The Chapter 13 debt limit can be a real barrier to getting bankruptcy relief for a couple filing a joint case. Particularly so if the case law where you practice requires inclusion of the underwater second mortgage in the unsecured debt calculation. It seems that $360,525 in unsecured debt just isn’t what it used to be.
Prior to BAPCPA, we dealt with this problem with a Chapter 20. Discharge the couple’s personal liability for as much debt as possible in Chapter 7, then file an immediate Chapter 13 to address the issues that made 13 attractive in the first place. Not possible after 2005, where no discharge is available in a subsequent Chapter 13 until four years have passed.
Enter Judge Janice Karlin and the Werts case from Kansas ( . Judge Karlin reasoned that a joint case filed by a married couple is really two cases, jointly administered. Since the couple did not have to file a joint case, and a joint case could be deconsolidated, therefore, the Werts’ joint case was really two cases. Each debtor could have debts up to the §109(e) limit. Voila, debt limit issues vanquished.
If this is the issue presented, you need to review closely the debts your clients have. Debts on which they are jointly liable probably have to be listed in each case. But often I find enough separate liabilities that, analyzed separately, each spouse qualifies, or, more commonly, one spouse qualifies for Chapter 13.
Encouragingly, no reported cases reject Werts, rendered in 2009 in favor of the traditional analysis of a joint case having a single set of debt limits.
Some of the urgency of the debt ceiling problem has been lessened where I practice by decisions that have allowed lien stripping in a Chapter 13 in which no discharge is available. Eligibility for a discharge isn’t a requirement to file a Chapter 13. A growing number of decisions at the bankruptcy court level are finding that the ability to strip an underwater lien on the debtor’s home is not dependent on entry of a discharge in the Chapter 13, but rather on plan completion. Since it is lien stripping, not available in Chapter 7, that usually drives the need for Chapter 13, a Chapter 20 may do the trick.
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