What is the Chapter 13 Bankruptcy Threshold

Until June 20, 2022, the Chapter 13 Bankruptcy Threshold was limited to individuals with unsecured debts of no more than $465,275 and secured debts of no more than $1,395,875. When President Joe Biden signed the Bankruptcy Threshold Adjustment and Technical Corrections Act (SB 3823), it increased Chapter 13 debt limits to a total of $2,750,000. In laymen’s terms that meant debtors didn’t have to limit debts to specific categories such as unsecured and secured. Instead, the secured non-contingent and unsecured total, liquidated debts ONLY needed to be limited to $2,750,000.

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How Does SB 3823 Help?

The combination of increasing home prices, rents and run away inflation, gave struggling homeowners and consumer debtors a chance to reorganize their finances in bankruptcy court. There’s no doubt that many small business owners suffered financial losses under COVID-19 lockdowns and downturns. However; this new bankruptcy threshold change allowed them to see if Chapter 13 made more sense than a Chapter 7 bankruptcy liquidation or a Chapter 11 proceeding. As one of the top bankruptcy attorneys in Mesa, I see just how severely COVID financially impacted good people.

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Does it Expire?

While the legislation gives individuals and businesses some breathing room, it will sunset in two years. If that happens the Chapter 13 Bankruptcy Thresholds will return under USC §109(e) to the prior amounts if the statutory change is not extended or modified. The Senate passed the Act with unanimous support. Similarly the House approved SB 3823 with extensive bi-partisan support. With a vote of 392 for and only 21 against, this overwhelming backing leads us to believe that the debt limits may very well be extended again or better yet be made permanent. The reality is that most people will not be able to pay off their loans in this manner. However, there are several debt relief options that you may not have thought about yet that could be just what you need.

While the entire bankruptcy process can be embarrassing and confusing, DM Bankruptcy Law Group in Mesa is sympathetic and non-judgmental. Our goal is to help you get out of debt so you can get back to living. If you’re in Mesa, Gilbert, Queen Creek or Phoenix, contact us for a complimentary case consultation.