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Chapter 13 Debt Limitation

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 creditors' liens.

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.