How Much Debt Do I Need to Have in Order to File Bankruptcy?

All of us go through financial highs and lows throughout our lifetime. But when a low financial period begins to take over your life, you may find yourself considering bankruptcy. When people consider this option, one of the first questions they ask themselves is, “How much debt do I have to be in before bankruptcy is warranted?”

The quick answer is: It depends.

There is no bright-line rule as to what constitutes “enough” debt to warrant a bankruptcy. In other words, there is no minimum debt threshold that you must reach before you are allowed to file. But filing bankruptcy is a very serious decision that will affect your financial life for at least a decade – so proceed with caution and be sure to carefully weigh your options.

Bankruptcy Should Never Be the First Response

When you find yourself in over your head in debt, you might be tempted to jump at filing bankruptcy so you can breathe again. However, you would be wise to keep in mind the fact that bankruptcy is a severe action that carries many consequences – so it should never be your first option. In fact, bankruptcy is such a severe measure that it should be thought of as a last resort that is available when all other credit management strategies have failed.

Why? Here are several consequences of bankruptcy that you should be aware of:

  • All of your current lines of credit will disappear.
  • Your credit profile and score will take a nasty hit. Bankruptcy can stay on your credit for up to 10 years. So if you file, you must be ready to live without the ability to borrow money for a significant period of time. Every situation is somewhat unique, but generally speaking, bankruptcy will tank your credit.
  • Bankruptcy does not erase the record of your past debts. It releases you from having to pay many debts, but the record is not destroyed. So even after filing, people can see your past delinquent accounts and this can affect lending and other decisions.
  • Property that you own that is not exempt may be sold off.
  • If you had hopes of buying a home, realize that filing bankruptcy will make it almost impossible to get a mortgage for the foreseeable future.
  • Certain debts like student loans and child support will not be discharged in bankruptcy.
  • It is possible that the court will convert your request for Chapter 7 into Chapter 13, wherein you must still pay off some debts. This certainly does not always happen, but it is a possibility.
  • If you happen to own anything that is considered a “luxury” it will be confiscated. This includes things like second homes, boats, vacation condos, etc.
  • You will have to wait 8 years before you can file for the most common type of bankruptcy (Chapter 7) again.

How Do I Know If It Is Time to File Bankruptcy?

Bankruptcy can be a great relief to those who are overwhelmed with debt and can serve to springboard you into your next phase of life. But with the consequences listed above, it is wise to consider these factors to help you decide if the benefits are worth the consequences within your specific set of circumstances.

Factors to Consider

Current Financial Reality

Begin by doing some math. Map out your current financial situation in black and white so that you can take a good, long look at it.

  • Are you employed with regular income?
  • Is your employment steady and stable?
  • Is there a looming medical or financial obstacle that you can see becoming a factor in the not-so-distant future?

Are You Able to Manage without Filing Bankruptcy

Taking the above considerations into account, spend some time trying to figure out if there is any way that you could manage your debt without the help of bankruptcy. You may want to use the services of a credit counseling service to assist you with this task. They are well versed in debt management, and may even be able to help you out through a debt management program. Be careful to use only a trusted service for debt counseling, as there are some unscrupulous entities that may attempt to harm you. You can find legitimate programs by visiting the U.S. Trustee in Bankruptcy website and looking at their approved programs.

Negotiating with Creditors

The previously mentioned debt management programs may contact your creditors for you and attempt to negotiate with them. Your representative may work with your creditors to consolidate your debt and institute a single payment per month that is then distributed to your creditors. However, you do not necessarily need a counselor to help you do this. You can attempt to consolidate your debt with a loan that covers it all, thereby eliminating the need to make multiple payments each month. You can also attempt to shave off some of the interest or penalties, settle for less than you owe, or convince them to accept smaller payments over a longer period of time.

Clear Signs You Should Talk to An Attorney

When your debt has gotten out of control and you do not believe that any of the above methods will help to improve your situation, it may be time to speak with an attorney. We are here to help if you simply cannot afford to make your minimum payments on your debt, and if:

  • Collection agencies are constantly calling, or
  • Your creditors are suing you, or
  • Your creditors are garnishing your wages, or
  • The bank is attempting to repossess your home or other property.


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