Too Much Debt To File Chapter 13? Here’s What To Do

It's common knowledge chapter 13 bankruptcy allows people to pay their bills while letting them keep important assets, such as vehicles and homes. What isn't as well known is there is a limit to the amount of debt that can be managed through the program. Here's what you need to know about these debt limits and what to do if you hit one.

Income-Based Limit

Under a chapter 13 bankruptcy payment plan, people have 3 to 5 years to pay their bills, during which creditors are barred from taking legal action such as repossessing property or garnishing wages. However, this plan requires debtors have sufficient income to meet certain repayment goals.

For example, all priority claims—such as taxes and child support arrears—must be paid in full by the end of the five years. If the debtor doesn't make enough money to accomplish this, the court will reject their chapter 13 plan, putting their entire petition in jeopardy.

There are a few solutions you can employ to fix this problem if you come up against it. Some debts can be eliminated outright either by using bankruptcy law to cancel them (e.g. lien stripping) or filing a chapter 7 first to immediately discharge eligible debt (e.g. credit cards). Another option is to increase your income to the level required to make the plan work, such as getting a second job.

A bankruptcy attorney can provide information on all the options available to solve this problem. Thus, it's best to consult with an attorney who'll advise you on the best ones for your specific financial needs.

Debt-Based Limit

Another limit you may run into—particularly if you're trying to save high-value assets such as a home—is a hard limit on the amount of debt that can be managed through a chapter 13 bankruptcy case. Currently, you cannot have more than $465,275 in unsecured debt or $1,395,875 and secured debt. If the total amount of debt exceeds this limit, the plan will be rejected.

Again, it's possible to reduce your debt so that it falls under the maximum limit by identifying the bills that don't count and labeling them accordingly. For instance, contingent debts that don't come due until they're triggered by an event (e.g. the primary on a co-signed debt stops paying) can be removed from the balance.

Qualifying for a chapter 13 bankruptcy can be challenging, depending on your financial situation, which is why you should consult with an attorney. The lawyer can review your debt plan and provide solutions on the optimal way to trim the fat so you can get it approved. For help with your bankruptcy case, contact a local bankruptcy attorney