Bankruptcy Lawyer: Chapter 13 Debt Limits and Potential Solutions
It is not widely known that there are debt limits associated with chapter r13 case. Simply put, very few individuals will encounter this as a problem. For cases filed in 2015, the debt limits are as follows:
Unsecured debt limit: $383,175
Secured debt limit: $1,149,525
These limits are similar to those in effect for 2014. Chapter 13 debt limits are set by section 109(e) of the federal Bankruptcy Code. The limits are evaluated every three years according to the consumer price index. The next chapter 13 debt limit adjustment will occur on April 1, 2016.
Secured debt refers to all debts associated with collateral whether it is personal or real estate. The collateral includes cars, boats, bikes, homes and investment properties. For example, a gentlemen recently called my office and he represented that he had a $1.2 million mortgage on his primary resident and two investment properties with mortgages exceeding $100K each. In this case, the secured debt would be the total of the mortgage on his home and the investment properties. Therefore, he is most likely over the secured debt limit of $1,149,525 for chapter 13 cases.
Unsecured debt refers to debts not associated with collateral such as credit cards, personal loans, medical debt, taxes etc. The unsecured debt limit of $383,175 includes all these types of debt is per individual. This unsecured debt limit is calculated per person in the event that a married couple files a joint chapter 13 bankruptcy case.
All individuals or couples with an income that meet with debt guidelines are eligible for chapter 13 bankruptcy relief. This would include self-employed business people as well.
If you exceed the chapter 13 debt limits you may look to file a chapter 7. There are strict income guidelines which vary by the median income and size of household. The median income per each household size varies from state to state in light of how well the people who live in the state are perceived by the government as doing. Therefore, a state where the standard of living is lower will have a median income that is lower as well.
If chapter 7 is not an option such as when one needs to pay off arrears on a mortgage then filing a chapter 11 bankruptcy could be a viable option. Chapter 11 proceedings are a little more complicated that chapter 13 cases, but are best suited for those with complex cases involving various income producing assets such as investment properties.
Possible Ways to Meet the Debt Limits
If you find yourself running afoul of the debt limits there may be something you can do to still qualify for a chapter 13.
File separate cases for spouses – How are the debts distributed between the spouses? There may be a basis to file two cases where each individual debt qualifies. You may even conclude that one spouse is eligible for a chapter 7 discharge.
Is the Unsecured debt noncollectable? Statute of limitations violations would render the debt in question noncollectable and reduce the debt included in the chapter 13.
Should joint debtors receive twice the debt limit A joint case is really two cases in one. Therefore, if each debtor filed separately the limits apply to each case and therefore why not the same in a joint case extend.
Chapter 20 Can discharging the dischargeable unsecured debt in a Chapter 7allow the debtor(s) to qualify for a Chapter 13 down the road? A chapter 13 allows the debtor(s) to cure arrears and strip liens such as second mortgages. The subsequent chapter would not result in a discharge.