The Minimum Debt Amount for Bankruptcy
In its most basic sense, filing for bankruptcy could be your best course of action to get out of a serious debt situation.
When you have more money owed than what you are able to pay your creditors, then you can file for a bankruptcy case already. In other words, there is no minimum amount needed for you to file for a bankruptcy case. This is because people’s debt situations differ from one another and individual circumstances are big factors to consider.
The Depending Factors
There are four major reasons why or why not it would make sense for you to file for a bankruptcy case:
- It is a matter of whether or not you can repay your debts without the help of a bankruptcy case to back you up.
- It is a matter of whether your owed creditors are willing to go on a bankruptcy case with you. Filing for a bankruptcy case should work both ways since creditors still have the right to contest a filed bankruptcy case from their debtors.
- It is a matter of whether or not your debts will be discharged. Some debts are dischargeable, but there are 19 categories of debts that cannot be discharged. If your debt falls to the latter category, then you would need to come up with a debt repayment plan to be able to pay off.
- It is a matter of your financial circumstances. This involves your financial capacity at the moment and all the assets against your liabilities and debts you owe.
Also, you should keep in mind that every individual who is in debt holds a different debt threshold. This only means that a $10,000-worth of medical expenses can already be considered as a big debt for others while some might look at their debt of $2,000 to be the same. Because the threshold bars for debts are variable in every individual, then the bankruptcy situation of each will always be unique however their situation might be similar.
For debtors, a no minimum debt limit can be considered a big advantage. This allows any debtors who do not have the means to pay off their debts file for a bankruptcy case instead and be completely discharged of their debts. On the other hand, there is a maximum limit of debts that is allowed, especially in the Chapter 13 bankruptcy. Unless you want to be eligible for bankruptcy under the said chapter, then your secured debts should not be more than $1,149,525 and your unsecured debts over $383,175. The said amounts are periodically adjusted with regards to inflation.
The Better Bankruptcy Chapter: 7 or 13?
Though there are many bankruptcy chapters by which individuals or corporate bodies can file their cases, the most common type of these are the Chapter 7 and Chapter 13 bankruptcy.
Usually, you become eligible under the Chapter 7 bankruptcy due to insufficient income against your debt. How much debt do you need to file bankruptcy under Chapter 7? The answer is: none. There is no limit as how much debt you can have to be eligible either in secure or unsecured debts which makes Chapter 7 bankruptcy the easiest way out of your debts. It doesn’t matter even if you have as low as just $500 worth of debt. As long as your source of income is not sufficient to pay off your creditors, then you can file for a bankruptcy case under Chapter 7 to have your debts discharged and free you from your credit payment obligations.
On the other hand, filing for bankruptcy under Chapter would takes much longer. This is because the bankruptcy court imposes debt repayment plans to pay off creditors.
Also, you should take note of your assets when you are filing for bankruptcy. Chapter 13 allows you to keep all or most of your assets as long as you stick to the repayment plan approved by the bankruptcy court. Under Chapter 7, however, you have to relinquish ownership of your non-exempted assets to a bankruptcy trustee for liquidation. The revenue taken from these properties are usually used to pay off your creditors.
Is filing for bankruptcy the answer to eliminate ALL your debts?
If you wish to eliminate all of your debts at once, a filed bankruptcy case would not be a panacea for your debt problems. The bankruptcy court dictates that there are just some debts that cannot be discharged because they are too important and they require to be paid. Some examples of these are alimony and child support obligations, tax debts, as well as debts incurred due to fraudulent activities or accidents you have caused.
Filing for a bankruptcy case is one of the easiest ways for you to get out of your debts. However, there are limits and considerations as to whether it would be a good decision for your financial future. For example, debt discharges have a limit. So if your debts are too many to mention, make sure that you file for a bankruptcy case only when you really need it. Also, if you can work out an alternative such as negotiating with your creditors to pay them off instead of filing for a bankruptcy, then do it. A bankruptcy case can easily tarnish your good credit record and might take you years yet before you will be able to secure financial funding when you need it.
The Bottom Line
Though the Bankruptcy Code is followed in the United States for bankruptcy cases, different states also follow specific court jurisdictions. Because of this, it is better for you to hire an expert bankruptcy lawyer in order to give you counsel and assistance over filing your bankruptcy case. With a bankruptcy attorney to help you, your questions regarding bankruptcy and everything it entails can be easily answered.