On June 21 the president signed the Bankruptcy Threshold Adjustment and Technical Corrections Act.  The Act made two significant changes to the debt levels for small business debtors seeking to file under Subchapter V of Chapter 11 (“Sub V”) and for Chapter 13 wage earner cases.  Sub V allows for a quicker, less expensive and more streamlined plan approval process for small business debtors.  The debt limit for Sub V was raised to $7.5 million.  The original debt limit for Sub V was $2,725,625 when Sub V was adopted.  The debt limit was increased to $7.5 million during the Covid crisis, but that increase was allowed to sunset on March 27, 2022.  The debt limit was reduced to the $2,725,625 amount for cases filed after March 28, 2022 until the passage of the Act.  The increase in the debt limit is retroactive, so debtors who filed a small business Chapter 11 between March 27th and June 21st may now elect Sub V treatment.

Two significant changes were made to Chapter 13 in the Act.  First, the debt limit was raised to $2.75 million.  The existing debt limit for 13’s was $419,275 of noncontingent, liquidated, unsecured debt and secured debt of $1,257,850.  The Act eliminates the distinction between secured and unsecured debt and increases the total noncontingent, liquidated, unsecured debt to $2.75 million.

Unfortunately, the changes to the debt thresholds in Chapter 13 does not apply to pending cases, so if a debtor has filed a Chapter 7 or Chapter 11 and wishes to take advantage of the new debt limits, the debtor may need to dismiss the pending case and refile a Chapter 13 to take advantage of the new thresholds.

And there is a dark side to the Act.  The increases in the debt limits sunset on June 21, 2024.

The changes to the filing thresholds should make bankruptcy relief available to more small businesses and individual debtors, at least until the Act sunsets.

Congress requires that I disclose that our firm is a “debt relief agency” as defined by the Bankruptcy Code. We help people file for bankruptcy relief under the Bankruptcy Code.  As with all articles on this website, the contents of this article are not intended as legal advice for any specific legal problem.  Nothing in this article is intended to create an attorney-client relationship between the author and the reader.  The author is licensed to practice law in Nebraska only, if you are involved with a bankruptcy in a state other than Nebraska you are encouraged to consult with an attorney licensed in the state in which the bankruptcy case is pending.

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