How Much Debt Is Needed To File Bankruptcy?

Is there a minimum amount of debt required to file a bankruptcy case?

Over the years I’ve been asked many variations of this question from potential bankruptcy clients.   Many think that there actually is a minimum amount of debt required before one is eligible to file a bankruptcy case.

What is the minimum amount?  

The answer is:  There is no minimum debt requirement to file bankruptcy under any of the Chapters.

Does it Make Sense To File Bankruptcy Given Your Debts And Other Factors?

The real question is whether filing bankruptcy is prudent given the amount, and type, of debts that you have.  This can only be answered after a comprehensive analysis of a client’s complete financial situation.

For example, certain bankruptcies such as a Chapter 13 individual bankruptcy may be filed when the only debt one has is secured debt, such as a mortgage, in order to allow time to catch up on payments.

For a Chapter  7 liquidation bankruptcy, I have filed cases for debtors who have had as little as $5,000 of total unsecured debt to those with over $5,000,000.

In the case of the young man who had $5,000 of debt, which is admittedly an unusual amount on which to file a bankruptcy case, the situation was such that it was in his best overall interest–after analyzing his entire situation–to file a bankruptcy case.

He was relatively uneducated, had a part-time minimum wage job, and no credit to speak of (the debt was a judgment from a traffic accident). Filing bankruptcy enabled him to get rid of the debt, which he was going to have a very difficult time paying off, and it also enabled him to clear his credit record, obtain a fresh start, and rebuild (or actually in his case, build) his credit.

Several years later, he now has several credit cards (on which he is current with payments), a wife, a house with a picket fence, a dog and enough income to survive.

I use that story, unusual though it may be, to point out that sometimes bankruptcy really is the best solution, regardless of how much debt there is.

Obviously if the man in that story had income of $75,000 a year, it would have been a ludicrous decision to file bankruptcy, but it is important to seek the advice of a qualified bankruptcy attorney and see if it is in your best interest to take advantage of the bankruptcy laws which are here to provide assistance in such situations.

Some Bankruptcy Chapters Have Maximum Debt Limits

There are no debt restrictions in either Chapter 7 or Chapter 11 bankruptcy cases.  But Chapter 13, however, limits the amount of debts you have to $419,275 of unsecured debts which are non-contingent and liquidated (a definite calculable amount) and $1,257,850 of secured debts which are non-contingent and liquidated**.

These amounts are adjusted upwards every few years.

**As of 2020.

Image courtesy of restless globetrotter