Important Amendments to U.S. Bankruptcy Code: Modifications to Dollar Amount Thresholds

Section 104(a) of the Federal Bankruptcy Code provides for automatic adjustments to certain dollar amounts in the Bankruptcy Code every three years. (11 U.S.C. § 104(a)). The most recent adjustments took effect on April 1, 2019, and apply to all cases commenced on or after that date. Below is a summary of many adjustments that may be relevant to business lenders and creditors.
 
Preference-Related Adjustments

• Minimum Amount of Suit – The minimum dollar thresholds for preference claims brought against a creditor in a bankruptcy case where the debtor has primarily non-consumer debts has increased to $6,825 (from $6,425).
• “Home town” lawsuits – Legal proceedings brought by a trustee or debtor to recover a consumer debt of less than $20,450 (increased from $19,250) or to recover a non-consumer debt of less than $13,650 (increased from $12,850) should be filed in the defendant’s home-town federal district or bankruptcy court.
• For more information on these defenses to preference claims asserted against creditors, please review our Preference Defenses: Update on the BAPCPA Reforms article.

 
Debtor-Related Adjustments

• Small Business Debtor – A small business debtor is now defined as one that (among other things) has aggregate noncontingent liquidated secured and unsecured debt as of the petition that are not more than $2,725,625 (increased from $2,566,050). This increase is significant as more businesses may qualify as small business debtors. In a Chapter 11 case, where the debtor is a “small business debtor”, there is no unsecured creditors’ committee to represent the interests of the debtor’s unsecured creditors, and the debtor has a longer exclusive period to file a plan. On the upside, there is greater administrative oversight because the small business debtor must file certain periodic reports related to profitability and cash flow that are not required for larger debtors.
• Chapter 13 Debtor – A person may file a Chapter 13 case if (among other things) the person has noncontingent, liquidated, unsecured debts of less than $419,275 (increased from $394,725) and noncontingent, liquidated, secured debts of less than $1,257,850 (increased from $1,184,200). This increase is important as debtors that previously did not qualify to be debtors under Chapter 13 had to turn to Chapter 7 or 11. Now, more debtors may qualify under Chapter 13 which may require more active and/or frequent participation of creditors.
• Involuntary Chapter 7 or 11 Petition – The minimum aggregate claims needed to commence an involuntary chapter 7 or 11 petitions is $16,750 (up from $15,775). For more information and detail on the filing of involuntary petitions, please see our Involuntary Petitions article.

 
Claims

• Administrative Priority for Real Estate Deposits – A claim arising from the pre-petition deposit of money in connection with the purchase, lease, or rental of property or the purchase of services for the personal, family, or household use of such individuals, that were not delivered or provided is entitled to administrative priority up to $3,025 (increased from $2,850). This increase entitles more claims to be bumped up to administrative priority (which get paid before unsecured creditors).

 
Exemptions
Many of the federal exemption amounts have increased, including the homestead, wildcard, individual retirement account, and household items exemptions. For a more detailed list of the exemption adjustments, please review our Exemptions and Lien Avoidance Summary article.
 
Chapter 7 Dismissal – Presumption of Abuse
The court may dismiss a Chapter 7 case whose debts are primarily consumer debts (or convert it to a Chapter 11 or 13) if the court finds the granting of relief would be an abuse of the provisions under Chapter 7.

• Means Test – The court shall presume abuse exists if the debtor’s current monthly income (less certain deductions) and multiplied by 60 is greater than (a) the lesser of 25% of the debtor’s nonpriority unsecured claims or $8,175 (increased from $7,700) or (b) $13,650 (increased from $12,850).

 
If you have any questions regarding this article or other bankruptcy-related matters, please contact attorney Matthew P. Gerdisch (mgerdisch@kmksc.com) or attorney Samuel C. Wisotzkey (swisotzkey@kmksc.com) at (414) 962-5110.
 
For a full list of the adjustments, click here.
 
 
About KMK
At Kohner, Mann & Kailas, S.C. (KMK), the attorneys in the Business & Financial Services group are prepared to provide coordinated legal counsel across a wide array of creditors’ rights activities. KMK is a value-driven law firm, combining the resources necessary to serve the complex needs of its Fortune 500 clients with the personal care and superior customer service expected by all its clients. Founded in Milwaukee in 1937, KMK has successfully developed a local, national, and international reputation for legal excellence, continually recognized by U.S. News & World Report as one of the nation’s Best Law Firms. For more information, visit www.kmksc.com.