How much debt to file bankruptcy?

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Filing for bankruptcy is a significant decision that individuals facing overwhelming debt may consider. However, determining how much debt is necessary to file for bankruptcy can be a complex matter. In this article, we will explore the factors to consider when deciding whether to file for bankruptcy and how much debt may warrant taking this step.

Understanding Bankruptcy

Bankruptcy is a legal process that allows individuals or businesses to seek relief from their debts when they are unable to repay them. It provides a fresh start by eliminating or restructuring debts, depending on the type of bankruptcy filed. The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is often referred to as liquidation bankruptcy. It involves the sale of non-exempt assets to repay creditors. However, not all assets are subject to liquidation. Exempt assets, such as a primary residence, necessary clothing, and certain personal belongings, are protected.

To qualify for Chapter 7 bankruptcy, individuals must pass the means test, which compares their income to the median income in their state. If their income is below the median, they are generally eligible to file for Chapter 7. However, if their income exceeds the median, they may need to explore other options, such as Chapter 13 bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is known as reorganization bankruptcy. It allows individuals to create a repayment plan over three to five years to pay off their debts. This type of bankruptcy is suitable for individuals with a regular income who can afford to make monthly payments towards their debts.

Unlike Chapter 7, Chapter 13 does not involve liquidation of assets. Instead, individuals can retain their property and catch up on missed mortgage or car loan payments through the repayment plan. Chapter 13 bankruptcy is often chosen by individuals who have significant assets they wish to protect or those who do not qualify for Chapter 7 due to their income level.

Factors to Consider

When determining how much debt warrants filing for bankruptcy, several factors should be considered:

1. Debt Amount: The total amount of debt is a crucial factor. If the debt is substantial and unmanageable, bankruptcy may be a viable option. However, there is no specific threshold that determines when bankruptcy is necessary.

2. Ability to Repay: Evaluate your ability to repay the debt based on your current income and expenses. If you are unable to make minimum payments or see no realistic way of repaying the debt within a reasonable timeframe, bankruptcy may be a solution.

3. Impact on Daily Life: Consider how the debt affects your daily life. If it causes significant stress, affects your mental health, or prevents you from meeting basic needs, it may be time to explore bankruptcy.

4. Legal Action: If creditors are taking legal action against you, such as wage garnishment or foreclosure, filing for bankruptcy can provide immediate relief and halt these actions.


Determining how much debt warrants filing for bankruptcy is a personal decision that depends on various factors. It is essential to assess your financial situation, ability to repay, and the impact of the debt on your daily life. Consulting with a bankruptcy attorney can provide valuable guidance and help you make an informed decision.


– United States Courts: Bankruptcy Basics –
– Investopedia: Chapter 7 vs. Chapter 13 Bankruptcy –
– Nolo: Should I File for Bankruptcy? –