New law increases debt limits in Chapter 13s and small business Chapter 11s

On June 21, 2022, President Joe Biden signed S.3823 into law, increasing debt limits for Chapter 13 and small business Chapter 11 (Subchapter V) reorganizations. The bill passed in the House of Representatives on June 7, 2022, and passed in the Senate two months prior.

The law took effect immediately, so all bankruptcy filings going forward get the benefit of these higher debt limits. This is big news for anyone who had been contemplating Chapter 13 or Chapter 11 Subchapter V bankruptcy relief but had debts that exceeded the prior debt limits. These types of bankruptcy are more desirable than the alternative, a traditional Chapter 11 filing. Prior to this, individuals seeking Chapter 13 relief were not eligible if their unsecured debt (credit cards, medical bills, personal loans, and most taxes) exceeded $465,275 or secured debt (car loans and mortgages) exceeded $1,395,875. Now, an individual may be eligible for Chapter 13 relief if their total debt is less than $2,750,000. As a reminder, a Chapter 13 is a reorganization for individuals to pay all or part of their debt over a period of 36 or 60 months. It’s a great tool to cure mortgage arrears and save a house from foreclosure.

The Chapter 11 changes affect small business debtors filing under Subchapter V. A small business debtor is a debtor who is engaged in business and whose total debts are now less than $7,500,000. Prior to the enactment of this new law, the debt limit for small business debtors was $2,725,625. It should be noted that the debt limit for Subchapter V cases was temporarily increased to $7,500,000 under the CARES Act in March 2020. That debt limit was set to expire in March 2021 but was extended to March 27, 2022. Fortunately, nearly three months later the higher debt limit has returned.

A traditional Chapter 11 filing is the alternative for a debtor whose debts exceed these debt limits. However, Chapter 11s are significantly more involved and often cost-prohibitive for both individuals and small businesses. The increased debt limits will certainly allow a greater number of individuals and small businesses to reorganize in a more efficient and desirable manner.

If you or your small business are facing significant debt and are looking to neatly reorganize so you can get back on track, contact Zimmelman Law PLLC to learn more about what option is best for you.

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Zimmelman Law PLLC

With over ten years of experience, Matthew D. Zimmelman, Esq. has helped thousands become debt-free and saved countless New Yorkers from losing their homes in foreclosure. Whether you are an individual or a small business, looking to file bankruptcy or looking to eliminate your debt without filing bankruptcy, we are here to help you get a fresh start.

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