Debt Limits for Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be tremendously valuable for a debtor who could support his debts if they were  adjusted. That's what Chapter 13 does, after all: the court determines a payment plan (which replaces whatever payment schedules debts originally had) that lets the debtor pay a portion of his debts over three-to-five years. However, Chapter 13 is not available to everyone: there are limitations on how much debt you can have.

Limits on Unsecured Debt

An unsecured debt is one that does not have some property or asset as collateral. Most debts are unsecured. Common examples include credit card debt and medical bills. Chapter 13 is only available for people who have less than $360,475.00 in all unsecured debts. (This amount is periodically adjusted, so you need to check to be certain of the current limit.)

$360,475.00 is a lot of unsecured debt for most people, so most debtors will be able to get under this threshold--with the not-uncommon exception of people who've incurred substantial medical bills.

Limits on Secured Debt

A secured debt is one that has property as collateral. If the debtor defaults or doesn't pay, the lender can take the property. For most people, the two most familiar types of secured debt are mortgages on real estate and car loans. So a secured lender who's not paid could foreclose on a house or other real estate, or repossess a vehicle.

The limit on secured debt is $1,081,400.00. (Again, the amount is periodically adjusted.) While that seems like a lot, a person, family, or unincorporated business owning more than one piece of property could easily have mortgages exceeding that threshold. Indeed, in certain expensive real estate markets, like San Francisco, Hawaii, Manhattan, Boston, or Northern New Jersey, a single middle-class family home could have a mortgage that size! More Chapter 13 debtors will run afoul of the limit on secured debt than of the limit on unsecured debt.

If You Can't Qualify for Chapter 13

Debtors who cannot qualify for Chapter 13 will still be able to declare bankruptcy: Chapter 7. Of course, since Chapter 7 involves not the creation of a repayment plan, but rather the liquidation of most of a debtor's assets, a Chapter 7 bankruptcy is a VERY different thing than a Chapter 13 bankruptcy. The one is not necessarily a substitute for the other.

How an Attorney Can Help

A lawyer can help you select--and make sure you qualify for--the type of bankruptcy that's best for you.