Bankruptcy Adjustment Act (S. 3823)

Summary

Makes it easier for more people and small businesses to file for certain types of bankruptcy by temporarily increasing the amount of debt they can have.

What problem does this solve?

The old rules for bankruptcy had debt limits that were too low for some people and small businesses, especially after recent economic problems. This law raises those limits so more people and businesses can get financial help through bankruptcy.

What does this law do?

Increases debt limit for Chapter 13 bankruptcy

Allows individuals with up to $2,750,000 in debt to file for Chapter 13 bankruptcy. This replaces the old system that had separate, lower limits for secured and unsecured debt.

Raises debt limit for small business bankruptcy

Sets the total debt limit for small businesses filing for bankruptcy under Subchapter V to $7,500,000, making this simpler process available to more companies.

Sets a two-year expiration date

Specifies that the increased debt limits for both individual and small business bankruptcy will expire two years after the law is passed, returning to the previous, lower amounts.

Applies changes to past cases

Makes the new rules for small business bankruptcy apply to cases that were filed on or after March 27, 2020, and are still pending.

Who does this affect?

Individuals with high debt
Small business owners

What is the real world impact?

•

Expands access to bankruptcy relief

Increases the total debt a person can have to qualify for Chapter 13 bankruptcy, allowing more individuals with higher debts to create a repayment plan instead of liquidating their assets.

•

Helps struggling small businesses

Raises the debt limit for small businesses to use a more streamlined and less expensive bankruptcy process, helping them reorganize and stay in operation.

When does this start?

Different parts of this law take effect on different dates, including some that apply to past cases.

Expiration of increased debt limits

Two years after June 21, 2022, the higher debt limits for Chapter 13 and small business bankruptcy will expire and revert to the previous, lower amounts.

Immediate changes

On June 21, 2022, the new, higher debt limit for Chapter 13 bankruptcy took effect.

Retroactive changes for small businesses

The new rules for small business bankruptcy apply to any pending cases filed on or after March 27, 2020.

Retroactive technical corrections

Technical corrections to the Bankruptcy Administration Improvement Act are considered effective as of October 1, 2021.