As of April 1, 2016, the debt ceiling to be eligible for Chapter 13 Bankruptcy relief increased as follows:
Secured Debt Limit is $1,184,200
Unsecured Debt Limit is $394,725
If you have debt that exceeds either one of those categories, you are ineligible for Chapter 13 Bankruptcy. Free vs. Malaier, a 2015 case decided by the U.S. Bankruptcy Appellate Panel for the Ninth Circuit, excludes a type of debt counted towards the unsecured debt limit. In short, if debtor received a discharge on an unsecured lien in a previous Chapter 7 Bankruptcy, that unsecured lien is excluded in the calculation of the unsecured debt limit under U.S.C. § 109(e). Because the lienholder cannot demand payment (but it still has the right to repossess or foreclose on the collateral) and the debtor has no personal liability to pay the discharged debt, the debt should not be counted towards the unsecured debt limit for Chapter 13 Bankruptcy eligibility under U.S.C § 109(e).
The result of In re Free opens the door wider for people who want to file a Chapter 20 Bankruptcy. Chapter 20 Bankruptcy occurs when a Chapter 7 Bankruptcy was filed before a Chapter 13 Bankruptcy. Hence, Chapter 7 plus Chapter 13 equals Chapter 20. If you are ineligible for Chapter 13 Bankruptcy lien strip on your house or other real estate because your unsecured debt exceeds the limit, you can file for Chapter 7 Bankruptcy to receive a discharged on the unsecured lien. Then, file a Chapter 13 Bankruptcy lien strip to remove the wholly unsecured junior liens off your house. Because of In re Free case, the discharged unsecured lien will not be counted towards the unsecured debt limit when you file the Chapter 13 Bankruptcy after the Chapter 7 Bankruptcy discharge.
For more information about Chapter 20 Bankruptcy or lien stripping junior liens (aka second mortgage or home equity line of credit) from your home, schedule a consultation with Muoi Chea Bankruptcy Attorney with Law Offices in Sacramento, Stockton, and Fairfield, CA.