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How much debt is worth filing for bankruptcy?

The amount of debt you have may be less important than whether you can pay it back when deciding on whether to file bankruptcy.  Petar Chernaev / Getty Images

If you feel like you're drowning in debt, you may have already considered filing for bankruptcy. But bankruptcy is a big step, and if you're going to take that step, you want to make sure it's worth it. 

After all, if you choose to file bankruptcy, it could have a detrimental impact on your credit score for years to come. For example, chapter 13 bankruptcies typically stay on your credit report for seven years while chapter 7 filings can stay on your credit report for up to 10 years. 

You may be wondering if the amount of debt you have is worth the consequences of bankruptcy. The answer in many cases is "maybe."

Learn more about the debt relief you deserve today

How much debt is worth filing for bankruptcy?

"Some have a 'rule of thumb' that suggests having at least $10,000 in dischargeable debt is enough to file for bankruptcy," says Brandon Robinson, president and founder of JBR Associates. But one-size-fits-all solutions in finance are rarely the best options. 

So, how do you decide if you have enough debt to make filing for bankruptcy worth it? "This answer will vary depending on a person's circumstances," Robinson says. 

Here are a few questions to ask yourself to determine if bankruptcy is worth it for you: 

Will you be getting a new job with higher pay any time soon?

If you plan on getting a new job with higher pay in the near term, bankruptcy may not be the best option for you. After all, if you earn more money, you may be able to afford to pay your debts off in a reasonable amount of time. Therefore, the negative impact of bankruptcy on your credit report probably isn't worth it. 

You don't have to be in debt forever. Let debt relief experts help you find a way out

Will taking out a debt consolidation loan make a difference?

Debt consolidation loans might offer you a way to pay your high-interest credit card and personal loan debt off with a lower interest rate and a fixed term. Not only could these loans reduce the amount of money you have to pay toward your debt each month, but these loans may also help you get out of debt faster. 

Have you tried a debt relief program?

Debt relief experts may be able to make your debts more manageable. This is typically done in one of two ways: 

  • Debt consolidation: Debt consolidation experts are often able to negotiate lower interest rates and favorable payment terms with lenders. When you sign up for these programs, you'll make a single monthly payment to the debt consolidation company and the company disperses payments to your creditors on your behalf. These programs often result in significant interest savings and minimum payment reductions.
  • Debt settlement: Debt settlement experts negotiate the amount of money you owe to your creditors. Although the debt settlement process may hurt your credit score, it could provide significant relief, helping you avoid bankruptcy.   

Have all avenues to avoid bankruptcy been exhausted?

This is the single most important question to ask yourself. Have you done everything you could to avoid bankruptcy? Do you still feel like there's no way out of debt? If so, chances are that bankruptcy is worth it in your situation no matter how much money you owe to your creditors. 

How much debt makes bankruptcy worth it?

"For a personal bankruptcy, there are several variables," says Robinson. Those include: 

  1. Will the person be getting a new job with higher pay?
  2. Will a long-term loan make a difference?
  3. Have you negotiated with all of your creditors?
  4. Have all other avenues been explored and exhausted to avoid bankruptcy?

Robinson explains that "if a person is not able to absolve the debt (through settlement or consolidation) within a 36-month period with lower monthly payments, then filing for bankruptcy may be the best option." 

The bottom line

The bottom line, Robinson says, is that "if you are financially strapped and cannot pay down this debt, a bankruptcy will provide a fresh start both financially and mentally." Ultimately, whether or not bankruptcy is worth it in your unique situation depends on various factors. But it all boils down to whether or not you can pay your debt off in a reasonable amount of time considering your income. If you're not able to do so after exploring all debt relief avenues, bankruptcy could be your best option. 

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