New Bankruptcy Filing Debt Limits in 2022
Amended S.3823, the “Bankruptcy Threshold Adjustment and Technical Corrections Act” was signed into law by President Biden on June 21, 2022. It sunsets on June 21, 2024. The bill raises the debt limit back to $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11 and also raises the debt limit for individual chapter 13 filings to $2.75 million while also removing the distinction between secured and unsecured debt for this eligibility calculation. This means that more entities, including individuals, will be eligible for the friendlier relief under both Subchapter V (for small businesses) and for chapter 13 (for individuals). Both are repayment plans for 3 to 5 years. Both have more favorable discharge (release) provisions, than Chapter 7 (straight liquidation) or Chapter 11 (for large businesses). In the family law arena, this is going to allow, for at least the next two years, a new arena for those owing large settlement agreements to file Chapter 13, to make these 3 to 5-year payments under confirmed chapter 13 plans, and to ultimately seek to discharge the balance of the debt. Previously the debt limits for eligibility for chapter 13 filing were significantly smaller and were divided into secured and unsecured components. Former spouses will still have tools available to them upon such a filing as these chapter 13 plans will need to comply with tests for the confirmation of the chapter 13 plan, such as good faith and disposable income but will require active participation in the plan confirmation process and litigation.