Congress has just expanded and simplified eligibility for Chapter 13 by enacting new debt limits.
This is big news and long-awaited.
Upon the president’s signature on S. 3823 on June 21, 2022, Chapter 13 debtors can have up to $2.75M in debts and qualify for the streamlined reorganization offered by Chapter 13.
The previous, two-part analysis that separately counted secured and unsecured debts is eliminated. So regardless of how a person’s debts are distributed between secured and unsecured, as long as the total, liquidated debt is under $2.75M, they qualify.
The new debt limits are effective immediately.
Who benefits from increased debt limits
Homeowners in high-cost real estate markets will no longer be pushed into Chapter 11, with its far more complex procedures for confirming a plan, by the old debt limits. Individuals with multiple properties are now more likely to qualify for Chapter 13.
Another group who stands to benefit are individuals in business, who either do business as individuals or who have guaranteed the debts of their corporation.
The list can go on: those with high tax debt, large judgments, or crushing student loans now have Chapter 13 as an option.
At base, this change in the law recognizes that most people with debts modestly over the existing debt limits can’t afford the attorneys fees required in a Chapter 11, and their financial affairs are not so complex as to require the creditor protections of Chapter 11.