A common inquiry of debtors about bankruptcy is the minimum amount of debt required to receive a debt discharge. The truth is it doesn't matter how small your debts are.
However, there is a maximum limit of debt to be eligible to file a Chapter 13 case. For Chapter 7, your ability to file depends on how much money and assets you have. Although it is your lack of ability to pay back debts that makes it necessary to file for bankruptcy, you should consider the limitations and consequences of filing to evaluate whether bankruptcy is suitable solution for wiping out a small amount of debt.
The assets that you get to keep in Chapter 7 bankruptcy will depend on your state laws. The trustee in a may take or sell your non-exempt assets to repay your creditors. So if you have valuable possessions that you may not be able to exempt and you want to keep, Chapter 7 may not be the right option for you.
In Chapter 13, there is no liquidation of assets. Instead you make a three- or five-year repayment plan subject to the court's approval. Any remaining debts are discharge after the liquidation or completion of your repayment plan. But there are also non-dischargeable debts, such as child support, spousal support, student loan, and some taxes. These types of debts cannot be forgiven or wiped out in bankruptcy.
When considering filing a Chapter 13 case, it is important to calculate how much you owe your creditors. It matters how big your debts are, not how small they are. Bankruptcy law has a maximum debt requirement to file; for example, the maximum debt is approximately $1.02 million secured debts such as mortgage loans and car financing and for unsecured debt like credit cards, it is $360,000.
In Chapter 7, your net income should meet the requirement to file for bankruptcy. Your average income within the past six months must be less than the state's median income. If not, the debtor needs to pass a means test where the income is compared to the cost of living. Those who do not pass the means test or do not meet the required income are not allowed to file for Chapter 7 bankruptcy.
It is important to satisfy all the other requirements in filing bankruptcy. For example, credit counseling course must have been taken 6 months before filing bankruptcy. Moreover, you must carefully prepare your bankruptcy petition because if it is rejected, you need to wait for 180 days to be able to file again. For a completed bankruptcy, you have to wait at least two years before filing again. There are also fees for filing bankruptcy that you need to pay.
Filing bankruptcy costs time and money so if your debt is manageable it may not be worth it to go through it. Although filing bankruptcy has no minimum debt requirement, it is important to compare your debt with income. Those who can pay their existing financial obligations may receive rejection on their petition. The court might presume that you are abusing the bankruptcy process and filing in bad faith.