Bankruptcy is not for everyone; there are income limits, debt limits and property value limits to consider. The only bankruptcy chapter that has a limit on the amount of debt you can have, however, is Chapter 13. The other chapters available to consumers do not have debt limits, including Chapter 7.
Chapter 7 Generally
A Chapter 7 bankruptcy is a liquidation. The bankruptcy creates an estate comprised of all of your property, and the items in the estate no longer belong to you. Most people who file Chapter 7 are able to keep most or all of their things, however, because you are allowed to exempt certain property from the estate, and most people do not have much extremely valuable property without liens. These types of cases are called "no asset" cases. The Chapter 7 trustee can take any nonexempt estate property and sell it to repay your creditors if you have an asset case. Any dischargeable debts that are not repaid by the trustee will be wiped out by your bankruptcy discharge.
No Chapter 7 Debt Limit
Chapter 7 does not not have a debt limit. If you have millions of dollars in debt because of medical bills or because you personally guaranteed large loans for your small business, for example, you can file a Chapter 7 case if you qualify. You should consider when thinking about a Chapter 7 that certain types of debt cannot be discharged, such as income taxes, student loans, child support and alimony, and that if you want to discharge secured debts such as mortgages and car loans, you must surrender the property.
Chapter 13 Debt Limit
Chapter 13 has limits on the amount of debt you can have. You may need to file a Chapter 13 because you make too much money to file Chapter 7, or because you need to protect valuable assets or save your home. But if your debts are over the limits, you cannot file Chapter 13. A Chapter 13 debtor cannot have more than $360,475 of unsecured debts such as credit cards, personal loans, medical bills, utilities and student loans (even though student loans are nondischargeable). A Chapter 13 debtor also cannot have more than $1,081,400 in secured debts such as mortgages and car loans.
Chapter 11 Debt Limit
Chapter 11 also has no debt limit. Most people think that only businesses can file Chapter 11, but that is not the case. Chapter 11 is a reorganization, and it is available to consumer debtors. An individual Chapter 11 is quite similar to a Chapter 13. If you make too much money and have too many valuable assets to file a Chapter 7 and have too much debt to file Chapter 13, you may consider Chapter 11.
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