Planning for Bankruptcy: Be Aware of the Chapter 13 Debt Limits
Updated: Feb 8
Chapter 13 bankruptcy is an attractive option to many debtors, particularly those with either disposable income or significant equity assets. However, before you file for Chapter 13 bankruptcy, you must be aware of the Chapter 13 debt limits.
The debt limits adjust periodically with the Consumer Price Index, but are currently set at $1,081,500 for the secured debt limit and $360,525 for an unsecured debt limit. Secured debt is typically your home mortgage or car payment, because your lender has typically secured its rights in your collateral when it lent you the money. Unsecured debt is typically credit cards and medical bills, because those creditors usually have no security rights to any of your assets.
These debt limits only apply to debt which is liquidated and non-contingent. To be liquidated, it must be fixed or nearly certain to its value. This means that if the amount of debt is unknown, it should not go towards the debt limits. The debt must also be non-contingent, meaning it is ripe now and not dependent on some future event.
So what happens to the debtor who wishes to file Chapter 7 but is over the debt limit? If that debtor wishes to file bankruptcy, he/she must decide between Chapter 7 and Chapter 11. There are no Chapter 7 debt limits, and Chapter 11 is often used by debtors who have too much debt to qualify for Chapter 13. This is assuming the debtor does not find that he/she is disqualified for a Chapter 7 based on the means test, and might find Chapter 11 to involved and expensive.
It is therefore theoretically possible that a debtor that wishes to file bankruptcy can find that no chapter works for the debtors current situation and have to wait it out. However, most debtors will usually find that one of the bankruptcy chapters works for them.
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