Debtors don’t need a certain amount of debt to be eligible for bankruptcy relief. In most cases, whether bankruptcy is the right choice for you will depend on:
Learning about the differences between Chapters 7 and 13 is also an important step when deciding whether bankruptcy is right for you.
If you don’t have much debt but want to file for bankruptcy, you’re free to do so. However, a bankruptcy court might find your filing concerning. Here’s why:
Before making a hasty decision to file for bankruptcy, consider whether you can afford to repay your debts outside of bankruptcy. If you have sufficient income, you might be able to pay off your debts without resorting to bankruptcy.
A credit counseling agency can help you determine whether you might be able to pay off your debts through a debt management program. But don't go to just any credit counseling agency—a shady organization might charge you for questionable services. Instead, try an agency approved by the U.S. Trustee. You can find a list by going to the U.S. Trustee website and clicking on “Credit Counseling and Debtor Education.”
If you can work out a solution directly with your creditors, you might not need to file for bankruptcy. In some cases, creditors might be willing to work with you to cure your default. By negotiating with your creditors, you might be able to:
You’ll want to try to settle debt with all creditors before choosing this option. It won’t make sense to pay some creditors only to end up filing for bankruptcy later. When deciding whether settling is the best option, be sure to take into account the federal income tax assessed on the forgiven debt, too.
Bankruptcy might not eliminate all of your debt. Certain debts, known as nondischargeable debts, are too essential to be discharged in bankruptcy, and if most of your debts fall into these categories, it might not be in your best interest to file:
Paying off nondischargeable debts in Chapter 13 bankruptcy. In many cases, filing for Chapter 13 bankruptcy can provide an affordable and convenient way to reorganize and repay nondischargeable debts through a three- to five-year repayment plan. Learn more about how the Chapter 13 repayment plan works and debts discharged in Chapter 13 but not Chapter 7.
Maximum debt limits for Chapter 13 bankruptcy. You can’t have more than $1,257,850 in secured debt or $419,275 in unsecured debt if you want to file for Chapter 13 bankruptcy (these amounts are adjusted every three years and are valid through April 2021).
Whether filing for bankruptcy relief is in your best interest will depend on the circumstances above, but some situations can tip the balance in favor of bankruptcy. Be sure to act quickly if a creditor is:
If you aren’t sure what direction is best for you, consider meeting with a bankruptcy lawyer. Not only will a bankruptcy attorney advise you of your options, but most offer a free consultation.