Under Section 109(e) of the Bankruptcy Code only individuals with unsecured debts of less than $383,175 and secured debts of less than $1,149,525 are eligible to file a Chapter 13 case. In the recent case of In re Kenneth Blackwell and In re Kathleen Blackwell, 2014 WL 3367778 (Bankr. N.D. Cal.6/30/14), the debtors filed separate Chapter 13 cases rather than filing one joint case because their combined debts exceeded the limit for Chapter 13. However, they were jointly liable for their mortgage loans that exceeded $1.9 million. They had valued the property at $1.5 million and considered the lender’s secured claim at $1.5 million with each spouse being liable for $750,000 of the mortgage debt.
The debtors had previously received a discharge under Chapter 7 and believed that they could bifurcate the secured claim as they no longer had any personal liability for the loan. The court did not agree with the debtors and found that under Supreme Court decision of Johnson v. Home State Bank, 501 U.S. 78 (1991), if, as of the petition date, the claim is enforceable against either the debtor or property of the debtor, it should be included in the eligibility calculation. Furthermore, because the mortgage lien is in first priority on the debtors’ principal residence, its claim could not be bifurcated under Section 1322(b)(2) and the full amount of the claim needs to be listed in both cases which would preclude them from filing Chapter 13. The court stayed it order for 70 days to give the debtors an opportunity to convert their case to Chapter 11.
If you are considering filing Chapter 13, you need to consider whether your debts exceed the limit allowed in a Chapter 13 case. The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through the Chapter 13 bankruptcy process. Please call us for a consultation today. To learn more about our firm visit our web site at www.law-margulies.com.