Does Bankruptcy Have a Debt Limit?

Is it possible to have too much debt to file bankruptcy? Can your creditors object because you owe them an especially large amount of money? It depends on the type of consumer bankruptcy you file, but in the vast majority of the cases, the answer is "no".

It is a reasonable question to ask. Whether you owe $5,000 to a couple of credit cards, or $200,000 in medical bills seems like two greatly varied scenarios that would be treated differently. However, in the vast majority of cases there is no difference, debts large and small get discharged just the same.

So, what are the narrow situations where the debt limit in consumer bankruptcy comes into play? Only in Chapter 13 bankruptcy is there an absolute limit or cap on debts that may be included. As of April 1st, 2016 (the limits are updated periodically, so always check at a later date) the limit on unsecured debts is $394,725, while the limit on secured debts is $1,184,200. Unsecured debts are generally credit cards, medical bills, and personal loans, secured debts are generally mortgages, and car payments (which tend to be larger obligations).

Clearly, the number is quite large and will not affect most bankruptcy filers, except perhaps those with very large mortgages, or high amounts of medical or business debt.

As for Chapter 7 bankruptcy, there is no cap. You may exceed these debt limits. For most debtors, this cap will not be a concern. Even seemingly massive debts can be included in a Chapter 7 bankruptcy. Debt amounts are usually not the issue. It is when, and how, these debts are accrued that may become a problem. If debts are run up through fraud or deliberately large purchases in the months preceding filing, there will be an issue, regardless of the size. 

If you are facing the bankruptcy debt limits, there are some options available. An experienced bankruptcy attorney can help you to classify your debts, or seek other bankruptcy options. Contact us with any questions about your debts, large or small.