Monthly Archives: January 2010

Chapter 13 Bankruptcy Not Possible, File Chapter 11?

Now, you can owe up to $1,010,650 of secured debt, and still be able to file Chapter 13 bankruptcy, depending on how much unsecured debt you owe.

If you are over the Chapter 13 bankruptcy debt limit, you can still file Chapter 11 bankruptcy.

So, if your Michigan house is worth $900,000, and you owe $900,000 on it, that is $900,000 of secured debt, zero unsecured debt, you can file Chapter 13, depending on the total of your other debts..

Adjustments are made every couple of years for inflation, which leads to the odd numbers.

The unsecured liability limit, like charge cards, medical bills, balance still owed on a repossessed boat, car, truck, whatever,  is currently $336,900.

Bankruptcy law limits payment plan bankruptcy, or Chapter 13, to individuals, that is, persons, not corporations, who have regular income, and who owe less than a certain amount in certain categories.

Anyone can file Chapter 11, so long as you can fund your plan.

Unsecured debt is money you woe without security, or collateral, that the creditor can take if you do not pay.

You finance a car, the credit union lends you the money, they are on the title as first secured party.  You cannot sell the car without the credit union releasing their lien, that is, signing off on the title.

The credit union has a secured liability.

You buy a house with mortgage money, lent by someone.  They record their interest, a lien on your house, with the register of deeds.

Or, you get a home equity loan, borrow money against the house, or re-finance.  Your house is collateral, or security, for the loan.

The bankruptcy code (11 United States Code 506) defines secured/unsecured status.

A loan is a secured debt only up to the value of the collateral, say, your house.

So, if your Michigan house is worth $150,000, and you have mortgages on it that total $400,000, for bankruptcy eligibility purposes you have $150,000 of secured debt, and $250,000 of unsecured debt.

The total mortgage debt is undersecured, not enough security to cover the debt owed if the mortgage company takes the house back.

This is true no matter what your house was worth when you bought it, or re-financed and got the mortgage.

If you have $100,000 of credit card debt, that is added to the $250,000 unsecured mortgage debt, and you owe $350,000 unsecured debt, and are over the limit.  (see In re Soderlund, 236 B.R. 971 (9th Cir. BAP 1999))

So, if you file a Chapter 13, the trustee, or a creditor, will most likely file a motion to dismiss your case, which the bankruptcy court must grant.

But, you can still file a payment plan bankruptcy, just not a Chapter 13 bankruptcy.

You have to file a Chapter 11, which will cost you more money, but does have more flexibility for you, as you can see by reading other  Chapter 11 posts on this site

Chapter 13 Not Possible, File Chapter 11?

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