Effective June 21, 2022 the new total debt limit threshold for Chapter 13 eligibility is $2,750,000.00 in “non-contingent, liquidated debts” owed on the date of the bankruptcy filing. This new threshold limit does not distinguish between secured and unsecured debt, and the same limit applies to both the debt of a single individual filing a Chapter 13 or the aggregate debt of a married couple filing a Chapter 13. Absent further governmental action. this increased threshold limit will “sunset”, or expire, on June 21, 2024, at which time the powers that be in Washington will either extend it or modify it in some fashion. Only “noncontingent, liquidated” debts count toward determining eligibility so if you are being sued by someone for the random sum of $10,000,000.00, this amount does not count toward the debt limit threshold.
This increase set forth in the Threshold Adjustment and Technical Correction Act is significant because Chapter 13 is by far the most efficient and least expensive of the bankruptcy reorganization Chapters and will now be available to a greater range of individual debtors drowning in debt. Historically, sole proprietors operating small businesses would be denied access to Chapter 13 because their debts exceeded prior threshold limits, causing them to have to file a much more expensive Chapter 11. The increased debt limit threshold for Chapter 13 eligibility should reduce the occurrence of this.
This threshold increase should also reduce the all too frequent, and totally absurd, scenario, where a Chapter 13 debtor is constrained from avoiding an underwater 2nd or 3rd mortgage due to strategic consideration because to do so, would push their unsecured debt above the chapter 13 threshold and result in their being kicked out of Chapter 13. Maximizing the relief available under a bankruptcy Chapter should benefit a debtor, not punish them.