How Much Debt Do You Need To File For Bankruptcy?
There is a perception, and misconception, that debtors need to have high levels of debt to qualify for bankruptcy. In truth, although not generally in practice, if you have $1 of debt and no way to repay it, and your creditor is harassing you for repayments, then you would qualify for bankruptcy. I said it wasn’t a practical process since it would cost you more than $1 to file for bankruptcy. However, in law, there is no minimum debt levels for bankruptcy.
On the practical side of this issue, bankruptcy is useful for people who have debt levels that they cannot service in the short to medium term. None of us have a crystal ball so long servicing of debt shouldn’t be a consideration. This is also why a Chapter 13 bankruptcy is useful for many debtors. If you can service some loans – for example, your mortgage – while making small payments to unsecured creditors, then you may well keep your home while having those unsecured creditors discharged.
Chapter 13 normally takes 3-5 years to discharge and if your circumstances change, you may be in a position to seek a withdrawal of the petition and a resumption of your normal payments. Of course, if your circumstances change, then you may need to change to a Chapter 7 petition – this will see your assets sold off to repay creditors.
Debt levels need to be such that, given your current and foreseeable future income, you cannot service. If your debt levels have reached a point where you are struggling to survive financially, talk to a bankruptcy attorney. There are alternatives to bankruptcy and they can help you decide the right options.
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