August 15, 2022

Volume XII, Number 227

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August 12, 2022

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Passage of Bankruptcy Threshold Adjustment and Technical Corrections Act

Congress has made some small but important changes to the Bankruptcy Code through its enactment of the Bankruptcy Threshold Adjustment and Technical Corrections Act (the "Act") on June 21, 2022. The most important of these are the increases in the debt limits for debtors under chapter 13 and under the Small Business Reorganization Act (the “SBRA”)—increases that will continue for at least two years.

First, the Act reinstates the debt limit for debtors to qualify under the SBRA (a.k.a. “Subchapter V”) at $7,500,000. When the SBRA was first enacted, the debt limit was set at $2,725,625.  The debt limit increased to $7,500,000 under the CARES Act and the COVID-19 Bankruptcy Relief Act of 2021, but the increase had a sunset provision of March 27, 2022.  After that date, the debt limit reverted to its original amount.  The Act raises the debt limit to $7,500,000 again and makes the increase retroactive to March 27, 2022. The Act sunsets in two years on June 21, 2024.

Second, the Act increases the debt limit for filing chapter 13 bankruptcy cases. Previously, a debtor needed to have under $465,275 in noncontingent, liquidated[1] unsecured debt and under $1,395,875 in noncontingent, liquidated secured debt to file under chapter 13. The Act combines and increases the unsecured and secured limits into one figure. Now, the aggregate debt limit for noncontingent, liquidated debt (both secured and unsecured) is $2,750,000. This increased debt limit sunsets on June 21, 2024, at which time the original debt limits are set to be reimposed.

The Act also makes a few technical corrections to the Bankruptcy Code.  For instance, the Act clarifies that certain debtors who seemed to be prohibited from filing under the SBRA (because they have affiliates that may qualify as “issuers” under the Securities Exchange Act of 1934) may indeed qualify as SBRA debtors. It also makes clear that dollar amounts in the SBRA are to be increased every three years for inflation along with all other dollar amounts in the Bankruptcy Code, along with other minor adjustments.


FOOTNOTES

[1] Generally speaking, a “contingent” debt is one that requires some event to happen before it is owed (e.g., a warranty claim owed only if a covered part fails).  “Noncontingent” debts are those that lack such a requirement.  A “liquidated” debt is one where the amount is known or can be readily determined.  (E.g., the amount owed at any moment under a loan may not be stated in the note, but can be quickly computed by reference to its terms.)

© 2022 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XII, Number 179
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About this Author

Ronald Spinner Bankruptcy Lawyer Miller Canfield
Principal

Ron Spinner brings extensive business experience to his bankruptcy practice, developing results-oriented strategies and breaking new legal ground where necessary to do so.

Indeed, Ron's ability to deal with novel situations helped tremendously in the City of Detroit bankruptcy case, where questions of first impression arose regularly. His ability to navigate the unique aspects of chapter 9 aided (and continues to aid) the City in its recovery.

As another example, Ron represented a creditor who "factored" the debtors' invoices. Courts typically characterize factoring as a "...

313.496.7829
Marc N. Swanson Bankruptcy Attorney Miller, Canfield, Paddock and Stone Detroit, MI
Principal

Marc Swanson is the deputy group leader of the Bankruptcy Group at Miller Canfield. He specializes in representing debtors, lenders, creditors, equity holders and unsecured creditors' committees in bankruptcy cases and related litigation in Michigan and throughout the country. Marc has extensive experience in the municipal, energy, automotive, banking and building supply industries.

Marc is currently the lead attorney for the City of Detroit in its bankruptcy case. In this role, Marc argued and won two bankruptcy appeals at the U.S. 6th Circuit Court of Appeals for the City. One of...

313-496-7591
Jonathan S. Green Attorney Bankruptcy Law Miller Canfield Detroit
Principal

Widely regarded as one of the leading bankruptcy lawyers in Michigan, Jonathan represents clients in debtor-in-possession financings, supply protection negotiations and Chapter 11 restructurings and asset acquisitions.

He has extensive experience in automotive and troubled-supplier restructurings inside and outside of bankruptcy, including the negotiation and documentation of supply protection and lender support agreements. He also has industry expertise in automotive and commercial lending.

313-496-7997
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