When facing bankruptcy, many wonder how much debt is needed to file bankruptcy. There is no minimum amount of debt you need in order to file for bankruptcy, but there are other critical factors you need to take into consideration before filing under Chapter 7 or Chapter 13. In this blog, we discuss details regarding bankruptcy you need to take into consideration before filing, including factors indicating whether or not you should file and whether you can discharge all of your debts.
Before filing for bankruptcy, you need to consider your unique circumstances as well as different factors indicating whether bankruptcy is right for you.
Firstly, you need to understand the difference between unsecured and secured debts. Unsecured debts refer to debts that don’t have collateral. Some examples of unsecured debts include, but are not limited to, repossessions deficiencies, old lease balances, medical bills, cash advance loans, and credit card debts.
Secured debts refer to debts with collateral, like house payments and car payments. If you default on your payments, you could lose your car or house because they serve as collateral. One major benefit of bankruptcy is that, in Chapter 13 cases, you can still keep your home or car after missing payments. After declaring a Chapter 13 bankruptcy, you’ll have three to five years to make up for your missed payments. Filing bankruptcy also often enables borrowers to pay off some secured debts at a lower interest rate.
Another component that you need to take into consideration is your employment status. Those who are unemployed can often discharge their unsecured debts in order to keep up with their secured debts.
Employed individuals struggling to make payments on time can also file Chapter 7 or Chapter 13 bankruptcy to reduce or discharge their unsecured debts in order to continue making payments on their secured debts.
Although borrowers can discharge many different types of debts through bankruptcy, the following debts can’t be discharged in the bankruptcy process:
- Government penalties and fines, such as some traffic tickets, jury fees, or criminal fines
- Some income taxes
- Student loans
- Child support
- Retirement plan loans
There are a number of reasons why filing for bankruptcy may not be right for you. These include:
- The total amount of dischargeable debt: If you only owe a small amount of dischargeable debt, a bankruptcy may not be the right way to deal with it. This varies according to individual circumstance. Talk to an experienced bankruptcy attorney about your situation.
- Whether your debts are eligible for discharge: If you only have debts that aren’t eligible for discharge, filing for bankruptcy may not benefit your financial situation. However, we sometimes file Chapter 13 bankruptcies to keep non-dischargeable debts at arm’s length for a period of time.
- Whether you have good credit: Filing for bankruptcy stays on your credit report for seven to ten years. If you have been able to maintain a healthy score, you may want to avoid bankruptcy if it’s possible for you to pay off your debts in another way.
- Your bankruptcy history: If you’ve ever filed for bankruptcy and discharged debts, you’ll need to wait a certain amount of time before filing again. The amount of time in which you’ll need to wait depends on whether you filed for Chapter 7 or Chapter 13 previously. For example:
- Declaring Chapter 7 Then Chapter 7: You need to wait eight years before filing Chapter 7 again.
- Declaring Chapter 7 Then Chapter 13: You can file a Chapter 13 any time after a Chapter 7, however, you need to wait four years if you’ve previously filed Chapter 7 and now wish to file a Chapter 13 in which you will receive a discharge.
- Declaring Chapter 13 Then Chapter 7: You need to wait six years if you’ve previously filed Chapter 13 and now want to file Chapter 7.
- Declaring Chapter 13 Then Chapter 13: You need to wait two years from the filing date of a discharged Chapter 13 before filing Chapter 13 again. This is almost never an issue as Chapter 13 cases last a minimum of three years in all but very rare situations.
Declaring bankruptcy is complex and often challenging. If you need legal assistance through the bankruptcy process, contact Sawin & Shea LLC. We’ve helped numerous Indiana residents through the bankruptcy process, and we can help you get your finances back on track. Call us today at 317-759-1483, or you can schedule a free consultation here.