How Much Debt Is Needed to File Bankruptcy?

Consumers who face a daily struggle to pay their bills are often left wondering whether they can declare bankruptcy. Many think they cannot because they have a relatively small amount of debt. Yet, when medical bills, credit card debt and other liens start to build up, bankruptcy could provide a way out for many consumers, even those with small amounts of debt.

The Law

United States bankruptcy law does not state a minimum amount of debt required before an individual can declare bankruptcy. Anyone who feels their debt is beyond their ability to pay can elect to declare bankruptcy. The law does give the courts the right to deny the request for bankruptcy protection if they do not feel that an individual's financial circumstances warrant a discharge of debts.

Practicality

Since the law does not place any minimum on debts that qualify for bankruptcy, anyone who has debt can file, even with as little as $500 in debt. However, the government filing fees for bankruptcy, which were $299 for Chapter 7 and $274 for Chapter 13 as of 2011, would outweigh any potential benefit of filing for someone with this small amount of debt. Yet for people with little to no income and few assets, debts as small as $2,000 may be impossible to pay, so each individual must look at his or her own financial situation when determining whether or not declaring bankruptcy is practical.

Expert Opinion

The Legal Office at the United States Air Force Academy warns that most individuals will not benefit enough from bankruptcy until they have a debt load of at least $15,000 to $20,000. The damage that occurs to an individual's credit score plus the loss of assets and the costs of filing will usually outweigh any benefits of discharging debts less than this. To add income to the equation, the Bankruptcy Law Network recommends considering bankruptcy if your debt-to-income ratio, excluding your mortgage, is 30 percent or higher.

Alternatives

Those who do not stand to benefit substantially by filing bankruptcy can seek alternatives. Creditors may be willing to negotiate a debt settlement with the consumer, which is a situation wherein they accept less than what the consumer owes in return for receiving a lump sum payment. Sometimes debt negotiation firms can work as a go-between for a creditor and debtor to negotiate repayment terms acceptable to both parties. Debtors who have not yet hurt their credit scores with their debt can consolidate their debts into a more affordable loan option through home equity loans or debt consolidation loans.