Quiz Question On Debt Limits For Bankruptcy Eligibility

By: Donald L Swanson

QUIZ – Multiple Choice Question

Question:

Where is this bankruptcy eligibility language found:

“aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders)”?

Potential Answers (may choose more than one):

1. In the definition of a “small business debtor” under 11 U.S.C. § 101(51D)(A) [Fn. 1]
2. In the definition of a Subchapter V “debtor” under 11 U.S.C. § 1182(1)(A) [Fn. 2]
3. In the definition of a “debtor” under the proposed “Consumer Bankruptcy Reform Act of 2020” [Fn. 3]
4. In the definition of a “family farmer” under 11 U.S.C. § 101(18)(A) [Fn. 4]
5. In none of the above.

Correct Answers:

The correct answers are # 2 (Subchapter V) and # 3 (proposed Consumer law). 

Yes, that’s right.  Subchapter V and the proposed Consumer law have the same, identical quoted language—including the $7,500,000 number.

The “small business debtor” definition also has the same, identical language—except the number is $2,725,625, not $7,500,000.

How can this be?

Go figure:

• the total debt amount for “small business debtor” eligibility is about a third of the total debt amount for eligibility under the new “consumer” law ($2,725,625 / $7,500,000);
• the total debt amount for Subchapter V eligibility is the same as the total debt amount for eligibility under the new “consumer” law ($7,500,000);
• unless the $7,500,000 limit for Subchapter V eligibility is extended by Congress and the President by March 26, 2021, the total debt limit for Subchapter V eligibility will automatically revert to $2,725,625; and
• the total debt limit for family farmers is $10,000,000.

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Footnote 1: 11 U.S.C. § 101(51D)(A) provides in part: a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than [$2,725,625] (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor.

Footnote 2:  11 U.S.C. § 1182(1)(A) provides in part (emphasis added): “a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor.”

Footnote 3:  Consumer Bankruptcy Reform Act of 2020 provides in part (at 75): ‘‘(d) Only an individual that owes aggregate non contingent liquidated secured and unsecured debts as of  the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) may be a debtor under chapter 10 of this title.’’

Footnote 4: 11 U.S.C. § 101(18)(A) provides in part: “individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $10,000,000 and not less than 50 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual’s or such individual and spouse’s gross income . . . “