The debt limits that could prevent some debtors in Kentucky from qualifying for Chapter 13 bankruptcy protection were set in 1978. A judge addressing the American Bankruptcy Institute Commission on Consumer Bankruptcy questioned these arbitrary limits and called for Congress to update the standards.
Currently, an individual cannot file for debt relief under Chapter 13 if the person’s secured debts exceed $1,149,525. The law sets the ceiling for unsecured debts at $383,175. People with debts above these limits have only Chapter 11 to turn to, but bankruptcy practitioners consider Chapter 11 for consumers to be complicated, expensive and rarely successful.
Chapter 13, however, presents an easier process that allows a debtor with income to create a plan that repays debts over three or five years. The view of the judge matched the opinions of other attorneys, who want the limits raised to reflect current realities. People living in regions with expensive real estate easily accumulate debts that go over the limits. Members of the legal community agreed that encountering a debtor with a mortgage above $1 million was no longer unusual and that such people could benefit from access to bankruptcy protection.
The decision to file for bankruptcy requires a careful examination of a debtor’s financial situation. When debts become overwhelming, meeting with an attorney could be advisable. An attorney could review the client’s income and debts and explain which chapter of bankruptcy could apply. An attorney could prepare the paperwork required under the particular chapter that ends up being applicable.