How much debt do you need to file for Chapter 7 bankruptcy?

If you’re wondering about bankruptcy, that might mean you have a serious financial situation to deal with. Taking control of your financial future is a brave step. The way to get to the other side of your debt is to choose the best path there. 

Our job is to explain the choices. Chapter 7 bankruptcy might be the right path. If it isn’t, we’ll show you other ideas to explore. 

Chapter 7 bankruptcy: a refresher

What is Chapter 7 bankruptcy? Bankruptcy is a legal process to deal with debt. Chapter 7 is sometimes called the clean slate bankruptcy because if you qualify, you could have your unsecured debts totally forgiven. 

When you file a bankruptcy petition, you ask the court to discharge (forgive) your debts. When debt is discharged in bankruptcy, you no longer have to pay it. 

You could be a good candidate for Chapter 7 bankruptcy if you:

• Mostly owe unsecured debts like credit cards, personal loans, or medical bills

• Can't afford to pay back what you owe and don't expect your financial situation to change any time soon

• Don't own a lot of assets, like multiple cars. In some states, you could even lose your home under certain conditions.

Chapter 7 doesn't address any of the issues that caused your debt, but it can take financial stress off your shoulders. 

Do you need a certain amount of debt to qualify for Chapter 7 bankruptcy?

There is no minimum amount of debt someone needs to qualify for Chapter 7 bankruptcy. You could file Chapter 7 if you owe $5,000, $500,000, or $5,000,000.  

You do need to pass something called a means test to qualify for the Chapter 7 program. The means test measures your ability to pay back some or all of what you owe. This test hinges on three factors:

• Income

• Expenses

• Household size

The bankruptcy court uses this test to calculate whether you have enough disposable income each month to pay something toward your debt. Your disposable income is the money left over after you pay basic living expenses. Your income and expenses will be compared to the average income and expenses for a same-sized household in the area where you live. 

It can get a little complicated, so here's the takeaway: If you pass the means test, you qualify for Chapter 7. 

The means test exists to make sure that no one takes advantage of bankruptcy to avoid debts they can afford to pay. 

Signs that Chapter 7 bankruptcy might be right for you

You've taken a good look at your financial situation and you wonder if Chapter 7 is the answer you need. Here are some signs that bankruptcy could be the right choice. 

• It's a struggle to pay even the minimum amount due toward your debts because your expenses are too high, your income is too low, or a combination of both. 

• Your payments don't make much of a dent in the balance. 

• Creditors call you frequently to ask for payment toward past-due debts, or you get collection letters in the mail. 

• You received notice that a creditor has filed a debt lawsuit against you. 

• Your wages or bank account are under threat of garnishment for unpaid debts. 

Maybe it's one of these things, or maybe it's all of them that affect you. Regardless, bankruptcy might provide relief in these scenarios. 

Pros and cons of filing for Chapter 7 bankruptcy protection

Bankruptcy has advantages and disadvantages. It helps to look at both sides to make a final decision on whether to file. 

Pros

• Chapter 7 bankruptcy can eliminate a variety of debts so you don't owe them anymore. 

• Bankruptcy protection can stop creditor lawsuits and collection calls. 

• You're doing something about your debts.

• Once your bankruptcy case is discharged, you can refocus your energy on creating a better financial future.  

Cons

• You may have to give up some of the things you own to the bankruptcy court. 

• Bankruptcy may not eliminate all of the debts you owe. 

• Your credit score will suffer, which could take time to repair. 

• You'll pay fees to file unless you qualify for a waiver. You might also pay attorney fees.

• If your income is too high, you won’t qualify for Chapter 7.

If you think you might be a candidate, it’s a good idea to talk to an attorney in your area who specializes in bankruptcy. 

If you don’t think bankruptcy is the right fit, it's time to look at other solutions. 

Other options for dealing with debt

Everyone's debt situation is different, and there are numerous ways to deal with it. Here are some possibilities if you need alternatives to Chapter 7 bankruptcy. 

• Negotiate with your creditors. If you’re struggling, let your creditors know what’s going on, especially if you’ve already fallen behind. Make your creditor an offer you can afford, and ask them to forgive the rest.

• Enroll in a debt resolution program. If negotiating isn’t your cup of tea, you could let a reputable professional debt resolution company negotiate for you. They may already have relationships with your creditors. 

• Enroll in a debt management plan. A DMP is a structured plan to fully repay what you owe. This option is designed for people who have $7,500 in credit card debt. Your creditors might be willing to reduce your interest rate or waive certain fees, but you'll have to close your credit card accounts. DMPs are managed by nonprofit credit counseling agencies.

• DIY your debt payoff. Look for extra cash you could apply toward your debt balances. Sell things you don't need, and use the money to pay down debt. Get a part-time job or start a side hustle, if possible, and apply the extra income to your debt. Even a few extra dollars at a time can help. 

You can talk to a debt expert to find out which path might make the most sense. 

What's next

• Make a realistic assessment of your finances that includes your income, expenses, and debt. 

• Talk to a bankruptcy attorney to learn more about the process and get their opinion on whether it's appropriate for your situation. 

• Meet with a debt expert to discuss bankruptcy alternatives, like debt consolidation or debt resolution.