Do I Owe Too Much Money to File for Bankruptcy?

I often have clients in my office who are worried that they owe too much money to file for bankruptcy.  They believe that they will not be allowed to file because of the amount and types of debts that they owe.  Most of the time worrying about this is futile since the debt limits outlined for chapter 13 are set very high in comparison to most debts owed by individuals.

It is true that section 109(e) of the bankruptcy code outlines the debt limits for filing a chapter 13 but there are no debt limits for filing chapter 7.  Most individuals and/or couples do NOT exceed the debt limits established for chapter 13.  For an individual or couple filing chapter 13, the limitations are:

-non-contingent, liquidated, unsecured debts must be less than $360,475, and

-non-contingent, liquidated, secured debts must be less than $1,081,400.

To understand these limitations, one must first understand the terminology outlined in the code (i.e., secured vs. unsecured, non-contingent vs. contingent and liquidated vs. unliquidated).  The terms are explained below:

A secured debt is a debt that is backed by some form of collateral (i.e., mortgage, vehicle, furniture).  If you default on a secured debt then the collateral would be a risk and can be taken.

An unsecured debt is a debt that is NOT backed by any form of collateral.  These debts are sometimes called signature loans since you just have to sign to get the money.

A non-contingent debt is a debt that is owed now and not contingent on an act occurring before it is due.  Non-contingent debts do not include cosigned debts or debts where you signed a guaranty agreement since those loans would only be due by you if the borrowers defaulted on the loans.  Thus, they are contingent upon an event occurring before they are due.   

A liquidated debt is a debt that has an exact dollar amount.  Therefore, if you are being sued and the amount owed is not yet determined then the debt would not be liquidated. 

If you look back at the limitations set by the bankruptcy code, as outlined above, the Code has set limits on only debts where the amounts are known and due now.  Your Bond & Botes attorney understands these limitations and terms and will help you determine if you exceed the debt limits before you file chapter 13.  It is important for you to know that you have options if you are one of the few whose debts exceed the debt limitations to file chapter 13.