What are the Chapter 13 Bankruptcy Debt Limits

The bankruptcy law reads that one can only file for chapter 13 bankruptcy protection if their total debt falls below the defined debt limits.

Before I get distracted, let me give you the information you came for: the Arizona chapter 13 bankruptcy debt limits. A chapter 13 debtor must have non-contingent, liquidated unsecured debts LESS than $336,900 and non-contingent, liquidate secured debts of LESS than $1,010,650.

What does this mean? Chapter 13 bankruptcy debtors are limited in the amount of debt they have. If you have more than the above amount, you may have a problem. But, let me be clear, you haven't struck out yet. This is where you need to consult an experienced bankruptcy attorney.

Let me tell you a little story. I recently met with a potential bankruptcy client that was under the impression she did not qualify for chapter 13 bankruptcy because her unsecured debt exceeded the allowed debt limit. Are you wondering how she accumulated that much unsecured debt? Good question.

Prior to meeting with me, she decided to turn her home over to the mortgage holder by way of a deed in lieu of foreclosure. For those not familiar with the term, in a deed in lieu of foreclosure, the property owner gives the property to the lender voluntarily in exchange for the lender canceling the loan.

The item transferred is the deed to the property. The lender promises not to initiate foreclosure proceedings, and to terminate any foreclosure proceedings already underway. The lender may or may not agree to forgive any deficiency balance that result from the sale of the property.

As a result, the entire mortgage balance was listed on her credit report as an unsecured debt. The house had not yet been sold, so the question of whether or not a deficiency was present could not be answered. However, it could be reasoned that the entire debt amount should not be included as a debt. The had the house, right? It had to be worth something.

We were able to file her petition with the said debt listed as disputed, and thus not included in her bankruptcy petition. Since filing the house has sold, and the debt has been eliminated.

What is the moral of my story? It is true that you must abide by the chapter 13 debt limits as outlined in the bankruptcy code. However, consulting with a qualified bankruptcy lawyer never hurts. Many of us have quite a few tricks up our sleeves.