Congress Considering an Increase for the Chapter 13 Debt Limit
Are you considering a Chapter 13 bankruptcy filing but concerned that you may have too much debt to qualify? Many individual debtors are in this situation, especially those who are sole proprietors and own small businesses with significant debts. Unlike other types of businesses structured as partnerships, limited liability companies (LLCs), or corporations, sole proprietorships and the individual are the same entity for bankruptcy purposes. As such, when a sole proprietorship files for bankruptcy so does the owner as an individual, and vice versa. Whether or not you own a small business as a sole proprietor, you simply may have too much debt to qualify for Chapter 13 bankruptcy. Even though you can file for Chapter 11 instead, Chapter 11 is more complex and expensive than a Chapter 13 case.
During the COVID-19 pandemic, the debt limit was temporarily increased, allowing more debtors to qualify for Chapter 13 bankruptcy. While that expanded debt ceiling “sunsetted” in June 2024, recent news suggests there is bipartisan support in Congress to increase the Chapter 13 debt limit.
Current Chapter 13 Debt Limits
The current debt limits for Chapter 13 bankruptcy, which will be in effect through March 31, 2028 unless Congress acts, are: $1,580,125 of secured debt and $526,700 of unsecured debt. The amounts are determined separately — you cannot combine the total unsecured and secured debt limit to determine your eligibility, and likewise you cannot combine your total secured and unsecured debt. Your secured debt must not exceed the ceiling of $1,580,125, and your unsecured debt must not exceed the ceiling of $526,700.
Potential Increase in Chapter 13 Debt Limit
During the COVID-19 pandemic, the Chapter 13 debt limit was increased to $2.75 million (or $2,750,000) in total debt — secured debt and unsecured debt was combined, and there was a single debt ceiling. As we noted above, that debt threshold expansion ended in June 2024. However, members of Congress are discussing the possibility of increasing the total debt limit for Chapter 13 filers.
According to a report in Bloomberg, there is bipartisan support to expand the Chapter 13 debt ceiling to a combined secured and unsecured debt limit of $2.75 million — the same amount that existed as part of pandemic-era relief. Lawmakers are also considering a possible increase in the Subchapter V debt limits for small businesses. With more debtors becoming delinquent on various types of debt, allowing more debtors to file for Chapter 13 bankruptcy could allow more debtors to catch up on debt owed to creditors and to become more financially stable.
Contact a West Palm Beach Bankruptcy Lawyer for Assistance
Are you currently considering a Chapter 13 bankruptcy filing in South Florida? Whether you want to discuss your eligibility with a lawyer or you want to find out about the possibility of the debt limit being extended soon enough to apply to your case, one of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan Delaney & Eller, PLLC, can speak with you today. We can answer questions you have about reorganization bankruptcies in Florida for individuals and businesses, and we can begin working with you on your bankruptcy petition as soon as you are ready. Contact our firm for additional information.
Sources:
news.bloomberglaw.com/bankruptcy-law/senators-to-weigh-raising-chapter-13-debt-limits-for-consumers
law.cornell.edu/uscode/text/11
