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How Much Debt Should You Have Before Filing for Bankruptcy?

One of the questions our bankruptcy attorneys hear quite often is whether there’s a certain amount of debt a debtor must accumulate before filing for bankruptcy.

The truth is that there is no magic number. We’ve seen clients successfully file for bankruptcy for $10,000 debts and $100,000 debts – and everything in between. It’s up to you to determine if it’s realistic to pay off your debts over time or if you need a fresh start to get back on your feet.

A good rule of thumb is to consider bankruptcy if you’ve been making payments for six months or more without making a dent in your debt, whether it’s because you’re only able to afford making minimum payments or your debt is growing faster than you can pay it off.

If changing your lifestyle and budget can allow you to significantly reduce debt in six months, it may not be worth the hit to your credit to file for bankruptcy. But bear in mind that if you’ve been struggling with debt for quite some time, your credit is probably already in pretty poor shape.

While filing for bankruptcy will appear on your credit report, it also clears your credit report of debt, allowing you to begin rebuilding credit – and your financial life. In fact, many of our bankruptcy clients report receiving credit card offers and loan approvals shortly after filing. With the pressure of debt removed, it suddenly becomes much easier to make timely payments, limit credit card spending and cultivate other habits that improve credit.

Of course, whether bankruptcy is right for you depends on several other factors, including your income level, assets and types of debt.

For instance, if you have limited income and large amounts of unsecured debt, you may be able to eliminate most debts free and clear with Chapter 7 bankruptcy. If you earn a steady income or own a home you would like to keep, however, making payments under a Chapter 13 bankruptcy repayment plan may be a better solution.

While bankruptcy is unable to wipe out certain debts – such as student loan debt – it may be able to offer some relief by eliminating credit card bills and medical debt that are interfering with your education loan payments.

Every family’s financial situation is different. If you feel as if you’re drowning in debt, your best bet is to consult with an experienced bankruptcy attorney. Your attorney will carefully evaluate your financial situation – including your income, expenses, and debts – to determine if filing for bankruptcy can help you finally achieve financial freedom.

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