Chapter 13 bankruptcy is a viable solution for business owners and successful professionals with too much debt to balance their budgets but too much income to qualify for Chapter 7 bankruptcy proceedings. Unlike Chapter 7 bankruptcy which has strict income limits that prevent those with the ability to repay their debts from filing, Chapter 13 bankruptcy is available to even those who make many times the average income for their household size.
However, there is another important financial limit that does apply in Chapter 13 bankruptcy filing. Specifically, there is a limit to how much debt you can theoretically discharge at the end of the bankruptcy process.
What are the current debt limits?
For many years, federal lawmakers imposed a combined limit for debts in Chapter 13 bankruptcy, as well as special limits that applied to both unsecured and secured debts. Those hoping to file would need to not only compute the total amount of their debt but also classify the debt to ensure they could qualify.
However, the Bankruptcy Threshold Adjustment and Technical Corrections Act eliminated the separate categories for Chapter 13 debts and replaced them with one, higher limit. Anyone filing after June 21, 2022 can file for Chapter 13 with up to $2,750,000 in debt.
Careful Financial review is often an important step in a Chapter 13 bankruptcy filing, especially when an entrepreneur or business has debts that come close to the maximum permissible amount under current federal statutes.
There are options if your debts are too high to qualify
If a preliminary review of your financial circumstances makes it seem as though your existing debts are too high to qualify for a discharge under Chapter 13 bankruptcy, you may need to sit down with a professional to discuss your finances.
There can be some nuance involved in the accounting process, such as eliminating debts that you may share with other people or that you may not have to repay unless the situation meets certain standards. The more debt you have to reorganize and hopefully discharge in your bankruptcy, the more important it becomes to understand the rules that govern Chapter 13 bankruptcies.
Pursuing the right form of debt relief, such as filing for bankruptcy, could be the difference between recovering financially and your business eventually closing.