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How Much Debt Is Worth Filing for Bankruptcy?

Few experiences are more stressful and overwhelming than having a significant amount of debt and not knowing how you will repay it. At some point, most people in such a situation begin wondering whether filing for bankruptcy might be their best option. However, it is not always clear whether the amount of debt you have justifies taking this step. 

The two primary types of bankruptcy for individuals are Chapter 7 and Chapter 13. While there is no official minimum amount you must owe before filing for bankruptcy, whether your debt is enough to warrant filing will depend on your situation and the type of bankruptcy you want to file. 

When Is It Worth Filing for Chapter 7 Bankruptcy?

Chapter 7 bankruptcy might serve your interests if you have a significant amount of unsecured debt, such as medical or credit card debt, and little to no disposable income to repay it. To qualify for this form of bankruptcy, you must pass a means test, which accounts for your income, expenses, and debt to determine whether your income is sufficient to repay your debts.

If you qualify for Chapter 7, most of your unsecured debts can be discharged, meaning you no longer have a legal obligation to pay them. However, certain debts, such as student loans and back taxes, are not typically dischargeable in bankruptcy. 

When Is It Worth Filing for Chapter 13 Bankruptcy?

Chapter 13 bankruptcy may be a good option if you have a steady income and want to keep your property, such as your home or car, but are behind on your payments. In a Chapter 13 bankruptcy, you propose a repayment plan to pay back some or all of your debts over a period of three to five years.

One advantage of Chapter 13 is that it can help you catch up on missed mortgage or car payments and prevent foreclosure or repossession. It can also allow you to pay off non-dischargeable debts, such as tax debts or child support arrears, over time.

What Alternatives Are Available?

While bankruptcy can be a helpful tool, it is not the only available option for reducing your debt burden. Some alternatives to consider include the following:

  • Debt consolidation involves taking out a new loan to pay off multiple debts, often at a lower interest rate.
  • Debt settlement involves negotiating with creditors to satisfy your debts for less than the total amount owed.
  • Credit counseling involves working with a certified credit counselor to create a debt management plan and negotiate with your creditors on your behalf.

Before deciding to file for bankruptcy or pursue an alternative, it is crucial to consider your options carefully. A qualified bankruptcy attorney can help you review your options and determine your best course of action.

Contact an Experienced Michigan Bankruptcy Attorney

If you are feeling overwhelmed by debt, the seasoned legal team at Marrs & Terry, PLLC, wants you to know that you are not alone. Our experienced Michigan bankruptcy lawyers can help you understand your options. Let us partner with you as you make your way to a debt-free future. Contact us today for a confidential consultation to learn more about how we can help you.