How Deep Should Your Debt Load Be Before You File Chapter 7?

Posted on: 4 May 2019

Everyone goes through difficult times when it comes to paying bills. Unexpected medical bills or a car repair leaves even the best-prepared people in a tight spot. Unfortunately, those unexpected bills can cause a domino effect on your financial situation and lead to a month-to-month financial meltdown. If you have considered the bankruptcy question, you are not alone. Many people wonder how much debt they can take on before they declare a chapter 7 bankruptcy. To find out more, read on.

Are You Struggling or Are You Drowning?

You must be willing to take a realistic look at your financial situation before you decide on filing for bankruptcy. There is no set limit or minimum amount of debt you must hold before you file. What might seem overwhelming to one person is a mere bump in the road to another.

Instead, base your decision on the collection actions of your creditors. Aggressive collection actions can make your life miserable and even cause you to lose valuable property like vehicles, homes, and even income from your wages. Additionally, if you are no longer able to buy life necessities like food, housing, medical needs, and transportation due to your financial situation, it might be time to speak with a bankruptcy attorney and find out what kind of debt relief you could gain with a chapter 7 filing.

Know Your Debts

To gain some perspective and a better idea of your debt situation, know the difference in secured and unsecured debts before you make a final bankruptcy decision.

1. Secured debts are bound to a piece of property.

Common secured debts are vehicles and a home, which secure an auto loan and mortgage. If you fail to pay those bills, you could lose the property through repossession or foreclosure. Declaring bankruptcy has a mixed effect on secured debts. Any legal procedures to take back property are frozen but only temporarily. You must get caught up on the bills as soon as possible after a filing in order to avoid losing the property.

2. Unsecured debts are usually confined to credit cards and personal loans.

No property will be lost and all unsecured debts will disappear with a chapter 7 filing. Bankruptcy is an excellent idea for those with overwhelming credit card debts. Add up the minimum you've been paying each month on your credit card bills. That is income you can use for other things once you file. That money, for example, could instead go towards saving your home or car from loss.

Speak with a bankruptcy attorney about a filing for bankruptcy.