Believe it or not, there are debt limits in Chapter 13 bankruptcy cases. This means that when you owe above a certain amount, then you won’t qualify for a bankruptcy discharge under Chapter 13 bankruptcy. However, Chapter 11 subchapter 5 has a higher debt limit, and Chapter 7 bankruptcy has no debt limit.
The debt limit in Chapter 13 bankruptcy is adjusted at every three-year period based on the Consumer Price Index. The limit recently changed in 2019, and the next debt limit will be set in 2022. You can find details on debt limits in the federal register.
The debt limits set in 2019 are as follows:
- $1, 257, 850 for non-contingent and liquidated secured debts
- $419,275 for non-contingent and liquidated secured debts
Unsecured Debt vs. Secured Debts
A debt is termed an unsecured debt if the creditor does not have a valid lien on collateral. Some examples of unsecured debts are:
- Student loans
- Credit card debts
- Tax debts
- Personal loans
- Medical debts
- Alimony or child support payments
- Government debts
- Utility payments
- Old rent
Secured debt is a debt where the creditor holds a valid lien on collateral for the loan given to the debtor. Some examples of loans in this category are title loans, UCC statements, car loans, and mechanic’s liens.
When calculating your debt limit for Chapter 13 bankruptcy, you must be able to distinguish between a secured and unsecured debt if you want to come up with the right value.
Options if my debts are below the chapter 13 debt limit
Chapter 13 bankruptcy cases permit married couples, self-employed persons, a married couple to restructure their debts. Before a debtor can get a Chapter 13 bankruptcy discharge, he/she must meet the Chapter 13 debt limit and have a steady source of income.
A Chapter 13 bankruptcy helps you to get rid of the majority of unsecured debt, reduce what you pay on car payments, and = even prevent a foreclosure on your home. If you properly file your case, it can prevent the trustee from using your assets to repay unsecured creditors.
If you have an interest in applying for a Chapter 13 bankruptcy, then you should use our Chapter 13 payment calculator to estimate your payment if you file for debt relief under Chapter 13 bankruptcy plan.
Options I have if my debts are above the Chapter 13 debt limit
Under some circumstances, you may still qualify for Chapter 13 bankruptcy even though your debt exceeds the Chapter 13 debt limit. Some strategies that you can use to ensure that your debt falls below the debt limit are:
- Contingent debts don’t count toward the limit: A contingent debt is one based absolutely on probability. For example, if you co-signed a loan for your friend, you won’t be indebted unless your debt defaults on paying back the loan.
- Un-liquidated debts don’t count toward the limit. Any debt that cannot be quantified by its cash value will not add up to determine the debt limit.
- File a Chapter 11 bankruptcy case. If your debt exceeds the Chapter 13 bankruptcy limit, then you may have to have to file for bankruptcy under Chapter 11 bankruptcy instead. However, a demerit here is that Chapter 11 bankruptcy is more expensive, and the process is more complex than Chapter 13 bankruptcy. Thus, if you’re filing for a Chapter 11 bankruptcy, it’s is in your best interest to hire a bankruptcy lawyer for the process.
- Consider filing a Chapter 7 case. If your income does not exceed the limit for applying for Chapter 7 bankruptcy, then you should consider filing a Chapter 7 bankruptcy. However, you need to be careful with the process as the bankruptcy trustee may liquidate your asset to pay off your creditors.
Even the best of lawyers can find cases close to or that exceed a debt limit tricky. Thus you should hire the best bankruptcy lawyer you can find before you file for a bankruptcy discharge.