Many people might wonder if there is such a thing as too much debt. Could a specific amount of debt prevent them from finding debt relief?
The simple answer is no – regardless of how much debt an individual has, they have options to achieve debt relief. However, the amount of debt they have could influence which chapter of bankruptcy they file.
Chapter 7 does not have a debt cap
Individuals must be eligible to file Chapter 7 bankruptcy – however, none of the eligibility requirements relate to how much debt someone owes.
The means test focuses primarily on income. It calculates:
- If an individual’s income falls below New Mexico’s median income; and
- How much disposable income the individual has.
While individuals must pass the means test to file Chapter 7 bankruptcy, this type of bankruptcy does not have a cap on the amount of debt someone owes.
However, Chapter 13 has a limit
On the other hand, the other form of personal bankruptcy, Chapter 13 bankruptcy, has a debt cap. To file Chapter 13 bankruptcy:
- One’s unsecured debts must total less than $394,725; and
- The total amount of secured debts must be under $1,184,200.
As long as one’s debts are below these caps, an individual is eligible to file Chapter 13 bankruptcy. However, these established limits are steadily increasing over the years.
These debt caps are not meant to prevent individuals from achieving debt relief either. They exist because the main function of Chapter 13 bankruptcy is to repay the debt within a span of three to five years. Individuals who pursue this type of bankruptcy must have the ability to complete their customized repayment plan – or at least a majority of it – before the bankruptcy discharge.
Therefore, this type of bankruptcy does include a debt limit, to ensure that individuals can find debt relief with the chapter that best suits their needs and interests.