Is There a Certain Amount of Debt You Need to Have Before you Can File for Bankruptcy?

The answer to the question is not a number.  The answer is that you should file bankruptcy if your debt is not manageable even after cutting your expenses to what is necessary.

 

What are Necessary Expenses?

At the end of the article there is a list of necessary expenses.  These include food, clothing, rent or mortgage, insurance and so forth.  On a number of occasions, clients will not qualify for bankruptcy because their expenses are too low.  However, if they get health and car insurance it might put them to the point where they do qualify for bankruptcy.  This is something a bankruptcy attorney can assist you with.  At my firm, Tran Bankruptcy Law, we review income and expenses during the initial free consultation to help clients prepare for bankruptcy.

 

Are Your Debts Manageable?

To determine whether your debts are manageable you have to look at your income and expenses.  To get an idea as to whether you can pay your debt you need to look at your gross income.  Then subtract all the expenses below from your income.  If the amount that is left over is not enough to pay your monthly credit cards and loans, then you should seriously look into bankruptcy or debt relief options.  In many circumstances, by simply calculating the client’s budget I can determine that bankruptcy is not right for them.  Many times, I find out that the client is still putting a very high percentage of their income into 401k, they are paying for storage they don’t need, or they might not be claiming their taxes correctly.  All it takes is a little budgeting and calculating to show that the client can pay off their debts to move forward.

 

Know How Much You Owe?

One of the first things people contemplating bankruptcy or other debt relief options should determine is how much is owed and who is it owed to.  I have had many instances where a client just believed they were drowning in debt because they have neglected to add up their debts.  For example, let’s say a client might have 10 credit cards.  However, each credit card only has a $500 balance.  The total debt was only $5000, but because the client fell into hard times, they are now receiving collections letters from all ten creditors.  This could be overwhelming and drive a person into to my firm.

 

However, just by pulling a credit report, or organizing the collections letters we can determine that there is only $5000 worth of debt.  If the client simply settles each debt one by one, they can easily get out of debt.  Clients must not get discouraged.  Organization is the key to getting out of debt and to determining whether bankruptcy is the right option.

 

To assist you in making the determination, my firm, Tran Bankruptcy Law, provides free no risk consultations.  Our aim is to assist struggling clients in getting out of debt, whether that means filing bankruptcy, providing other payment options or guiding the client on how to settle their debts.

 

How Do You Compare to Others?

Below are links to the National average living and income charts.  Here you can compare yourself to the national average.

 

The first link will show what the median income is for each state.  If you are below the median income, in most cases you will qualify for Chapter 7.  If you are above the median income, you might still qualify for Chapter 7.  You also have the option to file Chapter 13.

 

The second link will take you to the National living standards.  These numbers will help you create your budget by comparing the amount you spend on expenses to the rest of the nation.

 

Median Income Table

 

IRS National Living Standards

 

If you find yourself in a situation where you are unsure, it is always a good idea to get a consultation with a Bankruptcy Attorney to help you determine whether bankruptcy is the right option for you to help you get free from your debt.

 

Necessary Expenses Include:

Rent/Mortgage

Real Estate Insurance or Rental Insurance

Electricity

Heating

Water/Sewer Garbage

Telephone

Other Utility such as Cable/Internet/Cell Phone

Home Maintenance

Food

Clothing

Laundry/Dry Cleaning

Medical/Dental

Transportation

Car Payments

Recreation/Entertainment

Charitable Contributions

Auto/Health/Life Insurance

Taxes

Professional Fees

IRS Payment

Student Loans

Alimony/Child Support

Business Expenses

Personal Grooming/Hygiene

Child Care