Chapter 13 Relief for High Debt Individuals

With the rise in real estate values across the country and particularly in California, some individuals with high mortgage debt or high unsecured debts from failed business were, until recently, unable to seek Chapter 13 bankruptcy relief. As of April 1, 2022, individuals were not eligible for Chapter 13 bankruptcy relief if they owed more than $465,275 in unsecured debt or more than $1,385,875 in secured debt.

For those individuals that exceeded that limit and had a mountain of debt to overcome, their only option was a Chapter 11. A Chapter 11 costs considerably more in filing fees and attorney fees than a Chapter 13. While I charge between $4,500 and $6,000 for a Chapter 13, an individual's Chapter 11 attorney fees range from $15,000 to $25,000, depending on how long it takes to confirm a plan of reorganization and whether creditors challenge the debtor at various critical stages in the case. Moreover, voting and/or consent requirements in a Chapter 11 may make it impossible to confirm a plan of reorganization when a creditor does not want the case to succeed. A Chapter 13 plan that meets all the requirements of the Bankruptcy Code can be confirmed despite objections from creditors.

The opening of Chapter 13 relief to a wider set of debtors decreases the need for individuals to resort to the more complicated and expensive Chapter 11 cases. Pursuant to the Bankruptcy Threshold Adjustment and Technical Corrections Act, which became law on June 21, 2022, the new debt limit in Chapter 13, for at least the next two years, is $2.75 million in secured and unsecured debts. The new debt limit does not differentiate between secured and unsecured debt and the $2.75 million is the total amount of debt when secured and unsecured debts are added together. This substantial increase will allow for individuals with multiple homes with mortgages or unusually high unsecured debt to avail themselves of Chapter 13 bankruptcy, which was designed specifically for individuals rather than businesses.

If you are a high debt individual that was recently advised that a Chapter 11 would be necessary to address your financial setbacks, you should schedule an appointment to speak with me about the possibility of addressing those setbacks in a Chapter 13.