A job loss, medical problems, failing commercial venture or other unexpected event can cause your bills to mount up. If the burden becomes so great that you cannot cover your debts, you may be thinking about bankruptcy.
This option can provide relief from relentless creditors and a fresh start. However, the government puts various eligibility requirements around who can file. One concern you may have is whether filing requires a minimum amount of debt.
Debunking the minimum debt myth
Contrary to a common misconception, there is no explicit minimum debt threshold for filing bankruptcy. The eligibility criteria primarily revolve around your financial situation rather than a specific debt amount.
Interestingly, the original concept of bankruptcy in Medieval England involved treating people who could not repay debts as criminals and punishing them. Fortunately, modern bankruptcy laws in the United States exist to provide relief when you suffer financial distress, no matter the precise sum you owe.
Navigating bankruptcy options
However, your circumstances also dictate the type of bankruptcy you can file for. To verify your eligibility, a federal court will scrutinize your income, expenses and overall ability to meet financial obligations.
If covering your debts places an unreasonable burden on you, you may be able to file for Chapter 7 bankruptcy. Some people call Chapter 7 “liquidation bankruptcy,” as this option involves selling nonexempt assets to settle debts. If you have limited income and a dire need for a clean slate, you might be able to file for Chapter 7.
If you have a regular income and a potential path for repaying a significant portion of your debt, you may have to file for Chapter 13. Chapter 13 establishes a manageable repayment plan spanning three to five years. Therefore, you can satisfy your obligations systematically and potentially keep more of your personal assets.
As you can see, the decision to file for bankruptcy hinges on your financial circumstances rather than a predetermined debt threshold. By understanding your available options and the full scope of eligibility, you can make informed decisions about how to plot your path toward financial recovery.