Changes in the BK Legislation Regarding Debt Limits

June 17, 2022
Changes in the BK Legislation Regarding Debt Limits

Back in April of this year, the US Senate passed a bill that would have restored the Subchapter V (of Chapter 11) Debt Limits to $7.5 million for small businesses proceeding through the process. As an incentive to support this bill, the Chapter 13 debt limits would increase to $2.75 million total (with no separation between secured and unsecured debts). This was popular bipartisan legislation that addressed a problem with debt limits after the CARES Act sunsetted in March of 2022.

That bill stalled but was finally passed in the US House of Representatives by a large margin late on June 7th. The bill will go to President Biden, who is expected to sign it.

This has significant positive consequences for both chapters of bankruptcy. In fact, a number of small businesses filed Subchapter V plans after March that exceeded the reduced debt limits, and we understand the legislation would be retroactive to March and allow those businesses to avoid potentially fatal motions to dismiss.

Debt limits matter because they determine whether a small business (or a consumer debtor) is eligible for the Chapter of bankruptcy they choose. If consumer debtors don’t qualify for Chapter 13 because of debt limits, their only options are Chapters 7 or 11. If small businesses don’t qualify for Subchapter V, they can still proceed under Chapter 11 but have more complex procedures to reorganize. These almost always end up with higher expenses, longer time frames to confirm plans (or dismiss cases that just don’t work out), and other pitfalls.

Chapter 13 and Chapter 11 Subchapter V plans are part of our toolbox at WM Law and we are excited to continue guiding our clients through these processes to reorganize their debts. If you would like more information visit us at: www.kansascitybankruptcy.com or call us at 913-422-0909 for a free consultation. WM Law is here to help.

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