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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1. How Does Chapter 11 Work For A Small Business?
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3. Should I File Bankruptcy?

If it is a corporation, the corporation has to file for Chapter 11 to get bankruptcy relief.

But, you do not have to be a corporation to file for Chapter 11.

You may run a store, own and rent a bunch of houses, or any other business, in your own name.

You can still file Chapter 11.

Now, it will include all of your debts, and all of your property.

That is, though you may run the business books separately and regard it as separate from you, it is not legally separate unless it is a corporation, limited liability corporation or partnership.

So your individual Chapter 11 includes your furniture and clothes and house and car as assets, and includes your mortgage and electric bill and car insurance as expenses.

You should file a separate budget for the business, with its income and expenses and one for you, with your income, the net from the business, and whatever other income you have, and your personal expenses.

Why file Chapter 11 bankruptcy?

If you owe more than the debt limits, you cannot file Chapter 13.

In Chapter 11, you are your own trustee, so you continue to operate in the ordinary course of business.  Anything outside the ordinary course of your business requires court approval.

You have the United States Trustee overseeing your case, but you are not paying a Chapter 13 trustee.

The U. S. Trustee gets monthly financial reports from you, and duplicate original copies of your monthly bank statements, and you pay them a quarterly fee.  But they are not getting your plan payments to disburse to creditors.

In Chapter 13, you have 15 days to file a plan.  In Chapter 11, usually 120 days to file a plan.

In Chapter 13, you have to start making payments right away, not so in Chapter 11.

So, Chapter 11 gives you a breathing spell from most of your debts.

If your business is renting other homes, you can re-write the mortgages on those homes, down to the value of the home.  And the plan can change the interest rate and other terms of the mortgage.

You can return property that you do not want to keep to secured creditors, but you do not have to lose anything by filing Chapter 11.

You also are not bound by the 5 year limit imposed on Chapter 13 plans.  If you need more time, you can take it.

If, and I say if, there is a level at which your business is profitable, Chapter 11 offers a way to shed debt, and the debt service, that may mean the difference between a viable business and one that goes under.

Related posts:

1. Who Needs Small Business Chapter 11? (part one)
2. Who Needs Small Business Chapter 11? (part two)
3. Chapter 13 Bankruptcy Not Possible, File Chapter 11?

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2. How Does Chapter 11 Work For A Small Business?

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2. How Does Chapter 11 Work For A Small Business?

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