Debt Limits for Chapter 13 Bankruptcy

If your debts are too high, you cannot file for Chapter 13 bankruptcy.

Chapter 13 bankruptcy is a powerful tool for people with regular income who can pay back some of their debts. Chapter 13 allows you to "reorganize" your debts so that you pay back some in full and some in part, all the while receiving protection from the bankruptcy court.

But you can't qualify for Chapter 13 bankruptcy if your debts are too high. Read on to learn about debt limits for Chapter 13 bankruptcy. 

(To learn more about Chapter 13 bankruptcy, see the articles in our Chapter 13 Bankruptcy topic area.)

Limits on Unsecured Debt

An unsecured debt is one that does not have some property or asset serving as collateral for payment of the debt. Most debts are unsecured. Common examples include credit card debt, medical bills, utility bills, lawyer's fees, and rent. Chapter 13 is only available for people who have less than $394,725 total in unsecured debts. (This amount is periodically adjusted. The next adjustment will be April 2019.)

Most debtors have less than $394,725 in unsecured debts. The exception is people with substantial medical bills. 

Limits on Secured Debt

A secured debt is one that has property as collateral. If the debtor defaults or doesn't pay on the loan, the lender can take the property. For most people, the two most familiar types of secured debt are mortgages on real estate and car loans. A secured lender who's not paid could foreclose on a house or other real estate, or repossess a vehicle.

In order to qualify for Chapter 13 bankruptcy, you must have less than $1,184,200 in secured debt (as of April 2016). While that seems like a lot, a person, family, or unincorporated business owning more than one piece of property could easily have mortgages exceeding that threshold. Indeed, in certain expensive real estate markets, like San Francisco, Hawaii, Manhattan, Boston, or Northern New Jersey, a single middle-class family home could have a mortgage that size.  More Chapter 13 debtors will run afoul of the limit on secured debt than of the limit on unsecured debt.

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