Many people are surprised to realize that there are debt limits in Chapter 13 cases. In other words, you can only have a certain about of debt to qualify for a bankruptcy discharge (debt forgiveness) under Chapter 13. There are no debt limits in Chapter 7 or Chapter 11.
Chapter 13 debt limits are adjusted every three years based on changes in the Consumer Price Index. The most recent change to the limits became effective as of April 1, 2019. The Federal Register typically publishes notices when dollar amounts are revised pursuant to the Bankruptcy Code.
The debt limits for Chapter 13 cases filed on or after April 1, 2019, are:
- $419,275 for liquidated, noncontingent unsecured debts
- $1,257,850 for liquidated, noncontingent secured debts
These debt limits are scheduled for revision on April 1, 2022.
Unsecured Debts vs. Secured Debts
Unsecured debts are sums owed to creditors who do not hold a valid lien on collateral. Examples of unsecured debts include:
- Credit card debts
- Student loans
- Personal loans
- Tax debts
- Medical debts
- Old rent or utility payments
- Back alimony or child support payments
- Restitution and most other government debts
Secured debts are sums that you owe a creditor who holds a valid lien on collateral. Examples of secured debts include mortgages, car loans, title loans, mechanic’s liens, and UCC statements.
It is important to distinguish between unsecured debts and secured debts when calculating debt limits for Chapter 13.
Options If My Debts Are Below the Chapter 13 Debt Limit
Chapter 13 bankruptcy cases permit individuals, married couples, and self-employed individuals to reorganize or restructure their debts. Debtors (individuals who seek bankruptcy relief) must have a steady income and meet the Chapter 13 debt limits to receive a bankruptcy discharge under Chapter 13.
If your debt is below the Chapter 13 debt limit, you may qualify for a Chapter 13 bankruptcy case. In a Chapter 13 case, you can get rid of most unsecured debts, save your home from foreclosure, and potentially lower your car payment. You can also protect assets from being used to repay unsecured creditors.
If you are interested in a Chapter 13 bankruptcy case, try our Chapter 13 payment calculator to estimate how much your Chapter 13 bankruptcy plan payment would be if you choose to file for Chapter 13 bankruptcy relief.
Options of My Debts are Above the Chapter 13 Debt Limit
If your debt exceed the Chapter 13 debt limits, you may still qualify to file under Chapter 13 under certain circumstances. Strategies for reducing debts to fall within Chapter 13 debt limits include:
- Contingent debts do not count toward the limit. These debts depend on something happening in the future that may or may not happen. For example, you co-signed a loan with your brother. As long as your brother does not default on the loan, you are not responsible for repaying the debt.
- Unliquidated debts are also not counted toward the Chapter 13 debt limits. Unliquidated debts do not have a determinable cash value. Disputed debts can be unliquidated debts, but you must have a valid reason to dispute the debt.
- Unsecured portions of secured debts. If your secured debts exceed the Chapter 13 debt limits, calculate the unsecured portion of the debt. If the value of property is less than the amount of the secure debt, any amount above the value of the asset is considered an unsecured debt.
- File a Chapter 11 bankruptcy case. You may need to consider a Chapter 11 bankruptcy case if your debts exceed the Chapter 13 debt limits. However, Chapter 11 cases are extremely complex and much more costly than a Chapter 13 case. It is a good idea to consult a bankruptcy lawyer to review all your bankruptcy options before deciding to file a Chapter 11 case.
- Filing a Chapter 7 case may or may not be an option. Your income could exceed the income limits for a Chapter 7 case, unless your debts are primarily business debt. Also, if you have substantial net equity in property, that property could be sold at a bankruptcy option to repay your debts.
Cases that involve debts that are close to or exceed the debt limits can be tricky. Consulting an experienced bankruptcy lawyer is typically the best way to proceed if you are determined to file for bankruptcy relief.
Other Things to Consider Before Filing Chapter 13
You may want to explore other debt-relief options before filing Chapter 13. You may find that you can solve your debt problem without filing for bankruptcy relief. Non-bankruptcy alternatives for debt relief include:
Ascend helps you explore all the options for getting out of debt. We believe that you deserve to have all your options explained in a way that makes sense so that you can choose the option for getting rid of debt that works best for you.
If you have questions or need help, contact Ascend online or call/text us at 833-272-3631 to speak with a representative. Our goal is to help you become debt-free and take control of your finances so that you can have a strong, secure financial future.