Amount of Debt Permitted in Chapter 13 Goes Up on April 1, 2007
When I meet with a new client, I always try to find a way to fit that client into Chapter 7 bankruptcy. I like Chapter 7 because it typically lasts no more than five or six months and, when it works properly, you end up completely debt free. I have represented debtors who have been burdended with $75,000, $100,000 even $200,000 of unsecured debt – and all that debt disappears in Chapter 7.
Unfortunately, the 2005 changes to the bankruptcy laws have dramatically tightened the qualifications for Chapter 7. Chapter 7 remains available, primarily for families with a modest household income. For example, I would hesitate to file a Chapter for a family of four with a $70,000 or higher household income, or an individual with a $45,000 or higher gross income.
A stated purpose of the new law is to drive more people into Chapter 13. However, not everybody will qualify for Chapter 13. One of the reasons you may not qualify for Chapter 13 is your total debt load.
Currently, you can only file Chapter 13 if your total unsecured debt is less than $307,625 and/or your secured debt is less than $922,975. These debt ceilings may seem very high, but I have seen several situations where a potential client was disqualified because of medical debt (unsecured), co-signed obligations for multiple homes (secured debt), judgments for co-signed debts (judgments are considered secured debts).
On April 1, 2007, the debt ceiling for Chapter 13 will increase to $336,900 for unsecured debts and $1,010,650 for secured debts. So, if you have been told previously that your debt totals were too high for Chapter 13, take another look.
I also find it interesting that the Bankruptcy Code recognizes that consumer debt can easily exceed $1.3 million. Hardworking people can find themselves in huge amounts of debt quickly and without a lot of warning. If you begin to sense that you have lost or are losing control of your debt, seek legal help sooner rather than later.
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Comments on Amount of Debt Permitted in Chapter 13 Goes Up on April 1, 2007
Jonathan: If a Chapter 13 Debtor has a default judgment (which included an allegation of fraud) of over $336,000 and the lien is avoided (thereby making it an unsecured debt), would that disqualify him to continue in the Chapter 13?
Thanks for your help, Dorothy Bjork 770-955-2555
I have aquestion. What alternative does someone have if they own a home over the maximum allowed secured debt limits. Are they just s.o.l? Or, is there other alternative. Such as chapter 11 if the are self employed, and a declinnig business have affected their abbility to stay current with mortgage payements. Please advise. Thank you,
Dorothy, I think that the calculation of secured vs. unsecured debt is made at the time of filing. The subsequent filing of a MAJL and Order avoiding the lien does not retroactively disqualify the debtor from remaining in the 13. JCG
Mr. Watson: The secured debt limit refers to the mortgage loan, not the value of the house. But, yes, if your total secured debt exceeds $1,010,650, you cannot file a 13 – you would have to look at Chapter 11 to reorganize. Jonathan
What happens to the house in a chapter 13 if you have a 1st and 2nd mortgage but have only been in the house for nearly 4 years. There is probably $15k in equity in addition to the $186k and $38k? Does this get included in a chapter 13 payment plan? I can't see a plan to pay that much money in 3 to 5 years. What happens if this is converted into a chapter 7?
What if the secured debt on primary residence is $ 1,010,000 and rental properties are 592,000 can you still file if you want to keep both homes. What if the unsecured debt is 50,000 but their may be potential liability for another 500,000 in personal guarantees in leases. Their not judgements yet.