My topic at the Bar Association of San Francisco in late July was all of a piece with the national problems: our debt ceiling was too low. Of course, I was addressing the debt limits in Chapter 13. An increase of a few hundred thousand would have solved my problems.
Historically the concept of limiting access to Chapter 13 via a cap on the amount of debt found in §109 had two drivers: one was the super discharge, and the idea that such broad relief from debts tinged with misbehavior should not be too widely available. The other was an attempt to find a balance between an economic and expedited procedure where creditors’ voices were limited and a traditional Chapter 11 where creditors vote on the plan and wield a lot more power in the process.
In the interval between the Code of 1978 and now, the dollar limits have not kept pace very well with middle class budgets and the credit explosion of the last decade. Meanwhile, the super discharge shrank to almost nothing in 2005.
As if that wasn’t enough, the collapse of the housing market has left heaps of junior liens that once secured cash-out refinancing or aggressive home purchases stranded as the tide of supporting value retreated.
Since my phone call to Congress for some relief went unanswered, here are my thoughts on dealing with the existing debt ceiling.
- File separate cases for spouses – Examine the distribution of debts between spouses to see if, filed separately, each individual would qualify for Chapter 13. I see lots of situations where title to property and /or liability on the secured debts are not held symmetrically. Another approach is to file a 13 for the spouse who qualifies and a Chapter 7 for the spouse with too much debt.
- Analyze whether each unsecured debt is legally enforceable This analysis encompasses both issues of the statute of limitations and the issue of whether a home loan provides for recourse or not.
- Argue that debtors in joint cases get twice the debt limit Expand on the idea that a joint case is really two cases and each debtor gets their own debt allowance. Read and trumpet the holding in Werts.
- Exploit Chapter 20 Consider whether your client’s aims can be achieved by discharging the dischargeable unsecured debt in a Chapter 7 , followed by a Chapter 13 (albeit one without a discharge) to repay priority claims or strip liens, or cure arrears.
None of this is quick or easy, but it is a way to distinguish yourself in the sea of bankruptcy lawyers who just add up the numbers and shake their heads. And, as I told my children repeatedly, you can do hard things.
Image courtesy of Kevin Krejci