What Are Chapter 13 Bankruptcy Debt Limitations?

Bankruptcy filers interested in Chapter 13 must know the Chapter 13 debt limits to determine Chapter 13 eligibility because they can have only so much debt. The debt limits in Chapter 13 change periodically, usually increasing every three years. However, sometimes they're increased temporarily during the three-year cycle.

What Are the Current Chapter 13 Debt Limits?

The debt limitations set for cases filed between April 1, 2022, and March 31, 2025, are $1,395,875 of secured debt, and $465,275 of unsecured debt. However, the Bankruptcy Threshold Adjustment and Technical Corrections Act ("BTATC") increased the debt total to $2.75 million (with no distinction being made between secured and unsecured debt) for two years. The debt limits will revert to the standard amounts as of July 2024 unless the increased limits are extended.

How to Verify the Bankruptcy Debt Limit for Chapter 13

You'll find the current debt limits on the U.S. Courts Chapter 13 Bankruptcy Basics webpage.

When Debts Exceed the Chapter 13 Debt Limits

A filer with debt exceeding the Chapter 13 debt limits must file an individual Chapter 11 case. Most people avoid filing for Chapter 11 bankruptcy when possible because it is far costlier. If your obligations exceed the Chapter 13 debt limitations, consider the tips below under "Strategies to Meet the Chapter 13 Bankruptcy Debt Limits."

How Chapter 13 Bankruptcy Helps Debt Problems

A Chapter 13 bankruptcy helps people with regular income fix debt problems by paying their disposable income into a Chapter 13 repayment plan for three to five years. A filer who meets all qualifications will be able to wipe out (discharge) some types of debt at the end of the repayment plan, such as credit card balances, utility bills, personal loans, and medical accounts.

Learn more about debts discharged at the end of a Chapter 13 case. If you're a small business owner, learn about the differences between Chapters 11 and 13.

Strategies to Meet the Chapter 13 Bankruptcy Debt Limits

Even if your debts exceed the limit, you might be able to exclude certain debts from the calculation or use other strategies to bring your debt amount below the limits.

When You Owe More than the Chapter 13 Debt Limits

Filers with obligations exceeding the debt limits can't use Chapter 13. However, if it seems like your debts are too high, you might still qualify for Chapter 13. Here's why:

• You might meet debt limits if some debts don't count toward the debt limits.
• You might be able to use strategies to get your debts below Chapter 13 limits, such as dividing debts into secured and unsecured portions.

Determine Which Debts Don't Count Toward the Debt Limit

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 agree 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.

Divide Debts into Secured and Unsecured Portions

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.

If You Still Don't Qualify, Consider Chapter 20 Bankruptcy

Chapter 20 bankruptcy is a two-step strategy to deal with your debts in 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.

Remember 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 the 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.

Special Chapter 13 Strategies for Married Debtors

Married couples who need to file for bankruptcy can use additional strategies if their debts appear to exceed the Chapter 13 debt limits.

Spouses Can File Under Different Chapters

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:

This requires a sophisticated legal analysis if:

• you have assets that are not protected by exemptions
• you live in a community property state
• you are claiming ownership of property as tenants by the entirety, or
• you are planning to use lien stripping or cramdown.

Check with an experienced bankruptcy attorney in your area to make sure you are fully aware of any consequences and to explore other strategies for dealing with Chapter 13 debt limits. To learn more about community property in bankruptcy, see Filing for Bankruptcy Without Your Spouse: What Happens to Debts & Property?

Need More Bankruptcy Help?

Did you know Nolo has made the law easy for over fifty years? It's true, and we want to ensure 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!

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

Updated April 16, 2024