If you live in New York and wanted to restructure your debt through Chapters 11 or 13 bankruptcy, the Corrections Act has, at least temporarily, lifted one of your roadblocks.

The Challenge of Debt Limits

When it comes to both personal and small business bankruptcy, the options are complete liquidation (Chapter 7) or restructuring your debt (Chapters 11 and 13). The challenge with restructuring is that there are debt limitations imposed.

Up until June 21, 2022, individuals with unsecured debts over $465,275.00 and secured debts of over $1,395,875 were ineligible to declare Chapter 13. In expensive real estate markets like the New York metropolitan area, not to mention student loans, business debt, medical debt, and taxes, these limits were easily exceeded.

For small businesses that wanted to restructure under Subchapter V of Chapter 11, the debt limit was $2,725,625.

If you owed more than the debt limitations allowed, you had to declare Chapter 7 and liquidate everything.

What is the Corrections Act?

On June 21, 2022, the Bankruptcy Threshold Adjustment and Technical Corrections Act (the “Corrections Act”) was signed by President Biden. Triggered by the concern that, with skyrocketing inflation and a looming economic recession, both individuals and small businesses would be struggling, this bipartisan bill was enacted to help those needing time and space to restructure.

How Does This Effect Chapter 13 Bankruptcy?

The Corrections Act raised the debt limits for Chapter 13 bankruptcy up to $2,750,000 (secured and unsecured debt combined).  

Chapter 13 bankruptcy has become a go-to case for individuals dealing with foreclosure, high amounts of debt, and more challenging situations. With historically high inflation, increasing interest rates, concerns about bank safety, and increasing home prices, this change in the law will allow more homeowners in distress and troubled consumers to seek bankruptcy relief under a more manageable Chapter 13 case.

Learn more about Chapter 13 here.

How Does This Effect Chapter 11 Bankruptcy?

During the COVID pandemic, the Small Business Reorganization Act (SBRA) raised the debt limit for Subchapter V of Chapter 11 from $2,725,625 to $7.5 million. Unfortunately, it was a temporary measure that expired on March 27, 2022.

The Corrections Act returned the debt limit back to $7.5 million.

Learn more about Subchapter V of Chapter 11 here.

Who Benefits From These Changes?

• Individuals –
  • New York home prices are some of the highest in the nation. If you debt is primarily mortgage based, the new limits of the Corrections Act takes into account your higher debt and allows you to restructure your loans instead of going into full blown, Chapter 7 bankruptcy.
• Small Businesses –
  • The pandemic, supply chain issues, rampant inflation, staffing shortages, a pending recession – all have left small business owners struggling. By almost doubling the debt limit for Subchapter V of Chapter 11 restructuring, the Corrections Act give you more time and space to get your debts under control and keep your business going.
• Both –
  • Without this almost doubling of the debt limit, many small businesses and individuals with high debts would have to have gone through standard Chapter 11 filings, which are far more complex and expensive than the Chapter 13 or Subchapter V process.

Are These Changes Permanent?

Currently, the Corrections Act is set to expire on June 21, 2024. However, due to the Act’s popularity with both Republicans and Democrats in both the House (with an overwhelmingly bipartisan vote of 392-21) and Senate, there is a very good chance the Corrections Act will either be extended or made permanent.

What to Do Next

There are multiple procedures available when it comes to bankruptcy, and it is easy to get confused and overwhelmed. If you’d like to talk directly to a compassionate, knowledgeable, human being, reach out to New York bankruptcy attorney Ronald Weiss for a free consultation. He can tell you which type of bankruptcy is right for you, and help you get the process started. Call 631-271-3737 and take the first step to a fresh start.