If you have too much debt, you can't use Chapter 13 bankruptcy because filers aren't eligible for Chapter 13 bankruptcy if their debts exceed a certain amount. But even if your debts exceed the limit, it's worth taking a closer look. You might be able to exclude certain debts from the calculation or use other strategies that will bring your debt amount below the limits.
You aren't eligible to file for Chapter 13 bankruptcy if the total of your non-contingent, liquidated debts (terms explained below) exceed the limits set by the bankruptcy law. The limit amounts change every three years. If you file a case between April 1, 2022, and March 31, 2025, and your secured debts (mortgages and liens) add up to more than $1,395,875, or your unsecured debts add up to more than $465,275, Chapter 13 might not be available to you.
If it seems like your debts are too high, you might still qualify for Chapter 13. Here's why:
You'll learn more about qualifying for Chapter 13 and Chapter 13 debt limits in Are You Eligible for Chapter 13 Bankruptcy?
You must list contingent and unliquidated debts in your bankruptcy papers, but they do not count toward the debt limits.
Contingent debts. You don't have to pay these debts unless a specific event called a "contingency" occurs. These are often personal guarantees that don't come due unless someone else defaults, often a business. The debt doesn't count toward the debt limits if the contingency event hasn't occurred.
You might think that cosigned debts are contingent. For example, you agree to cosign on your brother's car loan with the understanding that he'll pay the debt. But that's usually not the case. Even if you have an agreement with the other person that you won't have to repay the debt, you're equally responsible from a legal standpoint.
Unliquidated debts. Your responsibility to pay hasn't yet been determined, or the amount can't be readily determined. This category often includes accident and other personal injury claims when the case or claim is still ongoing and the injury hasn't yet been resolved.
Breach of contract claims usually don't qualify as unliquidated because the amount owed is often easily calculated.
Sometimes you can remove a lien or part of a lien from secured property in bankruptcy using "lien stripping" and "cramdown." The removed lien is converted to unsecured debt. This strategy allows you to increase your unsecured debt amount while decreasing your secured debt.
Chapter 20 bankruptcy is a two-step strategy to deal with your debts in the bankruptcy court. It can help if you need a Chapter 13 to catch up on back payments so you can keep your home or car or pay off debts that you can't get rid of in Chapter 7, but your debts are too high to qualify. Instead of filing Chapter 13 immediately, you first wipe out debt in Chapter 7, thereby lowering your total debt amount.
Here's how Chapter 20 bankruptcy works:
First, you must pass the Chapter 7 means test and meet other eligibility criteria for Chapter 7. Then, in Chapter 7, you wipe out unsecured debts eligible for discharge and reduce your unsecured debt load. If this strategy helps you meet the Chapter 13 debt limits, you then file for Chapter 13.
Keep in mind that you won't be able to get a discharge at the end of your Chapter 13 case because you just got one in Chapter 7. However, you likely won't need one because you just discharged qualifying debt in Chapter 7.
In the Chapter 13 case, you'll get additional time (the length of your repayment plan) to catch up on secured debt or nondischargeable debt that you can't afford to pay all at once. You might also be able to cram down or strip off liens.
Not all bankruptcy courts allow Chapter 20 filings. Check with an experienced bankruptcy attorney in your area.
Married couples who need to file for bankruptcy can use additional strategies if their debts seem to exceed the Chapter 13 debt limits.
If one spouse's debt puts both over the limit for a joint filing, you might get around the debt limits by having one spouse file for Chapter 7 bankruptcy and the other file for Chapter 13 bankruptcy. Here's how it might work:
Example. Carlos and Evelyn fell behind on their mortgage and want to use Chapter 13 to bring it current, but Evelyn has unsecured debt from a failed business that puts them over the debt limit. Carlos is not obligated on Evelyn's business debt, but he has a business to protect. Evelyn files Chapter 7, and Carlos files Chapter 13. Evelyn's business debt is discharged in her Chapter 7, and the mortgage is brought current through Carlos' Chapter 13 repayment plan.
This requires a sophisticated legal analysis if:
Check with an experienced bankruptcy attorney in your area to make sure you are fully aware of any consequences.
To learn more about community property in bankruptcy, see Filing for Bankruptcy Without Your Spouse: What Happens to Debts & Property? For more on tenancy by the entireties, see What Happens to Property Owned as Tenancy by the Entireties in Bankruptcy?
Some courts will expand the debt limits if you are a married couple filing a joint Chapter 13 bankruptcy. Others, however, won't allow for any expansion. Check with an experienced bankruptcy attorney in your area to find out what the judges in your district allow.
If your court is more flexible on the debt limits when it comes to joint Chapter 13 bankruptcies, this is likely how it will work: If you each qualify for Chapter 13 separately, the court will allow the Chapter 13 case to proceed (even if your debts taken together are above the limits).
This does not mean that you have to file two cases, but it does mean that each spouse must have a source of income that could support a Chapter 13 plan and each spouse's debts, individually, must not exceed the Chapter 13 debt limits. To determine the amount of debt, each spouse must include joint debt in its full amount along with that spouse's individual debt.
Example. Jane and Michael, a married couple, have $520,000 in unsecured debt. This exceeds the $465,275 unsecured debt limit for Chapter 13. They both work and have secured debt under the limit. They are jointly obligated on $200,000 in unsecured debt from a failed business. Michael has another $280,000 in unsecured medical debt, and Jane has $40,000 in unsecured credit card debt. Jane and Michael will want to ask a local bankruptcy attorney whether their court will expand debt limits for married couples.
Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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Updated April 22, 2022