The burden of debt is unbearably heavy, and if it makes you feel any better, you share this burden with trillions of Americans. So if you are wondering when is the right time and How Much Debt You Need to Have to File for Chapter 7 Bankruptcy? Then keep reading this article till the end.
- You need to have no chapter 7 bankruptcy filing in the last eight years, and you need to pass a means test to be eligible for chapter 7 bankruptcy.
- You will also have to fininsh two courses along with the means test to be eligible.
- You can apply for Chapter 7 bankruptcy if your income is less than the income restrictions of the law.
- When you file a chapter 7 bankruptcy, all of your unsecured debts get discharged permanently.
What is Chapter 7 Bankruptcy?
Bankruptcy is a severe matter that you have to understand extremely well to the very depths of it because of its important consequences once it happens.
The process to liquidate your assets goes by Chapter 7 of Title 11 of The United States of America Bankruptcy Code.
The government appoints a trustee to sell the nonexempt assets you own in order to pay the debts you have to creditors; once these funds are over, the remaining debt gets discharged since you can’t pay them.
However, there are a few things you need to follow to be eligible for chapter 7 bankruptcy, like having no chapter 7 bankruptcy filing in the last eight years, and you need to pass a means test.
This is sometimes also known as “straight” or “liquidation” bankruptcy.
Eligibility for Chapter 7
How Much Debt You Need to Have to File for Chapter 7 Bankruptcy?
Even though there is no minimum limit for the amount of debt1, you must have to file a Chapter 7 bankruptcy, federal law requires bankruptcy filers to fulfill certain qualifying standards.
To be qualified for Chapter 7 bankruptcy, you must first pass a means test. This test is generally about your revenue rather than your debt.
You can apply for Chapter 7 bankruptcy if your income is less than the income restrictions of the law.
If your income is above the average household income in the state you are living in; you must complete the second portion of the means test.
You must also finish two courses, in addition to the means test.
A credit counseling course before the filing for chapter 7 bankruptcy and a course for your management of finances before the bankruptcy court issues your discharge.
The majority of Chapter 7 bankruptcy filers’ debts are unsecured debts.
These debts have no collateral to make sure the debtor will somehow make the payment like a credit card bill.
When you file a chapter 7 bankruptcy, generally, all of your unsecured debts get discharged permanently.
This implies that if you solely have unsecured debts, Chapter 7 bankruptcy might provide significant relief.
To sum everything up, there is no amount of minimum debt that you must have to file for a chapter 7 bankruptcy.
However, there are other requirements that you need to fulfill in order to be eligible for a chapter 7 bankruptcy.
One of the most important requirements is not to have a chapter 7 bankruptcy file in the past eight years.
In addition to all this, not all debts are applicable for a chapter 7 bankruptcy.
The majority of debts that you can have a discharge for are unsecured debts like credit card bills, but debts like mortgages or car loan that has some sort of security for repayment do not have a discharge under chapter 7 bankruptcy.
The same rules apply for unsecured debts; there is no minimum or maximum amount of debt for filing for chapter 7 bankruptcy as long as you can fulfill other requirements.
Amit Gupta is the founder of National Planning Cycles, a company that helps startups, individuals, and small businesses with their financial planning. He has a vast amount of experience in the finance sector, having managed Google Play accounts for some of the world’s most successful unicorns. Amit is an expert in his field, and he uses his knowledge to help others achieve their individual goals.
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