How Much In Debt Should You Be To File Bankruptcy?
Although you don’t need to have a specific amount of debt to be eligible for bankruptcy, other issues will determine whether bankruptcy is a good option for you. Bankruptcy laws don’t require debtors to have a certain minimum debt amount to be eligible for bankruptcy relief. In most cases, whether bankruptcy is the right choice for you will depend on your individual circumstances. There is no minimum debt requirement in bankruptcy. How much debt you have is certainly an important consideration when determining whether bankruptcy is in your best interest. But more importantly, whether it makes sense for you to file for bankruptcy depends on:
• whether you are able to repay your debts outside of bankruptcy
• whether your creditors are willing to work with you
• whether you can discharge (wipe out) the types of debt you have in bankruptcy, and
• the facts of your individual case.
Maximum debt limits for Chapter 13 bankruptcy. While there is no minimum debt amount required to file for bankruptcy, you can’t have more than $1,257,850 in secured debt or $419,275 in unsecured debt if you want to file for Chapter 13 bankruptcy. Filing for bankruptcy is an important financial decision that can affect your credit for years to come. Before you make a hasty decision to file for bankruptcy, consider whether or not you can afford to repay your debts outside of bankruptcy. If you have sufficient income, you may be able to pay off your debts without resorting to bankruptcy. A good credit counseling agency may be able to help you evaluate your situation and determine whether you might be able to pay off your debts through a debt management program. But don’t go to just any credit counseling agency there are many shady organizations that take your money and provide questionable services. There are also certain limits to how often you can receive a bankruptcy discharge. This means that if you don’t have a lot of debt, it may be a good idea to save your bankruptcy filing for when you might really need it. If you can work out a solution directly with your creditors, you may not need to file for bankruptcy. In some cases, creditors might be willing to work with you to cure your default. By negotiating with your creditors, you may be able to:
• settle your debts for less than you owe
• reduce your principal balance or interest rate, or
• enter into a payment plan to get caught up.
Will Bankruptcy Eliminate Your Debts?
Bankruptcy may not eliminate all types of debt you have. Congress has decided that certain debts are too important to be discharged in bankruptcy (these are commonly referred to as non-dischargeable debts). If most of your debts are not dischargeable in bankruptcy, it may not be in your best interest to file.
The following are some of the most common debts you can’t discharge in bankruptcy:
• domestic support obligations such as alimony and child support
• priority tax debts
• debts incurred through fraud or false pretenses
• obligations arising out of personal injury caused by drunk driving, and
• student loans (unless you can prove that the undue hardship exception applies in your case).
In many cases, filing for Chapter 13 bankruptcy can provide an affordable and convenient way for you to reorganize and repay your non-dischargeable debts. Even if you can’t discharge your non-dischargeable debts in bankruptcy, you can pay most of them off through your repayment plan in Chapter 13 bankruptcy (you won’t pay long-term debts in full, such as a mortgage or student loan). Whether or not filing for bankruptcy relief is in your best interest will depend on your individual circumstances. But in many cases, no matter how much debt you have, it might make sense to consider bankruptcy if you can’t afford to pay back your debts and your creditors are:
• suing you
• garnishing your wages, or
• trying to repossess or foreclose on your property.
When you file for Chapter 7 bankruptcy, there are some debts that you must or should continue to pay. Filing for Chapter 7 bankruptcy can wipe out many types of debt and help you get a fresh financial start. But not all obligations will go away. Filing for Chapter 7 bankruptcy is an excellent way to get out from under dischargeable debt, such as credit card balances, medical bills, and personal loans especially if you don’t own much property, and you meet income requirements. But Chapter 7 bankruptcy doesn’t help you get rid of everything you owe.
Post-Petition Debt: Bills Incurred After Filing for Bankruptcy
When your bankruptcy case is pending, it’s common to get a bill and wonder whether the balance will be included in your matter. If you incurred the debt after filing for bankruptcy, the court won’t include it in your bankruptcy. It’s a post-petition debt and you should pay it.
Examples of common post-petition debts include:
• domestic support obligations, such as child and spousal support
• rent and lease payments
• condo or homeowners association (HOA) fees
• most taxes, and
Whether the court will wipe out a balance that existed before the bankruptcy filing will depend on whether the obligation qualifies for a discharge. For instance, a utility balance predating the bankruptcy will likely get wiped out because most utility bills are dischargeable. By contrast, child support arrearages aren’t dischargeable, so you’ll continue to owe any outstanding arrearages after the case.
Debt Secured by Collateral: Mortgages, Car Loans, and More
When you purchase expensive property on credit, the lender often requires collateral in case you fail to pay the loan. Known as a “secured debt,” this type of loan is used when taking out a:
• home equity line of credit
• car loan, or
• a loan for business property, such as fixtures or equipment.
Whether you can discharge a secured debt will depend on if you return the property you pledged as collateral. If you give the collateral back to the bank, the loan associated with it will be dischargeable in your bankruptcy case. By contrast, if you want to keep collateral in Chapter 7 bankruptcy, you should continue making regular payments until you satisfy the loan. Otherwise, the lender can use its lien rights a type of ownership interest in the property to take back the property in a foreclosure or repossession. If you fall behind while you’re in bankruptcy, the bank must file a motion and get permission from the court to proceed against the property; however, once the case ends, the lender is free to pursue its lien rights. Even if you can’t discharge all of your debt, you still might get a brief payment break.
The automatic stay protection that stops most creditors from engaging in collection attempts during bankruptcy extends to most debts that you can’t discharge, including:
• student loans
• most taxes, and
• government or court fines and penalties.
Keep in mind, however, that once your bankruptcy case is closed and the automatic stay is terminated, you will remain legally obligated to pay those non-dischargeable debts. How much you’ll have to pay after your Chapter 7 case will depend on whether you have property that isn’t protected by a bankruptcy exemption. Since many Chapter 7 filers can keep all of their property, most non-dischargeable debt balances will remain the same. The amount you owe should drop, however, if the bankruptcy trustee appointed to your case can sell nonexempt property and use the funds to pay down creditors according to the priority payment system. The system ensures payment of important debt (such as non-dischargeable support obligations and taxes) before less essential obligations (such as credit card balances and student loan debt).
Voluntary Debt Repayment
You might decide to repay a debt that would be discharged in your bankruptcy especially if you owe money to a friend or relative, or wish to continue seeing a particular medical provider. Keep in mind that you can’t use assets that creditors are entitled to receive. To avoid trouble, the simplest approach might be to wait to make the voluntary debt repayment until after your bankruptcy closes. There is no minimum amount of debt you must have in order to file for bankruptcy relief. While the amount of your debt is an important factor to consider, there are other more important factors to take into account in determining if a bankruptcy filing is in your best interest. These include:
• whether you can afford to pay back your debts
• whether you can reach a resolution with your creditors outside of bankruptcy
• the types of debt you have, and
• your specific circumstances.
Before you file for bankruptcy relief, consider how much income you have and whether you can afford to pay back your debts. If your income is high enough to pay back your debts, you may not qualify for Chapter 7 bankruptcy or you may have to pay back a significant portion of your unsecured debts in Chapter 13 bankruptcy. If you don’t have a lot of debt and you have sufficient income to pay back your obligations, it may be in your best interest to delay filing for bankruptcy until when you really need it. There are limits to how often you can receive a discharge in bankruptcy. If you file to eliminate a small amount of debt you can easily pay off, you may not be entitled to another discharge for many years. You may not have to resort to bankruptcy if your creditors are willing to work with you. If you can settle your debts outside of bankruptcy, you may not need to file. But if your creditors are suing you, garnishing your wages, or trying to foreclose on or repossess your property, filing for bankruptcy may be your best option to stop the collection activities. Filing for bankruptcy doesn’t wipe out all types of debt. Obligations you can’t eliminate with a bankruptcy discharge are called non-dischargeable debts. The most common non-dischargeable debts include:
• child support
• priority tax obligations, and
• student loans (except in rare circumstances).
If most of your debts are non-dischargeable, filing for Chapter 7 bankruptcy will not help you. But you may be able to pay off your non-dischargeable debts in Chapter 13 bankruptcy through a three to five-year repayment plan. Regardless of the amount of debt you have, filing for bankruptcy is an individual decision that depends on your particular circumstances. In general, filing for bankruptcy relief may be in your best interest if:
• you don’t have enough income to pay back your debts
• creditors are harassing you, suing you, or garnishing your wages, or
• your lender is about to foreclose on or repossess your property.
Indicators of When to File Bankruptcy
While there is no minimum debt to file bankruptcy, the amount of debt is certainly a vital thing to consider when filing. However, there are other indicators or factors that dictate on when you should file for bankruptcy and these include:
• Your ability to repay your debts outside of bankruptcy
• Your creditors’ willingness to work with you
• Your ability to discharge the types of debts that you have
• Other circumstances of your individual case
On the other hand, there is a maximum debt limit that you need to know especially if you are filing a Chapter 13 bankruptcy. You cannot have more than $394,725 of unsecured debt and $1,184,200 of secured debt (for 2018) if you want to file for this type of bankruptcy. When to file bankruptcy is one of the most important decisions that you have to make in your financial life. Remember, when you should file for bankruptcy largely depends on your circumstances aside from the types of debt that you have incurred.
Factors To Consider When Filing For Bankruptcy:
• Unsecured debts: If you mostly have unsecured debts, then you can file for bankruptcy. It does not matter how much as there is no minimum amount of debt needed to file. Examples of unsecured debts include credit card debt; cash advance (payday) loans, and medical bills.
• Secured debts: If you are behind on a house or car payment, this may be a very good time to file for bankruptcy. You will be able to keep your property and you will have 3-5 years to make up the back payments, often at a greatly reduced interest rate.
• Employment situation: Being unemployed and having trouble keeping up with your payments can make you eligible to file for bankruptcy so that you can discharge some of your unsecured debts. By doing so, you can stay current with your secured debts or catch up on those payments via a Chapter 13 bankruptcy. Likewise, if you are employed but still unable to meet your debt obligations, filing for either Chapter 7 or Chapter 13 can help you retain your assets (house and car) and free up cash to pay for them by eliminating or reducing payments on credit cards, medical bills and other unsecured debts.
• Paying for bankruptcy court costs: To qualify for a debt discharge, you will need to pay for the court costs such as the filing fee, attorney fees, and education courses. Remember that none of these fees will be wiped out after filing for bankruptcy. However, the amount of these fees is minimal in relation to the monies saved on future debt payments which continue to mount with interest and late charges.
Bankruptcy Lawyer Free Consultation
When you need legal help with a bankruptcy in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506