How much debt must you have to be legally allowed to declare bankruptcy?

Question

In addition to this law question, I have some ethics questions:

How much SHOULD you have to be in debt to be legally allowed to declare bankruptcy? 0? 10k? 20k? 50k? 100k?

& why should debt for a home mortgage, business, or other be cleared during a bankruptcy, but not a studetn loan debt? shouldn't all debts be treated the same? a debt is a debt is a debt, right?

Answer 1

Great question. There is actually no legal minimum debt level for a person or entity to file for backruptcy. You can file if you only owe five dollars. That wouldn't make much sense and would end up costing you a lot more than what you were able to make up in cleared debt.

Another way to look at it is, It's not how much you owe but how much the bankruptcy court feels you can reasonably repay. If you have say $50,000 in unsecured debt and your yearly household income is $60,00 chances are you will be denied a favorable decision on a chapter 7 filing. The court will deny the chapter 7 and steer you towards a chapter 13 bankruptcy where all of your creditors are repayed at a lesser amount over a 3 year period. All of your income and assets are looked at and every financial move you make for the 3 years is done through the court. It's called receivership.

Student loans are either made by or guaranteed by the federal government. If you were in charge of making the rules and laws for a country and could make a law that no one could ever not repay you for money you owe them, Wouldn't yo do that? That's why you have to pay back those student loans. You also left out another class of debts that can't be wiped away with a bankruptcy. Monies owed the I.R.S.  So a debt is a debt is a debt, right... but a debtor is not a debtor is not a debtor. It's all in who controls the rules. I rest my case.  

Answer 2

There's no particular amount - as long as your debts exceed your assets, you can file for bankruptcy. It probably wouldn't make much sense to do in a lot of cases, but there's no reason to set a minimum by law.

Student loan debt is not forgiven in order to give lenders an incentive to lend to students. Otherwise there would be very little availability of student loans - students are incredibly risky people to lend to.

Answer 3

Student loans are not subject to a bankruptcy claim, nor should they be.