Chapter 13 Debt Limits and Personal Bankruptcy


Many debtors in Oak Park who cannot pass the means test required for Chapter 7 bankruptcy due to assets or income may decide to file for Chapter 13 bankruptcy. Chapter 13 bankruptcy is most often the best option for consumers who want to find a way to manage debt but do not qualify for Chapter 7 bankruptcy. Yet, are there consumers who do not qualify for either types of bankruptcy? In such a case, what options do these consumers have?
As the U.S. Courts website clarifies, there are indeed some consumers who cannot qualify either for Chapter 7 or Chapter 13 bankruptcy, and in these situations the debtor may need to file for Chapter 11 bankruptcy (which is most frequently used for business bankruptcy). While there is no means test for Chapter 13 bankruptcy, there is a debt limit. If you have too much debt, Chapter 13 is not an option for you. A recent article in Bloomberg BNA, some consumer advocates believe that the debt limits on Chapter 13 bankruptcy either should be raised or eliminated altogether.
What are the Current Debt Limits on Chapter 13 Bankruptcy?
How much debt can you have before you do not qualify for Chapter 13 bankruptcy? If you are an individual or an unincorporated business, you can be eligible for Chapter 13 bankruptcy as long as the following are true:
  • You have unsecured debts of less than $394,725; and
  • You have secured debts of less than $1,184,200.
There are other limits to filing for Chapter 13 bankruptcy, too. For instance, if you had a bankruptcy petition dismissed in the last 180 days, you cannot file for consumer bankruptcy under Chapter 13. Yet some of these other limitations are not as controversial as the debt limits.
Why are Chapter 13 Debt Limits a Problem?
If you want to file for bankruptcy but have too much debt to be eligible to file for Chapter 13 bankruptcy, then you will need to consider Chapter 11 bankruptcy. For most consumers, this simply is not preferable because Chapter 11 bankruptcy costs a lot of money. Not only is the initial filing fee high—more than $1,700—but there are also other complicated requirements that often result in individuals owing a lot of money simply to file for bankruptcy.
For Oak Park residents who are already struggling with hundreds of thousands of dollars in unsecured debts and/or millions in secured debts, paying even more money simply to file for bankruptcy can be extremely daunting.
Raising or Eliminating the Chapter 13 Debt Limits
As the article explains, numerous advocates at a meeting of the American Bankruptcy Institute Commission on Consumer Bankruptcy argued that Chapter 13 needs to be more accessible to individual debtors given that Chapter 11 is “a far more complex and expensive system.” In particular, some consumer advocates contend that the debt limits are especially low in certain parts of the country where individuals often have debt that exceeds the limits set.
Moreover, the limits are arbitrary, the article suggests, and do not serve a legitimate purpose. Do you have questions about filing for Chapter 13 bankruptcy? An experienced Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm for more information.
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