Chapter 13 bankruptcy involves a reorganization of your finances. Through the court-approved Plan you agree to repay some or all of your debts over a 3-5 year period of time. the amount of your payment depends on your income and a variety of other factors, but did you know you may owe too much money to file for Chapter 13 at all?
Under Section 109(e) of the U.S. Bankruptcy Code,
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, 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 $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.
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Those figures are adjusted based on the annual cost of living based on the Consumer Price Index as adopted by the Judicial Conference of the United States. The U.S. Department of Labor issues the Consumer Price Index figures for the relevant period.
This is good news for the millions of Americans who bought homes during the real estate boom of the last few years. Falling into foreclosure, they've turned to Chapter 13 only to find that they are locked out because their mortgages are too high.
When you owe too much you may be forced to file for Chapter 11 bankruptcy to keep your home. This can be far more costly and time-consuming, requiring enormous amounts of work just to accomplish the same goal that you could have gotten in a Chapter 13.
Your other option may be a Chapter 7, which may not protect your home and other property.
For cases filed from April 1, 2007 until March 31, 2010, the Chapter 13 debt limits have been $1,010,650 in secured debt, and $336,900 in unsecured debt. It's been speculated by some that those limits may go up 7% for cases filed from April 1, 2010 until March 31, 2010. Surely, that will help many consumers who are looking to keep their homes and property in bankruptcy.
If you're thinking about filing for bankruptcy it's important to speak with your lawyer before your case is filed to be sure that your debts fall within the limits in effect as of the date of filing. If your case is filed and you exceed the debt limits then you could be forced to convert your case to Chapter 7 or Chapter 11; even worse, you could end up having your case dismissed and very few options in the short run.
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