Debt Limits Increase For Chapter 13 Bankruptcy

Debt limits to swell to $2.75M under new legislation

Legislation signed in June, 2022 raised the debt cap in Chapter 13 to $2.75M without regard to whether the debt is secured or unsecured.

In the Bay Area with its eyepopping mortgage balances, that will mean more families will be eligible to file Chapter 13.

The debt limits apply to debts that are liquidated and not contingent.

Why Chapter 13 rocks

Chapter 13 bankruptcy allows individuals to strip off worthless liens, cure home loan defaults, and pay recent taxes over time, without interest.

In Chapter 13, the person filing keeps ownership and control of their assets.  They create a plan to repay creditors, in whole, or more usually, in part from future income.

Why 13 is best

While in 13, they are protected by the automatic stay from collection actions. They have access to the bankruptcy court to enforce that protection.  The bankruptcy judge is also available to resolve disputes about the allowance of claims or mortgage accounting.

A great recent decision by the 9th Circuit determined that you don’t have to count liens that have passed through a previous bankruptcy as still being an unsecured debt.

Exemptions expand

The value of items protected by exemptions under the bankruptcy code also increased April 1.

This means little to Californians since the federal bankruptcy exemptions aren’t available in California.

Instead, we have the Code of Civil Procedure 703.140 series of exemptions which mimic the federal exemptions.  The dollar amounts of the §703 exemptions are found here.

The Federal Register published the Bankruptcy Code changes of other dollar amounts found in the Code, such as the cap on priority employee wage claims, preference safe harbors, and luxury goods purchases.

Enjoy the increases. They are with us for another three years.

 Image courtesy of geehall2.