How much debt is worth filing bankruptcy?

Here at MoneyFor, our goal is to help you make informed financial decisions. We are committed to accuracy and impartiality in all our content. It’s important to note that articles may reference products from our partners who compensate us. This influences which products we feature and their presentation on our site, not our evaluation.

Key takeaways

There is no minimum amount of debt to file for bankruptcy but experts recommend having at least $10,000 in unsecured debt to file. If most of your debts are non-dischargeable, filing may not be worth it.
Filing for bankruptcy can bring much needed relief if you’re overwhelmed and can’t keep up with bills but it comes with severe repercussions.
Bankruptcy can have long-lasting effects on your credit score. Consider other debt relief strategies like consolidation loans, debt settlement, or a debt management plan before you opt for bankruptcy.

Filing bankruptcy when you have debt can provide a fresh start. Bankruptcy can indeed clear debts and bring much-needed relief but it’s not consequence-free.

If you decide to take that step you’ll want to make sure it’s worth it. But how much debt is worth filing bankruptcy? How do you know to choose Chapter 7 vs Chapter 11 vs Chapter 13 bankruptcy?

It all has to do with your income and ability to pay. A business owner hit by the recession may opt for Chapter 11 to reorganize and stay afloat. An individual with excessive credit card and payday loans may choose Chapter 7 to liquidate assets and erase debts. Another individual with a steady income but high debt could turn to Chapter 13 for a manageable repayment plan.

Let’s go over when to consider bankruptcy, which type to choose, and if it’s the right choice for you.

When it makes sense to file for bankruptcy

There is no minimum amount of debt you must have to file for bankruptcy. Whether you should file or not depends on how much money you earn and your ability to pay. It makes sense to file for bankruptcy when your unsecured debt – credit card debt, medical bills, personal loans – are more than both your income and assets.

If you face the following it’s time to consider bankruptcy:

The monthly minimum payments are more than your income.
You are unable to pay your debts.
You’re using a credit card to pay for basic necessities.
You consider borrowing from a retirement account to pay bills.
You use one credit card to pay off another.
You’re facing aggressive collection actions like wage garnishments and lawsuits.
The emotional or mental toll is overwhelming.

For instance, say you have a mortgage and owe the bank a total of $800,000 with monthly payments of $6,000. Your income is only $4,000 per month. You do have $30,000 in assets. Use these and you’ll be out of a payment method in about one year. In this case, filing for bankruptcy is a viable option.

If this is the case, and you’ve exhausted all other options – debt settlement, debt consolidation loan, negotiating with creditors, a debt management plan – then bankruptcy can help.

Drowning in debt?

Find out if it’s time to file bankruptcy.

What are the consequences of filing bankruptcy?

Bankruptcy filing can have several repercussions that can impact you for years. The biggest is it will significantly lower your credit score. A lower credit score makes it difficult to secure loans or credit cards with favorable interest rates, rent an apartment, or buy a car for the foreseeable future.

“Insolvency could affect credit scores,” says Amy Maliga, financial education specialist with the Nonprofit Credit Counseling Organization Take Care America.

It’s impossible to say exactly how far your score will drop but in general the higher your score the further it will fall. If your score is above 700, it will likely fall 200-250 points. If it’s below 700, it should drop 100 – 150 points.

Bankruptcy remains on your credit report for seven years if you file Chapter 13 and ten years if you go with Chapter 7. The good news is even though bankruptcy is still a negative mark on your credit report, you can begin rebuilding your score. Your score should start to improve right away if you file Chapter 7 and after 6 to 12 months if you choose Chapter 13.

Filing for Chapter 7 bankruptcy means you have to sell assets to pay creditors. These include real estate like a second home, luxury goods like a second vehicle, valuable collections, and nonretirement savings.

Your co-signer will still be on the hook for payments even if the debt has been cleared with Chapter 7. Chapter 13 does prevent creditors from pursuing co-signers.

Filing for bankruptcy is a matter of public record and carries a social stigma that affects personal and professional relationships. It can be seen as a personal failure, despite it being a legal tool for financial recovery.

Looking for debt relief?

Find out which debt management plan to choose.

Financial factors to consider when filing bankruptcy

Firstly you’ve got to examine how big or small your debt is. If your dischargeable debt exceeds $10,000, filing bankruptcy may be a good idea. Next, are your debts dischargeable? The most common dischargeable debt people who file Chapter 7 have is unsecured credit card and medical bills.

If you cannot pay what you owe in six months and you will be worse off than before, bankruptcy is worth pursuing. It can also be a good idea if creditors threaten to sue you or garnish your wages.

Which debts can’t be discharged in Chapter 7 bankruptcy?

debts not able to be discharged in bankruptcy

Chapter 7 bankruptcy can clear a judgment. Judgments that can be discharged in bankruptcy include credit card bills, personal loans, medical bills, utility bills, auto loans, judgments from debt collection agencies, and other unsecured debts.

Not all debts can be erased with Chapter 7 bankruptcy. Some have to be paid regardless of successful filing.

Debts that cannot be discharged include:

Most student loans
Certain tax debt
Child support and alimony
Government-imposed restitution, fines, and penalties
Court fees
Personal injury debts from drunk driving
Debts owed to specific pension plans
Debts or items purchased within 90 days of filing
Debts not discharged in a previous bankruptcy
Other secured debts

When considering bankruptcy, it’s important to understand if your debts are dischargeable. If you have secured debt, it’s likely not dishchareable and you may want to consider a different route.

Ready to get out of debt?

Discover debt relief programs and find the right fit for you!

Eligibility for Chapter 7 or Chapter 13 bankruptcy?

Chapter 7 is the most common way to file bankruptcy. It’s attractive because it costs the least and allows you to eliminate your debt. To be eligible for Chapter 7 bankruptcy you must not earn enough to pay what you owe. You will have to pass a ‘means test’ and prove that your income for the last six months is less than the median income of your state. Otherwise, you must file Chapter 13. You do not have to owe a certain amount to file Chapter 7. It’s all about your income level.

When you file Chapter 7 you will work with a court-appointed trustee to sell your property and use the proceeds to repay creditors. Property deemed ‘necessary to live’ cannot be sold. This includes your car, home, clothing, household goods, tools of your trade, and pensions. Luxury goods like an extra car, coin collection, second home, boat, and excess jewelry are not exempt.

If you have a stable income and your debts are below $2.5 million then you’re eligible for Chapter 13. If you owe more than $2.5 million, you’ll have to file Chapter 11.

With Chapter 13 bankruptcy, the court will set up a payment plan for you to repay your debts. Payment plans can take three to five years to complete. In the end, you get to keep your assets. Chapter 13 prevents creditors from garnishing your wages or putting a levy on your bank account. It also prevents debt collectors from going after any potential co-signers.

Want to file bankruptcy?

Click here to see which debts can and can’t be discharged in bankruptcy.

Chapter 11 bankruptcy vs Chapter 13

The choice between Chapter 11 bankruptcy vs Chapter 13 often comes down to whether the debtor is a business or an individual. Businesses tend to use Chapter 11 since it allows them to stay open and operating while repaying debts.

Chapter 11 is the most complex and expensive form of bankruptcy. It is what General Motors and Chrysler filed for in 2009. More recently J Crew, Bed Bath and Beyond, Hertz, and others filed Chapter 11 during the pandemic.

Chapter 13 is for individuals with stable incomes. It allows you to keep assets while following a manageable repayment plan under court supervision. It’s a good choice if you have a regular income and can meet the demands of a payment plan.

Filing for Chapter 11 bankruptcy vs Chapter 13 has everything to do with cost. The fee to file Chapter 11 is $1,738 while Chapter 13 is a measly $313 fee in comparison. That is why most individuals choose Chapter 13 if they’re eligible.

MoneyFor is here to help people understand their debt, learn how to find debt relief, build credit, and more.

Frequently asked questions

1. How much debt is worth filing for bankruptcy?

How much do you have to be in debt to file Chapter 7? The answer varies. A general rule of thumb is you need at least $10,000 in dischargeable debts to make bankruptcy worthwhile. This is due to its negative impact and fees. Another way to look at it is where will you be in six months? If you can make progress on your debts, wait. If you’ll be in the same place or worse then bankruptcy is for you. When deciding to file, it’s more important to consider your ability to repay your dues than how much you owe.

2. Where to start if you’re thinking of filing for bankruptcy?

Start by evaluating your financial situation. Gather all financial documents – debts, tax returns, pay stubs, and assets. Consult with a bankruptcy attorney – initial consultations are free – for guidance. They may have other suggestions for how to get out of debt. Many states require you to complete a credit counseling course, usually online. Counseling sessions often focus on responsible use of bankruptcy and credit cards, aiming to prevent future financial distress. Credit counseling from a nonprofit agency is free.

3. What happens if you ignore a debt collector?

Ignoring a debt collector is risky and can escalate the situation. The collector may get more aggressive, try to contact friends or family, or even file a lawsuit. A debt lawsuit can lead to wage garnishment, asset seizure, or a lien against your property. Ignoring a collector won’t erase the debt but can make your situation worse. It’s better to face them head-on. If you are facing harassment from a collector, know that there are federal protections in place for the debtor.

4. How long can you ignore a debt collector?

You can ignore a debt collector for several years as long as you don’t end up in court. Debts have a statute of limitations of three to six years – varying by state. The statute of limitations typically starts from your first missed payment but can restart if you attempt to make payments. Once the statute of limitations has passed, collectors can’t legally sue you, but they can still attempt to collect. Debts do not disappear until you pay, no matter how old they are.

Bottom line

How much you have to be in debt to file Chapter 7 or any other form of bankruptcy depends. It all hinges on your ability to pay. However, if you’re considering bankruptcy, chances are your debt has reached its limit and it’s time for you to act.

Bankruptcy filing can clear your debts but it’s not a quick-fix solution. There are negative consequences that will affect you for years to come. It can make it hard to take out loans, get a credit card, or even the job you want.

Before you choose this route, talk to a reputable credit counselor or bankruptcy lawyer and explore alternatives. Debt settlement may be an option, or you could qualify for a debt consolidation loan, which allows you to make lower monthly payments. You may be able to find other forms of debt relief.

If no matter what you do, you’re unable to repay your debts, bankruptcy may be your best option and give you a second chance.

1. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.

2. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Current Visa® secured charge card is issued by Cross River Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required.

3. Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.

4. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

5. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Funds held in Savings Pods are FDIC-insured on a pass-through basis up to $250,000 at our partner bank Choice Financial Group, member FDIC

6. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive $500 or more in Qualifying Deposits into your Current Account over the preceding 30-day period. For more information, please refer to Fee-free Overdraft Terms and Conditions.

7. You may earn Points in connection with your everyday spending and by completing other actions that Current designates as subject to the Current Points Program. The amount of Points granted for different actions as well as the purchase requirements necessary to earn Points will vary, and is subject to Current’s sole discretion. After qualifying, please allow 3-5 business days for points to post to your Current account. The Current Points program is not available to Teen Account holders. See Current Points Terms and Conditions.

8. Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.

9. Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. A qualifying direct deposit of $200 or more is required for 4.00%. No minimum balance required. For more information, please refer to Current Boost Terms and Conditions.

10. Cryptocurrency services are powered by Zero Hash LLC and Zero Hash Liquidity Services LLC, and may not be available in all states. Terms and conditions apply. When you buy or sell cryptocurrency, a difference between the current market price and the price you buy or sell that asset for is called a spread. However, unlike most other exchanges Current does not charge an additional trading fee. Cryptocurrency transactions are a form of investment, and all investments are subject to investment risks, including possible loss of the principal amount invested. Cryptocurrency is not insured by the FDIC or any other government-backed or third-party insurance. Your purchase of cryptocurrency is not a deposit or other obligation of, or guaranteed by, Choice Financial Group or Cross River Bank. The cryptocurrency assets in your Zero Hash account are not held at Current, Choice Financial Group, or Cross River Bank. Current, Choice Financial Group, and Cross River Bank are not responsible for the cryptocurrency assets held in any Zero Hash account. Neither Current, Choice, nor Cross River Bank is involved in the purchase, sale, exchange of fiat funds for cryptocurrency, or custody of the cryptocurrencies. Terms and Conditions apply (platform and user agreements). Crypto on Current is not currently available in HI. Licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services. This does not constitute investment advice.

11. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Your money is FDIC-insured on a pass-through basis up to $250,000 at each of our partner banks, Choice Financial Group and Cross River Bank, members FDIC.

12. Average value based on Fine Hotels + Resorts bookings in 2023 for stays of two nights. Benefits include daily breakfast for two, room upgrade upon arrival when available, $100 amenity, guaranteed 4PM late checkout, and noon check-in when available. Certain room categories not eligible for upgrade. $100 amenity varies by property. Actual value will vary based on property, room rate, upgrade availability, and use of benefits.

13. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

14. The maximum benefit amount for Trip Cancellation and Interruption Insurance is $10,000 per Covered Trip and $20,000 per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

15. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

16. Car Rental Loss and Damage Insurance can provide coverage up to $75,000 for theft of or damage to most rental vehicles when you use your eligible Card to reserve and pay for the entire eligible vehicle rental and decline the collision damage waiver or similar option offered by the Commercial Car Rental Company. This product provides secondary coverage and does not include liability coverage. Not all vehicle types or rentals are covered. Geographic restrictions apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company. Car Rental Loss or Damage Coverage is offered through American Express Travel Related Services Company, Inc.

17. Coverage for a Stolen or damaged Eligible Cellular Wireless Telephone is subject to the terms, conditions, exclusions, and limits of liability of this benefit. The maximum liability is $800, per claim, per Eligible Card Account. Each claim is subject to a $50 deductible. Coverage is limited to two (2) claims per Eligible Card Account per 12 month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

18. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

19. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

20. Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

21. The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.

22. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.

23. The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of September 20, 2023. No minimum balance required. Must have $0.01 in savings to earn interest.

24. There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.

25. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

26. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.

27. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

28. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.

29. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

30. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.

31. Tipping or not tipping has no impact on your eligibility for SpotMe®.

32. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

33. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

34. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

35. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.

36. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.

37. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.

* EarnIn is not available for Connecticut residents

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

How Much Debt Do You Need to File Bankruptcy?

Key takeaways

Jump to: