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How much debt do you need to file for bankruptcy?

A common misconception is that there is a minimum debt threshold necessary to file a bankruptcy. There is no magic amount of debt required. The question, then — how much debt should I have to consider a bankruptcy — is less a legal question than a practical one, and is entirely based on the facts of your situation and your reasons for wanting the fresh start of a bankruptcy discharge.

As a practical matter, your debts should obviously be greater than the costs and fees necessary to file the case — otherwise, you should simply pay your debts. Beyond that simple consideration, the “smell test” is simply this — do you have the ability to pay your debts as they come due? If, due to high minimum payments, high interest rates, or a change in your income you do not have the ability to pay, then the amount of the debt is less relevant. Put another way, once your debts exceed your ability to repay, ten or twenty thousand dollars in debt might as well be a million dollars — because you can’t pay it back.

Your motives are another consideration. We have represented many individuals that wanted to clear their debts for a specific reason — perhaps a terminal illness (and desire to wrap up their personal affairs), a pending marriage (and the desire not to burden their prospective spouse), or some other major life event has created a need to “clean up” one’s finances. In such situations, the amount of debt is less important than the debtor’s desire to get the fresh start.

Another factor, often overlooked, is the type of debt owed. In bankruptcy, there is a significant difference between owing $10,000.00 to the IRS and owing the same amount to a credit card lender. Sometimes relatively small amounts of money owed to a particular type of creditor can cause a bankruptcy. Payday loans and other exhorbitant debts are a prime example of this.

Give us a call to discuss your situation in detail.