Qualification When Applying for a Federal Debt Relief System

Personal Chapter 7

If you earn less than your state's annual median income level, you automatically qualify to apply for Chapter 7 bankruptcy protection. As of 2011, the annual median income for a family of four in Arkansas was $54,401, while the same family in Connecticut could qualify for Chapter 7 earning up to $103,314 annually, according to the U.S. Trustee Program. Chapter 7 eliminates many of your pre-existing bills and stops most creditors from suing you. But no type of bankruptcy can resolve tax debts incurred less than three years prior to case filing, child support, alimony or criminal activities.

You must file Chapter 13 bankruptcy if you earned too much money to file Chapter 7 and could not get a United States Bankruptcy Court judge to grant an exception. Chapter 13 creates a partial debt repayment plan. As of 2011, the collateral-secured debts could not exceed $1,081,400 and unsecured obligations could not exceed $360,475. Chapter 13 takes three to five years to complete, and during this time you cannot get new credit without a judge's permission. You also must complete pre-bankruptcy credit counseling and another financial counseling session before your case is discharged; this rule also applies to personal Chapter 7 bankruptcy.

If you own a business and are willing to dissolve its operations, you can file corporate Chapter 7 bankruptcy, according to the U.S. Securities and Exchange Commission. You must hire an attorney to handle any type of business bankruptcy case. Court officials will sell your business assets, distribute any proceeds to your creditors and stockholders and absolve you of all business-related debts.

Chapter 11 is the only federal debt relief program that combines partial repayment of business and personal debts. Self-employed people and business owners can restructure their financial affairs while keeping most of their business and personal assets. An attorney is required for Chapter 11, and in some cases a bankruptcy judge may recommend business or personal Chapter 7 as a better option.