Chapter 13 bankruptcy has a monetary debt limit of $1,149,525 of secured
debt and $383,175 of unsecured debt. These limits are set by the federal
Bankruptcy Code and are adjusted every three years according to the consumer
price index. The debt limit is set to adjust in April 2016.
Unsecured debt includes credit card, medical bills, unsecured lines of
credit, certain IRS debt and other consumer debt. Secured debt encompasses
all debt secured by real and personal property – most common is
real estate and auto debt.
While the debt limit in a Chapter 13 may seem generous, borrowers who owe
more than their home’s value often find themselves exceeding the
unsecured debt limit. Many courts have held that the unsecured portion
of a mortgage is calculated as unsecured debt. For example, a home valued
at $300,000 with mortgage balance of $500,000 would result in the $200,000
spread between the home’s value and the mortgage balance being applied
to the unsecured portion of the debt calculation. In South Florida, this
is a harsh reality for many as a result of the housing collapse.
A recent decision from the Bankruptcy Appellate Panel for the 9th Circuit Court of Appeals held that a creditors holding junior liens on
the Chapter 13 debtors' property did not hold unsecured debts, for
the purpose of the Chapter 13 debt limits, where the debtors' personal
liability on the creditors' claims had been discharged in a prior
Chapter 7 case and there was no equity in the collateral to support the
Individuals who exceed the monetary debt limits still have options. If
you think you may exceed the limits or have questions, contact Loan Lawyers
for a free consultation for information and options available to you.