How Much Do You Have to Be in Debt to File Chapter 7?

How Much Debt Do You Need to File Chapter 7 Bankruptcy?

There’s no set amount of debt required to file for Chapter 7 bankruptcy – but you’ll need to pass the means test to qualify. The means test looks at your income, expenses, and ability to pay back creditors. If you can’t afford to pay back a good chunk of what you owe, Chapter 7 may be an option.

What is Chapter 7 Bankruptcy?

Chapter 7 is the most common type of bankruptcy for individuals. It’s sometimes called “straight bankruptcy” or “liquidation bankruptcy.” When you file Chapter 7:
A bankruptcy trustee is appointed to oversee your case
Your non-exempt assets may be sold to pay back creditors
Most of your unsecured debts (credit cards, medical bills, personal loans, etc.) are discharged or wiped out
You get a fresh financial start, free from the debts included in your bankruptcy

The Means Test Determines Chapter 7 Eligibility

To qualify for Chapter 7, your income must be low enough that you pass the bankruptcy means test. The means test has two parts:
Your current monthly income is compared to the median income in your state for a household of your size. If your income is below the median, you pass this part.
If your income exceeds the median, you must complete additional calculations on a bankruptcy form called the “means test calculation.” This looks at your disposable income after allowed expenses. If you have little to no disposable income left, you may still qualify for Chapter 7.
The means test is designed to prevent high-income filers from abusing the system. If you “fail” the means test because you have significant disposable income, you may have to file Chapter 13 bankruptcy instead and repay some debts.

What If I Don’t Qualify for Chapter 7?

If your income is too high to pass the means test, you have a few options:
File Chapter 13 bankruptcy instead and get on a repayment plan
Explore debt relief options like debt settlement or consolidation
Wait until your financial situation changes and try filing Chapter 7 again later

How Much Debt is Too Much?

There’s no official debt limit or minimum amount required to file Chapter 7 bankruptcy. However, most bankruptcy attorneys won’t take cases unless you have at least $10,000 to $15,000 in dischargeable unsecured debt.
It generally doesn’t make sense to file Chapter 7 if you only have a small amount of debt that you could reasonably pay off in a couple years. The negative credit impact of bankruptcy may outweigh the benefits if your debt is very low.
But if you’re drowning in debt with no way to realistically pay it off, Chapter 7 can allow you to get out from under that burden relatively quickly. Most Chapter 7 cases are completed within 4-6 months from filing.

What Kinds of Debts are Discharged in Chapter 7?

In a Chapter 7 bankruptcy, these types of unsecured debts are typically discharged:
Credit card balances
Medical bills
Personal loans
Utility bills
Certain tax debts and student loans (in some cases)
Lawsuit judgments (except for fraud)
However, these debts generally cannot be discharged in Chapter 7:
Child support and alimony
Most student loans
Recent tax debts
Debts from fraud or intentional injuries
So if the bulk of your debt burden consists of non-dischargeable obligations like student loans or back taxes, Chapter 7 may not provide much relief.

Factors That Impact Chapter 7 Eligibility

In addition to passing the means test, there are a few other factors that determine if you’re eligible to file Chapter 7:

Previous Bankruptcy Filings

You cannot receive a Chapter 7 discharge if:
You received a Chapter 7 discharge in the last 8 years
You received a Chapter 13 discharge in the last 6 years
However, you may still be able to file Chapter 13 again before the 6-year waiting period is up.

Ability to Protect Assets

In Chapter 7, the bankruptcy trustee can seize and sell any non-exempt assets you own to repay creditors. Each state has its own bankruptcy exemption laws that allow you to keep certain assets like:
A portion of home equity
Reasonably-valued vehicles
Household goods and clothing
Retirement accounts
Tools for your trade or profession
If you have significant non-exempt assets you want to protect, Chapter 7 may not be the best option. Chapter 13 allows you to keep all assets as long as you complete the repayment plan.

Timing of Debts

The bankruptcy code contains provisions to prevent abuse, such as running up debts right before filing. If you racked up a lot of new debt for luxury purchases in the months before filing Chapter 7, the trustee may deny your discharge for those specific debts.

Pros and Cons of Filing Chapter 7

Like any major financial decision, Chapter 7 bankruptcy has potential advantages and disadvantages to consider:

Pros of Chapter 7

Wipes out eligible unsecured debts completely
Stops wage garnishments, foreclosure, and creditor harassment
Relatively quick process, usually 4-6 months
Gives you a true fresh start to rebuild credit
Bankruptcy filing and legal fees are relatively affordable

Cons of Chapter 7

Remains on your credit report for 10 years, making it harder to get approved for new credit
You may have to surrender valuable non-exempt property
Certain debts like student loans are rarely discharged
Bankruptcy filing becomes a public record
Some employers and landlords discriminate against those with past bankruptcies

Alternatives to Chapter 7 Bankruptcy

If you don’t qualify for Chapter 7 or want to explore other options first, here are some potential alternatives:

Debt Settlement

With debt settlement, you negotiate lump-sum payoffs with creditors for less than the full balance owed. This can reduce your total debt significantly without filing bankruptcy.
The downside is that debt settlement further damages your credit in the short-term and you need access to a lump sum of funds to pay the settled amounts.

Debt Consolidation

Consolidating credit cards and loans into one new loan with a lower interest rate can make your monthly payments more affordable. You’ll need decent credit to qualify for a consolidation loan or balance transfer card.

Credit Counseling

A non-profit credit counseling agency can help you enroll in a debt management plan to repay debts over 3-5 years, similar to Chapter 13 bankruptcy. Your interest rates are reduced, but the full principal amounts must be paid.

Debt Negotiation

If you’re dealing with a specific creditor like a credit card company, you may be able to negotiate more affordable payment terms directly with them. This requires being up-front about your financial hardship.

How to File Chapter 7 Bankruptcy

If you’ve explored all options and decide Chapter 7 is the best path, here are the basic steps to filing:
Take the required pre-filing credit counseling course
Gather all financial documents like pay stubs, bank statements, bills, etc.
Complete the bankruptcy petition, schedules, and other forms
Get your case filed with the local bankruptcy court
Attend the 341 meeting of creditors
Take the post-filing debtor education course
Receive your discharge order eliminating eligible debts
It’s highly recommended to hire a bankruptcy lawyer to ensure your paperwork is filled out properly and no issues arise during the process. Attorney fees for Chapter 7 cases typically range from $1,000 to $3,000.

When is Chapter 7 the Right Choice?

Chapter 7 bankruptcy can provide much-needed debt relief, but it’s not a decision to take lightly. It may be the best option if:
You have mostly unsecured debts that would be discharged
Your income is below your state’s median after allowed expenses
You don’t have many non-exempt assets to protect
Your debt burden is so high that alternatives like settlement won’t help much
You need a true fresh start to get back on stable financial ground
But if your income is too high, you have a lot of non-dischargeable debts like student loans, or you have valuable non-exempt assets, Chapter 13 or other debt relief options may be better paths to consider.

Get Professional Bankruptcy Guidance

Deciding whether and how to file bankruptcy is complicated. There are many factors and potential pitfalls to consider. That’s why it’s crucial to consult with an experienced bankruptcy attorney in your area.
An attorney can review your full financial situation, explain all your options, and guide you through the bankruptcy process if you decide to file. They can ensure you qualify for Chapter 7, prepare your paperwork properly, and represent you in court.
At Spodek Law Group, our bankruptcy lawyers have decades of experience helping clients get out from under crushing debt through Chapter 7 and other solutions. We offer free initial consultations to review your case.
To get started with an evaluation of your options, call us at 212-210-1851 or contact us online. We’ll walk you through every step and put you on the path to financial freedom.

Chapter 7 Bankruptcy FAQs

How much debt do you need for Chapter 7?

There is no set minimum debt amount required for Chapter 7 bankruptcy. However, most bankruptcy attorneys typically won’t take cases unless you have at least $10,000 to $15,000 in dischargeable unsecured debt. Filing for such a small debt amount may not be worth the long-term credit impact.

What debts are not discharged in Chapter 7?

The main types of debts that cannot be discharged in a Chapter 7 bankruptcy case include:
Child support and alimony
Most student loans
Recent tax debts
Debts from fraud or intentional injuries

Can I keep my house and car in Chapter 7?

You may be able to keep your home, car, and other assets in Chapter 7 if their equity is fully covered by your state’s bankruptcy exemptions. However, if you have non-exempt equity, the trustee can seize those assets to repay creditors unless you pay the non-exempt amount.

How long does Chapter 7 bankruptcy take?

For a typical Chapter 7 case with no major issues, the entire process from filing to receiving your discharge order takes around 4-6 months. More complicated cases can potentially take longer.

How much are attorney fees for Chapter 7?

Attorney fees for a basic Chapter 7 bankruptcy case usually range from $1,000 to $3,000. This can vary based on the complexity of your case and where you live. Many bankruptcy lawyers allow you to pay fees in installments.

Get the Fresh Start You Deserve

If you’re drowning in debt with no way to reasonably pay it off, Chapter 7 bankruptcy may allow you to get a true fresh financial start. By wiping out credit cards, medical bills, and other dischargeable debts, you can get out from under that heavy burden relatively quickly.
But determining Chapter 7 eligibility is complex – you need to pass the means test, have the right types of debts, and ensure you can protect important assets. That’s why it’s crucial to have an experienced bankruptcy lawyer review your full financial situation.
At Spodek Law Group, our attorneys have helped countless clients regain their financial freedom through Chapter 7 and other debt relief solutions. We offer free consultations to evaluate your options and guide you through the entire bankruptcy process if Chapter 7 is right for you.