On June 21, 2022, Pres. Biden signed into law the Bankruptcy Threshold Adjustment Act. It increased the Chapter 13 debt limits to a total of $2.75M without secured or unsecured separate categories.
The old limit for Chapter 13 before this amendment was $1.395M for secured debts and $465K for unsecured debts.
With many individuals being forced to borrowing significantly more to survive the pandemic, especially individuals with small businesses, the old limits were not practical to provide reorganization relief.
For example, client borrowed $500K business loans so his business can continue operating despite losses caused by the pandemic, he would not qualify for Chapter 13 because the unsecured debt limit was only $465K. His alternative would have been Chapter 7 where his house would be at risk if the equity was near $600K, or Chapter 11 which costs a lot more than Chapter 13 in legal fees. Chapter 11 would cost ten times more in legal fees than Chapter 13.
In client’s case, he can propose a Chapter 13 plan that pays a small portion of the $500K. Depending on his equity on the house, his Chapter 13 plan can be very small. If his equity in his residence does not exceed $600K and he lives in Los Angeles county, he may even be able to get a plan payment for only 2% of $500K, that’s about $200/month plan payment for 60 months. It’s a great reorganization for client. After paying only $10K of the $500K in 60 months, the court will discharge or wipe out $490K of the $500K business loans.
This law will expire in 2 years from June 21, 2022. So, it will be effective for one more year from now until June of 2024, unless it is extended or made permanent. Considering next year is election year, the chances of extension of being made permanent is good. Besides, $495K for unsecured debts is actually forcing debtors into unpleasant options.
If you have too much debt and need relief, please set an appointment to see me. I will analyze your case personally. If you have a small business that increased your debts to survive the pandemic, now is the time to seriously consider Chapter 13 to reorganize. It’s the right step to take.
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Disclaimer: None of the foregoing is considered legal advice for anyone. There is absolutely no attorney client relationship established by reading this article.
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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South Suite 10042, Alhambra, CA 91803.
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