Debtors are unable to file for Chapter 13 bankruptcy if debts exceed certain amounts. But it is important to carefully analyze the types of debts involved. 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. Even if it initially appears that your debts exceed the Chapter 13 debt limits, you may still be able to file for Chapter 13 with these tips.
What Are the Chapter 13 Debt Limits?
The Chapter 13 bankruptcy debt limits preclude a debtor from filing for Chapter 13 bankruptcy if the total of non-contingent, liquidated debts exceed certain amounts. These amounts recently adjusted for inflation as of April 1, 2019. Now, if your secured debts (mortgages, car liens, etc.) exceed $1,257,850, or your unsecured debts exceed $419,275, Chapter 13 is not available and you will have to consider other bankruptcy chapters or alternatives.
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. But it is important to note that gaurantees are different than cosigned debts which are not contingent and for which a debtor is equally responsible.
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.
Determining Secured and Unsecured Portions
If a secured debt exceeds the value of the collateral, then there is both a secured portion and an unsecured portion. This allows you to increase your unsecured debt amount and decrease the secured debt amount. This may help you stay under the debt limits.
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 marital debts are considered the sole and separate debts of one spouse, or some debts are pre-marital sole and separate debts. For instance, it is not uncommon where title to property and the secured debts are not held symmetrically. 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.