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.
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.
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.
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.
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.
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.
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.