Chapter 13 Debt Limits Increase April 1, 2010
The amount of debt owed by the debtor in a Chapter 13 case is limited by Bankruptcy Code §109(e). Individuals with debt exceeding those limits are not eligible to file a Chapter 13. Adjustments to these limits are required by §104(a) of the code, and are scheduled to occur every three years on the first day of April. An adjustment is due this year.
Debt limits for Chapter 13 will increase on April 1, 2010, from $336,900 to $360,475 of unsecured debt and from $1,010,650 to $1,081,400 of secured debt. This change represents an increase of about 7% over the prior Chapter 13 debt limits.
This could be good news for the increasing number of people who have second or third mortgages that are completely “underwater” (when the home is worth less than what is owed on the first mortgage) due to the decline in home values. When a second or third underwater mortgage is deemed unsecured, it can increase the amount of unsecured debt by so much that a Debtor is no longer eligible for a Chapter 13. Since the limit on unsecured debt has increased, more individuals will qualify for a Chapter 13 plan that allows them to get rid of a mortgage that holds no equity.
