What is the Bankruptcy Threshold Adjustment and Technical Corrections Act?

Understanding the recent changes in bankruptcy law is crucial for individuals and businesses facing financial difficulties. With new legislative updates affecting debt thresholds and filing processes, it’s important to know how these changes might impact your ability to seek relief. These adjustments bring both new opportunities and potential challenges for debtors trying to manage their financial situations.

For those in New Jersey considering bankruptcy, it is essential to have a knowledgeable attorney by your side to help you explore your options. The experienced team of New Jersey bankruptcy lawyers at Straffi & Straffi Attorneys at Law may be able to provide the guidance you need to make informed decisions about your financial future. Contact Straffi & Straffi at (732) 341-3800 to schedule a consultation and discuss your bankruptcy options today.

Legislative Intent and Background

The BTATC Act was designed to build upon and extend temporary measures established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which expired in 2022. The intent of the new legislation was to continue supporting individuals and small businesses that were still recovering from the financial strains exacerbated by the pandemic. One of the main drivers behind the BTATC Act was to increase the accessibility of bankruptcy protections by raising the debt thresholds for filing under certain chapters of the Bankruptcy Code. 

For example, the Act increased the aggregate debt limit for Chapter 13 filings to $2.75 million, which includes both secured and unsecured debts. This change allows more debtors to qualify for Chapter 13, which can be particularly beneficial in states like New Jersey, where high housing costs and business expenses often lead to significant debt levels.

Moreover, the Act reinstates definitions and provisions that were in effect under the CARES Act from March 27, 2020, to March 27, 2022, including adjustments to the definition of a “debtor” for Subchapter V of Chapter 11 bankruptcy cases. This reinstatement permits businesses to retroactively apply for relief under Subchapter V, even if they initially filed under a different provision, thereby enhancing flexibility and fairness for struggling small businesses.

Key Objectives Behind the Act

The BTATC Act is underpinned by several key objectives aimed at making the bankruptcy process more accessible, fair, and responsive to current economic realities:

• Expanding Access to Bankruptcy Relief: By increasing the debt limits for Chapter 13 bankruptcy and adjusting definitions for Subchapter V, the Act allows a wider range of debtors to qualify for bankruptcy protections. This is particularly important in New Jersey, where debt levels can often exceed the previous thresholds due to high costs associated with real estate, business operations, and living expenses.
• Clarifying Bankruptcy Code Provisions: The Act aims to correct ambiguities in the Bankruptcy Code that could lead to inconsistent applications of the law. For example, it clarifies that the increased debt limits under Subchapter V are subject to inflation adjustments and will revert after a two-year period unless extended. These corrections help to create a more predictable legal environment for both debtors and creditors in New Jersey.
• Addressing Inflation and Economic Conditions: Recognizing the impact of inflation and economic fluctuations, the Act adjusts certain debt limits to reflect current financial realities better. This adjustment helps to ensure that the bankruptcy process remains viable and effective for those who need it most, including individuals and businesses in New Jersey facing economic hardship due to factors such as rising costs and reduced revenue streams.

By focusing on these objectives, the BTATC Act aligns bankruptcy laws with the practical needs of today’s debtors, offering them a more equitable path to financial recovery. For those in New Jersey, the Act provides critical updates that help mitigate the economic challenges unique to the state’s financial landscape.

Key Objectives	Description
Expanding Access to Bankruptcy Relief	Increases debt limits for Chapter 13 and adjusts Subchapter V definitions, allowing more debtors in New Jersey to qualify for protections.
Clarifying Bankruptcy Code Provisions	Corrects ambiguities in the Bankruptcy Code, ensuring consistent applications of the law and adding inflation adjustments to debt limits.
Addressing Inflation and Economic Conditions	Adjusts debt limits to reflect current economic conditions, aiding individuals and businesses in New Jersey facing financial challenges.

Main Provisions of the Bankruptcy Threshold Adjustment and Technical Corrections Act

The Bankruptcy Threshold Adjustment and Technical Corrections Act (BTATC Act) introduced significant temporary changes to bankruptcy filing thresholds and procedures when it was enacted on June 21, 2022. The Act aimed to accommodate debtors impacted by economic disruptions by raising debt thresholds and making technical corrections to existing bankruptcy laws. However, several of these provisions were designed to sunset two years from the date of enactment, and as of June 21, 2024, these provisions have expired, reverting the affected sections of the Bankruptcy Code to their previous state. 

Changes in Debt Thresholds for Bankruptcy Filings

The BTATC Act temporarily increased debt limits for bankruptcy filings under both Subchapter V of Chapter 11 and Chapter 13. For Subchapter V, the Act raised the aggregate debt limit to $7.5 million, allowing a broader range of small businesses to qualify for this streamlined bankruptcy process. This was especially beneficial for businesses in New Jersey, where operating costs are relatively high, and many businesses carry substantial debt. However, with the expiration of this provision on June 21, 2024, the definition of a “debtor” under 11 U.S.C. § 1182(1) no longer includes this increased threshold and reverts to the definition of a “small business debtor” in section 101(51D) of the Bankruptcy Code.

For individual bankruptcy filers in New Jersey, the BTATC Act temporarily adjusted the debt eligibility limits under Chapter 13. During the Act’s effective period, there was a single debt threshold of $2.75 million, encompassing both secured and unsecured debt. However, as of June 21, 2024, the previous limits have been reinstated, distinguishing between secured and unsecured debts: less than $465,275 for unsecured, noncontingent, liquidated debt, and less than $1,395,875 for secured, noncontingent, liquidated debt under 11 U.S.C. § 109(e). This reversion may limit the number of New Jersey debtors eligible for Chapter 13, especially those with higher combined debt levels.

Corrections to Bankruptcy Code Language and Procedures

The BTATC Act also included several technical corrections to the Bankruptcy Code that clarified the definitions and procedures related to bankruptcy filings. Notably, 11 U.S.C. § 1182(1) was amended to clarify that the exclusion from the definitions of “small business debtor” and “debtor” applies specifically to an affiliate of a corporation subject to reporting requirements under sections 13 or 15(d) of the Securities Exchange Act of 1934, rather than to an affiliate of “an issuer.” This clarification aimed to prevent confusion over the eligibility of certain entities for Subchapter V bankruptcy protection.

Additionally, with the expiration of the BTATC Act provisions, Interim Rule 1020, which was adopted by courts as a local rule while the Act was in effect, is now inapplicable. This change also affects Official Form 101 (question 13) and Official Form 201 (question 8), which will revert to their prior versions as established after the enactment of the Small Business Reorganization Act (SBRA) in February 2020. For bankruptcy practitioners in New Jersey, these changes necessitate a return to the pre-BTATC Act forms and procedures, affecting how cases are filed and processed in the state.

Impact on Individual Bankruptcy Filers

The Bankruptcy Threshold Adjustment and Technical Corrections Act (BTATC Act) introduced changes that have significantly impacted individual bankruptcy filers, especially in New Jersey. The Act temporarily modified the eligibility criteria and debt thresholds for bankruptcy under Chapters 7 and 13, creating more opportunities for individuals to qualify for bankruptcy relief. With the sunset of some of these provisions on June 21, 2024, individuals filing for bankruptcy will need to navigate both the temporary benefits they may have enjoyed under the Act and the reverted rules now in effect. 

Effects on the Means Test for Chapter 13 Filers

The BTATC Act significantly altered the landscape for Chapter 13 bankruptcy filings by temporarily setting a unified debt threshold of $2.75 million for both secured and unsecured debts. This change allowed more individuals to qualify for Chapter 13, which can be particularly advantageous in New Jersey.

With the sunset of the Act’s provisions, the means test for Chapter 13 has reverted to the pre-existing limits: less than $465,275 for unsecured debt and less than $1,395,875 for secured debt. This reversion affects many New Jersey filers who could have qualified under the higher, consolidated threshold but now face tighter eligibility criteria. For those individuals whose debts exceed the reverted limits, Chapter 13 may no longer be an option, forcing them to explore alternative bankruptcy chapters or other debt relief measures.

Advantages for Debtors Under the Updated Provisions

During the period when the BTATC Act was in effect, debtors in New Jersey benefited from several temporary changes that made it easier to file for bankruptcy under Chapter 13. The increased debt thresholds allowed more individuals to qualify, especially those with higher combined debt levels typical in New Jersey’s high-cost living environment. Additionally, the streamlined provisions reduced the complexity and barriers to filing, offering a clearer path to restructuring debts without liquidating assets.

These changes provided a critical lifeline for debtors who faced significant financial distress during the economic downturns prompted by the pandemic. However, with the expiration of these provisions, the advantages have been curtailed, and debtors must now reassess their options under the reverted rules, which may offer less flexibility in managing their debts.

Influence on Small Business Bankruptcies

The BTATC Act also had substantial implications for small businesses facing bankruptcy, particularly in a dynamic and economically diverse state like New Jersey. By temporarily increasing debt limits and simplifying procedural requirements, the Act aimed to make the bankruptcy process more accessible and efficient for small business debtors. As these provisions expire, small businesses in New Jersey must adjust to the pre-existing rules that now govern their bankruptcy options. 

Revised Debt Limits for Small Business Debtors

One of the most impactful provisions of the BTATC Act was the temporary increase in the debt limit for small business debtors filing under Subchapter V of Chapter 11, raising it to $7.5 million. This change enabled a broader range of businesses in New Jersey, many of which carry substantial debt due to high operating costs, to qualify for a more streamlined bankruptcy process. However, with the Act’s expiration, the debt limit has reverted to the definition outlined in section 101(51D) of the Bankruptcy Code, which is significantly lower.

For small businesses in New Jersey, this reversion means that fewer entities may qualify for Subchapter V bankruptcy, which offers a more debtor-friendly reorganization process. Instead, many businesses will now have to consider the more traditional and potentially more cumbersome routes under Chapter 11, which may involve more prolonged and costly proceedings.

Simplification of the Bankruptcy Process for Small Businesses

The BTATC Act also made the bankruptcy process simpler for small businesses by reducing administrative burdens and offering clearer guidelines. This simplification included less stringent reporting requirements and a more straightforward path to confirming a reorganization plan, which was especially beneficial in New Jersey’s competitive and often volatile business environment. The temporary provisions allowed small businesses to remain operational while restructuring their debts, providing them with the flexibility to adapt to changing market conditions.

With the sunset of these provisions, small businesses must now navigate the previous, more complex procedural requirements, which could involve additional legal and administrative costs. This shift could deter some businesses from seeking bankruptcy protection under Subchapter V, particularly if they fall close to the newly lowered debt limits.

Effects on Business Reorganization and Debt Management

During its effective period, the BTATC Act provided small businesses with enhanced opportunities for reorganization by temporarily relaxing certain restrictions and thresholds. This flexibility allowed many New Jersey businesses to restructure debts, renegotiate contracts, and emerge from bankruptcy in a stronger financial position. The streamlined procedures under Subchapter V helped businesses expedite the reorganization process, minimizing disruptions to operations.

However, as these provisions have expired, the options for business reorganization and debt management have reverted to their prior state. Small businesses in New Jersey may find it more challenging to qualify for Subchapter V bankruptcy or to achieve a swift and efficient reorganization under the traditional Chapter 11 framework. This change could lead to longer, more costly proceedings and reduce the overall effectiveness of bankruptcy as a tool for business recovery and debt management.

Get Experienced Bankruptcy Advice from Straffi & Straffi Attorneys at Law

The Bankruptcy Threshold Adjustment and Technical Corrections Act brought important changes to bankruptcy law that could affect your eligibility and options for debt relief. As these provisions have now expired, understanding how the current rules apply to your situation is essential. Whether you are an individual or a small business owner in New Jersey, staying informed about the implications of these changes can help you make the best decisions for your financial future.

If you have questions or need professional guidance regarding bankruptcy in New Jersey, the experienced attorneys at Straffi & Straffi Attorneys at Law are ready to help. Our team may be able to provide personalized advice based on the most current laws and help you explore the best path forward. Contact Straffi & Straffi at (732) 341-3800 to schedule a consultation and take the first step toward resolving your financial concerns.

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