There's no such thing as too much or too little debt when it comes to Chapter 7 bankruptcy. But, there are a lot of important factors to consider when determining if filing bankruptcy now is the best debt relief solution for you.
Written by Attorney Eva Bacevice.
Updated September 28, 2020
There is no threshold amount that you need to reach to file a bankruptcy. Some chapters of bankruptcy have debt limits, but there is no such thing as a debt minimum. That being said, you certainly can and should evaluate if filing a bankruptcy makes sense in your current situation.
The better question to ask is do I qualify for a Chapter 7 and will it afford me the relief I am seeking?
Is bankruptcy the best solution for your current situation?
In order to determine if bankruptcy is the best solution to your current situation you must first determine if you are qualified to file a Chapter 7 case. Chapter 7 bankruptcy is what most people think of when they are considering filing a bankruptcy, which is a total liquidation. In a Chapter 7 case you can walk away from your debt in a relatively short period of time (4 to 6 months) and get a fresh start.
Are you qualified to file a Chapter 7?
This is determined by seeing if you qualify under the means test. You will qualify if your current monthly income (or CMI, the average of your last six months of income) is below your current state median limit. If your CMI is more that your state median income you can go through the means test calculation to see if you qualify.
Are your debts dischargeable?
Even if you do qualify to file a Chapter 7 case you want to make certain it will give you the relief you are seeking, a true fresh start. To determine this it is important to look at the type of debts that you are seeking to discharge. Most debts (including both secured and unsecured) are fully dischargeable, although discharging a secured debt likely means surrendering the collateral.
There is another category of debts called priority debts, which are generally non-dischargeable, meaning these debts will survive a bankruptcy filing. Priority debts include child support, alimony payments, tax debts and student loan. If the bulk of your debts are non-dischargeable filing a bankruptcy will not give you a full fresh start and may not be the best solution for you. You may want to consider reasonable alternatives, such as working with creditors to create a payment plan.
Have you considered the costs?
Filing a Chapter 7 bankruptcy does come with certain costs. There are the monetary costs, such as the filing fees and costs of credit counseling and attorney fees, if you hire a private attorney. There are also non-monetary costs to consider.
Is this the right time to file a bankruptcy?
If you file a Chapter 7 case that is successfully discharged you are unable to file another Chapter 7 and receive a discharge for 8 years. While it is impossible to predict upcoming unexpected financial difficulty, you should still think about your current level of debt as you try to decide if filing a case now is worthwhile.
It is also important to consider if there is significant financial strain on the horizon, such as a medical issue that may prevent you from working for the foreseeable future. Remember that while bankruptcy can be an important remedy the best scenario to file is when the discharge of debts will resolve your financial difficulty and set you up for success going forward.
While there is no official minimum debt amount to file a Chapter 7 bankruptcy case there are still a lot of important factors to consider when determining if bankruptcy is the best solution for you.