Chapter 13 bankruptcy might be the preferred debt restructuring approach for someone struggling with insurmountable financial obligations. People amass tremendous debt for many reasons, including medical bills, credit card balances, failed business endeavors, and more. Someone earning a decent income may be able to pay for essential living expenses, but repaying their debt proves impossible. Chapter 13 presents a possible way out, But those seeking its protections may not realize a debt cap exists.
Debt caps for Chapter 13 filers
Federal statutes establish the debt limits for Chapter 13 bankruptcy filers. Anyone filing for Chapter 13 bankruptcy on or after April 1, 2019, must accept a debt cap of $419,275 for unsecured debts that are both noncontingent and liquidated. Regarding secured noncontingent and liquidated debt, $1,257,850 reflects the debt limit.
Under federal law, the debt limits face revisions every three years based on the Consumer Price Index. April 1, 2022, is the date for the next review.
Other bankruptcy options available
Although someone might not qualify for chapter 13 bankruptcy based on the debt limit statutes, options could exist to file for Chapter 7 bankruptcy. Chapter 11 bankruptcy might be an option for others. Chapter 7 could be more appealing to some filers since the process involves liquidating assets to pay off debt while achieving a discharge from unsecured debt. Such a path may lead to a fresh start.
Still, debtors might wish Chapter 13 bankruptcy was an available option. The law is the law, and the bankruptcy court will follow statutes to make legal determinations. Therefore, the debt limit will guide a bankruptcy court judge’s decisions.