Bankruptcy laws don’t require debtors to have a certain minimum debt amount to be eligible for bankruptcy relief. In most cases, whether bankruptcy is the right choice for you will depend on your individual circumstances. (Learn more about whether or not bankruptcy is right for you.)
There is no minimum debt requirement in bankruptcy. How much debt you have is certainly an important consideration when determining whether bankruptcy is in your best interest. But more importantly, whether it makes sense for you to file for bankruptcy depends on:
Maximum debt limits for Chapter 13 bankruptcy. While there is no minimum debt amount required to file for bankruptcy, you can’t have more than $1,184,200 in secured debt or $394,725 in unsecured debt if you want to file for Chapter 13 bankruptcy (these amounts are adjusted periodically to account for inflation).
Filing for bankruptcy is an important financial decision that can affect your credit for years to come. Before you make a hasty decision to file for bankruptcy, consider whether or not you can afford to repay your debts outside of bankruptcy. If you have sufficient income, you may be able to pay off your debts without resorting to bankruptcy. (Learn more about alternatives to bankruptcy.)
A good credit counseling agency may be able to help you evaluate your situation and 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 -- there are many shady organizations that take your money and provide questionable services. (For information on debt relief services to avoid, see the articles in Nolo's topic on Debt Settlement and Negotiating With Creditors.) One good bet it to use one of the agencies approved by the U.S. Trustee. You can find a list by going to its website at http://www.justice.gov/ust and clicking on “Credit Counseling and Debtor Education.”
Limits on how often you can receive a bankruptcy discharge. There are also certain limits to how often you can receive a bankruptcy discharge. This means that if you don’t have a lot of debt, it may be a good idea to save your bankruptcy filing for when you might really need it. (Learn more about how often you can receive a bankruptcy discharge.)
If you can work out a solution directly with your creditors, you may 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 may be able to:
Bankruptcy may not eliminate all types of debt you have. Congress has decided that certain debts are too important to be discharged in bankruptcy (these are commonly referred to as nondischargeable debts). If most of your debts are not dischargeable in bankruptcy, it may not be in your best interest to file.
The following are some of the most common debts you can’t discharge in bankruptcy:
Paying off nondischargeable debts in Chapter 13 bankruptcy. Even if you can’t discharge your nondischargeable debts in bankruptcy, you can pay them off through your repayment plan in Chapter 13 bankruptcy. In many cases, filing for Chapter 13 bankruptcy can provide an affordable and convenient way for you to reorganize and repay your nondischargeable debts. (Learn more about how the Chapter 13 repayment plan works.)
As we discussed, whether or not filing for bankruptcy relief is in your best interest depends on your individual circumstances. But in many cases, no matter how much debt you have, it might make sense to consider bankruptcy if you can’t afford to pay back your debts and your creditors are: