The Bankruptcy Threshold and Technical Corrections Act Explained
The Bankruptcy Threshold Adjustment and Technical Corrections Act was signed into law on June 21, 2022. The most significant change regarding chapter 13 cases involves a significant increase in debt limitations. Previously, in order to be eligible to file chapter 13, your unsecured debts had to be less than $465,275, and your secured debts could not exceed $1,395,875. Under the new law, there is only one overall combined debt limit to be eligible to file for chapter 13, and the amount has been increased to $2,750,000. This new law does, however, contain a sunset provision under which these changes will expire on June 21, 2024 (if not extended by further acts of Congress).
So, what does this mean for me, you ask? There are many small business owners who undertake a substantial amount of debt to pursue a business venture. The business owner has more often than not had to personally guarantee business loans, credit cards, office space leases, etc… If that business venture does not pan out, the business owner still has to deal with the debt. If the business owner is leveraged enough to be able to afford to pay a portion of the debt and does not otherwise qualify to file a chapter 7 bankruptcy case, the only bankruptcy option before this law was to file a chapter 11 case. Chapter 11 cases are substantially more expensive and do not offer as much predictability in terms of how much of the debt is to be repaid and under what terms it will be paid.
Chapter 13 offers a much less expensive route in terms of legal fees and a much more predictable route in terms of knowing what to expect in terms of monthly payments and the length of the plan. Bottom line, this is a welcome change to the Bankruptcy Code. If you have questions regarding bankruptcy, or specifically filing a chapter 13 case, feel free to reach out to our office. We are here to help.
