High debt can preclude you from filing Chapter 13 bankruptcy.
Not everybody is eligible to file for Chapter 13 bankruptcy. Under Section 109(e) of the U.S. Bankruptcy Code, If you have too much debt, you cannot qualify for this form of debt relief. To qualify to file Chapter 13, you must first pay down your debts until they fall below the statutory limitations.
Time Frame
Section 104(a) of the Bankruptcy Code requires periodic adjustments to the debt limitations imposed under Section 109(e) of the law. This means that the debt limitations vary over time. Specifically, the debt limitations are adjusted on April 1 every three years.
Definitions
The Chapter 13 debt limitations apply separately to both secured and unsecured debt. A secured debt happens when the borrower pledges a specific piece of property as collateral on the debt. The identified property, or collateral, can be taken by the lender if the borrower defaults. The most common forms of secured debt include home mortgages, car loans and consumer goods installment loans. Unsecured debts, on the other hand, are debts that don't identify or attach to any specific property or collateral.
Secured Debts
To be eligible for Chapter 13 bankruptcy, your total secured debts must be less than $1,081,400. If you have total secured debts greater than this amount, you cannot qualify to file until you pay down the debts. This amount is effective as of April 1, 2010, but will change every three years.
Unsecured Debts
You cannot file Chapter 13 bankruptcy if your total unsecured debts exceed $360,475, as of April 1, 2010.
Taxes
In addition to the debt limitations listed above, you also must be current on your federal income tax return filings to be eligible for Chapter 13. However, this does not mean you must have no debt to the Internal Revenue Service (IRS). On the contrary, you can qualify for filing Chapter 13 if you are behind on your payments to the IRS. Your debt to the IRS is included in the total unsecured debt calculation.
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