Can I Declare Bankruptcy if I Don’t Own Any Assets?

Declaring bankruptcy when you don’t have any assets may seem pointless–after all, if you don’t own anything, what’s there for the court to liquidate to pay your debts? But just because you don’t have substantial assets doesn’t mean you can’t file for bankruptcy. Here’s what you need to know about filing bankruptcy without assets.

The Purpose of Bankruptcy

Bankruptcy is designed to give people a fresh start–a chance to get out from under crushing debt and start over financially. The main purpose isn’t necessarily to liquidate assets to pay creditors. In fact, many people file bankruptcy specifically because they don’t have assets available to pay their debts.

Bankruptcy stops collection efforts and wipes out certain types of debt. This gives you a clean slate to rebuild your financial life. Assets or no assets, bankruptcy can still serve this essential purpose.

Qualifying for Bankruptcy Without Assets

To file for bankruptcy, you need to meet certain qualifications regarding your income, debt load, and credit counseling. Your assets only come into play when determining what chapter of bankruptcy you can file.

Chapter 7 bankruptcy liquidates assets to pay creditors. Chapter 13 sets up a 3-5 year repayment plan. Here’s how it breaks down:

• Chapter 7 requires you to pass a “means test” showing your income is under the state median.
• Chapter 13 has no income limits, but you must have regular income to fund the repayment plan.
• Neither chapter has an asset test, but Chapter 7 can be denied for “abuse” if you have high assets yet low income.

Basically, for Chapter 7, your assets can’t be so high that liquidating them would pay a substantial part of your debts. The court wants you to use available assets to pay what you can. But as long as your assets are low, you can likely qualify for Chapter 7 bankruptcy despite having no property.

The Bankruptcy Process Without Assets

Filing bankruptcy with no assets is in some ways simpler than with substantial property. The steps are generally:

1. Complete credit counseling within 180 days before filing.
2. File bankruptcy paperwork, including schedules listing your assets, debts, income, and expenses.
3. Attend the meeting of creditors, where the trustee asks you questions about your finances.
4. If you have assets the trustee wants to liquidate, cooperate with this process.
5. Receive your discharge wiping out eligible debt around 90 days after filing.

Since you don’t have assets to liquidate, the process moves more quickly. And you don’t have to worry about the trustee seizing property to sell.

Debts Discharged in Bankruptcy

Bankruptcy discharges many common unsecured debts, such as:

• Credit card balances
• Medical bills
• Personal loans
• Past-due utility bills
• Most judgments against you

Debts that generally survive bankruptcy include:

• Ongoing home mortgage
• Car loans
• Student loans
• Child support
• Alimony
• Most taxes

Having these debts discharged can give you a fresh start–even if you have no assets for the court to liquidate.

Alternatives to Bankruptcy

Bankruptcy stays on your credit report for 7-10 years and can make it harder to get credit, rent an apartment, or find a job. That’s why it’s smart to explore alternatives like:

• Debt management plan – A DMP consolidates debt into one payment and negotiates lower interest rates. Often only a soft credit check is required.
• Debt settlement – This negotiates with creditors to settle debts for less than you owe. There are risks like legal action from creditors.
• Credit counseling – A nonprofit credit counseling agency can help you manage debt and budget.

However, these options don’t stop collections or wipe out debt like bankruptcy. For a true fresh start, bankruptcy may still be your best option.

The Bottom Line

If overwhelming debts are dragging you down, bankruptcy can help–even if you don’t have substantial assets. Focus less on assets and more on stopping collections and discharging debt so you can regain financial control.

Of course, it’s smart to weigh all your options. But don’t assume bankruptcy is off the table just because you don’t own property. Under the right circumstances, it can still provide the fresh start you need.