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Must you have a specific amount of debt to file for bankruptcy?

On Behalf of | Feb 16, 2024 | Bankruptcy |

Medical issues, a layoff or business setbacks can lead to a pile-up of bills. If you reach a point where you cannot handle your debts and expenses anymore, you could wonder whether bankruptcy is the answer.

Choosing this route could ease the pressure from persistent creditors and offer a chance for a new beginning. Yet, there are certain conditions the government sets for filing. Do those requirements include that you have a specific amount of debt before you can file?

The government does not impose a minimum debt requirement

Fortunately, the government does not set a predetermined number for how much you must be in debt before you can file for bankruptcy. Each person’s circumstances are unique, and the primary qualifying factor revolves around whether you can repay your debts within a reasonable amount of time.

At the same time, trying to file for bankruptcy for only a few thousand dollars in debt may not be the optimal course. The reason is it takes years to fully recover from this process. With smaller debt loads, you might be able to manage it in the same or less amount of time with other forms of restructuring, a new job or other forms of assistance.

For those reasons, various financial professionals recommend that bankruptcy may not be a good option until a person has at least $10,000 in dischargeable debt. However, this is not a rule, and each person has to determine which option suits their circumstances.

Chapter 13 filings have a maximum debt amount

Chapter 7 and Chapter 13 bankruptcy offer different approaches to managing debt. Chapter 7 requires selling most of your assets to pay off creditors. This process is typically quicker, usually lasting some months, and is available to individuals with limited income or assets.

On the other hand, Chapter 13 is “reorganization bankruptcy” and involves creating a repayment plan to pay off debts over three to five years. This chapter allows individuals to keep their assets and catch up on missed payments, like mortgages or car loans.

Chapter 13 is suitable for those with a regular income who can afford to make monthly payments but need assistance restructuring their debt. However, to qualify for this plan, your total debts must be less than $2,750,000.

While there is no minimum debt limit for bankruptcy, you still need to understand your financial situation and goals to determine whether it is the right option. If your debts prevent you from covering life’s necessities, bankruptcy can help you get a fresh start.

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