How Do I Qualify for Bankruptcy? 6 Eligibility Tests by Chapter

Qualifying for bankruptcy has less to do with how badly things are going than most people assume, and more to do with what kind of debtor you are and what kind of debt you owe. The Code does not ask whether a person is broke. It asks who the person is, where the person is, and, depending on the chapter, how the debts are made up and how large they are.

Those questions live mostly in one statute, 11 U.S.C. 109, which sorts would-be debtors chapter by chapter. The six tests below follow it, with the means test and the counseling requirement added where they belong.

1. A Connection to the United States Comes First

Section 109(a) opens the statute with a threshold that almost every reader of this page clears without noticing: only a person that "resides or has a domicile, a place of business, or property in the United States," or a municipality, may be a debtor under the Code.

It rarely decides anything. It is still the first line.

2. Chapter 7 Excludes Certain Institutions, and Tests Some Individuals for Abuse

Section 109(b) lets almost any person file chapter 7, then lists the exceptions: railroads, domestic insurance companies, banks, savings institutions, credit unions, small business investment companies licensed by the SBA, and certain foreign insurers and banks operating in the United States. An LLC that runs a restaurant or a trucking company is not on that list and may file.

What an LLC does not receive in chapter 7 is a discharge, because section 727(a)(1) grants one only to individuals. The company qualifies to liquidate. It does not qualify to be forgiven.

For individuals, the second screen is the means test. Under section 707(b), the court may dismiss a chapter 7 case filed by an individual "whose debts are primarily consumer debts" if relief would be an abuse, and the Code defines consumer debt as debt incurred "primarily for a personal, family, or household purpose." A business owner whose largest obligations are guaranties of company financing may, on that definition, fall outside the test altogether. May is the operative word; whether a particular guaranty or a home equity line drawn to cover payroll counts as consumer debt is a question of fact, and the answer comes from the schedules rather than from the owner's sense of which debts feel like business.

3. Chapter 13 Admits Only Individuals, and Only Below Two Ceilings

Chapter 13 is closed to companies of every kind. Section 109(e) opens it only to "an individual with regular income" (or an individual and spouse) whose noncontingent, liquidated debts on the filing date are less than two separate figures: $526,700 unsecured and $1,580,125 secured, as adjusted April 1, 2025. They are two tests, not one combined total. A sole proprietor qualifies as an individual, since the proprietorship is the person.

Guaranties are what push business owners over the unsecured line. An owner who signed for three merchant cash advances and an equipment loan can reach the ceiling without a single personal credit card, and whether each guaranty was contingent or liquidated on the petition date is itself a legal question.

The limits measure what is owed on one day. They take no interest in how it came to be owed.

4. Chapter 11 Is Open Wide; Subchapter V Has a Number

Section 109(d) opens chapter 11 to anyone who may be a chapter 7 debtor (stockbrokers and commodity brokers excepted), along with railroads and a narrow category of banking entities. Traditional chapter 11 has no debt ceiling at all.

Subchapter V, the smaller and quicker form of chapter 11 written for small businesses, runs through the definition of "small business debtor" in section 101(51D). As adjusted April 1, 2025, the debtor must be engaged in commercial or business activities, with aggregate noncontingent, liquidated secured and unsecured debts on the petition date of not more than $3,424,000, excluding debts owed to affiliates or insiders, and at least half of those debts must have arisen from business activity. Businesses whose primary activity is owning single asset real estate are excluded, as are public reporting companies and their affiliates.

Since June 21, 2024, when an earlier and higher limit expired, that figure has been the ceiling. In August 2026 the Senate passed a bill to restore a $7.5 million limit, and the House passed a companion bill in September, but as of September 27, 2026 neither had been enacted in identical form or signed. Anyone relying on the Subchapter V number should have counsel confirm it on the day of filing, because it may change on short notice (and possibly, depending on how any enacted bill is drafted, in a way that reaches cases already being planned, a detail no one can confirm until the text is law).

5. An Individual Needs a Counseling Certificate and a Clean Recent History

Section 109(h) bars an individual from being a debtor in any chapter without a budget and credit counseling session taken within the 180 days before filing, individually or in a group and including by telephone or online, from an agency the United States Trustee Program has approved. A short deferral exists for exigent circumstances when the debtor asked an agency for help and could not obtain it within seven days, but the counseling must still be completed within 30 days of filing, or 45 with the court's leave. A permanent exception covers incapacity, disability, and active military duty in a combat zone.

Section 109(g) adds a disqualification tied to the past: no individual may be a debtor within 180 days after a prior case was dismissed for willful failure to obey court orders or to appear, or was voluntarily dismissed after a creditor asked for relief from the stay. Companies take no counseling and are not governed by 109(g). Their entry requirement is different: a lawyer, and proper authority under state law to file.

6. Insolvency Is Not One of the Tests

Only one chapter in section 109 requires the debtor to be insolvent, and it is chapter 9, which belongs to municipalities. Chapters 7, 11, and 13 contain no such condition. A business whose assets still exceed its debts may file, and one that is hopelessly insolvent does not thereby qualify for anything it would not otherwise have.

But a court can dismiss a case that is filed without a genuine purpose, and the means test and the Code's for-cause dismissal provisions exist for that reason. Qualification is the door. What happens inside depends on the rest of the Code.

Before the Eligibility Question Is Asked

Some owners who ask whether they qualify are really asking whether they have to. Delancey Street is a settlement company and not a law firm; it does not assess bankruptcy eligibility or advise anyone to file. It negotiates merchant cash advance balances and related business obligations outside court, starts with a confidential review of the contracts and account history that carries no charge, and refers legal questions to counsel licensed independently of it. An owner whose guaranties already exceed what any funder would compromise, or who is facing levies now, needs a bankruptcy lawyer and these six tests.

The statute is a list of doors, each with its own lock. Most owners find they fit more than one of them.