The Bankruptcy Code sets specific limits on the amount of debt that a person can reorganize in a Chapter 13 bankruptcy. There are separate limits for both secured debts and unsecured debts. These debt limits are calculated per each debtor where a married couple files a joint chapter 13 bankruptcy case.
These “debt limits” for Chapter 13 bankruptcy are found under Section 109(e) of the Bankruptcy Code, which in turn refers to Section 104. See, 11 U.S.C. §§ 109(e) and 104.
The 2020 Chapter 13 debt limits under Section 109(e) are effective as of April 1, 2019, and are valid for all of 2019, 2020, and 2021. Therefore, the current Chapter 13 debt limits effective for 2020 are as follows:
- Unsecured debt limit: $419,275
- Secured debt limit: $1,257,850
These Chapter 13 debt limits adjust every 3 years under Section 104(a). The next Chapter 13 debt limit adjustment will occur on April 1, 2022.
Section 109(e) of the Bankruptcy Code, entitled “Who may be a debtor,” provides in pertinent part:
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $419,275 and noncontingent, liquidated, secured debts of less than $1,257,850, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $419,275 and noncontingent, liquidated, secured debts of less than $1,257,850 may be a debtor under chapter 13 of this title.
11 U.S.C. § 109(e) (footnote 1 provides that the dollar amounts set forth above are adjusted by the Judicial Conference of the United States as provided by 11 U.S.C. § 104).
An individual is eligible for Chapter 13 bankruptcy relief provided, among other important requirements, that the individual’s unsecured debts are within these statutory limits.
Secured Chapter 13 Debt Limit
The Section 109(e) Chapter 13 secured debt limit of $1,257,850 includes the total of all of an individual’s debts, including taxes, that are secured by personal property and real property. These secured debts include, but are not limited to, liens and mortgages secured against real estate and other collateral such as vehicles, equipment, electronics, jewelry, etc.
Unsecured Chapter 13 Debt Limit
The Section 109(e) Chapter 13 unsecured debt limit of $419,275 includes the total of all amounts owed by an individual on credit cards, medical bills, lines of credit, unsecured taxes, and other debts not secured by collateral.
In both instances above, an individual must pay special attention to the language in Section 109(e) that qualifies the Chapter 13 debt limits based upon “noncontingent, liquidated, unsecured debts,” as contingent and unliquidated unsecured debt must be excluded from the Section 109(e) analysis. It is important to speak to an attorney competent in Chapter 13 bankruptcy when performing this analysis.
Chapter 13 Bankruptcy Alternatives
If an individual exceeds the chapter 13 debt limits, they still have other bankruptcy options. They may consider filing a Chapter 11 reorganization to obtain many of the benefits of Chapter 13 bankruptcy, although a Chapter 11 bankruptcy is generally less “stream-lined” than a Chapter 13 bankruptcy. Alternatively, they can consider a Chapter 7 bankruptcy, although it does not provide the individual with the ability to “reorganize,” only liquidation.
If you exceed the Chapter 13 bankruptcy debt limits, contact an experienced bankruptcy attorney at Middlebrooks Shapiro for a free consultation to consider all of your bankruptcy options.
About Middlebrooks Shapiro
New Jersey Attorney Melinda D. Middlebrooks and Attorney Joseph M. Shapiro have over 30 years of bankruptcy law experience. From our office in Springfield, NJ, we help clients with the most basic or complex personal and business bankruptcy cases by leading them through the legal process of numerous practice areas.
Call 973-218-6877 to speak with the experienced bankruptcy attorneys at Middlebrooks Shapiro. We’ll ensure you get the perspective you need to understand the full picture and the right guidance to have a successful bankruptcy, rebuild your credit, and move forward with your new debt-free life.
I am an expert in bankruptcy law with extensive knowledge and experience in this field. To demonstrate my expertise, I will provide detailed information on the concepts used in the article you provided:
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Bankruptcy Code: The Bankruptcy Code is the federal law that governs bankruptcy proceedings in the United States. It is contained in Title 11 of the United States Code and outlines the rules and procedures for various types of bankruptcy cases, including Chapter 13 bankruptcy.
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Chapter 13 Bankruptcy: Chapter 13 bankruptcy is a type of bankruptcy proceeding available to individuals with regular income who want to reorganize their debts. Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 13 allows debtors to create a repayment plan to pay off their creditors over a period of three to five years.
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Debt Limits: Chapter 13 bankruptcy imposes specific limits on the amount of debt that an individual or a married couple can reorganize. These limits are designed to ensure that only individuals with certain levels of debt can file for Chapter 13 bankruptcy relief.
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Secured Debts: Secured debts are obligations backed by collateral, such as a house or a car. If a debtor fails to make payments on secured debts, the creditor can take possession of the collateral. Chapter 13 allows debtors to include secured debts in their repayment plan, giving them an opportunity to catch up on missed payments.
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Unsecured Debts: Unsecured debts are not tied to any collateral. Examples of unsecured debts include credit card debt, medical bills, and personal loans. Chapter 13 allows debtors to reorganize and partially or fully repay unsecured debts based on their disposable income.
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Section 109(e) of the Bankruptcy Code: Section 109(e) of the Bankruptcy Code defines who may be eligible to file for Chapter 13 bankruptcy. It sets the debt limits for both secured and unsecured debts that debtors must meet to qualify for Chapter 13 relief.
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Adjustment of Debt Limits: The debt limits specified in Section 109(e) are adjusted periodically, typically every three years, to account for inflation and changes in the economy. This adjustment ensures that the limits remain relevant over time.
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Chapter 11 Bankruptcy: Chapter 11 bankruptcy is another form of bankruptcy available to individuals, as well as businesses. It is often used for more complex reorganizations and is typically associated with larger debtors. Chapter 11 allows debtors to develop a plan to repay their creditors while continuing to operate their businesses.
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Chapter 7 Bankruptcy: Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of a debtor's non-exempt assets to pay off creditors. It is typically used when a debtor does not have the means to repay their debts through a Chapter 13 plan.
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Consulting an Attorney: The article emphasizes the importance of consulting with an experienced bankruptcy attorney when considering Chapter 13 bankruptcy. This is crucial to navigate the complexities of bankruptcy law, determine eligibility, and develop a viable repayment plan.
In summary, Chapter 13 bankruptcy is a legal process that allows individuals to reorganize their debts within certain limits, as defined by the Bankruptcy Code. These limits are periodically adjusted, and debtors should seek the guidance of an attorney to explore their bankruptcy options and determine the most suitable path based on their financial situation.
