When people need to reorganize and repay their debts, they turn to Chapter 13. Chapter 13 Bankruptcy allows people to catch up on house or car payments, and is a consolidation of all personal debts. Sometimes, people have so much debt that they can’t qualify for chapter 13.
As of April 1, 2013, the Chapter 13 Debt limits are:
Secured Debt : $1,149,525
Unsecured Debt: $383,175
These figures are adjusted every 3 years. So what do the figures mean? Secured Debt is debt that is for purchasing of “big ticket” items, such as houses or cars. The bank or finance company requires that you sign a “security agreement” so that, if you don’t pay, the item (collateral on the debt, thing you bought with the financing) can be taken back. So, if you don’t make payments on your house, the bank can foreclose on it and take it back, or, if you don’t make payments on your automobile loan, they can repossess the car or truck.
Unsecured debts are all other debts that are not secured by any item. Typical unsecured debts are credit cards, medical bills and cash loans.
How does this come into play? If you have a very expensive house, you could be disqualified for bankruptcy, if you owe over about a million dollars. Also, you need to discuss the value of your house, because if you have a large mortgage, and the house has gone down in value, that difference in value would count towards the “unsecured” debts. Also, “priority” debt such as income tax debt counts towards the unsecured amounts. Or, if you have a lot of student loan debt in combination with other debt, it could push you over the limit.
If you are close to the limits, you need to discuss all of your options, and what can be done to “fit” into the Chapter 13. If you are over the limit, Chapter 7 or Chapter 11 bankruptcy is available. There are possible problems you could run into, so you should discuss all of your options with an experienced bankruptcy attorney.
Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois.