How Much Debt to File Bankruptcy?


When the thought of a fresh start outweighs fears of the long-term consequences of filing for bankruptcy, a decision about whether to file still requires careful planning. Among the most important considerations are choosing which of the available options, or chapters, fits your personal or business situation the best and making sure you meet the qualifying requirements. While none of the bankruptcy options has minimum debt requirements, some have upper limits.

Chapter 7

A Chapter 7 liquidation plan is an option for individuals and small businesses. Although Chapter 7 has no minimum or maximum debt limits, the type of debt and your income in some cases determine whether it’s a viable option.

Chapter 7 best fits a situation in which credit cards, medical services and unsecured loans make up most of your debt load. Individuals must pass a Chapter 7 means test that determines whether you qualify by comparing your annual income to the median income for your state. Small-business owners usually do not have to pass the means test.

Chapter 11, 12 and 13

Chapters 11 through 13 are reorganization plans that require individuals and businesses to cure any defaulted secure debt and repay as much unsecured debt as possible within three to five years. None has minimum debt requirements, but two of three have upper debt limits.

Chapter 13

Chapter 13 is seen more often with individuals, but small-business sole proprietors can also use it. Maximum debt limits with a Chapter 13 reorganization plan distinguish between secure and unsecured debt. As of the publication date, the maximum unsecured debt limit is $383,175 and the maximum secured debt limit is $1,149,525.

Chapter 11

Although Chapter 11 is an option for both individuals and businesses, it is usually more suitable for a business. It works the same as a Chapter 13 but has no maximum debt limit.

Chapter 12

Chapter 12 is a reorganization plan designed specifically for family-run businesses in farming and fishing industries. Although Chapter 12 has upper debt limits, they do not distinguish between secured and unsecured debt. As of the publication date, the upper debt limit for a family farm is $4,031,575, and for a family fishing business the debt limit is $1,868,200.

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