If you are not capable of paying your debts, filing for bankruptcy can help you start over fiscally, whether you are an individual or a business. This usually means submitting a petition to the bankruptcy court. A judge then determines whether you have to sell any property or if the debt can be reorganized to pay off as much of your responsibility as possible.
You submit a petition to a federal court when you decide to declare bankruptcy. Although it’s technically possible to file “pro se,” or on your own, it’s not advised. A single error could seriously hurt your case because bankruptcy law is complicated.
Debt You Require to File for Bankruptcy in 2025
Bankruptcy is rarely the first option, but many individuals are thinking about it in the high-rate, high-cost climate of today. Given that household debt in the United States has risen to over $18 trillion, credit card rates are, after all, on average close to 22%. Nowadays, the typical credit card user owes around $8,000 in debt. Making even the smallest payments may seem unachievable if you’re short on cash and compound interest is rising on that much debt. You might also be asking when it makes sense to file for bankruptcy if you’re having a hard time paying off debt and are getting worse every month.
A decision made only when there appears to be no other option to escape a financial problem, it feels like a last resort to many. Reflecting how many people are struggling financially as a result of high interest rates, ongoing inflation, and other economic uncertainties. However, in spite of its negative connotations, bankruptcy can be a much-needed reset for a lot of people. In the end, the procedure helps people recover control over their financial lives while clearing their slates of burdensome debt commitments and offers legal protections that prevent creditors from pursuing aggressive collection activities. Read the following sections to know more.

Common Types of Bankruptcy
The following are the two types of common bankruptcy:
Chapter 7 Bankruptcy
While Chapter 7 is at times referred to as “liability liquidation,” it is intended for people who have little to no extra cash. To be eligible, you have to pass a means test that compares your earnings to your state’s median wages. You may not be qualified if your income is very high. Medical bills and credit card balances are examples of unsecured debts that might be discharged under Chapter 7, but you might have to give up some assets.
Chapter 13 Bankruptcy
For people with steady incomes who can manage to pay back some of their loans over three to five years, this option is more appropriate. But there is a debt ceiling to take into account here. To be eligible for Chapter 13, you must have a total debt of no more than $2,750,000 in secured and unsecured debt as of 2025.
What to know before filing for bankruptcy in 2025?
To avoid the complications and long-term consequences of declaring bankruptcy, it would be worthwhile to look into other debt relief options before filing, according to the same item from CBSNews.com’s Managing Your Money section. The following are some options to think about:
Debt Consolidation
Consolidating several loans into one with a reduced interest rate might simplify your payments and minimise your total expenses if you have several obligations. If your credit score is still manageable, this is a fantastic choice because you usually require at least a decent score to be eligible for this kind of borrowing.
Debt Settlement
The objective of debt settlement is to work out a deal with your creditors so that you pay a smaller sum in one go. Despite its effectiveness, this approach usually works best when a debt relief specialist is involved because of their contacts with creditors and negotiation experience, which can produce better outcomes. Furthermore, taking this approach may have tax ramifications and have a negative effect on your credit score.
Credit Counseling
Credit counseling services can assist you in developing a plan for managing your debt. These programs, which may be finished in three to five years and frequently include lower interest rates and costs, combine all of your loans into one monthly payment.
How much should you have before filing for bankruptcy?
The official minimum debt requirement to be eligible for bankruptcy does not exist. It is theoretically possible to declare bankruptcy with only a few thousand dollars in debt. The majority of people, however, rarely go through the process unless they owe a substantial amount that exceeds their ability to pay back. However, the general rules state that whenever your unsecured debt (such as credit cards, medical bills, or personal loans) exceeds half of your yearly income, it makes sense to look at bankruptcy more.
Consider your legal alternatives if, for instance, you make $40,000 annually and owe $25,000 or more in unsecured debt, particularly if the amount is increasing or your payments are just covering interest. Among the other warning indicators are:
- Compounded interest might cause your debt to grow if you’re caught in a cycle of making only the minimal payments.
- Taking money from one card to cover another. Although this type of approach may help you stay afloat for a while, it’s typically an indication that your debt load is unmanageable.
- Financial collectors’ calls and lawsuits, the time for reasonable repayment choices may be running out if your debt is already in collections or you’ve been the target of a lawsuit pertaining to debt.
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