What Are Chapter 13 Debt Limits in Michigan?

Chapter 13 bankruptcy is an option to tackle crushing debt, but eligibility is a top factor. To qualify, filers will need to ask a crucial question: What are Chapter 13 debt limits in Michigan?

Chapter 13 bankruptcy in Michigan allows you to repay some or all of your debts through a court-supervised repayment plan. To qualify, your unsecured debts generally must be under $419,275 and your secured debts (like mortgages) under $1,257,850.

Debt limit rules and the relevant legal concepts can be challenging when your financial future is at stake. A Michigan Chapter 13 bankruptcy attorney has in-depth knowledge of the categories of debt, helping you calculate the amounts and establish eligibility. Your lawyer will guide you through documentation and court, and some background on debt limits in Chapter 13 is informative.

What is Chapter 13 Bankruptcy?

Chapter 13 of the US Bankruptcy Code, the Individual Debt Adjustment, is often called a “wage earner’s plan.” It allows individuals with a steady income to restructure their debts into a manageable repayment plan over three to five years. As an overview:

Chapter 13 permits debtors to retain their property while repaying creditors, unlike Chapter 7 rules on liquidating assets.
The eligibility requirements for Chapter 13 are less strict than Chapter 7 cases, in which income is a factor.
Chapter 13 requires individuals to meet specific debt limits under federal law.
As with Chapter 7, the automatic stay in bankruptcy prevents creditors from taking collection action when you file your petition for Chapter 13 bankruptcy.

Chapter 13 is ideal for those seeking to reorganize and regain financial stability, while also taking advantage of bankruptcy protection.

What Are Chapter 13 Debt Limits?

Bankruptcy filers considering Chapter 13 must know the debt limits because eligibility depends upon the filer’s debt being below a certain amount. As of July 2024, unsecured debts cannot exceed $465,275, and secured debts are limited to $1,395,875. Unsecured debts include credit card debt and medical bills, while an example of secured debt is a mortgage or car loan.

Debt limits for Chapter 13 bankruptcy are established under federal law and are periodically adjusted for inflation. These limits mean the benefits of Chapter 13 will be available to individuals rather than businesses with large debts.

Do Michigan’s Chapter 13 Debt Limits Differ From Other States?

In Michigan, the federal debt limits apply directly to Chapter 13 cases filed in the state. Chapter 13 bankruptcy cases operate under national guidelines, so they are the same in all US states. However, state-specific factors such as housing expenses, costs of living, and local economic conditions can influence a filer’s ability to qualify.

Michigan residents must carefully assess their total secured and unsecured debts to determine eligibility. It’s important to clarify whether your financial situation aligns with federal requirements or if other options would help you meet your objectives.

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How Are Secured and Unsecured Debts Defined in Chapter 13?

The US Bankruptcy Code establishes the two separate ceilings based upon the distinction between secured and unsecured debt. Therefore, knowing the differences between these two types of debts is essential when considering how debt limits apply to Chapter 13 eligibility in Michigan.

Secured debts in Chapter 13 bankruptcy are backed by collateral, such as mortgages for homes or loans for vehicles. If payments are missed, creditors can seize the collateral. For instance, if you miss mortgage payments on your home loan, the lender may initiate foreclosure proceedings.

Unsecured debts, on the other hand, have no specific collateral. Examples include:

Credit card bills
Medical expenses
Personal loans
Lines of credit

What Happens If Your Debts Exceed Chapter 13 Limits?

If your secured or unsecured debts are higher than the Chapter 13 limits, the bankruptcy court may dismiss your case. However, other options may deliver benefits for your financial situation. For instance:

You may apply exceptions or exemptions to meet the debt limit criteria.
It may be possible to pay down a portion of your secured or unsecured debt, so that the levels meet the debt limit for Chapter 13.
You may qualify to file Chapter 7 bankruptcy if your income meets the means test.
Chapter 11 bankruptcy is often available to individuals with substantial debts, though it is typically more complex and costly.
Negotiating directly with creditors or considering debt settlement strategies could provide relief.

How Do Chapter 13 Debt Limits Affect Your Repayment Plan?

Initially, debt limits impact your eligibility for Chapter 13 bankruptcy. Once you qualify, secured and unsecured debt will become incorporated into your repayment plan. When you owe higher amounts in either category, you can expect your monthly repayment plan amount to be higher.

Debt limits do not directly impact the length of your repayment plan. The duration is primarily determined by the debtor’s average monthly income compared to the median income for a household of the same size in the state of your residence. If your income is below the median in Michigan, the plan will be 3 years, while above the median requires a 5-year plan.

Are There Exceptions to Chapter 13 Debt Limits?

Yes, there are exceptions to Chapter 13 debt limits. In joint filings by spouses under Chapter 13, the debt limits are applied to the combined debts of both individuals. However, because spouses often share liabilities, certain debts may be reclassified or split between them, potentially lowering the individual debt amounts assessed for eligibility. Additionally, if one spouse qualifies independently, it may create flexibility in meeting the debt thresholds.

Business debts can impact personal debt limits in Chapter 13 bankruptcy if the debts are personally guaranteed. Any business debt for which the filer is personally liable is included in the calculation of secured and unsecured debts under Chapter 13 limits. However, if the business is a separate legal entity (e.g., an LLC or corporation) and the filer has not personally guaranteed the debts, those liabilities are typically excluded from the personal debt limits.

How Do Chapter 13 Debt Limits Impact Joint Filings in Michigan?

In joint Chapter 13 filings by spouses, combined debts are assessed to determine eligibility. Both secured and unsecured debts must collectively fall within the federal debt limits: $1,395,875 for secured debts and $465,275 for unsecured debts as of 2024. Joint filers must meet these thresholds together, as their total liabilities are calculated as one.

If debt limits could impact a joint filing in your case, there are some options to consider:

Separate Filings: Couples may file individually rather than jointly, dividing debts between spouses to keep each filer under the Chapter 13 debt limits. This approach works well when liabilities are distinct, or one spouse holds a majority of the debt.
Alternative Bankruptcy Chapters: Couples exceeding Chapter 13 limits can explore Chapter 11 bankruptcy, which is designed for individuals or businesses with substantial debts. Though more complex, it offers higher debt thresholds.
Consolidating Debts: Couples might consolidate unsecured debts into fewer accounts, potentially lowering total balances and simplifying repayment plans, making it easier to meet Chapter 13 eligibility requirements.

How Do You Calculate Your Total Debt for Chapter 13?

When calculating your total debt for purposes of Chapter 13 eligibility, it’s critical that you assess figures accurately. To avoid issues during filing, carefully check all amounts and make sure to include all qualifying debts. The steps to calculate your total debt for Chapter 13 bankruptcy are:

Add up all secured debts, such as mortgages, car loans, and any other financial obligations which are backed by collateral.
Total your unsecured debts, including credit cards, medical bills, and personal loans.
Review recent statements and loan agreements for accuracy, confirming balances and identifying any additional liabilities.

Combining these figures provides a clear picture of your total debt, helping determine if you meet the Chapter 13 debt limits.

How Can a Lawyer Help With Chapter 13 Debt Limits?

A Michigan bankruptcy attorney provides essential guidance and legal support throughout the Chapter 13 process, especially in the area of debt limits and eligibility. Your lawyer can evaluate the factors that impact your case and tackle important tasks, such as:

Properly categorizing all secured and unsecured debts
Compiling qualifying debts to confirm eligibility under Chapter 13 limits
Guiding you through the preparation and filing of bankruptcy paperwork
Advising you to create a manageable repaying plan for Chapter 13

If you don’t qualify for Chapter 13 because of debt limits or other factors, you can also count on a bankruptcy attorney to assist with other options for resolving debt. A lawyer can help negotiate with creditors to reduce your secured or unsecured debt, and you might explore alternative bankruptcy options, such as Chapter 11.

Bankruptcy is a detailed process, and the specific facts of your case will drive strategy. Michigan residents benefit from a legal advisor who can help determine and leverage favorable opportunities.

Contact a Michigan Bankruptcy Lawyer Today

This overview describes some of the legal concepts about debt limits in Chapter 13, but many additional factors impact your case. Our team at Kostopoulos Bankruptcy Law focuses on bankruptcy cases, including Chapter 13 debt adjustment proceedings. We can help you understand how the law applies to your unique financial situation, so you’ll have clarity on debt limits for secured and unsecured debt.

Please call our firm at 877-969-7482 for a free no-obligation consultation with an experienced Michigan bankruptcy attorney. We’ll be at your side to help you take control of your financial future.

What Disqualifies You From Filing Chapter 13 in Michigan?

How Much Does It Cost to File Bankruptcy in Michigan?

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FAQs About Michigan Chapter 13 Debt Limits

How Does Chapter 13 Work in Michigan?

Chapter 13 bankruptcy in Michigan allows individuals with regular income to create a repayment plan to pay off their debts over a period of 3 to 5 years. It helps protect assets from liquidation and provides a structured way to manage debts while keeping creditors at bay.

What Happens if You Incur Debt During Chapter 13?

If you incur debt during a Chapter 13 case in Michigan, you must notify the court and trustee. The new debt may be included in your repayment plan, but it could affect your monthly payment or require an amendment to your plan.

What Is the Debt Limit for Chapter 13?

In Michigan, the debt limits for Chapter 13 are $1,257,850 for secured debts and $419,275 for unsecured debts. If your debts exceed this amount, you may need to consider other bankruptcy options, such as Chapter 11.

How Much of My Debt Do I Have to Pay in Chapter 13?

In Chapter 13 bankruptcy in Michigan, the amount of debt you must pay depends on your disposable income, the type of debt, and your ability to repay. Typically, you will repay as much as you can afford considering allowable living expenses. Unsecured creditors may receive a reduced portion of what is owed.

What Is the Highest Chapter 13 Payment?

There is no set "highest" Chapter 13 payment, as payments depend on the debtor’s income, expenses, and the total amount of debt. The monthly payment is structured to fit the debtor's ability to repay while covering secured and unsecured debt. The court will adjust the plan based on financial circumstances.

Can You Make Too Much Money for Chapter 13?

While there is no income cap for Chapter 13, high earners may not qualify if their debts exceed the eligibility limits. In Michigan, Chapter 13 is available to those with less than $2.75 million in combined secured and unsecured debts. High income may also affect the payment plan and debt repayment terms.

What Are Other Eligibility Factors for Chapter 13?

Aside from having regular income and falling under the debt limit, filers must be individuals or married spouses. You must go through credit counseling within 180 days before filing your Chapter 13 petition, and you must wait at least 2 years or more after a previous bankruptcy case.