Efforts to raise debt limits have support

If one judge had his way, Michigan residents and others would not face debt limits when filing for Chapter 13 bankruptcy. He and others shared this sentiment at an October meeting of the American Bankruptcy Institute Commission on Consumer Bankruptcy. This may help those who don’t qualify for Chapter 13 bankruptcy but don’t find Chapter 11 to be a realistic alternative.

Under current law, those with more than $1,149,525 in secured debt don’t qualify. Those who have more than $383,175 in unsecured debt don’t qualify either. These limits were established in 1978 in an effort to prevent real estate developers or others who may have avoided filing for Chapter 11 bankruptcy. Under Chapter 13, an individual uses regular income to pay debts under a payment plan lasting either three or five years. Some say that the debt limits no longer make sense for debtors in all parts of the country.

This is because property values differ based on location, and in some areas, it isn’t uncommon for a person to have a mortgage over the current limit for secured debt. Proponents of raising or eliminating these debt limits say that they are arbitrary and relatively easy to meet or exceed. They also point out that creditors have protections under current Chapter 13 bankruptcy guidelines.

By filing for bankruptcy, peope may make it easier to manage their current debts as they may be repaid over several years. Furthermore, it may make it easier for them to retain property as creditors generally cannot move to foreclose on or repossess homes or cars. An attorney who has experience with these matters can explain who is eligible for Chapter 13 bankruptcy and what the judge will look for in a proposed payment plan.