March 22, 2022
Expanding Eligibility Requirements for Chapter 13
On March 14th, Senator Charles Grassley (R-Iowa) and Senator Durbin (D-Ill) introduced S. 3823, legislation that would expand the eligibility requirements for Chapter 13. Under the legislation, individuals with debt up to $2,750,000 may now file for Chapter 13.
This is a substantial increase from the current limitation of $1.6 million. The legislation also removes the current distinctions between secured and unsecured debt when determining whether a borrower/debtor can use Chapter 13.
Thus, lenders and other credit providers can expect individuals with much higher debts to seek out Chapter 13. In particular, under the proposed bill, borrowers with much higher unsecured debts can use Chapter 13 and creditors should consider whether systems and underwriting processes should be modified should the bill become law.
The bill also makes permanent the increased debt limit for Subchapter V (small business bankruptcy), which is due to expire on March 27, 2022. As a result, we expect Congress will attempt to pass this bill in the next week to avoid a lapse in the small business provision.