- owe at least $1,000, and
- your assets (things you own), if sold, would not cover your debts and you are unable to pay your debts as they are due.
Is Any Debt Amount Too Small to File Bankruptcy?
If the amount you owe is a fairly small amount, say $10,000 or less, and you have a reasonably steady income then personal bankruptcy may not be the best option for you.
When individuals come to see me who owe a relatively small amount of money, we will first talk about a Debt Management Plan. With a DMP, you pay back 100% of your debt over a three or four year period, however during this time you receive a break from interest.
Your creditors get all of their money (although less interest) and it has a slightly better impact on your credit report then other options. The key here is that your income must be enough to be able to pay back your debts in full and keep up with your payments. That’s why a debt management plan works for smaller levels of debt.
If your debts are small and you can’t afford to pay them back, then we would look at filing bankruptcy as a last resort. We would look at whether or not your creditors can take action to collect on that debt. If you are currently unemployed and have no assets or income, your creditors cannot garnish any wages, so you may be able to just tell them you can’t pay. Bankruptcy does have a cost so if you are currently without any income then this may be your best approach until things change.
Bigger Debt Problems
Another issue to think about when you are considering filing for bankruptcy with a low amount of debt is not what today looks like but what the future might hold. Filing a second bankruptcy is much more punitive. If you file bankruptcy to get rid of a small amount of debts today, but haven’t dealt with the underlying reason why you are accumulating debt, then bankruptcy may not be a wise decision.
If You Can’t Repay Your Debts, But Want to Avoid Bankruptcy
What if you owe more than $10,000 and but want to avoid bankruptcy? Another option to consider is a consumer proposal. This is where you offer to pay back a portion of the debt over a period of up to 5 years. You must offer your creditors the greater of what a bankruptcy would generate and an amount sufficiently large enough for your creditors to consider it.
If you have questions regarding the amount of debt you have and what your options might be, talk to a trustee in bankruptcy. All consultations are free, so in that regard no debts are too small to discuss.