August 4, 2022
By: Steve Jakubowski, Julia Jensen Smolka

On, June 21, 2022, President Joe Biden signed the Bankruptcy Threshold Adjustment and Technical Corrections Act which increased the debt limits of chapter 13 bankruptcy proceedings to a combined total of $2,750,000.  Previously, the Bankruptcy Code limited chapter 13 eligibility to individuals with unsecured debts of no more than $465,275 and secured debts of no more than $1,395,875.  Additionally, under the new law, debtors no longer are required to limit debts in specific categories as secured and unsecured.  Total combined unsecured and secured noncontingent, liquidated debts need only not exceed $2,750,000 to be eligible for chapter 13.

These changes to the eligibility requirements for a chapter 13 filing are important given that real estate property values, student loans, and credit card obligations are at all-time highs across the country.  The increase in the chapter 13 debt eligibility limits allows small business owners and consumers with large mortgages to qualify for chapter 13, which are far simpler and more economical than traditional or “Subchapter V” chapter 11 cases discussed above.  Individuals with both consumer and business debt are eligible to file under chapter 13 as long as the debt limits are met.

The revised debt limits for chapter 13 debtors expire on June 21, 2024, after which the eligibility limits for chapter 13 filings will revert to the prior amounts absent extension by Congress.  Significantly, the Act was adopted by unanimous consent in the Senate.  Who thought the politicians could agree on anything?  And in the House, the bill passed with overwhelming bipartisan support of 392 for and only 21 against. This strong support signals that the debt limits may well be extended again or made permanent before the bill sunsets in two years.