Here’s a summary of the changes. They apply only to new bankruptcy cases filed starting April 1.
Bankruptcy is about money. So not surprisingly, some of the bankruptcy laws are based on important threshold dollar amounts. These laws about dollar amounts can affect everything from the Chapter under which you can file to the kinds of debts you can discharge (write off).
Every three years many of these dollar amounts are adjusted. That just happened on April 1. This blog gives you a brief summary of the changed amounts most relevant to consumer bankruptcies. Then our next few blogs will go through each of the listed changes, using them as a convenient introduction to some of the practical aspects of filing bankruptcy.
Chapter 13 Debt Limits
The maximum amount of unsecured debts you may have to file a Chapter 13 “adjustment of debts of an individual with regular income” increased from $360,475 to $383,175. The maximum amount of secured debts you may have increased from $1,081,400 to $1,149,525. (Section 109(e) of the Bankruptcy Code.)
Maximum IRA Exemption
The cap on exempt (protected) funds in individual retirement accounts (IRA) exemption increased from $1,171,650 to $1,245,475. (Section 522(n).)
Maximum Newer-Home State Homestead Exemption
The cap on your homestead exemption—if you are using the state exemption and acquired the property within 1215 days before filing bankruptcy—increased from $146,450 to $155,675. (Section 522(p)).
Presumption of Fraud for Discharge of Debts
The threshold amount for purchases of “luxury goods and services” made within the 90 days before filing bankruptcy for them to be presumed to be fraud (and therefore not dischargeable) increased from $600 to $650. And the threshold amount for cash advances made within 70 days before filing bankruptcy for them to be presumed to be fraud increased from $875 to $925. (Section 523(a)(2)(C).)
Chapter 7 Means Test Calculation
The complicated formula to determine whether there is a “presumption of abuse,” and therefore whether you can file a Chapter 7 case, includes a comparison between your disposable income and the amount of your unsecured debts as well as certain set dollar amounts. Those set dollar amounts increased—in ways beyond what can be summarized here in a couple sentences—with the result that in some circumstances you can have somewhat more disposable income and still qualify for Chapter 7. (Sections 707(b)(2)(A)(i)(I & II) and 707(b)(2)(B)(iv)(I & II).)
(Unrelated to these every-three-year increases being discussed in this blog, the median income amounts themselves—which are adjusted much more often—were also adjusted effective April 1, 2013. We’ll discuss both sets of changes in upcoming blogs.)
Length of Chapter 13 Plan
Whether your plan will last 3 years or 5 years turns on the comparison of your “current monthly income” with the published “median family income” amounts for your size of family in your state. These published income amounts only include household sizes up to 4 individuals, after which a certain dollar amount is to be added for each additional individual. This monthly additional dollar amount per additional household member increased from $625 to $675. (Sections 1322(d) and 1325(b).)
In the next several blogs we will show how each of these changes could affect your bankruptcy case.