When Should an Individual File for Chapter 11?
When an individual (or married couple) is considering a bankruptcy filing, the individual will typically be considering and determining their eligibility for two different types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy. In general, Chapter 7 bankruptcy is a liquidation bankruptcy for individuals (as well as for businesses), while Chapter 13 bankruptcy is a reorganization bankruptcy for individuals. If an individual debtor wants to file for Chapter 7 bankruptcy and can pass the means test to prove their eligibility, then there is no need to consider Chapter 13 (or another type of reorganization bankruptcy). However, when an individual debtor wants to file for Chapter 13 bankruptcy and does not meet eligibility requirements, then they might turn to a Chapter 11 filing.
In short, if you are wondering when an individual should file for Chapter 11 bankruptcy, the answer is typically when the individual wants to file for reorganization bankruptcy but does not qualify for Chapter 13. Our West Palm Beach bankruptcy attorneys can explain in more detail.
Debt Limits for Chapter 13 Bankruptcy Eligibility
The major eligibility issue related to Chapter 13 bankruptcy that an individual can face concerns debt limits. In short, there is a debt limit associated with Chapter 13 bankruptcy. Accordingly, if an individual has unsecured and secured debts that exceed the limit, then that individual is not eligible to file for Chapter 13 bankruptcy. If you have more than the debt limit but want to file for reorganization bankruptcy, you will typically need to file for Chapter 11 bankruptcy instead.
Chapter 11 bankruptcy is more expensive and more complex than Chapter 13 bankruptcy, and it is typically used by businesses. However, it is possible for an individual to file for Chapter 11 bankruptcy and to receive the same benefits of debt reorganization that they would have in a Chapter 13 case.
What is the Debt Limit for a Chapter 13 Filing?
What is the debt limit? It may depend on when you file for Chapter 13 bankruptcy. Up until at least June 21, 2024, there is a combined debt limit of $2,750,000. In other words, a debtor can have anything less than that amount in combined secured and unsecured debt and be eligible for Chapter 13 bankruptcy. However, that debt limit was set as part of the Bankruptcy Threshold Adjustment and Technical Corrections Act, which was passed in 2022. That provision concerning the Chapter 13 debt limit will “sunset” (i.e., end) on June 21, 2024 unless Congress takes steps to extend it.
If Congress does not extend that combined debt limit of $2,750,000, then the debt limit will revert to an unsecured debt limit of $465,275 and a secured debt limit of less than $1,395,875 in order to qualify for Chapter 13 bankruptcy. The debt amounts cannot be combined (secured and unsecured debt), and having more than either of the limits will result in ineligibility for Chapter 13 bankruptcy.
Contact a West Palm Beach Bankruptcy Attorney Today
If you are certain that you want to file for Chapter 13 bankruptcy and are planning to rely on the extended and combined debt limit of $2,750,000, it is important to speak with one of the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan & Eller, PLLC as soon as possible to ensure that you file your petition in time, in case the provision does sunset in June 2024.
Sources:
congress.gov/bill/117th-congress/senate-bill/3823
abi.org/feed-item/chapter-11-for-individuals-vs-chapter-13#:~:text=Except%20in%20small%20business%20cases,to%20a%20year%20or%20longer
