Last updated March 30, 2018. If you’re thinking of filing for bankruptcy, you may be wondering: “Is this even possible? Do I have too much debt?” Remember, for the general consumer case, there are two choices for bankruptcy: a Chapter 7 “straight” bankruptcy or a Chapter 13 “reorganization” payment plan. For Chapter 7, there is no limit to the amount of debt owing. This is true in terms of a low amount of debt owing, and also in terms of a high amount of debt owing. Many times, debtors and their attorneys will have to balance out the relative equity or value of filing a Chapter 7 case versus the cost/benefit and relative risk. But what about Chapter 13? Let’s take a look at some common scenarios. Chapter 7 Debt Limits As mentioned above, there is no maximum amount of debt for Chapter 7 cases. For low debt-owing cases, the debtor must determine if the filing of a Chapter 7 bankruptcy case provides enough benefit by way of discharge of the debt, for the costs of filing, and the reporting of the bankruptcy for 10 years on the credit report. For a high debt-owing case, the debtor must determine if the risk of the Chapter 7 bankruptcy discharge being challenged is also worth the costs to defend against a possible challenge. Higher debt-owing cases may have indicators or elements of apparent fraud, or willful or malicious abuse, which have to be considered. This is not to suggest that a high debt-owing case should be avoided or cannot be filed — quite the contrary, it is likely that this kind of case will inevitably or must be filed. What is important for this kind of debtor is to understand is that there may be supplemental inquiry, document production, or a possible challenge to the case in chief. Usually, the circumstances surrounding the debts can be explained satisfactorily, with no challenges, but one must be mindful of even this small risk and should hire a bankruptcy attorney to seek a bankruptcy discharge. Chapter 13 Debt Limits As to Chapter 13 cases, there actually is a maximum dollar amount of debt that is allowed. 11 USC §109(e) sets forth those maximum amounts. Generally speaking, the current dollar amounts in 11 USC §109(e) are adjusted every 3 years. The unsecured debt maximum as of April 1, 2016, in Chapter 13 is $394,725, and the maximum dollar amount for secured debt in Chapter 13 is $1,184,200. Unsecured debt includes credit card debt, medical bill debt, and student loans, while secured debt is a loan on your car or the mortgage on your house. If a debtor is considering a Chapter 13 filing and is at or near these limits, it is imperative that the attorney for the debtor research the status of the law in the applicable Court to determine what rules exist for determining whether a debt is secured or unsecured for purposes of §109(e). This area continues to evolve, especially now in the context of declining real estate values, second mortgage or junior loans no longer being secured, and even first or senior loans being partially unsecured. See also: Converting from a Chapter 7 to Chapter 13 Bankruptcy Seek Help on Bankruptcy Limits from an Experienced Lawyer Even though this is federal law, each Court jurisdiction may have different rules in how it calculates the figures. There are other variables, as well — too much for the purposes of this article. Suffice it to say, the prudent debtor should seek the assistance of counsel experienced in Chapter 13 cases to help determine initial eligibility. If you are looking into bankruptcy, don’t count on getting all the information you need from Google. Ask a lawyer. Bankruptcy attorneys are experienced in bankruptcy law, including which chapter of bankruptcy you should file; the bankruptcy exemptions that will allow you to keep your home, car, furniture, and more (even guns); and how to handle your meeting of creditors. The National Bankruptcy Forum blog is intended to be a preliminary resource for debtors, but it does not replace the valuable consultation of a bankruptcy attorney. We keep a directory of qualified bankruptcy attorneys located near you; just give us a call or fill out our online contact form to learn more. All initial debt evaluations are at no cost, and available 24/7. Good luck on preparing yourself for a healthy financial future! Image Credit FacebookPinTweetEmail Erik Clark Erik Clark is one of the leading bankruptcy attorneys in Southern California who has had the privilege of representing thousands of clients in chapter 7 and chapter 13 bankruptcy cases in the Los Angeles area. Erik has served as the past President of the National Consumer Bankruptcy Litigation Center (NCBLC) and the American Consumer Bankruptcy College (ACBC). His firm, Borowitz & Clark, is committed to using bankruptcy law as a tool for social justice and was one of the first consumer law firms to join the Law Firm Antiracism Alliance. Help us match you with a local attorney Free Bankruptcy Evaluation "*" indicates required fields First Name* Last Name* Phone* Email* Δ Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment * Name * Email * Save my name, email, and website in this browser for the next time I comment. Δ
Last updated March 30, 2018. If you’re thinking of filing for bankruptcy, you may be wondering: “Is this even possible? Do I have too much debt?” Remember, for the general consumer case, there are two choices for bankruptcy: a Chapter 7 “straight” bankruptcy or a Chapter 13 “reorganization” payment plan. For Chapter 7, there is no limit to the amount of debt owing. This is true in terms of a low amount of debt owing, and also in terms of a high amount of debt owing. Many times, debtors and their attorneys will have to balance out the relative equity or value of filing a Chapter 7 case versus the cost/benefit and relative risk. But what about Chapter 13? Let’s take a look at some common scenarios. Chapter 7 Debt Limits As mentioned above, there is no maximum amount of debt for Chapter 7 cases. For low debt-owing cases, the debtor must determine if the filing of a Chapter 7 bankruptcy case provides enough benefit by way of discharge of the debt, for the costs of filing, and the reporting of the bankruptcy for 10 years on the credit report. For a high debt-owing case, the debtor must determine if the risk of the Chapter 7 bankruptcy discharge being challenged is also worth the costs to defend against a possible challenge. Higher debt-owing cases may have indicators or elements of apparent fraud, or willful or malicious abuse, which have to be considered. This is not to suggest that a high debt-owing case should be avoided or cannot be filed — quite the contrary, it is likely that this kind of case will inevitably or must be filed. What is important for this kind of debtor is to understand is that there may be supplemental inquiry, document production, or a possible challenge to the case in chief. Usually, the circumstances surrounding the debts can be explained satisfactorily, with no challenges, but one must be mindful of even this small risk and should hire a bankruptcy attorney to seek a bankruptcy discharge. Chapter 13 Debt Limits As to Chapter 13 cases, there actually is a maximum dollar amount of debt that is allowed. 11 USC §109(e) sets forth those maximum amounts. Generally speaking, the current dollar amounts in 11 USC §109(e) are adjusted every 3 years. The unsecured debt maximum as of April 1, 2016, in Chapter 13 is $394,725, and the maximum dollar amount for secured debt in Chapter 13 is $1,184,200. Unsecured debt includes credit card debt, medical bill debt, and student loans, while secured debt is a loan on your car or the mortgage on your house. If a debtor is considering a Chapter 13 filing and is at or near these limits, it is imperative that the attorney for the debtor research the status of the law in the applicable Court to determine what rules exist for determining whether a debt is secured or unsecured for purposes of §109(e). This area continues to evolve, especially now in the context of declining real estate values, second mortgage or junior loans no longer being secured, and even first or senior loans being partially unsecured. See also: Converting from a Chapter 7 to Chapter 13 Bankruptcy Seek Help on Bankruptcy Limits from an Experienced Lawyer Even though this is federal law, each Court jurisdiction may have different rules in how it calculates the figures. There are other variables, as well — too much for the purposes of this article. Suffice it to say, the prudent debtor should seek the assistance of counsel experienced in Chapter 13 cases to help determine initial eligibility. If you are looking into bankruptcy, don’t count on getting all the information you need from Google. Ask a lawyer. Bankruptcy attorneys are experienced in bankruptcy law, including which chapter of bankruptcy you should file; the bankruptcy exemptions that will allow you to keep your home, car, furniture, and more (even guns); and how to handle your meeting of creditors. The National Bankruptcy Forum blog is intended to be a preliminary resource for debtors, but it does not replace the valuable consultation of a bankruptcy attorney. We keep a directory of qualified bankruptcy attorneys located near you; just give us a call or fill out our online contact form to learn more. All initial debt evaluations are at no cost, and available 24/7. Good luck on preparing yourself for a healthy financial future! Image Credit