06 Oct What are “Liquidated” Debts for Purposes of Section 109(e)
You may have heard that the debt limits for Chapter 13 have increased as of April 1, 2007. Currently, Secton 109(e) of the Bankruptcy Code says that you are eligible to file Chapter 13 only if your unsecured liquidated debt is $336,900 or less and your secured liquidated debt is $1,010,650 or less.
Generally most people who look to file Chapter 13 do not have debts that approach these limits, but, there are some instances when Section 109(e) does apply.
Note that the Code section specifies “liquidated” debt. The Bankruptcy Court will consider a debt to be liquidated if the debt is subject to a simple mathematical computation or ascertainable by reference to an agreement.
For example, if you owe $200,000 on a note and the note provides for 1.5% per month in interest and 15% attorney’s fees, your debt is not $200,000 – it is $200,000 + $30,000 (15%) + interest.
On the other hand, if you are being sued for damages in a car accident, the plaintiff would have a claim but the amount is unliquidated because there is no way to calculate what a jury might do.
Note also that non-dischargeable tax debt not yet subject to a lien – considered priority debt for discharge puposes – is unsecured and liquidated. there have been several instances where unsecured priority tax debt has caused a Chapter 13 debtor to lose his Chapter 13 eligibility.
If your debt picture approaches the debt limits for Chapter 13, you and your lawyer need to be very careful in calculating the debt and choosing the right time to file. If you cannot qualify for Chapter 13 because of debt limits, you may be stuck with a personal Chapter 11 and the significantly higher fees and costs that are entailed under that Chapter of bankruptcy relief.
Jonathan Ginsberg, Esq.
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