Joint Debtors Can Stack Their Chapter 13 Debt Ceilings In Some Case...

Many people who wanted to file Chapter 13 found that they were ineligible because their debts exceeded the Chapter 13 debt limits of approximately $1 million of secured debt or approximately $360,000 of unsecured debt. The debt limits have affected more people in the past few years because inflated real estate values during the boom resulted in many debtors having large mortgages which exceeded the secured debt ceiling. I have had several clients who could not qualify for Chapter 7 and who were willing to pay their creditors what they could afford in Chapter 13, but who were excluded from Chapter 13 by the debt ceilings. These people either had to file an expensive Chapter 11 case or forgo bankruptcy protection completely.

One unresolved question about Chapter 13 debt ceiling is whether joint married debtors could stack their ceilings. For example, if stacking were permitted, joint married debtors could have up to $2 million joint debt in a Chapter 13. Joint Chapter 7 debtors can stack their exemptions.

This past week one of the Orlando bankruptcy judges issued an opinion which hold that joint married debtors may in some cases stack the debt ceilings of Chapter 13 eligibility. The opinion explained that a joint bankruptcy is actually the combination of separate bankruptcy estates. In a joint Chapter 13 filing each of the joint debtors must individually meet Chapter 13 debt requirements.

The opinion’s effect on Chapter 13  depends upon whether joint bankruptcy debtors have separate debts or joint and several liability. For example, if the husband was individually liable for a $1.5 million mortgage and the wife individually liable for a $500,000 mortgage the couple could not file a joint Chapter 13 bankruptcy because the husband, individually, exceeded the applicable secured debt ceiling. If the husband is individually liable for a $900,000 mortgage and the wife is individually liable for a $900,000 mortgage they could file a joint Chapter 13 case even though their combined secured debts exceeded the secured debt ceiling.

It is unclear based on this opinion what happens if a husband and wife are jointly liable for a $1.8 million mortgage. If each spouse is allocated half of the $1.8 million mortgage then they could file a joint Chapter 13 case. If both spouses are accountable for the full $1.8 mortgage then neither spouse is eligible for Chapter 13 bankruptcy, and therefore, the joint petition fails.

Consider that in Chapter 7 bankruptcy married debtors as assumed each to own a 50% interest in personal property, and they can apply their full individual exemptions to their 50% property interest. Debtors who jointly own $2,000 of property each can exempt their $1,000 half ownership using their separate $1,000 personal property exemption.   In re Scholz, 6:10-08446.