Do you have enough debt to file bankruptcy?

We are often asked by clients whether they have enough debt to “qualify” for bankruptcy. This is a tough question to answer because no two people have exactly the same situations. However, here are some general observations that should help you figure out whether bankruptcy may be right for you:

1.  If you have less than $7,500 in debt, it is unlikely we would ever recommend a bankruptcy for you. The exception to this rule is if you are on a permanent, fixed income such a social security.

2. Most people that file chapter 7 bankruptcy have between $10,000 and $30,000 in debts that can be discharged, including credit cards, personal loans, auto repossession debts, utilities, and medical bills. Your total debt may be much higher if other types of debts such as student loans, income taxes, mortgages, and current auto loan debts are included.

3. If your unsecured debt is more than 50% of your annual income, you are probably in financial danger. So, for example, if you make $20,000 a year before taxes, then you should seek legal advice if your total dischargeable unsecured debt exceeds $10,000.

4. If you are behind on mortgage payments or real estate taxes, bankruptcy may be the best way to obtain the time you need to get caught up on these debts.

5. If you are being threatened with legal action or garnishment, your debt situation is probably serious enough to consider bankruptcy. Remember, that bankruptcy can stop garnishments and other collection at almost any stage, so it is almost never too late to seek assistance.

6. If you are feeling the physical or psychological effects of debt (such as depression, anxiety, high blood pressure), it is a good idea to speak with a bankruptcy attorney just to get some general advice. Your situation may actually not be as bad as you think, and a little reassurance and guidance may be all you need.

 

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5 Responses to Do you have enough debt to file bankruptcy?

  1. Friend says:

    I see no one has responded and not sure if you still need help but this may help. I used to work at the IRS in the collections area and if your tax default is Federal, just call them, explain your income and if your only income is SSD, you should have no problem getting put in what they call Currently Not Collectible (CNC). They may go through a Financial Statement (433-F depending on how much you owe) which basically compares what you have coming in (SSD) compared to your living expenses, (rent, food, utilities, car payments, insurance etc). Believe it or not, the IRS does have options if you are in trouble and willing to talk to them. Also, if you get someone who is not willing to help you, hang up and try again, there are some people working there that need to retire and can be jerks but the majority of people I worked with are truly understanding and will help you as much as possible. Good Luck!

  2. Joanne says:

    I am a retired federal worker. Pension- 32,000.My debts are approx. 45K. I am also a realtor. This year I probably made 7K from that which is a typical year for me. Would I have to give up my license to file?

  3. yadira says:

    I have 15,000 debt in medical bills. I do not want them to garnish me at all. I rather get this over with and file bankruptcy. but I feel like it will effect my credit score of course. I have other bills I need to pay off as well, like my credit cards.

  4. Nikki Pellitier says:

    I believe I have 7-10,000 in debt, and my pay is about to be garnished. I’m a single mom of 4 kids and a college student. I can’t afford to have any of my check taken. Can anything be done?
    Please help, stressed Mom,

    • Peter says:

      Nikki, your debt is certainly at the low end of what we typically see, but there is no minimum debt amount needed to file bankruptcy. For many single parents, retirees, or people living on fixed income, even $7,500 in debt may be a lot. Also, people generally tend to underestimate the amount of debt they actually. Certainly, your debt is high enough to justify a consultation to determine your options.

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