Is There A Minimum Or Maximum Amount Of Debt You Can Have For Chapter 7 Bankruptcy?
When people think about filing for bankruptcy, they usually have one of two worries: They worry that they have too much debt to file for Chapter 7 bankruptcy, or they worry that they have too little debt.
The good news is that there is no maximum or minimum amount of debt. In fact, the bankruptcy code doesn’t say you have to have debt at all to file for bankruptcy.
The real question is not what the minimum amount of debt you can have to legally file, but what is the minimum amount of debt that you should have for it to make sense to file for bankruptcy. This is a subjective question that will vary from person to person.
Even a small debt can be debilitating to someone who lives paycheck to paycheck, and because of high interest rates, even a small debt on a typical credit card could take years to pay off.
On the other hand, it may not make sense to file for bankruptcy for a single debt where you owe, for example, $2,000. This may be a debt you could negotiate a payment plan to pay off for the same money you would pay to file the bankruptcy.
Remember that you can’t just file bankruptcy whenever you want—you will have to wait many years before you file again, if you get your discharge. That means that you may not want to rush to file for bankruptcy, just because you have a single, small amount of debt, unless that debt is somehow causing severe hardship for you.
Maximum Debt Limits
On the other side of the spectrum, there is no maximum amount of debt that you can discharge (this is for Chapter 7; there is a maximum amount for Chapter 13 bankruptcy). However, there are some concerns if you are discharging an extraordinary amount of debt.
The higher the debt the more a trustee will look into your assets and income. If you are making $40,000 a year and you are discharging $3 million in debt, the trustee will get very curious—most people at that income level can’t get $3 million in debt. It will lead the court to want to know if you are hiding something about your income or your assets.
The trustee can also try to deny your discharge if it thinks that you are abusing the bankruptcy system. Someone who may just have racked up significant luxury expenses with no way to pay for them, may be seen as someone who is abusing the system. If that happens, you will then have to fight the challenge.
You can also expect creditors to challenge your right to a discharge, if there is a high amount of debt. The logic is simple: A creditor who stands to lose, say, $4,000, will take the loss from the bankruptcy. But when you start getting into 5 or 6-figure debts, creditors tend to want more proof that the filing isn’t abusive.