Chapter 13 is one of the most used chapters for filing bankruptcy. Though it is a tricky chapter, many debtors have no option but to use this chapter when their income doesn't allow them to file bankruptcy under Chapter 7. On the other hand, there have been many instances in the past where people could not use Chapter 13 due to its high debt limits. The good news is that recently, Section 109 (e) of the Bankruptcy Code has set new debt limits which went into effect from April 1, 2013. The new debt limits will now allow more people to file for bankruptcy under Chapter 13.
What are the New Debt Limits for Chapter 13?
The debt limit that was prevalent till 30th March, 2013 was $360,475 for unsecured debt and $1,081,400 for secured debts. But according to the new directions under Section 109 (e), for all cases filed on or after April 1, 2013 will now be $1,149,525 for secured debts and $383,175 for unsecured debts. All the debts are in terms of non-contingent and liquidated debts. Secured debts are mortgages or car loans that have been ‘secured’ during purchase. Unsecured debts on the other hand include almost everything else.
What Are Non-Contingent, Liquidated Debts?
Non-contingent debts are liabilities that you already owe on the debt. This could include your regular house payments and car payments. On the other hand, a contingent debt is an obligation that you are not liable of unless you agree upon in the future. Meanwhile, liquidated debt is a liability where the amount you owe can be easily determined.
It is important that all debtors understand the meaning of non-contingent and liquidated debts as if you do not clearly understand the distinctions, you could easily fall into a difficult trap. Thus it is not just enough to understand what are secured and non-secured debts.
What If Your Income Exceeds the Debt Limit?
There are several reasons to file for a Chapter 13 bankruptcy. Many prefer to file for Chapter 13 to catch up with mortgage arrears, get rid of any lien on property or your income doesn’t allow you to use Chapter 7. But unfortunately under the new debt limit, if your debt amount is more than what has been laid down by the law, you will have to forget about Chapter 13 and either opt for a Chapter 11 bankruptcy (used for reorganization of businesses, corporation and individual proprietorship) or Chapter 7 (liquidation laws). Though Chapter 13 is more expensive and risky and Chapter 7 gets rid of your secured debts, you do not have an option but to use one of them because you are not eligible under Chapter 13.
Conclusion
The new debt limits can be seen as both good news and bad news. Its good news for people who want to file for bankruptcy under Chapter 13 and bad news for those whose debt amount is high and thus cannot use Chapter 13 for filing bankruptcy. It is advisable that you consult an attorney before using Chapter 13 for filing bankruptcy.
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