Chapter 13 bankruptcy, which is only available to individuals and married couples, places a cap on how much you owe. This amount is adjusted every few years. The most recent adjustment was April of 2019. Below, we’ll discuss debt limits, how they work, and what you can do if you owe more than the Chapter 13 debt limits allow.
What are Chapter 13 Debt Limits?
As of April 1, 2019, Chapter 13 debt limits are:
- $1,257,850 in secured debts; and,
- $419,275 in unsecured debts.
For those who don’t know, secured debts are those that are secured against some form of collateral. For instance, a mortgage is a secured debt because the loan is backed by the home itself. Car loans are also secured debts. Unsecured debts are usually credit card debt, medical debt, or personal loans.
Chapter 13 Bankruptcy Basics
Chapter 13 allows a debtor to reorganize their debts into a lump-sum monthly payment that is executed over the course of three or five years. Those who owe a lot of money in secured debt tend to choose Chapter 13 over Chapter 7 because it allows them to retain possession of their home or car. To save your home or car, however, not only would a debtor need to be able to repay the arrearages, they would have to continue to make payments on the car loan. In some cases, they may also qualify for a “cramdown” which allows them to reduce the overall cost of the debt to the current value of the car. You can also qualify to have some (if not all) of your unsecured debt discharged at the end of your bankruptcy.
The problem that some debtors face with Chapter 13, is that the debt limits aren’t high enough, especially in places like Manhattan or California where housing costs are extremely high.