A Chapter 13 Bankruptcy is a useful tool to pay back mortgage and vehicle arrears, strip liens, cramdown a vehicle and pay back a percentage of your debts. It allows you to have a 3-5 year payment to pay back secured debts and often results in paying a small percentage of unsecured debts. However, a significant limitation of Chapter 13 are the Chapter 13 bankruptcy debt limits.
The Chapter 13 Bankruptcy Debt Limits
Beginning on April 1, 2019, in order to qualify for a chapter 13 bankruptcy, you must have less than $419,275 in unsecured debt (such as credit card or medical bill debt) and less than $1,257,850 in secured debt (such as mortgages, car loans, homeowner’s association liens and tax liens). Prior to April 1, 2019, the debt limits were $1,184,200 for secured debt and $394,725 for unsecured debt.
If you have above this amount of debt and do not qualify for a Chapter 7, your best option is file under Chapter 11 bankruptcy, which does not have debt limits. Although more complicated than a Chapter 13 bankruptcy, Chapter 11 bankruptcy has advantages such as the debtor manages their own financial affairs without a Chapter 13 trustee. If you qualify for a Chapter 7 bankruptcy but wish to pay back mortgage arrears, you can still file under Chapter 11 to meet your debt reorganization goals.
The debt limits are codified in 11 U.S.C. § 109(e) which defines who can be a debtor for chapter 13 purposes. The Bankruptcy Code provides that:
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $394,7251 and noncontingent, liquidated, secured debts of less than $1,184,200, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $394,7251 and noncontingent, liquidated, secured debts of less than $1,184,2001 may be a debtor under chapter 13 of this title.
Footnote 1 to this section of the Bankruptcy Code allows adjustments and states that “Dollar amount as adjusted by the Judicial Conference of the United States. See Adjustment of Dollar Amounts notes set out under this section and 11 U.S.C.A. § 104.” The next adjustment occurs on April 1, 2019.
It is not unusual for someone with high medical bills, large credit card balances, or personal guarantees for a business to exceed the unsecured debt limit of $419,275. Similarly, it is not unusual for a family that owns more than one property or a small business to have more than $1,257,850 in secured debt.
What if I have too much debt?
If you are worried you have too much debt to qualify for a Chapter 13 bankruptcy, it is important that you discuss your case with an attorney to determine if you have debts that can be challenged to bring down the amount of debt that you have and to possibly meet the debt limits. Additionally, it is important to discuss other options, such as a Chapter 7 bankruptcy or Chapter 11 bankruptcy. Also, the timing of the bankruptcy could affect your debt limits.
Another option may be to file a Chapter 20 bankruptcy, which involves filing a Chapter 7 bankruptcy first to discharge unsecured debts and after your Chapter 7 discharge filing a Chapter 13 to restructure secured and other kinds of priority debts. However, in order to file under Chapter 7, you must meet the Means Test and make below the median income for your household size in your jurisdiction.
What if I file a Chapter 13 bankruptcy and my debts are above the debt limits?
If you file a Chapter 13 bankruptcy and you exceed the debt limits, the Chapter 13 trustee can file a Motion to Convert or Dismiss your case. This motion asks the court to force you into a Chapter 7 bankruptcy also known as the liquidation chapter, or to dismiss your Chapter 13 bankruptcy. If your case is converted to Chapter 7 and you have equity in your home or other assets that the Chapter 7 trustee can liquidate, you would be at risk of losing that property. If your Chapter 13 bankruptcy is dismissed, depending on the circumstances, it may affect your ability to refile immediately and you also may only receive the automatic stay for a period of 30 days.
If you exceed the debt limits, contact Steiner Law Group for a free consultation to consider all of your bankruptcy options.