Debt Constraints in Bankruptcy

Both Chapeter 13 and Chapeter 7 bankruptcy have eligibility requirements which can prevent people from being able to file under that particular chapter. The most famous being the mean-test need under Chapter 7. Basically if an individual earns above a certain quantity, that person won't be suitable for Chapter 7 protection, and may only be suitable to file for Chapter 13. Unlike Chapter 7 nonetheless , Chapter 13 has debt limitations which have increasingly caused more and more folks to not be eligible to file.

Section 109 (e) of the Insolvency code places constraints on the quantity of debt that an individual may have so as to file for Chapter 13. To be eligible to file for Chapter 13, an individual must have less than $360,475 of unsecured debt, and must have less than $1,081,400 of secured debt. Since these numbers on first glance seem very high, lots of our customers are usually surprised when they discover that they might not be suitable because they surpass those debt limits.

Why more of our clients are having issues with surpassing the debt limitations of 109 (e) is because of the absence of equity in their homes. The breakdown of the home market hit Southwest Florida as hard as anywhere else in the country. A direct consequence of the housing market collapse is that many people in Southwest Florida now owe more on their home than it is worth. The amount that a home owner is underwater on their home counts toward the $360,475 unsecured debt limit. Additionally , if a homeowner is underwater on their first loan and they have also got a 2nd mortgage, that entire second mortgage would be considered unsecured. Since so many homeowners are underwater on their houses, a lot of them are finding out that they would surpass the unsecured debt limit regardless of if their other debt is marginal.

Recent Florida cases have eased these limitations a bit at least for married debtors who file jointly. In In Re Scholz and In re Hannon the bankruptcy court held that married people can ‘stack ‘ their debt limits so long as each spouse would be well placed to file his or her own individual Chapter 13. In In Re Scholz, a married couple filed a Chapter 13 petition with $386,221.31 of unsecured debt and the Chapter 13 Trustee moved to dismiss the argument for exceeding the unsecured debt limitation. The Judge overruled the Trustee’s objection and permitted the couple to proceed with their joint Chapter 13 because as individuals, each debtor was below the $360,475 limit. It was just when their debt was combined that they exceeded the debt limits. If debtors who are married are each able to file individual Chapter 13 Petitions, they may file a joint Chapter 13 petition not withstanding a mixed debt total which surpasses the 109 (e) limits.

See In re Scholz, no. 6:10-bk-08466-ABB (Bankr. M.D. Fla. 2011) and In re Hannon, 23 Fla. L. Weekly Fed. B132 (Bankr. S.D. Fla. 2011).

Tag: Bankruptcy Attorney Fort Myers

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L, whose practice focuses in Insolvency Law and Civil Litigation. He’s admitted to practice law in the state of Florida and the Fed. Court for the Middle District of Florida. He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida. If you are searching for a Fort Myers Bankruptcy attorney, contact Jonathan via his website at

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