Help! I Owe Too Much Debt!

August 21st, 2009 by Reed Allmand

As the price of housing has increased in the past 10 years and access to even more extraordinary amounts of credit have opened up to consumers (until recently), many debtors have found themselves drowning in hundreds of thousands or even millions of dollars in debt.  Unfortunately, large amounts of debt can close off certain types bankruptcy to debtors; but it doesn’t eliminate your bankruptcy options altogether. While Chapter 7 bankruptcy and Chapter 11 bankruptcy do not have a limit on how much a debtor can owe in order for them to file bankruptcy under those chapters, Chapter 13 bankruptcy does have a debt limit.  According to the bankruptcy code, a debtor filing for Chapter 13 bankruptcy must not owe more that $336,900 in general unsecured debt or more than $1,010,650 in secured debt. General unsecured debt can include things such as credit card debt, personal loans, medical debt and taxes.  Secured debt can include a mortgage, car loan or any credit secured with collateral.  For example, secured debt could also include business equipment used as collateral on a loan.

What the debt limits might mean in real terms is that if a debtor has $400,000 in credit card debt and a $1.2 million home mortgage, he/she may not qualify for Chapter 13 bankruptcy.  However, the debtor may file for Chapter 11 bankruptcy. Chapter 11 bankruptcy is usually filed by corporations; but increasingly small business owners and individuals are filing for bankruptcy relief using this type of bankruptcy which offers many benefits to debtors.