This update is excellent news for anyone who is considering personal bankruptcy under chapter 13 of the bankruptcy code. On June 21st, 2022, the President signed the “Bankruptcy Threshold Adjustment and Technical Correction Act” into law. Among other changes, the new statute now allows the filing of chapter 13 cases for debtors who have noncontingent, liquidated debts of less than $2,750,000–nearly double the amount of debt allowed under prior versions of the statute. Additionally, the new statute does not require any particular amount of secured debt versus unsecured debt in the calculation of the total debt that can be owed to file in chapter 13. This is a major, but very positive, departure from prior versions of the law. In totality, the new amendments will be a welcome adjustment for prospective bankruptcy debtors who live in areas with higher property values and who may have higher general liabilities, like Palo Alto, Mountain View, Los Altos, Sunnyvale, Menlo Park, and much of the greater San Francisco Bay Area. This will enable these bankruptcy debtors to increasingly file in chapter 13 bankruptcy, instead of chapter 11 bankruptcy, saving very significant additional time and money.

This section is designed to provide guidance regarding eligibility to file a Chapter 13 bankruptcy case. Please note that people who do not qualify to file a bankruptcy case under Chapter 13 of the bankruptcy code may still be able to file bankruptcy under Chapter 7 of the code.

The most important consideration when a client decides she would like to file a Chapter 13 bankruptcy case is whether or not she has the income to propose a confirmable Chapter 13 plan. The essence of Chapter 13 bankruptcy is a commitment to pay your creditors back over a long period of time, usually 3 to 5 years, and your proposal to repay the creditors is called the “plan.” Similarly, a “confirmable plan” is basically a plan where the debtor has enough income to pay all types of creditors which the bankruptcy code says must be paid in full, and some portion, although not always, of creditors who need not be paid in full. Creditors who must be paid in full in a Chapter 13 case include: child support not owed state agencies; Chapter 13 trustee fees; most tax debts; and secured debts that will outlive your plan (like most mortgages).

While the exact calculation for proposing a plan is extremely complicated and beyond the scope of this article, the simple way of calculating whether or not you can propose a confirmable plan is to do the following: add up all income earned or received from all sources; add up all of your expenses on everything that you intend to keep after filing bankruptcy, including cars, homes, food, utilities, etc.; add up all payments that you would have to make to creditors that “must be paid in full” (described above) and divide by 36 or 60 (3 or 5 year plan); add 10% to your expenses for the Chapter 13 trustee’s fee; and now compare your income to the sum of all the expenses listed above. If you’re income is still higher than the sum of all of the above expenses, then you can possibly propose an eligible Chapter 13 plan. However, the list above is by no means an accurate representation of every step in determining your eligibility for Chapter 13, and you should definitely seek the counsel of an attorney if you want to consider filing a Chapter 13 case. The list is only designed as a rough estimate to determine your eligibility, and the actual computation is much more complex. If it seems like you may be able to propose a confirmable plan, then you can move on to the final steps for determining eligibility to file Chapter 13 bankruptcy.

To file a Chapter 13 bankruptcy, you must have secured debt of under $1,010,650 and unsecured debt of under $336,900. These numbers change regularly however, so consult with an attorney to ensure that accurate numbers are used. A “secured debt” is basically a debt whereby the creditor can seize the property itself if you don’t pay. Examples of secured debts are car loans and most home loans. An “unsecured debt” is a debt where the creditor can sue you if you don’t pay, but can’t take away any of your property directly. Examples of unsecured debts are your personal debt to Aunt Mary Jane, your unpaid dentist bill, parking tickets, credit card debts, medical bills, and so on.

To propose a confirmable Chapter 13 plan, you must also pay your creditors at least what they would have received if you had filed for Chapter 7 bankruptcy. One of the advantages of a Chapter 13 bankruptcy is that you generally get to keep even valuable property with substantial equity, if you can afford to make the payments. This provision ensures that creditors aren’t in a worse position because you filed for Chapter 13 bankruptcy than they would be in Chapter 7 bankruptcy.

If it seems like you meet all or most of the requirements posted in this section and are interested in filing a Chapter 13 bankruptcy case, then we recommend you consult with an attorney regarding the possibility of filing. Nova Law Group is pleased to provide you with a free consultation to consider these options in greater depth.