Are there limits to how much or how little debt a debtor can owe in bankruptcy? Sometimes.
Are there limits to how much or how little debt a Debtor can owe in Bankruptcy?
Sometimes. Remember, for the general consumer case, there are two choices for bankruptcy. Ch. 7 ‘straight’ bankruptcy and Ch. 13 ‘reorganization’ payment Plan. For Ch. 7, there is no limit to the amount of debt owing. This is true in terms of a low amount of debt owing, and also, in terms of a high amount of debt owing. Many times, debtors and their attorneys will have to balance out the relative equity / value of filing a Ch. 7 vs. the cost / benefit and relative risk.
For low debt owing cases, the debtor must determine if the filing of a Chapter 7 bankruptcy case provides enough benefit by way of Discharge of the debt, for the costs of filing, and the reporting of the bankruptcy for 10 years on the credit report. For a high debt owing case, the debtor must determine if the risk of the Chapter 7 bankruptcy discharge being challenged, is also worth the costs to defend against a possible challenge.
Higher debt owing cases may have indicators or elements of apparent fraud, wilful or malicious abuse which have to be considered. This is not to suggest that a high debt owing case should be avoided or cannot be filed, quite the contrary, it is likely that this kind of case will inevitably or must be filed. What is important for this kind of debtor is to understand that there may be supplemental inquiry, document production, or a possible challenge to the case in chief. Usually, the circumstances surrounding the debts can be explained satisfactorily, with no challenges, but one must be mindful of even this small risk.
As to Ch. 13 cases, there actually are maximum dollar amount of debt that is allowed. 11 USC §109(e) sets forth those maximum amounts. Generally speaking, the current [ The dollar amounts in 11 USC §109(e) are adjusted every 3 years. The figures were last changed on April 1, 2007, so the next change will be April 1, 2010.] unsecured debt maximum in Ch. 13 is $336,900 and the maximum dollar amount for secured debt in Ch. 13 is $1,010,650.
If a debtor is considering a Ch. 13 filing, and is at or near these limits, it is imperative that the attorney for the debtor research the status of the law in the applicable Court to determine what rules exist for determining whether a debt is secured or unsecured for purposes of §109(e). This area continues to evolve, especially now in the context of declining real Estate values, 2d or junior loans no longer being secured, and even 1st or senior loans being partially unsecured.
Even though this is federal law, each Court Jurisdiction may have different rules in how it calculates the figures. There are other variables, as well. Too much for the purposes of this article. Suffice to say that the prudent debtor will seek the assistance of counsel experienced in Ch. 13 cases, to help determine initial eligibility.
