What may be a minimal amount of debt to some, could be astronomical to others. As debt piles up, there may be a point where bills and required monthly payments are no longer manageable. If that’s the case, filing for bankruptcy could become a solution. In the event, however, you do not have tens or hundreds of thousands of dollars in debt, you may be wondering what the minimum amount of debt required is to file for bankruptcy. Let’s take a look at debt amounts and some common indicators that bankruptcy might be the right option for a healthier financial future.
Bankruptcy and Debt Amounts
Everyone who files for bankruptcy has a unique financial history and a reason as to why their debts accrued. Not everyone who has to file has been irresponsible with money. In fact, the majority of those who end up filing Chapter 7 or Chapter 13 either ended up with serious medical debt from a situation that was beyond their control or unexpectedly lost their job.
This may come as a surprise, but bankruptcy laws don’t require debtors to have a certain minimum debt amount in order to file for bankruptcy. On an individual basis, however, you’ll want to consider whether bankruptcy is in your best interests based on your debt amount and your circumstances.
It’s important to note that while there is no minimum debt amount required to file for bankruptcy, there is a maximum debt limit if you’re planning on filing Chapter 13. You can’t owe more than $1,257,850 in secured debt or $419,275 in unsecured debt. Also note that those numbers are periodically adjusted to account for inflation.
Factors to Think About When Considering Bankruptcy
In general, filing for bankruptcy makes sense in the following situations:
- You don’t have enough income to pay back your debts.
- You’re being harassed or sued by creditors, or your wages are being garnished.
- Your lender is planning to foreclose on or repossess your property.
If you think you meet one or more of those situations, you’ll also need to take into consideration your unsecured and secured debts, your employment situation, and the costs associated with bankruptcy court.
If you have mostly unsecured debts, like credit card debt, loans, and medical bills, those can be wiped out if you file for bankruptcy. If you’re struggling with secured debts, like a house or car payment, filing may allow you to keep your property and have three to five years to make up the back payments at a reduced interest rate.
If you’re unemployed and having trouble managing payments, bankruptcy may be able to discharge some of your unsecured debts. It’s important to note that you can only file for bankruptcy every eight years for Chapter 7 and two years for Chapter 13. So if you know you’re going to be accruing more substantial debt, it may be best to hold out on filing.
Prior to filing, you’ll need to understand the out-of-pocket costs you’ll be expected to cover. Filing fees, attorney fees, and education courses can add up and none of those fees will be wiped out once you’ve filed for bankruptcy. The total fees, however, are typically minimal in relation to the money you’ll have saved on future debt payments.
Options for Repaying Debts Outside of Bankruptcy
Prior to determining if bankruptcy is the right option for you, you’ll need to see if you can afford to repay your debts outside of bankruptcy. A good credit counseling agency may be able to evaluate your situation and determine if you’re eligible for a type of debt management program. If you decide to go this route, be sure to find an agency approved by the U.S. Trustee Program.
Another option to consider is working out a solution directly with your creditors. If a creditor is willing to work with you, you may be able to settle your debts for less than you owe, reduce your principal balance or interest rate, or enter into a payment plan to get caught up.
It’s also possible you may be able to take no action at all. If you are deeply in debt but living simply—meaning you have little income and property, you could be considered judgment proof. This means that anyone who sues you and obtains a judgment won’t be able to collect from you because you don’t have anything they can legally take.
Contact Belsky & Horowitz, LLC
If you’re uncertain how to manage your financial situation and are considering filing for bankruptcy, the lawyers at Belsky & Horowitz, LLC can help. We have a comprehensive understanding of how the process works in Maryland. If you decide to file, we’ll be by your side and ensure your protected assets remain in your possession.
For more information on filing for bankruptcy, schedule a case evaluation with our law firm today. We’ll review your situation and provide you with advice on how we feel you should proceed. Contact us today to learn more.