Updated September 6, 2023
Debtors are unable to file for Chapter 13 bankruptcy if debts exceed certain amounts. But you can often exclude certain debts from the debt totals and other strategies may permit you to lower your debts below the Chapter 13 limits.
What Are the Chapter 13 Debt Limits?
On June 21, 2022, the Bankruptcy Threshold Adjustment and Technical Corrections Act increased the Chapter 13 debt limits to a combined total of $2,750,000. Prior to that, the bankruptcy code limited Chapter 13 eligibility to individuals with unsecured debts of no more than $465,275 and secured debts of no more than $1,395,875. Total combined unsecured and secured noncontingent, liquidated debts are now increased to $2,750,000. Individuals with debts exceeding $2,750,000 will have to consider Chapter 7 or Chapter 11 bankruptcy.
Some Debts May Not Count Towards the Debt Limits
Contingent and unliquidated debts do not count towards the Chapter 13 debt limits. Although you must still list contingent and unliquidated debts, they do not count towards the debt totals for purposes of qualifying.
Contingent Debts. These are debts that you do not have an obligation to pay unless some contingency occurs. These are often personal guarantees that one does not have to pay unless the personal obligor defaults. Contingent debts do not count towards the debt limits.
Unliquidated Debts. These are debts which cannot be readily determined such as personal injury claims or business disputes. Breach of contract claims are usually easy to calculate even before a judgment and usually do not qualify as unliquidated.
Disputed Debt. If you dispute a debt that has not been reduced to judgment or is otherwise under appeal, the debt should not count towards the debt limits. This is most common with egregious medical billings.
Consider a Chapter 20 Bankruptcy
A Chapter 20 bankruptcy is a term used for a two-step strategy of filing successive Chapter 7 and Chapter 13 petitions to deal with your debts. If your debts are too high to qualify for a Chapter 13, you may want to file for a Chapter 7 bankruptcy to discharge your debts and lower your debt limits before filing for Chapter 13. The Chapter 13 would give you additional time to catch up on secured debt or nondischargeable debt that you cannot afford to pay, and may allow you to strip or reduce liens.
Considerations for Married Debtors
Arizona is a community property state. In Arizona, each spouse should include all debts incurred during marriage in full as community debt in bankruptcy along with any individual debt. However, there may be instances where certain debts are considered the sole and separate debts of one spouse. If so, one or both spouses may qualify for the Chapter 13 debt limits. In other instances, one spouse can file a Chapter 7 and the other file a Chapter 13.
Lastly, you should consider is whether the unsecured debt is legally enforceable. Debtors should consider the statute of limitations. And secured debt in Arizona is usually nonrecourse, by statute at a minimum. It could be argued that nonrecourse debt should not be considered for purposes of the secured debt limits.