Bankruptcy

What Do You Mean I Owe Too Much To File Chapter 13?

By Kurt O'Keefe, Attorney at Law

Bankruptcy law limits Chapter 13, or payment plan bankruptcy, to individuals, that is, persons, not corporations, who have regular income, and who owe less than a certain amount of debt in certain categories.

Unsecured debt is debt without collateral, or security, that the creditor can take if you do not pay.

You finance a car, the credit union lends you the money, they are on the title as first secured party.  You cannot sell the car without the credit union signing off on the title.

The credit union has a secured debt.

You buy a house with mortgage money, lent by someone.  They record their interest, a lien on your house, with the register of deeds.

Or, you borrow money against the house, or re-finance, or get a home equity loan.  Your house is collateral, or security, for the debt.

Now, you can owe up to $1,010,650 of secured debt, and still be able to file Chapter 13.

So, if your house is worth $900,000, and you owe $900,000 on it, that is $900,000 of secured debt, zero unsecured debt, you can file Chapter 13, depending on the total of your other debts..

The odd amounts are due to adjustments made every couple of years for inflation.

The limit on unsecured debt, like charge cards, medical bills, balance still owed on a repossessed car or truck,  is currently $336,900.

The bankruptcy code (11 USC 506) defines secured/unsecured status of a debt.

A debt is a secured debt only up to the value of the collateral, say, your house.

So, if your house is worth $150,000, and you have mortgages on it that total $400,000, for bankruptcy eligibility purposes you have $150,000 of secured debt, and $250,000 of unsecured debt.

The total mortgage debt is undersecured.

This is true no matter what your house was worth when you bought it, or re-financed and got the mortgage.

If you have $100,000 of credit card debt, that is added to the $250,000 unsecured mortgage debt, and you owe $350,00o unsecured debt, and are over the limit.  (see In re Soderlund, 236 B.R. 971 (9th Cir. BAP 1999))

So, if you file a Chapter 13, the trustee, or a creditor, will most likely file a motion to dismiss your case, which the bankruptcy court must grant.

But, you can still file a payment plan bankruptcy, just not Chapter 13.

You have to file a Chapter 11, which will cost you more money, but does have more flexibility for you, as you can see by reading other  Chapter 11 posts on this site

You Mean I Owe Too Much To File Chapter 13?

Full post as published by Bankruptcy Law Network on January 22, 2010 (boomark / email).