Congress has passed and President Biden has signed legislation that expands the availability of Chapter 13 for Debtors – at least for the next two (2) years. This law is called the Bankruptcy Threshold Adjustment and Technical Corrections Act and it increases the debt limits for access to Chapter 13 to a single debt limit of $ 2.75 million. Previously, it was $465,275 for unsecured debts and $1,395,875 for Secured Debts.
This will have a tremendous impact on individuals who have large mortgage obligations or others with significant business debts or other non-consumer obligations, all of whom have been previously forced to consider the expensive and cumbersome Chapter 11 options. Chapter
13 is used primarily for individuals who are faced with mortgage arrears, the potential loss of assets in a Chapter 7 liquidation proceeding, or who have primarily consumer debts with income above the census enforced median income for a similarly sized household in their jurisdiction. It
allows up to a five (5) year repayment and debt reorganization often with minimal to no payments against the unsecured indebtedness. It is very effective at providing individuals massive debt relief while preserving the essential assets which might otherwise be at risk.
All too often, we have been compelled to advise clients that they either do not qualify for Chapter 7 and/or would risk the loss of important assets – while at the same time were above the debt limits for Chapter 13. Given that the Chapter 11 costs and procedural requirements were prohibitive for most individuals, there was simply no bankruptcy option available to these individuals. This legislation is quite overdue.
The current legislation is due to expire in June 2024 unless made permanent or extended by Congress. If you believe you would benefit from a Chapter 13 consideration, please contact our office to discuss.