How Much Debt Do You Have To Have To Declare Bankruptcy?
If you cannot repay big bills, are behind on your mortgage payments, are at risk of foreclosure, are being hounded by bill collectors—or if you are experiencing any of the above—declaring bankruptcy may be the solution. Alternatively, it may not be.
Bankruptcy may help you decrease or eliminate debt, preserve your house, and put bill collectors away in certain situations. Still, it also comes with significant implications, including long-term harm to your credit score.
This, in turn, may impair your future borrowing capacity, increase your insurance premiums, and even make it more challenging to get work.
Federal courts adjudicate bankruptcy cases, consumer bankruptcy laws, and federal law distinguish six distinct categories. Individuals most often utilize Chapter 7 and Chapter 13, which are named after the parts of the federal bankruptcy legislation that outline them. Chapter 11, which is usually in the news, is mainly for corporations.
Chapter 7 bankruptcy, the most common variety, is also known as straight bankruptcy or liquidation. A court-appointed trustee may sell some of your property and use the money to reimburse some of your creditors, at which time your obligations are declared discharged.
According to certain conditions, the court may exclude specific forms of property from liquidation. These include your vehicle, clothes, household items, trade equipment, pensions, and a share of whatever home equity you may have. When filing for bankruptcy, you should specify the property you claim as exempt.
How much debt must you owe to file bankruptcy?
If you’re considering bankruptcy, you will probably factor in your debt load. Aside from the characteristics outlined above, there are many more signals that you might consider bankruptcy:
- Your capacity to repay your obligations in a non-bankruptcy situation
- The readiness of your creditors to deal with you
- Your capacity to repay the many forms of obligations that you have
- Additional conditions unique to your scenario
However, if you plan to file for Chapter 13 bankruptcy, you should know the debt limit. You may petition for bankruptcy even if you have minimal debt. On the other hand, a bankruptcy court may find your filing alarming. This is why:
- The limited-time period for debt collection. A creditor has a specific period in which to collect a debt. If the creditor does not bring a lawsuit within the statute of limitations period—typically two to six years—the creditor forfeits its rights (as long as the creditor does not hold a lien on the property). Perhaps it is best to wait until the statutory term has expired.
- Debtor status that is immune to judgment. Filers who have a little debt load are often “judgment proof.” They do not have any assets or income that a creditor may seize or collect. If you believe your status will not improve, there is little need to file.
- Negative influence on credit reports. Because bankruptcy has a long-term effect on a debtor’s credit record for seven to ten years, it’s critical to measure the advantage of debt discharge against the risk of long-term credit harm. Learn more about the post-bankruptcy lifestyle.
- Extra discharge time. A bankruptcy discharge is only granted once. So preserve your bankruptcy discharge. If you end up with thousands of dollars in medical debt, you’ll wish you’d filed sooner.