§ 17.3     Joint Obligations of Spouses and Codebtors; Collateral That Is Not Property of the Estate
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 17.3, at ¶ ____, LundinOnChapter13.com (last visited __________).

A debt is counted in full toward the Chapter 13 debt limitations1 although there are co-obligors liable with the debtor. The debtor cannot apportion a debt among codebtors to reduce the amount of debt unless state law would limit the debtor’s liability to some portion less than the whole debt.2 When only one spouse files, or when spouses file separate individual cases, the full amount of joint debts must be included in each filing spouse’s eligibility calculation.3 As discussed above,4 a debt owed by a partnership is scheduled in full in each general partner’s Chapter 13 case even though all partners are jointly and severally liable; however, partnership debt may be contingent and thus excluded for purposes of determining eligibility of an individual partner.


There is important controversy with respect to debt counting for eligibility purposes when spouses are not jointly liable for all debts.5 The debt limitation gatekeeper in the Bankruptcy Code, 11 U.S.C. § 109(e), is oddly worded with respect to debt counting and spouses:

Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $394,725 and noncontingent, liquidated, secured debts of less than $1,184,200, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $394,725 and noncontingent, liquidated, secured debts of less than $1,184,200 may be a debtor under chapter 13 of this title.6

There are several possible ways to read this section, and the different readings will produce different eligibility decisions on the same facts. Start with the notion that, in its ordinary dictionary meaning, “aggregate” means “total; combined. . . . to bring together; collect into one sum.”7


The section could be read to always measure the debt limits for married debtors based on the sum of debts for which either spouse is liable—without regard to whether one or both spouses have filed a petition in bankruptcy. For example,8 imagine that the debtor owes a $500,000 unsecured debt which is not a personal obligation of the debtor’s spouse. By this reading, neither individual would be eligible for Chapter 13 because both spouses would have “aggregate” unsecured debts greater than $394,725. By this reading, if a debtor owes $250,000 of unsecured debt individually and that debtor’s spouse owes a separate different unsecured debt of $250,000, neither the debtor nor the debtor’s spouse is eligible because “aggregate” unsecured debts exceed $394,725 for each—without regard to whether the spouses file a joint case or each spouse files a separate individual case or only one spouse files bankruptcy.


Another take on § 109(e) would insert an unspoken condition that aggregation of debts does not apply when only one spouse files. In the first example above, if the spouse’s separate unsecured debts are less than $394,725, the spouse would be eligible in an individual case notwithstanding that the debtor would not. In the second example, both spouses would be eligible to file separate individual cases.


A third reading would aggregate the debts of spouses for eligibility purposes only when the spouses file a joint case—that is, only when an individual with regular income and that individual’s spouse seek to be debtors in a joint case. This reading adds the word “joint” to the statute where it isn’t apparent and pluralizes “debtor” when it conspicuously isn’t,9 but it is not illogical in this sense: if spouses could file separate cases and each be eligible because aggregation of debts would not apply, why would those same spouses be penalized with ineligibility based on the simple expedient of saving a second filing fee by filing a joint case? In other words, spouses’ cases should be evaluated for eligibility purposes based only on debt for which one spouse or the other is individually (or jointly) liable without regard to separate debt for which only the other spouse is liable and without regard to whether the spouses file separately or jointly. There is logic to this view, but not a lot of statutory support.


There is a fourth reading. Aggregation of debts perhaps applies only to debts for which the spouses are jointly liable whether they file separately or jointly or only one spouse files. This makes “aggregate” an odd condition—redundant of the liability precondition to debt counting inherent in the notion of “debt” for bankruptcy purposes. Curiously, this fourth reading has its followers.


There is an ugly question—or is it an ugly answer—buried here: does a spouse ineligible for Chapter 13 because of debt limitations drag his or her “innocent” spouse into the world of ineligibility without regard to whether one or both file, in or out of a joint case? The cases discussed below take both sides of this question/answer, sometimes without focus on the implications.


A preliminary question not answered easily is whether aggregation in § 109(e) applies to both secured and unsecured debts or only to unsecured debts. Notice that the section is not symmetrical: § 109(e) speaks of “unsecured debts that aggregate less than . . . ” but then says “secured debts of less than . . . .” Does “aggregate” apply to both secured and unsecured debt? If not, why is secured debt in the same amount listed twice in § 109(e)? Could Congress have meant to use only aggregate unsecured debt as a limit on Chapter 13 eligibility for married debtors? Arguably in dicta, one court addressed some of these questions and concluded that the word “aggregate” in § 109(e) applies only to unsecured debt.10


How do the magic words “noncontingent”11 and “liquidated”12 work in this calculus? Imagine a debt that is contingent or unliquidated with respect to one spouse and neither contingent nor unliquidated with respect to the other spouse. Counted or not in each spouse’s case? Arguably, if a debt would be counted with respect to either spouse, some readings of § 109(e) would aggregate that debt for both whether in an individual or a joint Chapter 13 case. Different readings of § 109(e) would count the debt only in a case for the spouse with respect to which the debt is neither contingent nor unliquidated.


At this writing, there are at least eight cases addressing § 109(e) debt counting for spouses who don’t share all the same liabilities. Six of these cases, on one theory or another, conclude that § 109(e) does not mean what it says and separate debts of one spouse are not counted toward the debt limits for the other spouse, at least in a joint case. Two reported cases explain why the other six are wrongly decided, but unplugged holes remain all around.


The ringleader for the Gang of Six is In re Werts.13 At the petition in Werts, Mr. Werts had unsecured debts for which only he was liable totaling $161,977. Mrs. Werts had separate unsecured debts totaling $100,913. In addition, the Wertses were jointly liable for the unsecured portion of a mortgage in the amount of $134,760. The unsecured debt limitation for Chapter 13 at the time was $336,900.14


If analyzed separately, Mr. and Mrs. Werts were each eligible: Mr. Werts had noncontingent, liquidated unsecured debt of $296,737; Mrs. Werts had noncontingent, liquidated unsecured debt of $235,673. But if debts for which only one spouse was liable were “aggregated” with joint debt, the total would be $397,650 for each of the Wertses and both Wertses were ineligible for Chapter 13. Rejecting the trustee’s argument for ineligibility, the bankruptcy court in Werts found good policy reasons to read §§ 109(e) and 302 to allow both Mr. and Mrs. Werts access to Chapter 13:

The Court finds that the statute in question does not mandate that married persons combine their unsecured debt (regardless which spouse has personal liability for that debt) for purposes of the debt limits in § 109(e). Rather, § 109(e) provides for two groups of people who can be Chapter 13 debtors. The first of these groups includes individuals with regular income who meet the debt limits. If an individual has regular income, and that individual’s debts are below the limits established by § 109(e), then that individual qualifies to be a Chapter 13 debtor.
The second group provided for under § 109(e) includes individuals with regular income and their spouse, provided their aggregate debts do not exceed the debt limits. This additional provision is necessary to avoid situations where married couples would prefer to file a joint Chapter 13 proceeding, but only one spouse has regular income. Without specifically including the spouse of an individual with regular income in § 109(e), single income couples could be precluded from filing a joint Chapter 13 case because the spouse without regular income would not qualify.
. . . .
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.15

This logic answers a different question than the one asked in Werts. There is controversy about the eligibility of spouses when only one spouse has “regular income.”16 Werts addresses that issue cogently from statutory interpretation, but it appears that each spouse in Werts would satisfy the regular income requirement for eligibility. What the Werts decision does not explain is what happened to the word “aggregate” with respect to debt counting when each spouse had separate debts that combine to exceed the dollar amounts in § 109(e). Any congressional intent with respect to the eligibility of married couples when only one spouse has regular income does not necessarily resolve the policy implications of aggregating (or not) the separate debts of spouses. In fact, two-breadwinner families are more likely to contain spouses with different debt structures. Aggregation of not-joint debt creates a sort of marriage penalty as Werts points out, but the policy discussed by Werts does not explain why “aggregate debt” is the counting method stated in § 109(e).


Next in line, In re Butler17 featured joint Chapter 13 debtors asking the bankruptcy court to “sever” their joint case in anticipation of a trustee’s motion to dismiss for ineligibility. The debtors conceded that their “aggregate debt” exceeded the debt limitations in § 109(e). The slip opinion does not reveal exactly what those debts were or how they divided between the debtors, but the decision recites that, if permitted to sever the joint case, Mrs. Butler intended to convert her case to Chapter 7 and, “to the extent Mr. Butler independently meets the eligibility requirements of Chapter 13, he ought not be compelled to follow Mrs. Butler into Chapter 7 simply because the debtors initially sought relief jointly.”18


There is no analysis of the counting issue in Butler, but it is fair to say the court did not believe that the concession “aggregate debt exceeds the debt limitations of § 109(e)” was fatal to Mr. Butler’s separate eligibility for Chapter 13. It can only be surmised that the underlying assumption was that only joint cases required debt aggregation—or at least that severing the joint cases relieved Mr. Butler of his concession for some other reason.


A few months after Butler, the Bankruptcy Court for the Eastern District of North Carolina adopted Werts in In re Bosco.19 Once again, without discussion of the actual words in § 109(e), Bankruptcy Judge (now, Dean) Leonard has this to say about counting debts for spouses:

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. In re Werts, 410 B.R. 677, 688 (Bankr.D.Kan.2009). 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. . . . The debtors testified that they have made efforts to keep the majority of their unsecured debts separate and share joint liability on only two unsecured debts . . . . The female debtor has $301,411.00 in unsecured claims. . . . The male debtor has unsecured debts totaling $194,388.57 . . . . [T]he court finds both debtors are not in violation of the unsecured debt limits of § 109(e).20

Mr. Bosco thus had unsecured debts totaling $194,388.57. Mrs. Bosco had unsecured claims totaling $301,411. The majority of their unsecured debts were separate. The unsecured debt limitation in § 109(e) at the time was $360,475. The opinion does not reveal precisely how much debt was joint debt, but the implication is that “aggregation” would render one or both Boscos ineligible. The court found otherwise.


Next in line with a bit more analysis is In re Scholz.21 Again citing Werts and after review of a chart showing which debts were joint and which not, the bankruptcy court found Mr. Scholz eligible with unsecured debt of $347,413.14 and Mrs. Scholz eligible with unsecured debt of $269,453.90. Though not altogether clear from the opinion, it is likely that at least Mr. Scholz would have exceeded the $360,475 unsecured debt limit if Mrs. Scholz’s separate unsecured debt was aggregated with his debt. The bankruptcy court explained its outcome with emphasis on the effect of § 302:

The Debtors’ estates are being administered as a consolidated estate pursuant to 11 U.S.C. Section 302(b) and Federal Rule of Bankruptcy Procedure 1015(b). . . . 
. . . .
. . . Section 302(a) sets forth each person who files a joint petition is an “individual”; a husband and wife who jointly file are not treated as a single person or entity. The plain and unambiguous language of Section 302(b) sets forth each filer creates a separate estate and the estates may be administered jointly.
The language of Section 109(e) similarly recognizes petition filers as individuals. It sets forth debt ceilings for “an individual” “debtor.” These nouns are singular, not plural. Each person who files a petition must individually meet the Section 109(e) eligibility requirements. In re Werts, 410 B.R. 677, 688 (Bankr.D.Kan.2009) . . . . 
It would be inconsistent with the plain meaning of the language of Sections 302(a), 302(b), and 109(e) to treat joint filers as a consolidated entity, whose debts taken together may not exceed the Section 109(e) ceilings, rather than two separate individuals who must separately each qualify as a debtor pursuant to Section 109(e).22

Citing Scholz, Werts and Bosco, the bankruptcy court in In re Hannon23 accepted the notion that eligibility for Chapter 13 for spouses should be determined one debtor at a time without regard to the separate debts of the other spouse: “If married debtors are each eligible to file individual Chapter 13 petitions, they may file a joint Chapter 13 petition notwithstanding a combined debt total which exceeds § 109(e) limits.”24


But after doing the math, both debtors in Hannon were ineligible. Put another way, after adding joint debt to the separate debt of each spouse, both had unsecured debts in excess of the § 109(e) limitation.


This outcome seems correct on the facts in Hannon, but it is not obvious what relevance Scholz, Werts or Bosco has to these facts. Ineligibility in Hannon was determined based on the separate debts of each spouse. Eligibility or ineligibility in Scholz, Werts and Bosco turned on whether the separate debts of each spouse would be aggregated with the separate and joint debts of the other spouse to do the math required by § 109(e).


First in opposition to the Werts line of cases, In re Miller25 gives good reasons to resist the strength of numbers. In Miller, the joint petition showed $178,800 of unsecured debt owed jointly by both spouses, $161,555 of unsecured debt owed only by one spouse and $139,100 of unsecured debt owed only by the other spouse. The unsecured debt limit at the time was $360,475. Adding joint debt to the separate individual debts produced eligibility for both: one spouse had total unsecured debt of $341,305; the other spouse had total unsecured debt of $318,250.26 But if “aggregate” in § 109(e) means “added” or “combined,” the total unsecured debt for the Millers turned out to be $481,105—rendering both debtors ineligible. The Millers argued against this outcome, citing Werts. Judge Goldgar explained that Werts and its kin were wrong-headed:

Under [§ 109(e)], a debtor who files an individual case and debtors who file a joint case are subject to the same debt limits. . . . Section 109(e) expressly treats the debts of joint debtors in the “aggregate,” . . . not as the separate debts of separate debtors separately subject to the debt limits. . . . 
. . . Section 109(e) is plain on its face and subjects joint debtors to debt limits identical to the debt limits for an individual debtor. . . . 
The problem with the Werts approach is that it rests on policy judgments rather than on an analysis of the statutory language. . . . 
. . . 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” and then “read” the statute to do them that way. Congress decides what makes for a reasonable bankruptcy system . . . .27

With respect to Scholz and the argument from § 302, Miller had this to say:

Scholz fails to confront the critical phrase in section 109(e): only “an individual . . . and such individual’s spouse . . . that owe” debts that “aggregate” less than the specified amounts are eligible for chapter 13. . . . Scholz fails to explain how this phrase can be read to impose anything other than a single debt limit for joint debtors. Certainly, the words “individual” and “debtor” are singular (although section 102(7) of the Code instructs that “the singular includes the plural,” 11 U.S.C. § 102(7)). But there is no getting around that the subject in the relevant part of section 109(e) is plural . . . 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.
. . . .
. . . A single debt limit for joint debtors is in no way inconsistent with the filing of cases by “individuals” under section 302(a) or the concept of separate estates under section 302(b).
. . . .
. . . 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. Indeed, it would have made little sense to compel an individual debtor with $360,476 in unsecured debt (a $1 more than the debt limit in section 109(e)) to file under chapter 11 but allow joint debtors with nearly twice that much debt to proceed under chapter 13.28

Finally, there is In re Pete.29 Embracing Miller and rejecting the Werts line of cases, Bankruptcy Judge Sacca holds, “The language of section 109(e) is clear: a debtor who files an individual case and debtors who file a joint case are subject to the same unsecured debt limits. An ‘individual’ can be a chapter 13 debtor if he owes unsecured debts less than $383,175. . . . An ‘individual . . . and such individual’s spouse’ can be debtors if they owe, in the aggregate, unsecured debts less than that exact same amount.”30


Pete was a joint Chapter 13 case. The unsecured debt attributable solely to Mr. Pete was $225,000. The unsecured debt attributable solely to Mrs. Pete was $150,000. In addition, there was $60,000 of unsecured debt owed jointly. As a result, Mr. Pete’s total unsecured debt was $285,000; Mrs. Pete’s total unsecured debt was $250,000. Aggregate unsecured debt of Mr. and Mrs. Pete was $475,00031—in excess of the unsecured debt limitation in § 109(e). The bankruptcy court found that the Petes were not eligible in a joint Chapter 13 case but left open the possibility that the Petes would each be eligible in separate Chapter 13 cases:

[N]othing in the statute or the legislative history supports an interpretation that the aggregation of the unsecured debts of the couple in the joint case only applies to the situation where only one spouse has regular income. That interpretation could create the situation where two spouses with regular income could have up to twice as much unsecured debt in a chapter 13 case as other joint debtors who have only one spouse with regular income. . . . [S]ection 109(e) does not concern itself with the consolidation of estates, but rather the amount of unsecured debt Congress deemed appropriate to be administered in a chapter 13 case. . . . This Court simply cannot ignore the placing of the word “aggregate” in section 109(e) in connection with the unsecured debt limit for the purposes of eligibility for joint debtors . . . . Werts and Scholz do not explain how this phrase can be read to mean anything other than there is a single unsecured debt limit for joint debtors as opposed to a separate, or individual, unsecured debt limit for each debtor. . . . Because the Petes’ aggregate unsecured debt exceeds $383,175, they are not eligible to be debtors in a joint chapter 13 case, regardless of their eligibility to file individual chapter 13 cases. . . . The Pete’s [sic] will have . . . to file a motion to convert their case to another chapter or file appropriate papers or pleadings to proceed in separate chapter 13 cases.32

The Pete decision is clear that aggregation of unsecured debt under § 109(e) only occurs in a joint Chapter 13 case. In other words, spouses with aggregate, unsecured debt that exceeds the limits in § 109(e) can avoid the § 109(e) debt limitation by filing separate individual Chapter 13 cases so long as each individual would not exceed the unsecured debt limitation based on separate and joint unsecured debts only. Neither Pete nor Miller on which it relies addresses the absence of any reference to “joint case” in § 109(e). If the debt limitations in § 109(e) are the same for spouses in an individual or a joint case—as the Pete decision states—then why would the Petes be eligible in separate individual cases?


None of the reported cases discussed above involved a nonfiling spouse. In other words, none of the cases discusses debt counting for eligibility purposes when one spouse files with personal liabilities that fall inside the debt limits of § 109(e), but a nonfiling spouse has separate liabilities that would render the filing spouse ineligible if added (aggregated) to the filing spouse’s debts.


It has been held that joint debts owed by a husband and wife for which one spouse has provided the collateral are secured debts of both spouses in the eligibility counting.33 If one spouse files and collateral has been provided but is separately owned by the nonfiling spouse, it can be argued that the debt is not a secured debt because it would not be a secured claim under § 506(a).34 This argument may be especially persuasive in a jurisdiction that permits the splitting of claims under § 506(a) at the eligibility stage of Chapter 13 cases.35 In such a jurisdiction, if the estate has no interest in the nonfiling spouse’s collateral, the claim would be unsecured under § 506(a) and unsecured for eligibility purposes. One reported decision rejects this outcome based on a finding that the filing spouse’s statutory right of dower became property of the Chapter 13 estate, and thus a debt secured by the nonfiling spouse’s real property is at least partially secured—to the extent of the value of the filing spouse’s dower interest.36 Based on the rationale of Johnson v. Home State Bank that a nonrecourse mortgage remains a debt in bankruptcy, the Sixth Circuit in Glance v. Carroll (In re Glance)37 held that a nonrecourse mortgage secured by jointly owned real estate is counted as secured debt for eligibility purposes when only one spouse files Chapter 13. None of these cases addresses the question raised above whether “aggregate” in § 109(e) applies to secured debt in the first instance.


Some courts have read § 109(e) to include as secured debt an obligation secured by property that is not property of the Chapter 13 estate. In In re Belknap,38 a prepetition marital settlement agreement required the debtor to pay his former spouse $90,000, and $60,000 of that obligation was secured by a mortgage on property owned by a corporation that was a debtor in a separate Chapter 11 case. Because § 109(e) uses the word “debt” instead of “claim,” the bankruptcy court found that the $60,000 portion was counted toward the secured debt limitation. The court explained:

The Bankruptcy Code contains no definition of secured debt. Had Congress wished to use ownership of collateral as a standard for Chapter 13 eligibility, it could have drafted section 109(e) to reference “secured claim” as a defined term. Rather, it chose different language, to which this Court must assign its natural and obvious meaning. A secured debt is simply a debt which is secured by property. . . . Accordingly, for purposes of determining eligibility for Chapter 13, a secured debt would include obligations that are secured only by assets other than those of the debtor’s estate.39

On slightly different logic, another court found a secured debt for eligibility purposes notwithstanding that the collateral was owned by a corporation. In Branch Banking & Trust Co. v. Russell,40 the debtors owned all of the stock of a corporation. The assets of that corporation were pledged to a bank to secure a loan to the debtors. Citing § 506(a), the court found that the bank’s debt was secured for eligibility purposes, reasoning as follows:

The court agrees with [the bank] that the term “secured debt” should be defined with reference to “the extent of the value of such creditor’s interest in the estate’s interest [in the property securing the lien].” . . . The court disagrees with [the bank], however, with regard to whether the [debtors] have an “interest” in the collateral. Since Charter is a wholly-owned corporation of the [debtors], the court finds that the [debtors] have an interest in Charter’s assets. The debt, therefore, is secured.41

The different routes to the same conclusion in Belknap and Russell could produce different results later on in the Chapter 13 case. Under Belknap, a debt would be counted as secured for Chapter 13 eligibility if it is secured by any collateral, without regard to whether the debtors own an interest in the collateral or in an entity that owns an interest in the collateral. Russell reaches the more limited conclusion that an ownership interest by the debtors in an entity that owns the collateral renders the debt secured for § 109(e) purposes. Applying Belknap, a debt secured by property of another entity would be classified as secured debt for eligibility purposes, and yet, because the debtors have no interest in the property, that same debt would be an unsecured claim after claim splitting under § 506(a). A debtor pushed up against the unsecured debt limitation in § 109(e) might use Belknap to classify a debt as secured for eligibility purposes without subjecting the debtor to confirmation problems with respect to a secured claim. The bank in Russell was unhappy with the court’s conclusion that its debt was secured for eligibility purposes, but the logic of the court’s opinion—based on the debtor’s interest in the collateral through the wholly owned corporation—may get the bank the enhanced rights of a secured claim holder at confirmation.


Other courts reject altogether the proposition that a debt becomes secured for eligibility or confirmation42 purposes when collateral is supplied by another entity. For example, in In re Maxfield,43 the court found that an IRS claim secured by property of the debtor’s wholly owned corporation was not a secured debt for eligibility purposes. The court applied § 506(a) and determined that the debt was unsecured because the IRS did not have a security interest in property of the debtor. In a later case on similar facts, this same bankruptcy court observed that, absent the “limited circumstances” in which it is appropriate to disregard corporate form, a debt secured by assets of the debtor’s wholly owned corporation was unsecured for eligibility purposes.44


Similarly, in In re Lane,45 at the petition the debtor possessed two trailers and a tractor that were titled to her wholly owned corporation. The debtor had personally guaranteed the corporation’s debt on the vehicles. The debtor voluntarily dissolved the corporation a month after filing the Chapter 13 case and proposed to pay 100 percent of the debts secured by the (former) corporation’s collateral through the plan. The court found that the debtor had no interest in the vehicles under state law and thus was precluded from treating the creditors as secured claim holders under her plan.46 Presumably, the debtor’s guarantee of the corporate debt in Lane would produce an unsecured debt for both eligibility and confirmation purposes.


This same logic points to the conclusion that a lien on property that is excluded from the estate is not a secured debt for eligibility (or confirmation) purposes. For example, in In re Keyes,47 in the context of an objection to confirmation, the bankruptcy court approved the holding in Persky v. United States (In re Persky)48 that for eligibility purposes a tax lien on property excluded from the Chapter 13 estate is not a secured claim. As explained by the court:

[T]he court is dealing with property that both parties agree is excluded from the bankruptcy estate under [Patterson v. Shumate, 504 U.S. 753, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (June 15, 1992)]. While it is clear that an asset of the debtor is subject to the IRS lien as provided for by statute, there is simply no statutory authority for granting it a “split personality” to include it in the bankruptcy estate simply for purposes of securing the IRS’s lien. . . . [T]he IRS’s claim cannot be treated as secured because it does not have a “lien on property in which the estate has an interest,” as required by 506(a).49

This outcome has been adopted by the United States Court of Appeals for the Ninth Circuit. Discussed in more detail elsewhere,50 in United States v. Snyder,51 the IRS had a prepetition lien on the debtor’s interest in an ERISA-qualified pension plan. The Ninth Circuit applied § 506(a) to conclude that the tax lien was not a secured claim because the anti-alienation clause in the pension plan excluded the debtor’s interest in the plan from property of the Chapter 13 estate under § 541(c)(2) and Patterson v. Shumate.52


Snyder and Keyes are confirmation cases, but these holdings argue persuasively that a lien on collateral that does not become property of the Chapter 13 estate should not be a secured claim for any purpose in the Chapter 13 case. Not all courts are likely to embrace this outcome. As discussed above,53 not all courts will look beyond the statements and schedules to determine whether claims are secured or unsecured for § 109(e) purposes and not all courts will split claims into secured and unsecured portions under § 506(a) at the eligibility stage.


These cases create something of a jumble. The absence of any reference to property of the estate in § 109(e) supports the proposition that a debt can be secured for eligibility purposes notwithstanding that the collateral is not owned by the debtor. On the other hand, there is the fundamental inconsistency that debt would be counted as secured for eligibility purposes, but unsecured for confirmation purposes. Courts that split claims at the eligibility stage under § 506(a)54 would transport the “property in which the estate has an interest” predicate for secured status in § 506(a) into the eligibility calculus and produce a consistent outcome—debts secured by property of another entity would be unsecured debts for both eligibility and confirmation purposes. The ownership interest of the debtor in Russell is the stock of the corporation, not the corporation’s assets. As Lane demonstrates, piercing the veil of a debtor’s corporation for eligibility or confirmation purposes contains much potential for mischief and manipulation. At confirmation, the interests of other creditors are protected by § 506(a) in the sense that collateral provided by another entity does not produce a secured claim for distribution purposes in the Chapter 13 case. It is not obvious that any good policy is served by inconsistent rules for eligibility and confirmation in this context.


Similar issues that are more clearly resolved by the Bankruptcy Code arise in community property states when only one spouse files a Chapter 13 case. The issues are well illustrated in In re Monroe.55 The nonfiling spouse in Monroe was separately liable for a $1,710,000 prepetition judgment. Applying community property concepts, this judgment debt was counted for eligibility purposes as if the filing spouse were personally liable:

Gagan’s judgment against the non-debtor spouse, which has been held to be a community debt, qualifies as a debt owed by the debtor spouse for purposes of the filing spouse’s Chapter 13 debt limitation. . . . [T]he Monroes’ community property is liable for Gagan’s judgment, which is therefore a community claim. . . . Gagan’s judgment is against Mr. Monroe, Mrs. Monroe does not individually owe the debt. However, Gagan’s claim is a community claim because he has a right to payment that is payable out of property of the kind specified in § 541(a)(2). . . . Although Mrs. Monroe’s separate property is not liable for the debt, her interest in the community property is. Because Mrs. Monroe is an individual of the community and the community owes the debt, she is an individual that owes the debt, within the meaning of § 109(e). By the rationale of [Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991)], she is an individual who owes that debt because regardless of her personal liability, it is payable out of her property, i.e., her interest in community property.56


1  See § 14.1  Dollar Amounts.


2  In re Cronkleton, 18 B.R. 792 (Bankr. S.D. Ohio Feb. 23, 1982) (Sidman); Shelton v. Correa, 15 B.R. 195 (Bankr. D. Md. Nov. 9, 1981) (Whelan); In re Walters, 11 B.R. 567 (Bankr. S.D. W. Va. Mar. 17, 1981) (Flowers). But see In re Hines, 162 B.R. 472, 473–74 (Bankr. E.D. Va. Oct. 13, 1993) (Tice) (Debtor is eligible notwithstanding an unsecured proof of claim for $172,450 to which no objection has been raised. Claim is held by a co-guarantor of corporate debt for which the debtor is also a guarantor. “It is well-settled in Virginia that where two or more persons are jointly liable to pay an [sic] claim and one or more of them pays the whole of it, or more than his or her share, the one so paying may generally recover from the others the ratable proportion of the claim that each ought to pay. . . . [U]nder Virginia law [the co-guarantor] can recover no more than 50% of the obligation, or $86,225.00, from the debtor. . . . Therefore, the debtor is eligible to be a chapter 13 debtor.”).


3  In re Marchetto, 24 B.R. 967 (B.A.P. 1st Cir. Dec. 13, 1982) (Votolato, Johnson, Goodman). Accord In re Blackwell, 514 B.R. 19 (Bankr. N.D. Cal. June 30, 2014) (Weissbrodt) (Husband and wife debtors in separate Chapter 13 cases were both ineligible under § 109(e) when each debtor was liable for full amount of mortgage note that exceeded secured debt limit.); In re Weiser, 391 B.R. 902, 908 (Bankr. S.D. Fla. July 31, 2008) (Cristol) (When debtors filed joint petition, “the Court must consider their joint debts. The joint debts exceed the unsecured debt limit whether the Court uses the values listed by the Debtors in their Schedules, the values attributed to the properties by the lenders’ appraiser or the tax assessment values.”); In re Martz, 293 B.R. 409, 411 (Bankr. N.D. Ohio Oct. 17, 2002) (Speer) (Joint debts of debtor and nonfiling spouse are noncontingent and liquidated for eligibility purposes in the full amount of each debt. “[U]nlike a guaranty . . . the liability of a debtor on a joint debt is not dependent upon the occurrence of any further act. . . . [T]o accept the Debtor’s argument—and find that all joint debts are contingent for purposes of § 109(e)—would greatly expand the ceiling for unsecured debts as set forth in the statute. . . . [T]he Court cannot find that the Debtors’ joint debts are contingent as applied to § 109(e)’s eligibility requirement for a Chapter 13 case.”). See also In re Jocham, No. 10-17776-JKC-13, 2011 WL 2112043, at *1 (Bankr. S.D. Ind. May 26, 2011) (Coachys) (Agreeing with Glance v. Carroll (In re Glance), 487 F.3d 317 (6th Cir. June 1, 2007) (Suhrheinrich, Clay, Sutton), mortgage obligations did not become contingent when former spouse assumed liability in divorce. Debtor’s liability arose when he executed mortgages and underlying notes. “The mere fact that Mrs. Jocham assumed the indebtedness as part of the parties’ divorce does not alter Debtor’s liability to the mortgagees or create a contingency.”).


4  See § 10.6  Partnership and Corporate Debts and Assets May Impact Eligibility and § 15.2  Is Partnership Debt Contingent?.


5  For the eligibility of spouses, see § 10.1  Debtor Must Be an Individual; Spouses Allowed.


6  11 U.S.C. § 109(e) (emphasis added).


7  The Random House College Dictionary 26 (rev. ed. 1980).


8  For simplicity in these examples, assume there are no secured debts. More discussion about secured and unsecured debts below.


9  But see 11 U.S.C. § 102(7), “the singular includes the plural.”


10  See In re Pete, 541 B.R. 917 (Bankr. N.D. Ga. Dec. 8, 2015) (Sacca) (Embracing In re Miller, 493 B.R. 55 (Bankr. N.D. Ill. May 21, 2013) (Goldgar), and rejecting In re Werts, 410 B.R. 677 (Bankr. D. Kan. Aug. 19, 2009) (Karlin), individual and joint debtors are subject to the same aggregate unsecured debt limitation, at least in a joint case. In a note:

The Court is only focusing its decision on the unsecured debt limit, as opposed to the secured debt limit, because that is what is at issue in the case. The Court notes that Section 109(e) only uses the word “aggregate” in connection with unsecured debt, and not secured debt, in joint cases which could result in a different outcome if the aggregate secured debt was an issue in this case.


11  See § 15.1  What Is Noncontingent Debt?.


12  See § 16.1  What Is a Liquidated Debt?.


13  410 B.R. 677 (Bankr. D. Kan. Aug. 19, 2009) (Karlin).


14  See § 14.1  Dollar Amounts.


15  In re Werts, 410 B.R. at 687–89. See also In re Jirak, No. 11-01510, 2011 WL 5325431, at 1 (Bankr. N.D. Iowa Nov. 3, 2011) (Kilburg) (Citing In re Werts, 410 B.R. 677 (Bankr. D. Kan. Aug. 19, 2009) (Karlin), “If the joint debtors’ relevant individual debt exceeds that limit, they are not eligible for Chapter 13 relief.”).


16  See § 11.1  What Is Regular Income?.


17  No. 10-00317, 2010 WL 2035373 (Bankr. D.D.C. May 21, 2010) (unpublished) (Teel).


18  In re Butler, 2010 WL 2035373, at *1.


19  No. 10-08006-8-JRL, 2010 WL 4668595 (Bankr. E.D.N.C. Nov. 9, 2010) (Leonard).


20  In re Bosco, 2010 WL 4668595, at *1–*2.


21  No. 6:10-bk-08446-ABB, 2011 WL 9517442 (Bankr. M.D. Fla. Apr. 11, 2011) (Briskman).


22  In re Scholz, 2011 WL 9517442, at *1–*2.


23  455 B.R. 814 (Bankr. S.D. Fla. Aug. 4, 2011) (Olson).


24  In re Hannon, 455 B.R. at 816.


25  493 B.R. 55 (Bankr. N.D. Ill. May 21, 2013) (Goldgar).


26  The discrepancy is small amounts of unsecured debt buried in the unsecured portion of secured debts.


27  In re Miller, 493 B.R. at 58–59.


28  In re Miller, 493 B.R. at 60–61.


29  541 B.R. 917 (Bankr. N.D. Ga. Dec. 8, 2015) (Sacca).


30  In re Pete, 541 B.R. at 920.


31  These are the numbers in the opinion, though it is hard to follow the math.


32  In re Pete, 541 B.R. at 921–22.


33  In re Gorman, 58 B.R. 372 (Bankr. E.D.N.Y. Mar. 3, 1986) (Parente).


34  See In re Tomlinson, 116 B.R. 80 (Bankr. E.D. Mich. July 30, 1990) (Spector) (Debt is not contingent where debtor and nondebtor former spouse jointly signed note secured by home that is now owned and occupied by the nondebtor. Where the debtor quitclaimed the mortgaged home to the former spouse prior to filing Chapter 13, the claim secured by the residence is an unsecured claim in the debtor’s Chapter 13 case.). But see In re Smith, No. 07-19364PM, 2007 WL 4358241 (Bankr. D. Md. Dec. 13, 2007) (unpublished) (Mannes) (Debtor who acquired residence under “no consideration” deed from spouse day before petition is ineligible because secured debt on house exceeds debt limit. Debt is not contingent merely because debtor is not personally liable, citing Glance v. Carroll (In re Glance), 487 F.3d 317 (6th Cir. June 1, 2007) (Suhrheinrich, Clay, Sutton).).


35  See § 14.4  Are Claims Split under 11 U.S.C. § 506(a)?.


36  In re Martz, 293 B.R. 409, 412–13 (Bankr. N.D. Ohio Oct. 17, 2002) (Speer) (Debt secured by nonfiling spouse’s residence is at least partially secured for eligibility purposes because the debtor has a statutory right of dower, defined by Ohio law as a life estate in one-third of the real property. “[A] spouse’s right to dower confers upon that spouse a cognizable interest in the real estate owned by the other spouse. . . . [U]pon filing for bankruptcy relief, . . . his or her dower interest will pass to the bankruptcy estate. . . . [A]t most the Debtor’s interest in the subject real estate is worth just over $43,000.00; that is, one-third of the $130,000.00 value figure attached to the property by the Debtor. . . . [S]uch an amount, given the inchoate nature of a dower interest, would only be attainable if death was imminent for the Debtor’s spouse . . . . [I]n all likelihood the actual value of the Debtor’s interest . . . is considerably less than $43,000.00.”).


37  487 F.3d 317 (6th Cir. June 1, 2007) (Suhrheinrich, Clay, Sutton).


38  174 B.R. 182 (Bankr. W.D.N.Y. Nov. 10, 1994) (Bucki).


39  In re Belknap, 174 B.R. at 183.


40  188 B.R. 542 (E.D.N.C. Nov. 17, 1995) (Britt).


41  In re Belknap, 174 B.R. at 543–44.


42  See also § 76.2  Is Claim Secured, and By What?.


43  159 B.R. 587 (Bankr. D. Idaho Oct. 27, 1993) (Hagan).


44  In re Brown, 250 B.R. 382, 384–86 (Bankr. D. Idaho July 12, 2000) (Pappas) (Guaranty of wholly owned corporation’s debt is treated as an unsecured claim notwithstanding that the debt is secured by assets of the corporation. Debtors were the sole owners of the stock of an S corporation. The corporation borrowed $275,000, and the debtors personally guaranteed that debt. The corporation’s debt was secured by assets of the corporation with an aggregate value in excess of the $275,000. “Ownership of stock in a corporation does not equate to ownership of corporate assets. . . . The nature of Debtors’ interest in PTMC’s assets is not impacted by the tax status of that company. . . . Sole ownership of a corporation’s stock is therefore not sufficient, by itself, to establish that the stockholder owns an interest in the corporation’s property for Chapter 13 eligibility purposes. While the Court may disregard an otherwise valid corporate structure, or ‘pierce the corporate veil,’ in certain limited circumstances, Debtors have not established the presence of such extraordinary circumstances in this case. . . . [A] debtor must have an interest in the specific collateral in order for the debt to be considered secured in the debtors’ case. . . . [D]ebts owed to FSB under Debtors’ guarantees of the corporate debt are properly characterized [as] unsecured debts in Debtors’ individual Chapter 13 case for purposes of determining their eligibility for relief under Section 109(e).”). Accord In re Stebbins, No. 8-14-73357-las, 2015 WL 792095, at *8 (Bankr. E.D.N.Y. Feb. 24, 2015) (Scarcella) (Guaranty secured by corporate property is unsecured debt in guarantor’s Chapter 13 case; amount of guaranty is noncontingent and liquidated, rendering debtor ineligible. “Notwithstanding Stebbins’ characterization of the debt to AHL as secured, . . . Stebbins’ debt to AHL is, in fact, an unsecured debt. The debt is secured by real property owned by Throg’s Neck Trading, not by Stebbins. Therefore, the debt due AHL under the Guaranty should be included in the calculation of Stebbins’ total amount of general unsecured debt as opposed to secured debt. As such, it exceeds the statutory limit of $383,175 for noncontingent, liquidated unsecured debt under section 109(e).”).


45  215 B.R. 810 (Bankr. E.D. Va. Dec. 4, 1997) (Shelley).


46  See also In re Rodio, 257 B.R. 699 (Bankr. D. Conn. Jan. 17, 2001) (Krechevsky) (On the debtor’s motion to value a tractor under § 506(a), lienholder is an unsecured creditor because the tractor is owned by a limited liability company in which the debtor is a member/shareholder; debtor guaranteed the debt and is in possession of the tractor but debtor’s guaranty “is not ‘secured by a lien on property in which the estate has an interest.’ . . . Accordingly . . . such claim is wholly unsecured, and § 506(a) is inapplicable.”); In re Kesselring, No. 05-14742, 2006 WL 6884426 (Bankr. W.D. Pa. Sept. 6, 2006) (Bentz) (Unsecured debt exceeded eligibility limit when debtor voluntarily recorded general warranty deed, conveying entire legal and equitable interest to nonfiling co-obligor, and rendering Wells Fargo unsecured.).


47  255 B.R. 819 (Bankr. E.D. Va. Aug. 24, 2000) (Adams).


48  No. CIV.A. 98-2729, 1998 WL 695311 (E.D. Pa. Oct. 5, 1998) (unpublished) (Reed).


49  In re Keyes, 255 B.R. at 822. See also § 76.2  Is Claim Secured, and By What? and § 136.18  Secured Priority Claims before BAPCPA.


50  See § 76.2  Is Claim Secured, and By What?.


51  343 F.3d 1171 (9th Cir. Sept. 15, 2003) (Hawkins, Fletcher, King).


52  504 U.S. 753, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (June 15, 1992).


53  See § 14.3  Use of Statements and Schedules in Eligibility Calculations and § 14.4  Are Claims Split under 11 U.S.C. § 506(a)?.


54  See § 14.4  Are Claims Split under 11 U.S.C. § 506(a)?.


55  282 B.R. 219 (Bankr. D. Ariz. Aug. 8, 2002) (Haines).


56  In re Monroe, 282 B.R. at 221–22. Income for a community property debtor in a Chapter 13 case is discussed in § 46.3  Postpetition Earnings. Discharge for filing and nonfiling spouses in a community property state is discussed in § 162.1  In General, Including Discharge Hearing and Discharge Injunction.