In Chapter 7 bankruptcy, there is a limit to how much money you can earn. Chapter 13 bankruptcy, which is only available to individuals and married couples, places a cap on how much you owe. This amount is adjusted every few years. The most recent adjustment was April of 2019. Below, we’ll discuss debt limits, how they work, and what you can do if you owe more than the Chapter 13 debt limits allow.
What are Chapter 13 Debt Limits?
As of April 1, 2019, Chapter 13 debt limits are:
- $1,257,850 in secured debts; and,
- $419,275 in unsecured debts.
For those who don’t know, secured debts are those that are secured against some form of collateral. For instance, a mortgage is a secured debt because the loan is backed by the home itself. Car loans are also secured debts. Unsecured debts are usually credit card debt, medical debt, or personal loans.
Chapter 13 Bankruptcy Basics
Chapter 13 allows a debtor to reorganize their debts into a lump-sum monthly payment that is executed over the course of three or five years. Those who owe a lot of money in secured debt tend to choose Chapter 13 over Chapter 7 because it allows them to retain possession of their home or car. To save your home or car, however, not only would a debtor need to be able to repay the arrearages, they would have to continue to make payments on the car loan. In some cases, they may also qualify for a “cramdown” which allows them to reduce the overall cost of the debt to the current value of the car. You can also qualify to have some (if not all) of your unsecured debt discharged at the end of your bankruptcy.
The problem that some debtors face with Chapter 13, is that the debt limits aren’t high enough, especially in places like Manhattan or California where housing costs are extremely high. This leaves debtors in a bit of a quandary as to how to proceed.
What Happens if I Exceed the Debt Limits?
If you happen to exceed the Chapter 13 debt caps, there are two options available to you. Those are:
- Chapter 11 bankruptcy and
- “Chapter 20” bankruptcy.
Chapter 11 Bankruptcy
Generally, only businesses file under Chapter 11. However, individuals can too. The process is similar to Chapter 13, but it does not have a fixed end date. Chapter 11 bankruptcies are executed over the course of an undetermined amount of time. Chapter 11 bankruptcies are typically much more costly and cumbersome than Chapter 13 or Chapter 7 bankruptcies making them rarely the top choice of individuals. Nonetheless, it is an option for those who are dealing with millions of dollars in secured or unsecured debt.
Chapter 20 Bankruptcy
Chapter 20 is not an actual chapter of bankruptcy but is so named because the debtor first files under Chapter 7 and immediately follows up with a Chapter 13. They do this so they can discharge enough of their debt to get themselves under the cap.
However, Chapter 7 only discharges unsecured debt, so the debtor must have gone over the unsecured debt cap while simultaneously being under the secured debt cap.
Exceptions to Chapter 13 Debt Limits
There aren’t really any exceptions to the Chapter 13 debt limits, but only specific debts qualify to be included in those debt limits. These include:
- Contingent debts – Contingent debts are those that are only triggered upon some contingency. As an example, a personally guaranteed business loan would remain in good standing until the business defaults. If the business doesn’t default, then it wouldn’t be counted toward the Chapter 13 debt limit.
- Non-liquidated debts – Non-liquidated debts are those in which the amount you owe is either uncertain or your liability is uncertain. These could include personal injury lawsuits that are pending.
How a North Carolina Bankruptcy Attorney Can Help
Determining what the best course of action for your particular circumstances can be very difficult. An experienced bankruptcy attorney can help. Talk to Jack G. Lezman, PLLC today for more details on how to improve your current financial situation.