Cite as: Keith M. Lundin, Lundin On Chapter 13, § 14.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
In cases filed on or after April 1, 2019, the debt limitations for Chapter 13 are (1) noncontingent, liquidated, unsecured debts of less than $419,275 and (2) noncontingent, liquidated, secured debts of less than $1,257,850.1 In cases filed before April 1, 2019, the secured and unsecured debt limitations for Chapter 13 were as follows:
|Between||Secured Debt Limitation||Unsecured Debt Limitation|
|April 1, 2016, and March 31, 2019||$1,184,200||$394,725|
|April 1, 2013, and March 31, 2016||$1,149,525||$383,175|
|April 1, 2010, and March 31, 2013||$1,081,400||$360,475|
|April 1, 2007, and March 31, 2010||$1,010,650||$336,900|
|April 1, 2004, and March 31, 2007||$922,975||$307,675|
|April 1, 2001, and March 31, 2004||$871,550||$290,525|
|April 1, 1998, and March 31, 2001||$807,750||$269,250|
|Oct. 22, 1994, and March 31, 1998||$750,000||$250,000|
|Before October 22, 1994||$250,000||$100,000|
In 1994, Congress amended § 104 of the Code to provide for automatic adjustments in the debt limitations for Chapter 13 eligibility.2 Beginning on April Fool’s Day in 1998 and at three-year intervals thereafter, the dollar amounts in § 109(e) have been adjusted to reflect changes in the Consumer Price Index during the previous three-year period.3 Adjustments in the debt limitations are rounded to the nearest $25 amount.4 The legislative history to the 1994 legislation states this purpose for nearly doubling the debt limitations for Chapter 13: “We encourage greater reliance on Chapter 13 of the Bankruptcy Code—an alternative to liquidation—by making a broader range of debtors eligible to file under that chapter and contribute income under a repayment plan.”5 However, the legislative history of the 1994 amendments also contains a caution with respect to the increase in debt limitations:
Notwithstanding the [debt] increases in chapter 13 cases, the Committee does not intend for debtors to be able to utilize chapter 13 as an office solely to obtain discharge from certain liabilities. For example, it is not contemplated that an individual who committed to [sic] heinous crime would be able in good faith to use chapter 13 solely as a means of discharging a civil obligation owing to a harmed party.6
Applying the statutory debt limits to husbands and wives in joint cases should be straightforward, but it isn’t. 11 U.S.C. § 109(e) states the debt limitations for “an individual with regular income” separately from the debt limitations for “an individual with regular income and such individual’s spouse.” With respect to the latter, the debt limitations are stated this way: “. . . an individual with regular income and such individual’s spouse, . . . that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than . . . and noncontingent, liquidated, secured debts of less than . . . may be a debtor under chapter 13 of this title.”7 Notice that this sentence “aggregate[s]” unsecured debts of spouses for purposes of Chapter 13 eligibility but seems not to aggregate secured debts. Perhaps more importantly, what does “aggregate” mean in this context? Must both spouses “owe” the noncontingent, liquidated, unsecured debt before that debt is properly aggregated and measured against the eligibility limitations—in other words, are only joint debts counted toward the unsecured debt limitation—or are the unsecured debts owed by either (or both) spouses added together to determine Chapter 13 eligibility?
The wording quoted above has appeared in § 109(e) since 1978, but very few cases directly address the counting of debts for eligibility purposes in husband-wife cases. Perhaps the first published case to tackle the issue, In re Werts,8 held that the separate unsecured debts of spouses are not aggregated for § 109(e) purposes. In Werts each of the married debtors in a joint case9 was liable for unsecured debts that totaled less than the statutory limit at the time, $336,900. But if added together for purposes of § 109(e), the combined total of unsecured debts exceeded the statutory limit and both debtors would have been ineligible. The bankruptcy court found no useful precedent, and then fashioned this explanation for allowing the married debtors access to a joint Chapter 13 case:
In general, filing a Chapter 13, instead of proceeding under Chapter 7, is viewed favorably by Congress, and many statutory provisions reflect that policy choice. To read § 109(e) . . . [to] only allow married debtors half of the debt limits allowed for individual debtors, would clearly not further the goal of encouraging Chapter 13 filings.
The Court finds that a more reasonable reading of the statute, and one that furthers the goal of encouraging Chapter 13 filings, is that the provision dealing with “an individual with regular income and such individual’s spouse” is intended to apply in those cases where the spouse could not otherwise be a Chapter 13 debtor, because he or she is not “an individual with regular income.” If each spouse has regular income, and each spouse separately qualifies under the debt limits of § 109(e), then each spouse should be entitled to file his or her own Chapter 13 case—even if the debts of both spouses together would exceed the debt limits.
If a husband and wife can each file separate Chapter 13 proceedings, where their own individual debt is within the § 109(e) limits, the Court can think of no reason why a husband and wife could not file a joint petition, as authorized by § 302(b). . . . To read § 109(e) in a manner that would allow married debtors to each file their own Chapter 13 cases, but forbid them from doing so jointly, is counterintuitive in light of § 302 and would elevate form over substance. Because the separate estates in this case have never been substantively consolidated, Debtors in this case could seek to bifurcate their current joint case and proceed as two separate cases, each under Chapter 13. That said, the Court sees no reason to read § 109(e) in a manner that would require them to waste their resources and judicial resources jumping through such hoops if there would be no benefit to anyone in doing so.10
In contrast, in In re Miller,11 “aggregate” unsecured debt for Mr. and Mrs. Miller was $481,105—in excess of the applicable § 109(a) limitation ($360,475). But of that amount, only $178,800 was joint debt—the balance was owed separately by one or the other of the Millers. Robert Miller’s unsecured debt separately totaled $341,305; Gwendolyn Miller’s total was $318,250. Both would be eligible for Chapter 13 if the math was done separately.
The bankruptcy court in Miller rejected Werts, explaining that plain language trumps the policy arguments accepted in Werts:
The problem with the Werts approach is that it rests on policy judgments rather than on an analysis of the statutory language. Werts suggests that barring joint debtors who would be eligible for chapter 13 if considered as individuals would not further “the [congressional] goal of encouraging Chapter 13 filings” rather than filings under chapter 7. . . . But Werts never explains how section 109(e) can be interpreted to permit a joint case even though the aggregate debt limit is exceeded, as long as each debtor would be separately eligible to file an individual case. . . .
Courts faced with a clear statutory command may not begin by deciding that some other way of doing things would be “more reasonable” . . . . [T]here is no getting around that the subject in the relevant part of section 109(e) is plural (“individual . . . and such individual’s spouse”), and the amounts these plural debtors may “owe” in the “aggregate” and still file a chapter 13 case are the same as the amounts for an individual debtor. As a grammatical matter, no other meaning is possible.
. . . .
Since a joint case is treated as one case, the debtors’ separate estates notwithstanding, . . . Congress could reasonably have decided to create a single debt limit for all chapter 13 cases, whether individual or joint. Below that limit, any case can be filed under chapter 13; above it, every case must be filed under chapter 11.12
It is hard not to like both sides of this debate. The Werts line of cases leaves no meaningful role for “aggregate” in § 109(e) in joint cases. On the other hand, forcing married debtors to file two cases when separate debts aggregate too robustly makes no obvious good sense. Courts are likely to pick sides in this debate based on differing views of the judicial role in statutory interpretation.
The precise debt limitations in § 109(e) are the principal gatekeepers for access to Chapter 13—when a debtor’s secured or unsecured debts exceed the amounts in § 109(e), the debtor is not eligible and the Chapter 13 case must be dismissed or converted to another chapter.13 Courts have recognized that the debt limitations are a legitimate exercise of Congress’s right to manage access to different chapters of the Bankruptcy Code and have rejected constitutional challenges to the numbers Congress chooses to use.14 “Noncontingent”15 and “liquidated”16 are terms of art that have generated much conflicting judicial interpretation. The technicalities of debt counting for eligibility purposes have produced much conflicting case law.17 Clever debtors have shoehorned into Chapter 13 with contingent or unliquidated debts within pennies of the statutory limits.18 Not so clever debtors and their attorneys have gotten into much trouble for disrespecting the debt limits.19 Creditors have successfully dismissed Chapter 13 cases in which reclassification of debts as secured or unsecured shifted the numbers beyond the limits of § 109(e).20 Taxes and other priority claims typically are counted as unsecured debts for eligibility purposes.21 Disputed debts are counted at the eligibility stage unless the dispute renders the debt contingent or unliquidated.22 Prefiling planning by debtor’s counsel may bring the debtor within the debt limitations.23
1 11 U.S.C. § 109(e).
2 See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 108(e), 108 Stat. 4106 (1994).
3 11 U.S.C. § 104(b)(1), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 108(e), 108 Stat. 4106 (1994).
4 11 U.S.C. § 104(b)(1)(B), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 108(e), 108 Stat. 4106 (1994).
5 140 Cong. Rec. H10,772 (daily ed. Oct. 4, 1994) (statement by Congressman Fish). See also 140 Cong. Rec. at H10,765 (“These changes should help encourage individual debtors to elect Chapter 13 repayment over Chapter 7 liquidation. Creditors generally benefit when a debtor elects Chapter 13.”) (section-by-section analysis by Congressman Brooks).
6 140 Cong. Rec. at H10,765 (section-by-section analysis by Congressman Brooks). See discussion of good faith in § 105.1 Prepetition Conduct and Misconduct—In General and § 106.2 Criminal Misconduct. See also the exceptions to discharge discussed in § 158.1 Alimony, Maintenance or Support, § 158.2 Student Loans, § 158.3 Driving while Intoxicated, § 158.4 Criminal Restitution and Criminal Fines, § 159.1 Taxes, § 159.2 False Representations and Fraud: § 523(a)(2), § 159.3 Fraud and Defalcation: § 523(a)(4), § 159.4 Unscheduled Creditors: § 523(a)(3), § 159.5 Domestic Support Obligations: § 523(a)(5), § 159.6 Student Loans: § 523(a)(8), § 159.7 Willful or Malicious Injury: § 1328(a)(4) and § 159.8 Boating or Flying while Intoxicated: § 523(a)(9).
7 11 U.S.C. § 109(e).
8 410 B.R. 677 (Bankr. D. Kan. Aug. 19, 2009) (Karlin).
9 The husband and wife debtors in Werts originally filed under Chapter 7 and were before the court to determine whether the debtors were eligible to convert to Chapter 13.
10 In re Werts, 410 B.R. at 688–89 (footnotes omitted). Accord In re Jirak, No. 11-01510, 2011 WL 5325431, at *1 (Bankr. N.D. Iowa Nov. 3, 2011) (Kilburg) (“If the joint debtors’ relevant individual debt exceeds that limit, they are not eligible for Chapter 13 relief.” In re Werts, 410 B.R. 677, 688 [(Bankr. D. Kan. Aug. 19, 2009) (Karlin).]”); In re Hannon, 455 B.R. 814 (Bankr. S.D. Fla. Aug. 4, 2011) (Olson) (Joint Chapter 13 debtors with combined debts exceeding statutory limits may still be eligible if each debtor’s individual debts are within limits; however, each debtor here individually exceeded unsecured debt limit.); In re Bosco, No. 10-08006-8-JRL, 2010 WL 4668595, at *1 (Bankr. E.D.N.C. Nov. 9, 2010) (Leonard) (To determine eligibility under § 109(e) in a joint case, debt limits are calculated individually, and each spouse can be eligible notwithstanding that debts of spouses together would exceed eligibility limitations. “In determining eligibility for filing chapter 13, § 109(e) allows individuals with regular income to have noncontingent, liquidated, unsecured debts of up to $360,475.00. 11 U.S.C. § 109(e). For joint debtors, the debt limits apply individually. So long as each spouse qualifies separately under the limits, they are eligible to file jointly even if the debts of both spouses together would exceed the limits. . . . This reading of § 109(e) comports with the goal of encouraging chapter 13 filings as opposed to allowing married debtors half of the debt limits allowed for individual debtors.”).
11 493 B.R. 55 (Bankr. N.D. Ill. May 21, 2013) (Goldgar).
12 In re Miller, 493 B.R. at 58–61.
13 See, e.g., Dillon v. Texas Comm’n on Envtl. Quality (In re Dillon), 138 F. App’x 609 (5th Cir. May 23, 2005) (Davis, Smith, Dennis) (Debtor not eligible because claim of Texas Commission on Environmental Quality exceeds $290,925.); In re Long, No. 8:10CV250, 2010 WL 4790902 (D. Neb. Nov. 18, 2010) (unpublished) (Bataillon) (Debtor exceeding unsecured debt limit was ineligible for Chapter 13 relief and was not entitled to automatic stay or to stay pending appeal.); In re Bouley, No. 11-1682, 2011 WL 4458928 (Bankr. D. Haw. Sept. 23, 2011) (Faris) (Debtor was ineligible when claim secured by residence was scheduled in excess of $6 million.); In re Farris, No. 02-20785 A13G, 2006 WL 3804669 (Bankr. E.D. Cal. Dec. 22, 2006) (unpublished) (McManus) (Reconversion based in part on ineligibility; schedules revealed debts exceeding unsecured limit.); Nelson v. Meyer (In re Nelson), No. 05-10660, 2006 WL 2091899 (Bankr. N.D. Cal. July 26, 2006) (unpublished) (Jaroslovsky) (Debtor with scheduled unsecured debts of $324,832 is not eligible.); In re Marrama, 345 B.R. 458 (Bankr. D. Mass. July 14, 2006) (Hillman) (Debtor is ineligible based on unsecured debts listed in pending Chapter 7 case in excess of $733,844.).
14 See, e.g., In re Cannon, No. 13-24366, 2013 WL 6499304 (Bankr. D. Utah Dec. 11, 2013) (Thurman) (Dollar debt limitation in § 109(e) does not arbitrarily deprive debtor of right to proceed under Chapter 13 and does not violate substantive due process rights.), aff’d, No. 2:13-CV-01044, 2014 WL 5392990 (D. Utah Oct. 23, 2014) (Shelby).
15 See § 15.1 What Is Noncontingent Debt?, § 15.2 Is Partnership Debt Contingent?, § 15.3 Are Guaranties Contingent?, § 15.4 Are Contract Debts Contingent?, § 15.5 Is Tort Liability Contingent?, § 15.6 Are Claims through and against Debtor’s Corporation Contingent? and § 15.7 Are Prebankruptcy Judgments Contingent?.
18 See, e.g., Johnson v. Stemple (In re Stemple), 361 B.R. 778 (Bankr. E.D. Va. Feb. 14, 2007) (St. John) (Noncontingent, liquidated, unsecured debt at filing was $294,304.50, and debtor was eligible; further hearing required on § 1330 complaint to determine whether debtor committed perjury as to a particular debt.).
19 See, e.g., In re Bouley, No. 11-1682, 2011 WL 4458928 (Bankr. D. Haw. Sept. 23, 2011) (Faris) (When debtor scheduled secured debt in excess of $6 million, debtor and attorney violated Rule 9011 by filing Chapter 13 petition. Petition lacked legal merit and was filed for improper purpose of blocking foreclosure. Attorney was ordered to disgorge $3,200 fee and to pay same amount to homeowners’ association that moved for dismissal of case.).
20 See § 14.4 Are Claims Split under 11 U.S.C. § 506(a)?. See, e.g., In re Schwartz, No. 05-90610, 2006 WL 1367440 (Bankr. C.D. Ill. May 17, 2006) (unpublished) (Fines) (Proof of claim for $509,661.89 does not render debtor ineligible because creditor filed secured claim and the amount cannot be added to unsecured debts for § 109(e) purposes.); In re Reyes Ramos, No. 04-90168 GAC, 2006 WL 3898377 (Bankr. D.P.R. Jan. 13, 2006) (unpublished) (Carlo) (Motion to dismiss for exceeding debt limits held in abeyance pending outcome of adversary proceeding contesting validity of second and third mortgages.).
22 See § 17.1 Disputed Debts.