Is there a minimum amount of debt needed to file for bankruptcy?

The short answer to this question is “no, there is no minimum amount of debt necessary to qualify for bankruptcy.” However, for Chapter 7 bankruptcy cases, there is a requirement that the filer demonstrate that they do not have sufficient means to pay back their debts through a Chapter 13 bankruptcy. So, practically speaking, it is important that those who are interest in filing for bankruptcy understand the two types if individual bankruptcies, what they entail and the potential impact that a bankruptcy can have on their finances, moving forward.

Chapter 7 bankruptcy – Also called a liquidation bankruptcy, a Chapter 7 bankruptcy results in the sale of all of the filers qualifying assets. The proceeds of the sale of assets are used to pay back the filer’s creditors. If the debts owed to the creditors are not satisfied by the proceeds, then the court discharges the remaining balance.

Chapter 13 bankruptcy – Commonly referred to as a reorganization bankruptcy, a Chapter 13 bankruptcy focuses on getting the filer to be able to pay off their debts over the course of the next three to five years. Typically, a court overseeing a Chapter 13 bankruptcy will eliminate some of the filer’s unsecured debt, and may convert some secured debt to unsecured debt.

Of the two types of bankruptcies, a Chapter 7 bankruptcy is appealing to those with few assets and a low income. Chapter 13 bankruptcy may be appealing to individuals who have a reliable income, would like to keep their home, but are having trouble keeping up with their bills.

As noted above, there is no minimum debt limit for either type of bankruptcy; however, a Chapter 7 bankruptcy requires the filer pass the “means test.” The means test is essentially a mathematical calculation designed to determine whether the filer is capable of paying back their debts. It considers the filer’s debts, assets and income. Some individuals who make less than a certain amount per year are exempt from the means test, and can proceed directly to filing a Chapter 7 bankruptcy.

Before someone files for bankruptcy, especially if they do not have a significant amount of debt, it is important they consider the cost of filing for bankruptcy, as well as the effect that filing will have on their life after the bankruptcy is over. However, with that said, the general public’s understanding on the repercussions of filing for bankruptcy are often worse than they actually are. Those interested in learning more about bankruptcy should consult with a dedicated Georgia bankruptcy lawyer to learn more.

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