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Getting rid of the debt limits for Chapter 13 bankruptcy

Minnesota residents who have substantial debt but do not do not qualify for Chapter 13 bankruptcy due to its debt limits may soon become eligible if some bankruptcy experts get their way. Many legal practitioners support a statement made by a bankruptcy judge at a meeting of the American Bankruptcy Institute Commission on Consumer Bankruptcy who stated that the debt limits for Chapter 13 should be modified or removed.

Chapter 13 bankruptcy allows debtors who have a steady stream of income to reorganize their debt and keep their property. Debtors are required to submit a plan that shows how they will use their future income to pay all or part of their debt over a period of three or five years. However, current regulations disqualify individuals who have secured debt that is more than $1,149,525 or unsecured debt that aggregates in excess of $383,175

The Chapter 13 bankruptcy debt limits have their origins in the Bankruptcy Code legislators passed in 1978. There were worries that some debtors, such as real estate developers who owned several assets, would take advantage of the Chapter 13 process to avoid having to use the significantly more complicated and costly Chapter 11. However, many debtors whose debts exceeds the debt limits are unable to justify taking on the expenses and the difficult processes of Chapter 11 bankruptcy. In some areas of the nation, the debt limits are not high enough. This is particularly true in places were real estate values are very high.

People who are overwhelmed by debt and who have regular income may qualify for Chapter 13. This might allow them to reorganize their obligations while keeping their property and get a fresh financial start.

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