Portland Bankruptcy Attorney

Bankruptcy Lawyer Portland Or

Portland Bankruptcy Attorney
CALL 503-380-7822
email-iconmap-marker
  • Home
  • Bankruptcy
    • Personal Bankruptcy
    • Business Bankruptcy
    • Foreclosure
    • Chapter 7 Bankruptcy
    • Chapter 13 Bankruptcy
  • Estate Planning
  • About
  • Contact

A Chapter 13 Debt Limit Increase

March 9, 2016 by Chris Kane

As of April 1, 2016 you can have a little more debt and still qualify for a Chapter 13 “adjustment of debts.”

 

Why Debt Limits in Chapter 13?

You can have an unlimited amount of debt when you file a Chapter 7 “straight bankruptcy.” However, there are debt limits when filing a Chapter 13 “adjustment of debts for an individual with regular income.” How come the difference?

Chapter 7 is relatively straightforward, and in most consumer cases is done in only 3 or 4 months. There is a quick determination whether everything the debtor owns is “exempt”—protected from the creditors. If everything is, then the bankruptcy trustee declares the case to be a “no asset” one, nothing is liquidated, and the debts that can be discharged (legally written off) are discharged and the case is closed.

Chapter 13 is much more complicated. It involves a court-approved payment plan usually lasting 3 to 5 years.  An intricate set of rules determine how different kinds of creditors are paid (or the extent to which they’re not paid). Those rules contain many advantages for debtors not available under Chapter 7 for dealing with their home mortgages, vehicle loans, child and spousal support, income tax liens, student loans, co-signed debts, loans secured by personal property, recent income taxes, unprotected (“non-exempt”) assets, and more.

When Congress overhauled these rules in the late 1970s to encourage more debtors to file Chapter 13 cases, it also decided that this procedure should NOT be available to people with large amount of debts. So it capped the amount of debts that a person filing under Chapter 13 could owe. Originally the cap on unsecured debts was $100,000 and on secured debts was $350,000. If an individual or a married couple had more in either unsecured or secured debts they were not eligible for Chapter 13 relief.

Increases in Debt Limits

If those debt limits sound low, indeed they have been greatly increased in the decades since then. In 1994 Congress upped the $100,000 unsecured debt limit to $250,000 and the $350,000 secured debt limit to $750,000. It also arranged for cost of living adjustments every 3 years since then. One of these adjustments is coming up on April 1, 2016. The current $383,175 unsecured debt limit is going up to $394,725 and the $1,149,525 secured debt limit to $1,184,200.

Why Does It Matter?

These current amounts may sound relatively high, at least for a relatively simple consumer case. But note that Congress was specifically trying to make Chapter 13 available to small business owners. The debt limits were intended to be high enough to “permit the small sole proprietor, for whom a chapter 11 reorganization is too cumbersome a procedure, to proceed under chapter 13.”

Fitting under the Chapter 13 debt limits matters because if your debt is too high the main alternative is Chapter 11 “reorganization.” For Congress to call Chapter 11 “cumbersome” is a huge understatement.

Chapter 13 is efficient, and thus relatively inexpensive, for debtors in many ways, one of the main ones being that creditors need to object if they don’t like what the payment plan proposes. Although there is a fair amount of flexibility for the debtor, creditors mostly don’t object as long as the debtor’s plan follows the rules. In contrast, in Chapter 11 there is a voting procedure so creditors all have their say about whether a payment plan is approved. So, much more time-consuming and expensive negotiation is involved.

For this and other reasons even the most straightforward Chapter 11 case can easily cost 10 times what a straightforward Chapter 13 would cost. As one small indication of the cost difference, the court filing fee alone for a Chapter 11 case is $1,717 vs. only $310 for a Chapter 13 case (effective starting January 1, 2016).

Clearly, if you want the advantages of Chapter 13 and need to avoid the very high costs of Chapter 11 both your secured and unsecured debts need to be below the debt limits.

What Are “Noncontingent, Liquidated” Debts?

One way to get under the debt limits is to recognize that only “noncontingent, liquidated” debts count towards those limits. (See Bankruptcy Code section 109(e).) Debts that are either “contingent” or “unliquidated” don’t count. So if you are close to or over the limits, review your debts to see if any can be excluded.

Contingent debts are those that depend on some future occurrence that isn’t sure to happen.

For example, if you cosigned a loan on behalf of a family member who is currently paying the loan on time, you won’t be liable unless that principal debtor defaults on the payments. Your liability as cosigner is contingent until and unless there a default.

Unliquidated debts are those that do not have a determinable cash value. The debt may exist but no amount has been determined. However, even if you don’t know the amount you owe on a debt but it’s “readily capable” of being determined “by simple mathematical computation,” it’s still considered liquated for Chapter 13 debt limit purposes.

For example, if you were injured in a vehicle accident, you may have hired an attorney under an agreement by which he or she will receive a percentage of the recovery if you win. The debt to the attorney is unliquidated because you don’t know how much, if any, you will owe to him or her. It is not determinable by simple calculation at the time your bankruptcy case is filed.

But these definitions are sometimes difficult to apply. For example, if a debt is disputed by the debtor does that make it unliquidated? The answer may depend on the nature and validity of the dispute. It may even depend on what part of the country you live in and how courts have ruled on this question. Arguably if the bankruptcy court would need to weigh evidence to resolve the dispute about the liability or its amount, then the debt is unliquidated.

How about undersecured debts, where the collateral securing the loan is worth less than the amount of debt owed on it? Does all of that debt count as secured for purposes of the debt limits? Or is that debt divided into the secured portion (the value of the collateral) and unsecured portion (the remaining amount beyond the value of the collateral)? Arguably the debt is divided into secured and unsecured portions. But this again may depend on the way courts in your part of the country have been ruling in these situations.

The implications here are powerful:  you could have been the undisputed cause of a serious accident or be in the midst of complicated business litigation, with huge potential liability, and still qualify for Chapter 13 relief. The amount of damages just needs to be either contingent or unliquidated.  

A Final Point: Debt “On the Date of the Filing”

The relevant statute makes clear that the debt limits are based on what they were “on the date of the filing of the [bankruptcy] petition.” So events or court proceedings after the case filing should not matter.

If a debt was contingent when your bankruptcy case is filed but then becomes noncontingent because of the later occurrence of some event (in the above example, if your co-signed debt’s principal debtor stops paying on the debt), that debt should not count for Chapter 13 debt limit purposes.

Or if a debt was unliquidated when your case was filed but then becomes liquidated because of a later evidentiary court hearing, that debt should not count either.

 

Filed Under: Bankruptcy History, Chapter 13 Tagged With: Chapter 13 debt limits, Chapter 13 plan, qualifying for bankruptcy, secured creditors, unsecured debts

Welcome to the Portland Bankruptcy Law Blog

I'd like to help you overcome your financial problems. One good way to start is to provide you with accurate and timely information about the bankruptcy laws. I do that here through informative blog posts, with a new one published here every week. I've been doing this for years so there is a wealth of information for you here.

But please be aware that since you are unique person you need a highly personalized solution to your challenges. That requires the analysis and advice of a conscientious and highly experienced attorney. That's really the only sensible way to get the benefit of the many powerful and effective remedies that the law provides.

So I hope the information provided here is helpful to you. Please contact me for guidance to a much better place:

503-380-7822

Recent Posts

  • No link found between bankruptcy and employment prospects
  • Creditor found in violation of automatic bankruptcy stay
  • What are the short- and long-term credit impacts of bankruptcy?
  • Bankruptcy Attorney Portland, Or | Bankruptcy Lawyer Oregon | Christopher J. Kane P.C.

Categories of Blog Posts

  • Portland Bankruptcy Attorney
  • Personal Bankruptcy
  • Business Bankruptcy
  • Stop Foreclosure
  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy
  • Filing Bankruptcy in Oregon
  • Testimonials
  • FAQ
  • Blog

FREE CONSULTATION

GET A FREE CONFIDENTIAL CONSULTATION THIS MONTH.
*Please see below.

CONTACT

Christopher J. Kane, P.C.

Address: 2207 NE Broadway, Suite 100, Portland OR 97232

Phone: 503-380-7822

Email: chris@ckanelaw.com


We are a debt relief agency.

We proudly help people understand their options and, if appropriate, help them file for bankruptcy relief under the Bankruptcy Code.

DIRECTIONS

CONNECT

  • Email
  • Facebook
  • LinkedIn
  • Twitter
Avvo - Rate your Lawyer. Get Free Legal Advice.
Best Bankruptcy lawyers in Portland
Best Bankruptcy Lawyers in Portland

* Using this form, or email, for communicating with us does not establish an attorney-client relationship, until we do that in writing. So please do not send confidential or time-sensitive information through this form or by email. You affirm that you have read and understand this disclaimer.
CAUTION: This website is to provide visitors with basic information about our firm, and information about how to contact us. Every situation is different, and no information on this website is legal advice on any specific question. You should not act on any of the information without first conferring with an attorney licensed in your jurisdiction. No attorney-client relationship or privilege is formed by visiting this site or by unsolicited email. Therefore, initial emails should not contain any confidential information. We may already represent parties adverse to you and cannot advise or represent you until we check for conflicts. We are licensed only in Oregon and offer our services only to those doing business in Oregon, unless we are associated with local counsel in accordance with other states laws. The applicable laws may have changed after the information on this website was published. While effort is made to keep the information current, you should not presume that all information is up to date. You must confer with an attorney to be sure you have current information.
Copyright © 2021 · Christopher J. Kane Attorney at Law · 503-380-7822 · Designed by Artizon Digital