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How Much Debt Do You Need to File for Bankruptcy?

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How Much Debt Do You Need to File for Bankruptcy?

You’re in debt. You’re doing your best to keep up with your bills, but you can’t always make all of your payments every month. With sky-high interest rates, your credit card balances are getting bigger instead of smaller, and, at least right now, there is no end in sight.

Should you file for personal bankruptcy?

When trying to decide whether they should file for bankruptcy, many people focus on the total amount of their debt. They ask questions like, “Is $10,000 enough debt to file for bankruptcy?” or, “Can I file for bankruptcy if I have $5,000 in credit card debt?”

While these are common questions, the reality is that the total amount of your debt is far less important than the impact of your debt on your day-to-day life. Managing your finances doesn’t have to be stressful. If you owe more than you can afford to pay—whatever that amount might be—it is worth speaking with a bankruptcy lawyer about the process.

How To Decide if Bankruptcy is the Right Choice for You

When you talk to a bankruptcy lawyer, your lawyer will guide you through the process of carefully evaluating your options. If you are contemplating bankruptcy, there are several important factors you need to consider before deciding how to move forward. These include (but are not limited to) factors such as:

  • Should you consider a bankruptcy alternative instead of a bankruptcy filing?
  • Do you qualify to file for Chapter 7 bankruptcy?
  • If you don’t qualify to file for a Chapter 7 bankruptcy, will a Chapter 13 filing provide the financial relief you need?
  • Are your financial problems short-term, and can you manage your finances well enough for now until you are able to get back on your feet?
  • Do you understand the long-term consequences (both positive and negative) of filing for bankruptcy, and are you comfortable moving forward?

For many people who are struggling with their debt, filing for bankruptcy is a good option. But before you decide to file for bankruptcy, you need to make sure it is the best option for you. Everyone’s circumstances are different—including how much they owe—and everyone needs to make their own informed decision about what is best for themselves and their loved ones.

Making this decision isn’t easy. This is one of the reasons why it is so important to speak with a bankruptcy lawyer if you are struggling financially. Your lawyer can give you advice that is custom-tailored to your individual circumstances, and then you can feel confident that you are doing the right thing for yourself and your family. To help you decide whether bankruptcy is the right choice for you, your lawyer will help you work through considerations such as:

1. How Much You Owe vs. How Much You Can Afford to Pay

While you don’t need any certain amount of debt in order to file for bankruptcy, the process will only be worth it if you owe more than you can afford to pay. If you manage your finances differently, could you start paying down your debt without going through the bankruptcy process? Could you afford to pay more if you cut out subscriptions or other unnecessary monthly expenses? Many people have trouble managing their finances—and this is not anything about which you need to feel ashamed or embarrassed. If you can afford to pay more than you think, then adjusting how you spend and save your money could make filing for bankruptcy unnecessary.

2. Whether Your Debts Are Eligible for Discharge

While most types of consumer debts are eligible to be eliminated (or “discharged”) through the bankruptcy process, there are some exceptions. These include student loan debt and certain types of tax debt, among others. If you have debts you can’t afford to pay that aren’t eligible for discharge, then filing for bankruptcy may not make sense for your individual circumstances. Instead, you may need to consider a bankruptcy alternative, such as consolidating your debts or negotiating a payment plan with the Internal Revenue Service (IRS).

3. Whether You Qualify to File Under Chapter 7

Many people assume that filing for bankruptcy will mean that their debts are wiped clean. While this can be true, it isn’t true in all cases.

To eliminate your debts, you need to file for bankruptcy under Chapter 7. Since eliminating your debts entirely is a big deal, you must qualify based on your income (and certain other factors). Your lawyer can help you determine if you qualify under the Chapter 7 “means test,” and then your lawyer can help you make informed decisions from there.

4. Whether You Can Afford a Chapter 13 Payment Plan the Court Will Approve

If you don’t qualify to file under Chapter 7 (or if filing under Chapter 7 isn’t in your best interests), then you will most likely be looking at filing under Chapter 13. In a Chapter 13 bankruptcy, you “reorganize” your debts under a new payment plan that is specifically designed so that you can afford to make your payments over time. When considering a Chapter 13 bankruptcy, it is important to work with your lawyer to figure out what you can afford—and what the bankruptcy court is likely to approve.

5. Signs That it Is Time to Seriously Consider a Personal Bankruptcy

Finally, while everyone’s circumstances are different, there are some general signs that it is time to seriously consider bankruptcy. If any of the following apply to you, you will want to speak with a bankruptcy lawyer about the options you have available:

  • You are underwater on your mortgage and struggling to make your payments
  • You are behind on your utility bills because you can’t afford to pay
  • You are pulling from your retirement or personal savings to pay your bills month-to-month
  • You have debts that have already been sent to collections
  • Your monthly bills have become overwhelming and you aren’t sure what to do next

Request a Free Consultation with Bankruptcy Lawyer Georgette Miller

Georgette Miller is an experienced bankruptcy lawyer who has helped numerous individuals get a fresh financial start. If you have questions about filing for bankruptcy, you can call 866-964-6529 or contact us online to arrange a free consultation.