In Order to File for Bankruptcy Do You Have to Owe a Certain Amount?
- According to bankruptcy attorneys at the Moran Law Group, bankruptcy courts have not established a minimum debt limit for bankruptcy protection. Moran Law explains that a popular myth declares a minimum amount of debt that a debtor must carry in order to qualify for protection, but no such minimum exists.
- Though there is no requirement for a minimum debt amount for any type of bankruptcy protection, certain bankruptcy cases do place a ceiling on the amount of debt the court can discharge. In a Chapter 13 bankruptcy case, according to attorney Brett Weiss of the Bankruptcy Law Network, debtors may have no more than $360,475 in unsecured debt or more than $1,081,400 in secured debt as of May 2011. In a Chapter 12 bankruptcy case, the type of bankruptcy most common to family farmers, the total of secured and unsecured debts cannot exceed $3,792,650 as of May 2011. The U.S. Bankruptcy Court derives these numbers from median incomes and a number of other factors, and the court periodically adjusts these limits to accommodate economic factors such as inflation.
- Debtors must meet a number of other requirements to file for bankruptcy protection. According to the nonprofit financial organization Consumer Action, debtors entering a Chapter 7 bankruptcy case must provide their most recent tax return, and those entering a Chapter 13 case must provide tax documents from the last four years. In addition, debtors beginning any kind of bankruptcy case must demonstrate completion of an approved credit counseling course, provide recent pay stubs or other proof of income for the past 60 days and explain any anticipated increases in periodic income. Individuals filing a bankruptcy case must also provide photo identification. Before the bankruptcy case comes to an end, debtors must also demonstrate completion of a court-approved money management course.
- Though there is no minimum debt requirement for bankruptcy protection, the Moran Law Group encourages individuals with small amounts of debt to consider alternatives before initiating a bankruptcy case. Bankruptcy cases will appear on an individual's credit report for up to 10 years, and credit may become difficult to obtain during this time. Attorneys at Moran Law recommend that debtors compile a list of expenses, debts and all available income, then work out a budget to arrange debt repayment. If the individual can repay debts within three years while sacrificing some luxuries and disposable income, Moran Law Group does not recommend pursuing bankruptcy protection.
