New Chapter 13 Debt Ceilings

The debt ceilings for Chapter 13 bankruptcy filings are increasing effective April 1, 2013. The new limits are approximately $,150,000 for secured debts and approximately $383,000 of unsecured debts.

I find that many prospective Chapter 13 debtors, and some attorneys, are not aware that many people cannot file Chapter 13 bankruptcy because they have too much debt. Particularly, during the real estate boom many investors bought multiple real estate properties subject to mortgages, or they invested in one or two commercial real estate venture where they personally guaranteed the mortgage debt. As real estate values were inflated the amount of mortgage debt also rose in absolute dollars. Real estate investors during the boom now find that these high debt mortgages exceed the maximum secured debt limits for Chapter 13. Congress did not change the debt limits even though typical mortgage debts went up during with real estate value inflation.

Many such people have asked me what alternatives they have when their debt levels disqualify them from Chapter 13. One option is to wait until one or more of the mortgage lenders forecloses so that the loan is not longer part of secured debt calculations. The issue then is whether a deficiency claim brings the debtor over the unsecured debt limits. For many debtors, the only option is filing Chapter 11 bankruptcy. Generally, Chapter 11 enables debtors to enter into a repayment plan similar to Chapter 13, but Chapter 11 does not have debt ceilings. The problem with Chapter 11 is that those cases are much more complex and expensive.

Too many real estate investors whose debts exceed Chapter 13 ceilings find that bankruptcy does not offer any alternative practical solutions.

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