first pass a threshold test in which one’s current monthly income, as defined by the Bankruptcy Code, is compared to the average median income of a household of the same size, residng in the same state. If below-median, then the individual is automatically eligible to file for Chapter 7 bankruptcy. If above-median, however, the individual most complete the means test in order to determine eligibility.

The means test consists of an intricate formula of income minus expenses. If, after completing this formula, a person has too much monthly net disposable income left over, abuse is presumed; and, unless the person can rebut this presumption, they will be ineligible to file for Chapter 7. Notably though, some individuals are not subject to the Chapter 7 means test (e.g. individuals with primarily non-consumer debts, certain disabled veterans).

Chapter 13 is only available to individuals (including sole proprietors), and does not have any income based eligibility limitations. Rather, all individuals are generally eligible for Chapter 13 provided they earn regular income and have debts that do not exceed the debt limits set by the bankruptcy law. Specifically, to qualify as a Chapter 13 debtor, one must have less than $419,275.00 in unsecured debts and $1,257,850.00 in secured debts.

Chapter 12 is available to both individuals and businesses engaged in a farming or commercial fishing operation. To be eligible, the debtor must have regular annual income, as well as debts that do not exceed the debt limits set by the bankruptcy law. For farming operations, the aggregate debt limit is $10,000,000. And, for fishing operations, the aggregate debt limit is $2,044,225.

Moreover, for individual Chapter 12 cases, at least 50% of one’s income must come from the farming/fishing operation, and the debts must generally arise therefrom. Specifically, for individual farmers, more than 50% of their debt (excluding residential mortgages) must arise out of the farming operation. And, for individual fishermen, more than 80% of their debt (excluding residential mortgages) must arise out of the farming operation.

For business Chapter 12 cases, the business cannot be publically traded, must be at least 50% family owned and operated, and more than 80% of the business assets must relate to the farming/fishing operation.

Chapter 11 is available to both businesses and individuals. Importantly through there are few specific types of Chapter 11 debtors that get special treatment under the bankruptcy law, and the eligibility requirements vary for each. Specifically, a debtor whose primary business is the oeration of a single piece of income-producting property and who derives substantially all of its income from that property is a “single asset real estate” debtor (SARE).

To be a SARE debtor requires the operation of real property and the activities incidental thereto (other than residential real property with fewer than 4 residential units), and which generates substantially all of the gross income of a debtor who is not a family farmer.

Additionally, a Chapter 11 case is considered a “small business case” if it is filed by a “small business debtor” who has not elected subchapter 5. And, a Chapter 11 debtor is a “small business debtor” if they: (1) are engaged in commercial or business activities (excluding a single asset real estate business); and (2) have liquidated debts of not more than $2,725,625, of which at least 50% arose from the debtor’s business activities.

And finally, to be a debtor under subchapter 5 of the Small Business Reorganization Act (SBRA), one must: (1) make that election; (2) be engaged in commercial or business activities (excluding a single asset real estate business); and (3) have liquidated debts of not more than $7,500,000, of which at least 50% arose from the debtor’s business activities.