How Much Debt Do You Need to Go Bankrupt in the US?
Bankruptcy is a legal process that individuals or businesses go through when they are unable to repay their debts. It is a way for debtors to get a fresh start by eliminating or reducing their debt. However, filing for bankruptcy is not a decision to be taken lightly, as it has long-term consequences and can negatively affect your credit score.
If you are considering filing for bankruptcy, one of the most important questions you may have is: how much debt do I need to have to go bankrupt in the US? The answer is not straightforward, as it depends on several factors, including the type of bankruptcy you file for, your income, and your assets. In this article, we will explore the different types of bankruptcy and the debt requirements for each.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as "liquidation" bankruptcy, is the most common type of bankruptcy filed by individuals and businesses. It involves the liquidation of your non-exempt assets to pay off your creditors. In exchange, most of your unsecured debts, such as credit card debt and medical bills, will be discharged.
To qualify for Chapter 7 bankruptcy, you must pass the means test, which compares your income to the median income in your state. If your income is below the median, you are eligible to file for Chapter 7 bankruptcy. If your income is above the median, you may still be eligible if you pass a more comprehensive means test based on your income and expenses.
There is no specific amount of debt required to file for Chapter 7 bankruptcy. However, if your debt is primarily consumer debt, such as credit card debt and personal loans, you may not be able to file for Chapter 7 bankruptcy if your debt is less than the threshold set by the court. The threshold is currently $419,275 for unsecured debt and $1,257,850 for secured debt.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as "reorganization" bankruptcy, is a type of bankruptcy that involves creating a repayment plan to pay off your debts over a period of three to five years. This type of bankruptcy is typically filed by individuals who have a regular income and want to keep their assets, such as their home and car.
To file for Chapter 13 bankruptcy, you must have unsecured debts of less than $419,275 and secured debts of less than $1,257,850. Additionally, you must have enough disposable income to make the monthly payments required under your repayment plan.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a type of bankruptcy typically filed by businesses that want to reorganize their debts and continue operating. It can also be filed by individuals who have too much debt to qualify for Chapter 13 bankruptcy and have significant assets.
To file for Chapter 11 bankruptcy, there is no specific debt requirement. However, the process can be expensive and complex, and it is generally only recommended for businesses or individuals with significant assets and debts.
In conclusion, there is no specific amount of debt required to file for bankruptcy in the US. The amount of debt required depends on several factors, including the type of bankruptcy you file for, your income, and your assets. If you are considering filing for bankruptcy, it is important to consult with an experienced bankruptcy attorney to determine the best course of action for your specific situation. Additionally, it is important to understand the long-term consequences of filing for bankruptcy, including the impact on your credit score and your ability to obtain credit in the future.