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Is There a Minimum Amount of Debt Necessary to Qualify for Bankruptcy Relief?

Prospective bankruptcy filers often inquire whether they need to have a certain debt burden or minimum amount of debt to justify a bankruptcy filing. Yet, there is no floor or lower limit to the amount of debts or debt burden a consumer must have to file bankruptcy (under either Chapter 7 or Chapter 13). That said, common sense dictates that a person should not file for bankruptcy protection if the debt is manageable or can somehow be negotiated to a manageable level for repayment purposes.

In today's down-turned economy, virtually everyone who experiences severe financial difficulties qualifies for some sort of bankruptcy protection or relief. It is also not surprising in this economic climate to see that some individuals need to file for bankruptcy protection when the reality is that they owe very little to their creditors.

If There Are No Lower Limits for Debt for Bankruptcy Filing Purposes, Are There Upper Limits?

There is an upper limit or ceiling on the amount of debt a consumer can possess and still file a Chapter 13 bankruptcy reorganization case. For instance, as of 2007, those limits were $336,000 for unsecured debt totals and $1,010,650 for secured debt figures. Those debt limits increase slightly over time, as well, to accommodate cost of living adjustments, inflation, and the realities of the economy.

What Is the Importance of the Upper Debt Limit?

The significance of the upper debt limits is huge. A debtor who owes non-contingent, liquidated debts in excess of either of the aforementioned limits will not even qualify to file a Chapter 13 bankruptcy case. The game is over before it even has a chance to begin for that debtor, unfortunately. Incidentally, the upper debt limits mentioned above apply to all individual bankruptcy courts located throughout the country. It does not matter where a debtor chooses ultimately to file his or her bankruptcy petition.

How Do You Know if You Should File Bankruptcy?

First and foremost, a debtor should have a motivation or reason prompting him or her to file bankruptcy. That motivation is most often that the debtor cannot afford to pay all of his or her bills on time. Note, however, that this is not the same as a requirement that a debtor have more liabilities (what you owe) than assets (what you own). It is simply the inability to timely repay debts to creditors.

Some creditors and fiscally prudent, frugal-minded individuals may be sickened to learn the following reality. In California, a prospective debtor under Chapter 13 can own a home, have more than $100,000 in equity in that home, file bankruptcy, retain the residence, and remove (if not reduce drastically) thousands in credit card or medical debt. This is all perfectly legal and ethical, in fact. Incidentally, credit card and medical debt is unsecured debt. Often, there is also no limit to the amount of property a debtor can own and still qualify to file bankruptcy.

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