S3823: the Bankruptcy Threshold Adjustment and Technical Corrections Act
The Bankruptcy Threshold Adjustment and Technical Corrections Act (aka the Bankruptcy Threshold Adjustment Act or S3823) would make some long overdue adjustments in bankruptcy. The Senate introduced the bill days ago, sponsored by Chuck Grassley, R-Iowa, with co-sponsors Dick Durbin (D-IL), Sheldon Whitehouse (D-RI), and John Cornyn (R-TX), making it a bipartisan bill.
June 2022 Update: The President has signed the BTATCA into law today and it is now law. The new law sunsets two years from today’s date, June 21, 2022 (unless extended or modified). If not extended by 2024, the old numbers (or an adjustment of them) will go back in effect.
Why is the BTATCA needed?
The Senate Bill S3823 is needed because there are limits to who can file a bankruptcy. These limits are too low and keep out deserving debtors. Maybe you’re aware of income limits and a means test to file Chapter 7 bankruptcy. There are other Chapter 13 debts limits. And even more limits to Chapter 11. The BTATCA would increase the limits for two of these chapters, opening the door for more people who need relief.
For example, right now, someone with $500,000 of unsecured debt or with $1.5 million dollars of real estate can’t file Chapter 13. While most people don’t have that much credit card debt, anyone in Southern California who has a second home for rental or investment purposes likely has secured debt over $1,500,000. They are prevented from filing Chapter 13 bankruptcy, even if they have great income and the ability to repay some debt. The Bankruptcy Threshold Adjustment and Technical Corrections Act changes that.
Remember, the BTATCA isn’t law yet. It still needs to pass through the Senate, Congress and be signed by the President. However, given that it’s cosponsored by both Democrats and Republicans, it would seem likely to sail through Congress.
What’s the Bankruptcy Threshold Adjustment Technical Corrections Act Do?
S3823 Increases Chapter 13 Debt Limits
The Bankruptcy Threshold Adjustment Act would make a bunch of changes, but most notable are that it would increase the above Chapter 13 debt limits to a consolidated $2,750,000 debts of all kinds. This proposed $2.75M would almost double the amount of debt someone currently can file Chapter 13 with.
The BTATCA Makes Permanent Chapter 11 Subchapter V Debt Limits
The CARES Act temporarily increased the Subchapter V debt limits to $7,500,000 for small businesses. This provision was to sunset and end shortly and drop back down to a much smaller $2,725,625, almost one-third of the pandemic boost. However, by striking “paragraph 5” of Section 1113(a), Congress would end the sunset the temporary $7.5M debt limits for subchapter V of Chapter 11 becomes permanent.
Bankruptcy Threshold Adjustment and Technical Corrections Act Bill Text
Below is the proposed text for Bankruptcy Threshold Adjustment and Technical Corrections Act:
To amend title 11, United States Code, to modify the eligibility requirements for a debtor under chapter 13, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “Bankruptcy Threshold Adjustment and Technical Corrections Act”.
SEC. 2. BANKRUPTCY AMENDMENTS.
(b) Definition Of Small Business Debtor.—Section 101(51D)(B)(iii) of title 11, United States Code, is amended by striking “an issuer” and all that follows and inserting “a corporation described in clause (ii).”.
(c) Adjustments For Inflation.—
(1) IN GENERAL.—Section 104 of title 11, United States Code, is amended—
(A) in subsection (a), by inserting “1182(1),” after “707(b),”; and
(B) in subsection (b), by inserting “1182(1),” after “707(b),”.
(2) NO ADJUSTMENTS IN 2022.—With respect to the adjustment of dollar amounts required on April 1, 2022, under section 104 of title 11, United States Code, as amended by paragraph (1), the Judicial Conference of the United States shall not adjust the dollar amount in effect under section 109(e) or 1182(1) of title 11, United States Code.
(d) Who May Be A Debtor Under Chapter 13.—Section 109 of title 11, United States Code is amended by striking subsection (e) and inserting the following:
(e) “Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated debts of less than $2,750,000 or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated debts that aggregate less than $2,750,000 may be a debtor under chapter 13 of this title.”
(e) Definition Of Debtor.—Section 1182(1)(B) of title 11, United States Code, is amended—
(1) in clause (i), by inserting “under this title” after “affiliated debtors”; and
(2) in clause (iii), by striking “an issuer” and all that follows and inserting “a corporation described in clause (ii).”.
(f) Trustee.—Section 1183(b)(5) of title 11, United States Code, is amended—
(1) by striking “possession, perform” and inserting “possession—
(2) in subparagraph (A), as so designated—
(A) by striking “, including operating the business of the debtor”; and
(B) by adding “and” at the end; and
(3) by adding at the end the following:
(B) be authorized to operate the business of the debtor;
(g) Confirmation Of Plan.—Section 1191(c) of title 11, United States Code, is amended by striking paragraph (3) and inserting the following:
“(3) (A) The debtor will be able to make all payments under the plan; or
“(B) (i) there is a reasonable likelihood that the debtor will be able to make all payments under the plan; and
“(ii) the plan provides appropriate remedies, which may include the liquidation of nonexempt assets, to protect the holders of claims or interests in the event that the payments are not made.”.
(h) Technical Corrections To The Bankruptcy Administration Improvement Act.—Section 589a of title 28, United States Code is amended—
(1) in subsection (c) by striking “subsection (a)” and inserting “subsections (a) and (f)”; and
(2) in subsection (f)(1)—
(A) in the matter preceding subparagraph (A), by striking “subsections (b) and (c)” and inserting “subsection (b)(5)”; and
(B) in subparagraph (A), by inserting “needed to offset the amount” after “amounts”.
Author: Hale Andrew Antico
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