Debtors who have far more debt than income may consider filing for bankruptcy. Bankruptcy can be attractive because it offers the debtor a chance to start over, although it leaves a negative mark on his credit report and may limit his financial freedom. As of 2011, there is no minimum debt required to file for bankruptcy; debtors must make the decision to file based on their individual circumstances.
No Legal Minimum
Legally, there is no minimum debt that a person has to carry before he can file for bankruptcy. Therefore, technically a person could file for bankruptcy because he is $5 in debt. Generally speaking, however, it makes no sense to do this. Bankruptcy has serious financial consequences; debtors should file for bankruptcy only if there is a compelling reason to do so, such as a large amount of debt that the debtor will be unable to pay back within a reasonable period of time.
Chapter 7 bankruptcy requires debtors to pass a means test. If the debtor's income minus his expenses is less than the established median income for households of the same size in the state in which he lives, he qualifies for Chapter 7 bankruptcy; otherwise, he does not qualify and must file Chapter 13 bankruptcy. The amount of debt owed is taken into consideration when determining whether a debtor qualifies for Chapter 7 bankruptcy.
Maximum Debt Limits
As of 2011, there is no maximum debt allowed when filing for Chapter 7 bankruptcy. When filing for Chapter 13 bankruptcy, debtors must have not more than $360,475 in unsecured debt or $1,081,400 in secured debts. Secured debts are debts backed by property, such as an automobile loan or a mortgage. If a debtor has too much debt to file for Chapter 13, she must file for Chapter 7 on at least part of the debt if her income allows her to do so.
Bankruptcy makes sense if the debtor cannot expect to pay his debts off within three years or stands to lose property such as his house or car that he may be able to keep through filing for bankruptcy. Bankruptcy leaves a negative mark on a person's credit for seven to 10 years, making it more difficult to rent an apartment or take out any new loans. Debtors should only consider it as a last resort.