Overwhelming debt can make those who have not considered bankruptcy start to review the option. However, the many rules surrounding who can file often create confusion.
For example, some people wonder if there is a specific amount of debt that the government requires a person to have to qualify for bankruptcy. The facts can help anyone who is considering filing make a practical decision.
No minimum debt threshold
Fortunately, there is no set minimum debt limit for filing bankruptcy. The decision to file does not hinge on owing a particular sum of money. Instead, it revolves around one’s overall financial situation and ability to repay debts.
Factors such as income, expenses and assets all play a role. However, these elements determine which type of bankruptcy, if any, a person may be eligible for.
Chapter 7 eligibility
Chapter 7 bankruptcy is a process of liquidation. It involves selling nonexempt assets to pay off creditors. To qualify for Chapter 7, one’s income must fall below the state’s median and pass a means test that assesses the ability to repay debts. However, the court will not eliminate certain liabilities, including child support, secured debts and most taxes.
Chapter 13 eligibility
If a person has sufficient finances to manage a structured repayment plan, the individual will qualify for Chapter 13 bankruptcy. Another name for this is reorganization bankruptcy.
The process takes from three to five years and sets up a plan for monthly payments. The advantage of Chapter 13 is it enables individuals to retain more assets while repaying debts.
Even though there is no minimum debt requirement, a person should consider whether bankruptcy is the right option and how to manage it. Filing is a significant financial decision with long-term outcomes that can be beneficial or challenging, depending on how one goes about the process.