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How Much Debt Can I Discharge in Chapter 7?

If your bills keep piling up and interest rates and penalties make it impossible to pay anything down, you’re probably wondering if there’s even a way out. Fortunately, there is with Chapter 7 bankruptcy, which can help people in difficult financial situations eject their consumer debt and get a fresh start.

Perhaps you’re already aware of the relief Chapter 7 can bring but want to know if there’s a limit to how much debt you can clear. It’s an understandable question to have, especially since Experian reported that the average consumer in 2020 had as much as $5,313 in credit card debt and $16,458 in personal loan debt.

Both of these types of debts are dischargeable in Chapter 7, but how much debt is too much to get rid of in bankruptcy?

Debt Limits in Chapter 13 & Chapter 7 Bankruptcy

If you’re an individual trying to discharge consumer debt, you’ll file for either Chapter 13 or Chapter 7 bankruptcy. These bankruptcy chapters handle debt obligations in very different ways.

For example, Chapter 13 allows you to reorganize your debts and work on a repayment plan that can last as long as five years. If there is any remaining debt, this may be discharged. Chapter 7 bankruptcy clears your debt by liquidating non-exempt property from your personal estate, using the proceeds to repay your creditors. Any debt remaining after liquidation can be discharged by the court.

For our purposes here, the most important distinction is that there is a debt ceiling for Chapter 13, but no such debt limit exists in Chapter 7. If you owe more than $1,184,200 in secured debts (those are things like your mortgage and auto loan) or owe more than $394,725 in unsecured debt (pretty much everything else, minus student loans, child support, and other mandatory debts), you will not qualify for Chapter 13.

When people don’t qualify for Chapter 13 because the amount of debt they owe exceeds the limit, they often file for Chapter 7 because there is no limit. There are other barriers to entry that those who seek to file must address, but the good news is that you could potentially owe hundreds of thousands of dollars or more in qualifying consumer debt and have a reasonable hope for discharge.

Conclusion

Although there’s a lot to consider before filing for Chapter 7 bankruptcy, those who owe a considerable amount of consumer debt can feel more confident that financial freedom is finally within reach.

If you’re thinking about Chapter 7 bankruptcy and whether or not you can qualify for a debt discharge, get in touch with our attorney at Nguyen Law Group to learn more about your options.

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