Debtors need to be aware that there are several alternatives to chapter 7 bankruptcy filing. For example, debtors engaged in business, including corporations, partnerships, and sole proprietorships, might prefer to remain in business and avoid liquidating their assets. Such debtors should look into filing a bankruptcy petition under chapter 11. Under a chapter 11 bankruptcies, the debtor may seek an adjustment of all of their debts.  They can do this by either reducing the debt or extend the time to repay the debt.  A sole proprietorship also may want to think about relief from their debts under chapter 13 of the Bankruptcy Code.

Additionally, individual debtors who have regular job and income may seek an adjustment of debts under a chapter 13 Bankruptcy. One good thing about chapter 13 is that it can allow individual debtors with an opportunity to save their homes from foreclosure as it allows them to “catch up”  on their past due payments.  This is done through setting up a payment plan. Moreover, the court may outright dismiss a chapter 7 case filed by an individual  when that persons debts are primarily consumer debts and not business debts.  This will be done if the court finds that the granting of relief would abuse of chapter 7. 11 U.S.C. § 707(b).

When the debtor’s “current monthly income”(1) is more than the state median income, the Bankruptcy Code requires the “means test” to be applied.  The means test is used to determine whether the chapter 7 filing is  considered to abusive. Abuse is presumed when the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $10,950, or (ii) 25% of the debtor’s non-priority unsecured debt, as long as that amount is at least $6,575. (2) The debtor can fight this presumption of abuse only by a showing special situations justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes this presumption that they are abusing the system, the case will generally be converted to chapter 13 (with the debtor’s consent) or may be dismissed. 11 U.S.C. § 707(b)(1).

You also need to be aware that any out-of-court settlement with creditors or debt counseling services might provide an alternative to a bankruptcy filing.