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How Much Debt Do I Need to Have to File Bankruptcy?

The purpose of bankruptcy

Understanding the purpose of bankruptcy helps assess an adequate response to the question an increasing number of American consumers are asking themselves, their attorneys, and their creditors: “How much debt do I need to have before I can declare bankruptcy?” Bankruptcy occurs when a court of competent jurisdiction declares that a debtor is legitimately unable to pay back his debts in their entirety. Bankruptcy allows a person to get a “fresh start” on life financially while allowing creditors to demand whatever amount of repayment the court believes the bankrupt debtor is reasonably capable of giving.

Bankruptcy codes are universal in the United States

Article I, Section 8 of the US Constitution empowers Congress to impose uniform laws governing all bankruptcies in the United States. There are six basic types of bankruptcy found respectively in Chapters 7, 9, 11, 12, 13, and 15 of the US Code. Any question regarding qualification for bankruptcy will depend upon the type of bankruptcy and can be found in its appropriate chapter. Chapters 13 and 7 are the most relevant chapters for individual consumers. Chapter 13 applies to bankruptcy cases where there is rehabilitation with a payment plan for individuals with a regular source of income, while Chapter 7 addresses basic liquidation for individuals and businesses.

Who can qualify for bankruptcy?

Bankruptcy can be initiated by creditors and debtors alike. In order to salvage a portion of their loan, debtors may petition the courts for an “involuntary” bankruptcy on behalf of their debtor. But bankruptcy is almost always declared by debtors themselves. In order to qualify for a bankruptcy, the debtor must demonstrate in court his testament in good faith that he or she cannot pay back their debt and maintain a reasonable standard of living.

For example, an individual applying for Chapter 7 must show the Bankruptcy Court of the United States that his or her net monthly income after taxes is roughly equivalent to household total monthly expenses—mortgage or rental payments, auto loans, food and utilities. The Internal Revenue Service determines how the court is to evaluate reasonable standards of living. The IRS bases its standardized models on a bankruptcy candidate’s household size and personal income.

Signs that you are approaching bankruptcy

People at high risk for bankruptcy generally demonstrate several or all of the following patterns: no savings; for each month during the past 6 months, at least one bill has been paid late; a reliance on credit cards to pay for groceries and other major necessities; using a cash advance from one credit card to make payment on a second account; the landlord or mortgagor has initiated eviction or real estate foreclosure; vehicle repossession; and utility shutoffs.

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