How much debt do you have to have to file for bankruptcy?

Filing Chapter 7 bankruptcy is an important decision. Not only can it have long-term financial ramifications, it can also be quite expensive. Recently on our forum a user asked, “I am considering filing bankruptcy, but I am not sure I have enough debt. How much debt is enough to file?”

Although you may be legally allowed to file bankruptcy if you have $5,000 to $10,000 worth of debt, a better question may be whether or not it’s the best option for you and whether or not you have the type of debt that can be discharged through bankruptcy. Let’s review some of the issues you should consider prior to filing Chapter 7 bankruptcy.

1. Will Chapter 7 bankruptcy discharge my debts?

The amount of debt you owe is irrelevant if filing bankruptcy will not discharge your debts. For example, Chapter 7 bankruptcy discharges most unsecured debts, including credit card debts, unsecured personal loans (i.e. payday loans), and medical bills, but it does not discharge any secured debts such as home mortgages and car loans. Certain tax debts, child support, and spousal support will also not be discharged. Additionally, discharging federal student loans, though possible, can be very difficult.

So to reiterate, before deciding whether you should file bankruptcy you first need to analyze the type of debts you have and determine if bankruptcy is right for you.

2. How much does it cost to file Chapter 7 bankruptcy?

Now, to get to the crux of the question whether bankruptcy is a good choice given the amount of debts owed we need to review the cost to file bankruptcy. A debtor is legally allowed to file bankruptcy with $3000, $5,000 or $10,000 of unsecured debt, but filing bankruptcy is expensive.

In fact, assuming the debtor decides to file bankruptcy without a lawyer, they will still have to pay for the filing fee ($335), the credit counseling course ($50), and the financial management course ($50).

Unfortunately, the Chapter 7 bankruptcy filing process can be complicated and time-consuming. And most debtors, especially those with assets to protect, will need legal help. If you decide to hire a lawyer it will cost at least $750, but it could be more expensive depending on the complexity of your bankruptcy case, the experience of the lawyer, and where you live.

So before making the bankruptcy decision you may consider whether it is worth it to pay upwards of $1,000 or $1,500 to discharge debts that are only $3,000. If your debts are less than $10,000 it is generally better to simply cut your expenses, get a second job, or stick to a budget and attempt to reduce your debt without filing bankruptcy.

3. Can I file for Chapter 7 bankruptcy?

There is one more consideration before deciding whether to file bankruptcy: Can you actually file for Chapter 7 bankruptcy? In 2005, bankruptcy laws were passed which made it much more difficult for high income debtors to file Chapter 7 bankruptcy. If your income is too high you will not qualify for Chapter 7. In this case your only bankruptcy option may be to file Chapter 13 and repay a portion of your debt over a 3 or 5 year debt repayment period.