How Much Debt Do I Need to File Chapter 7 Bankruptcy in the United States?

The process of filing for bankruptcy can be a very complex one if you don’t have an expert to guide you. Many people ask the question: how much do I have to owe before I can file for bankruptcy?  In this article, we’ll answer that question and educate you on topics related to debt management.

In recent years, there has been a rise in bankruptcy filings. With the influx of bankruptcy cases, more may be wondering what bankruptcy actually looks like. In addition to answering your questions, it is important to understand the different types of bankruptcies. There is Chapter 7, Chapter 11, and Chapter 13 Bankruptcy. Read “Chapter 7 vs Chapter 13” or “Chapter 7 vs Chapter 11” to help understand the differences.

How Much Debt is enough to File Chapter 7 Bankruptcy?

There’s no threshold to determine when you can file for bankruptcy. You can even file for bankruptcy if you owe a $2,000 credit card debt. However, the fact that you can file for bankruptcy anytime does not make doing that a good idea and your bankruptcy petition may be thrown out if the bankruptcy court does not see a reason why it should be granted.

It’s important to realize that bankruptcy can vary slightly from state to state. For instance, if you are hoping to file for Chapter 7 bankruptcy in Florida, it may look a little different from an Illinois Chapter 7 bankruptcy.

Also, your income may determine the type of bankruptcy you should file for. For example, you’ll have to file under Chapter 13 bankruptcy if you don’t meet the income requirement for a Chapter 7 bankruptcy. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy if more of a repayment plan. If you opt to hire an attorney to help you file a Chapter 13 bankruptcy plan, then you may have to pay up to $3,500 as attorney fees alone. Chapter 13 debt limits are important to know for qualifying for a bankruptcy discharge. Also, you’ll be required to pay administrative fees to the bankruptcy court, and you won’t have the opportunity to incur any debt pending the time you receive a bankruptcy discharge from the bankruptcy court. As such, it is not a good idea to file for debt when the amount you owe is low.

However, if you don’t have many assets, and you meet the income qualification for Chapter 7, then you should file for a chapter 7 bankruptcy as it will help get rid of your debts in less than six months.

The only disadvantage with this method is that you won’t qualify for a Chapter 7 bankruptcy discharge till after eight years. Even if you have a disability, lose your job, or have a financial misfortune within the eight-year period, your debt won’t be forgiven until after eight years. And if you’re filing for Chapter 7 bankruptcy without an attorney, you need to be really careful as a single mistake can make you lose your assets or even have your case turned down. Filing for bankruptcy is dependent on where you are. For instance, if you are in Washington, read: “Washington State Bankruptcy” to understand more.

Income vs. Expenses vs. Debts

For example, let’s say you are considering filing a Chapter 7 bankruptcy in Indiana. Let’s say that your utility bill is very high in the winter. You may consider whether that utility bill will continue to be high in Indiana even in the summer.

You should take your time to consider all the debt relief options that are available before filing for any type of bankruptcy.

You should make a comparison of your income, expenses, and debt before making any serious financial decision. Is your income high enough to pay for your necessary expenses and debts? If it is not, then it may be time to seek a debt relief option,

Earn More Money

There are many ways to increase your income, and some of them include working overtime, getting a second job, making money from your hobby, etc.

Reduce your Expenses

The mistake most people make is that they raise the amount of money they spend once their income has increased; as such, you should always have it in mind that Increasing your income and your expenses won’t help you to reduce your debt. Sometimes, you may only need to reduce your expenses if you want to pay off your debt, other times, it’ll require a much drastic approach, such as reducing your expenses and raising your income.

Debt Management

We have a Savvy Debt Payoff Planner that will automate your budget to assist you in coming up with strategies that can help you pay off your debt fast. If you use this software, you will see results that will impress you.

Debt Settlement

You can try out some debt settlement plans along with working within your budget and increasing your income. If you appropriately negotiate with your creditors, they may be willing to reduce your debt. However, you should have it at the back of your mind that the money written off or forgiven is seen as a taxable income. You may not receive as good as of a discount if you face a debt collection lawsuit.

You can choose to negotiate with your creditors’ one on one or hire a debt settlement company to help with the negotiation.

How Long Will it Take to Pay Off Your Debts?

Another factor to consider before filing for bankruptcy is the length of time it will take you to pay off your debt if you don’t file for bankruptcy. If you’re on a tight budget, it may take you more time to pay off your debt than someone who can reduce his/her expenses and increase his/her income.

For example, if you owe the credit card company $10,000 and your payment schedule is $235 per month for a period of ten years, it means that you’ll be paying an interest of $18,000 on your $10,000 debt. As such, if you’re in a situation like this, then the best option is to file for bankruptcy.

In managing your finance, you should not make your choice based on another person’s debt relief strategy; even if you’re consulting a personal finance manager, you should listen to the options presented to you and choose the one that is most convenient.