Cite as: Keith M. Lundin, Lundin On Chapter 13, § 8.7, at ¶ ____, LundinOnChapter13.com (last visited __________).
One of the perceptions that led to the enactment of 11 U.S.C. § 707(b) in 19841 was the belief that many unnecessary Chapter 7 cases were being filed. That perception was amplified by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)2 when Congress reduced the “substantial abuse” bar to Chapter 7 relief to simple “abuse” based on a cacophony of creditor claims that debtors were abusing the bankruptcy system. Without proof, the credit community convinced Congress that debtors were steered into Chapter 7 notwithstanding little unsecured debt and notwithstanding income sufficient to pay some or all unsecured debt in a reasonable time.3
There are no data indicative of widespread abuse of Chapter 7.4 However, if the actual debt to be discharged in a Chapter 7 case would be small, debtor’s counsel has to ask hard questions regarding nonbankruptcy alternatives5 or a Chapter 13 case. A nonbankruptcy workout or a Chapter 13 case do not waste the debtor’s Chapter 7 discharge on a small amount of debt, and the likelihood of § 707(b) problems6 in a Chapter 7 case is avoided. The Chapter 7 debtor who seeks to discharge little unsecured debt often has a mistaken agenda. Too often, the debtor has been poorly advised and is attempting to use Chapter 7 to reduce and restructure claims secured by property the debtor desires to keep. Keeping property subject to liens in a Chapter 7 case is an uncertain proposition. It depends on creditors’ willingness to allow reaffirmations under 11 U.S.C. § 524(c) and on the debtor’s ability to make continuing contract payments.7 Chapter 13 is the more attractive vehicle for restructuring secured claims.
There is no magic definition of a small amount of dischargeable debt. Obviously, income matters—even a small amount of debt can be insurmountable for a debtor with little or no disposable income. But debtors with little dischargeable debt relative to income can expect heightened abuse scrutiny under § 707(b).8 After April 1, 2016, access to Chapter 13 is possible for debtors with noncontingent, liquidated, unsecured debts aggregating as much as $394,725.9
2 Pub. L. No. 109-8, 119 Stat. 23 (2005).
4 See T. Sullivan, E. Warren & J. Westbrook, As We Forgive Our Debtors (1990); T. Sullivan, E. Warren & J. Westbrook, The Fragile Middle Class (2000).
9 See § 14.1 Dollar Amounts. Between April 1, 2013 and April 1, 2016, the unsecured debt limit for Chapter 13 was $383,175. Between April 1, 2010, and April 1, 2013, the unsecured debt limit for Chapter 13 was $360,475. Between April 1, 2007, and April 1, 2010, the unsecured debt limit for Chapter 13 was $336,900. Between April 1, 2004, and April 1, 2007, the unsecured debt limit for Chapter 13 was $307,675. Between April 1, 2001, and April 1, 2004, it was $290,525. Between April 1, 1998, and April 1, 2001, it was $269,250. Between October 22, 1994, and April 1, 1998, the eligibility limit for unsecured debt was $250,000. In Chapter 13 cases filed prior to October 22, 1994, the eligibility limit for unsecured debt was $100,000. See 11 U.S.C. § 109(e).