Have you been told you have too much debt for chapter 13? Technically, you’re probably over the debt limits for Chapter 13 (see dollar amounts, below), per Bankruptcy Code Section 109(e).
Let’s consider where you go from here.
1. Reduce Your Debts (to qualify for 13)
You will want professional advice on this one, but it can be possible. Example: If you own two houses and mortgage debt pushed you over the debt limits, you may want to consider letting one go in foreclosure, especially if there is little or no equity. (Note: Before you proceed, you should to consult with a bankruptcy professional, and perhaps a tax professional as well – there may be consequences you are not seeing).
2. File Chapter 11 (if it makes sense)
You’ve probably heard that filing Chapter 11 is more complex than Chapter 13. This is true. Chapter 11 is more difficult, and only a small percentage of bankruptcy attorneys have ever even handled a Chapter 11. But in certain circumstances, Chapter 11 may actually be an attractive option. In general Chapter 11 presents more options and flexibility.
Chapter 11 Makes the Most Sense When:
- Your Property HAS EQUITY.
This may be the most valuable time to file chapter 11. As soon as your case is filed, any pending foreclosure is halted. If you hold property which is under threat of foreclosure, and you risk losing substantial equity, then Chapter 11 may be incredibly valuable. Chapter 11 can provide time to market and sell the property (thus preventing the loss of equity). Chapter 11 may also allow you to restructure your debts and hold onto the property.
- You Have Income.
If you have business or wage income that would allow you to pay some percentage to your existing creditors over time, then you may have a viable chance at confirming a plan with your creditors in Chapter 11. Also, if you just need time to catch up on mortgage arrears, Chapter 11 can be an ideal tool.
- Creditors Would Recover More By Cooperating.
In general, if it is clear that your creditors, as a whole, would be better off cooperating with you (and potentially each other), then Chapter 11 might be an ideal option to foster negotiation and cooperation amongst your creditors. Chapter 11 can also be an effective tool to halt action by one particularly aggressive creditor.
Choose a Qualified Chapter 11 Attorney.
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3. Don’t File Bankruptcy
You can always simply forego bankruptcy. In certain instances, you may have too much debt for chapter 13, and chapter 11 is not an option. And if you have a good attorney, he or she will advise you when this is true – usually during your free initial consultation. Expert advice is, as always, recommended.
Current Chapter 13 Debt Limits
(Limit amounts adjust every 3 years. Amounts reflected here as of April 1, 2016):
- Secured Claims: $1,184,200
- Unsecured Claims: $394,725