For individuals struggling with debt, bankruptcy can be a viable way to hit refresh — allowing you to discharge certain debts or restructure others, so that you can take a moment to breathe, and then move forward on more sound financial footing.
With that being said, it’s also important to understand that while bankruptcy can be a practical path for individuals, families, wage earners, and retirees, it’s also not a “one size fits all” solution.
In particular? It’s important to consider whether bankruptcy is going to be the right course of action for your unique circumstances — and, if it is, what type of bankruptcy you’ll pursue.
Often, people considering bankruptcy as an option for financial relief wonder if they’re eligible for the process in the first place. We frequently get questions from individuals interested in bankruptcy, who hold back because they fear they won’t qualify — say, because they don’t have “enough” debt.
“Do I Have Enough Debt to Qualify for Bankruptcy?”
So, what are the eligibility requirements for bankruptcy? And is there a minimum amount of debt needed to qualify?
To answer the second question first: No, there is not a set “amount” of debt needed to qualify for bankruptcy. Your debt does not need to total a specific dollar amount before filing is an option for you. Instead, eligibility is determined by weighing a variety of factors, including the median income level for your state, as well as considerations like allowable expenses and your number of secured versus unsecured creditors.
For Chapter 7 bankruptcy, the first step in determining eligibility is taking the “means test.” The means test takes into account a number of different factors unique to your situation — including your income, expenses, debts, and family size — in order to determine if you have enough disposable income to put toward paying off your debts.
The primary step in the means test is to determine your household income (based on a number of variables), and compare it to the median income for your state. Broadly speaking, if your income falls below the state median for your household size, then you’re likely eligible to file for Chapter 7, and you can move forward in the bankruptcy process. If you do not pass the means test at this stage, there’s a second part of the test, which involves evaluating your expenses using a fairly complex mathematical formula.
If individuals do not qualify for Chapter 7 using the bankruptcy means test, Chapter 13 may be a better fit. Chapter 13 bankruptcy — sometimes called a “wage earner’s” bankruptcy — allows debtors to restructure their debts and pay them down over a three- to five-year period, using a set repayment plan. Generally speaking, in order to qualify for Chapter 13 bankruptcy, you must be able to prove that you are up-to-date on tax filings and have a debt-to-income ratio sufficient to cover your required monthly payments. It’s also important to note that while there is no debt minimum for Chapter 13, there is a debt maximum, as NOLO points out:
“While there is no minimum debt amount required to file for bankruptcy, you can’t have more than $1,257,850 in secured debt or $419,275 in unsecured debt if you want to file for Chapter 13 bankruptcy (these amounts, which are adjusted periodically to account for inflation, are valid as of April 2019).”
“Is Bankruptcy Really An Option for Me?”
With all this in mind, it’s also important to consider if bankruptcy is going to be the right course of action for you. Even if you are eligible, there may be an alternative solution that will better suit your lifestyle or financial goals. While it offers significant upsides in many cases, bankruptcy can nevertheless be a complex and time-intensive process. It’s worth weighing all of your options and discussing your questions with an experienced bankruptcy attorney or financial professional, to determine if personal bankruptcy will indeed be the way forward.
As you start to consider bankruptcy more seriously, it’s important to weigh considerations such as:
- Whether or not it is possible to deal with your debts outside of bankruptcy
- The types of debts you are facing, and whether or not they are dischargeable in bankruptcy
- Your lifestyle — and whether debt is impacting other aspects of your day-to-day, such as your health and well-being
- Your ability to move forward after bankruptcy — as this process can have a long-term effect on your credit, and your ability to finance major purchases
Getting the Answers You’ve Been Looking For
Considering the many variables that go into determining your eligibility for bankruptcy? Weighing whether or not filing is going to be the right course of action for you? There’s a lot to think about. Fortunately, you don’t have to go through any aspect of the bankruptcy process all on your own.
If you’re looking for insights on Chapter 7 or Chapter 13 bankruptcy in Chicagoland, the Gunderson Law Firm can step in and provide the answers you need.
The attorneys and staff of The Gunderson Law Firm specialize in helping individuals and businesses in the state of Illinois file bankruptcy in the most appropriate ways to discharge debts, and help get a fresh start. Our team can help get you actual, straightforward answers unique to your own situation, and your first consultation with us costs you nothing. No need to search for all the variables and hope you don’t miss any key detail — just reach out, and we will help.
Whether you are beginning to consider bankruptcy as an option for financial relief, researching the means test, pursuing financial counseling or guidance, or looking for an experienced partner to help make the complex bankruptcy process go more smoothly, don’t hesitate to get in touch with the Gunderson Law Firm whenever you’re ready to get the conversation started.