By: Ronald J. Ellett, esq.
In order to file a Chapter 13 bankruptcy you must be eligible under the Chapter 13 debt limits. This calculation is simple in most chapter 13 bankruptcies. However there are legal issues that do arise in application of the Chapter 13 bankruptcy debt limits. Some of these bankruptcy issues are discussed below.
1. The Amount of the Chapter 13 Bankruptcy Debt Limits are adjusted every three years.
Every three years, the chapter 13 debt limits are updated. A joint or single bankruptcy debtor(s) can only have a limited amount of debt in a Chapter 13 case. On April 1, 2019, the limits were increased to $419,275 for unsecured debt and $1,257,850 for secured debt. (11 U.S.C. 109(e)) You must be under the current debt limits at the time you file your Chapter 13 bankruptcy.
2. Liens that can be avoided in the Chapter 13 Bankruptcy do not count against the Chapter 13 Bankruptcy Debt Limits.
When it is readily ascertainable that a lien will be avoided in a Chapter 13 bankruptcy case, that lien will NOT be counted in calculations as a secured claim. This principle was clearly expressed by the 9th Circuit in the case of In re Scovis, 249 F. 3d 975 (9th Cir. 2001). It has been recently expanded in the unpublished case of Asset Mgmt. Holdings, LLC v. Hernandez (In re Hernandez), 754 F. App’x 632 (9th Cir. 2019).
In Scovis, the bankruptcy debtors listed a $100,000 homestead exemption on their bankruptcy schedules. 249 F.3d 975, 979 (9th Cir. 2001). Scovis involved a California judgment lien that presumably attached to the California homestead. Although the homestead exemption enabled them to avoid a portion of their creditor’s lien, after filing for Chapter 13 bankruptcy, the 9th Circuit Court of Appeals held that the bankruptcy court could exclude the lien in the calculation of secured debt, because the effect of the exemption and the corresponding ability to avoid the lien were “readily ascertainable.” Id. at 984.
This legal precedent was then followed and expanded in Asset Mgmt. Holdings, LLC v. Hernandez (In re Hernandez), 754 F. App’x 632 (9th Cir. 2019). In Hernandez, the Debtor listed AMH’s unsecured junior lien at $0 in her chapter 13 bankruptcy schedules and stated that she planned on filing a motion to avoid it. The parties did not contest that the value of Debtor’s property was less than the first priority lien, nor did they contest that AMH’s lien could be modified pursuant to 11 U.S.C. § 1322(b)(2). See In re Zimmer, 313 F.3d 1220, 1222 (9th Cir. 2002). The Ninth Circuit therefore concluded that “ the bankruptcy court was correct to conclude that Debtor was eligible for Chapter 13 bankruptcy because lien avoidance was “readily ascertainable.”“ Id. at 633 citing In re Groh, 405 B.R. 674, 678 (Bankr. S.D. Cal. 2009) (“Scovis makes very clear that events like obvious lien avoidance should be considered in determining a debtor’s eligibility.”).
3. In Arizona, Judgment Liens do NOT attach to Homestead Property.
The Arizona Court of appeal reached this important conclusion in Pacific Western Bank v. Castleton, 246 Ariz. 108, 434 P.3d 1187 (2018). See also Rand v. United Auto Group, 400 B.R. 749 (2008), and Evans v. Young, 135 Ariz. 447, 661 P.2d 1148 (Ct. App. 1983). Since a judgment lien does not attach to a homestead property, a recorded judgment should not be counted as a secured lien if the only real property owned by the debtor is the homestead.
4. Only debts that are noncontingent and also liquidated on the date of the bankruptcy petition are counted for the chapter 13 debt limits.
The Ninth Circuit Bankruptcy Appellate Panel has plainly explained that “[o]nly debt thatis both noncontingent and liquidated on the date the petition is filed is counted toward the dollar
limit set out in §109(e).” In re Ho, 274 B.R. 867, 871 (B.A.P. 9th Cir. 2002). The Ninth Circuit Bankruptcy Appellate Panel has held that “[s]o long as a debt is subject to ready determination and precision in computation of the amount due, then it is considered liquidated and included for
eligibility purposes under § 109(e), regardless of any dispute.” Id. at 874. Further, the Ninth Circuit Bankruptcy Appellate Panel has also held that “[t]he concept of liquidation has been
variously expressed. The common thread … has been ready determination and precision in computation of the amount due…. Some cases have stated the test as whether the amount due is
capable of ascertainment by reference to an agreement or by simple computation.” In re Sylvester,19 B.R. 671, 673 (B.A.P. 9th Cir. 1982) citing In re Bay Point Corp., 1 B.C.D. 1635 (D.N.J.1975).
To determine if you are eligible for a Chapter 13 Bankruptcy, call us to schedule a free consultation with one of our experienced Bankruptcy attorneys.