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Critics protest the Chapter 13 debt limits

Individuals in Ohio who have an income, but cannot meet their monthly obligations, may have an option to keep their property by filing a Chapter 13 bankruptcy. The U.S. Bankruptcy Courts explain that this process consolidates the debt, and then the filer makes payments over the next three to five years. Generally, secured loans such as a mortgage or vehicle loan have precedence over unsecured loans, such as medical bills.

However, a person is only eligible to file for Chapter 13 if he or she has secured and unsecured debts below the limits that are set by law. The amounts fluctuate, but as of this date, the maximum allowed for secured debts is $1,184,200, and for unsecured debts, the limit is $394,725. 

According to Bloomberg Law, some people believe these debt limits are unreasonable, even though the amounts change due to inflation.

The original concept of limits came about with the Bankruptcy Code which was enacted 40 years ago, in 1978. At that time, legislators thought that some people, such as those with multiple real estate properties, would take advantage of the system if the limits were not in place, filing for Chapter 13 to avoid the complexities and expenses involved in filing Chapter 11. 

Critics of the debt limits point out that there are many individuals who do not currently qualify for Chapter 13 bankruptcy simply because the cost of a modest home in the area where they live may exceed the secured debt limit in that housing market. Whether Congress will consider raising the debt limits or eliminating them remains to be seen.

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