How Much Debt Do I Need to Have Before Filing for Bankruptcy?
There is no minimum amount of debt you need to have before you can file for bankruptcy. Whether or not you qualify to file for a certain type of bankruptcy will depend mostly on your debt-to-income ratio. For the most part, if you are an individual or married couple having trouble with your debts, you’ll most likely qualify for either a Chapter 7 or Chapter 13 Bankruptcy.
Qualifying for a Chapter 7
Chapter 7 is the most filed bankruptcy amongst individuals. If you find yourself owing more money to creditors than you have, or can foreseeably earn, Chapter 7 is the best option. The assets you own will be liquidated and used to pay off your debts. After that, the bankruptcy is usually dismissed. Chapter 7 is often referred to as a “fresh start”.
There is no specific dollar amount of debt needed to qualify for a Chapter 7. To determine eligibility, you must take a means test as provided by the U.S. Bankruptcy Court. The test is designed to consider income, expenses, and family size. If your income is too high or if you’ve filed bankruptcy in the recent past, you may become ineligible for a Chapter 7.
Qualifying for a Chapter 13
Chapter 13 works best for people who don’t qualify for Chapter 7 but still need debt relief, have non-dischargeable debts like child support, or have fallen behind on house/car payments and want to/can catch up on payments.
The actual amount varies with the consumer price index, but in general, an individual who wants to file a Chapter 13 must have no more than $349,725 in unsecured debt (credit card bills, personal loans) and no more than $1,184,200 in secured debts (mortgage, car loan).
Chapter 13 is often called the “wage earner” bankruptcy, because you must have a reliable source of income. Your finances are reorganized into a plan that allows you to pay your creditors over three to five years while maintaining control and ownership of your assets.
Non-Dischargeable Debts
While bankruptcy can be a viable solution for dealing with your consumer debts, remember that it doesn’t eliminate all kinds of debt. You will still be on the hook for certain debts, including:
- Government Debts: back taxes, student loans, etc.
- Family Court Debts: alimony, child support, etc.
- Crime Debts: traffic tickets, fines, restitution payments, etc.
Hire a Bankruptcy Lawyer
Hiring a lawyer is one of the most important steps in determining your eligibility, successfully filing bankruptcy, and avoiding legal consequences. Bankruptcy can be a lengthy process, sometimes lasting years. An experienced bankruptcy lawyer will be familiar with the law and can help you meet all your deadlines. Failure to meet certain requirements may result in the case being dismissed without any of the debts being discharged.