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Section 109(e) Debt Limits Not Jurisdictional

The debt limits of Sec. 109(e) govern the eligibility of an individual to file under chapter 13, and although a petition filed by an individual whose debts exceed the limits fails to satisfy the eligibility requirements of chapter 13, the filing is sufficient to invoke the bankruptcy court’s jurisdiction. Consequently, a bankruptcy court’s order converting a chapter 13 case filed by a debtor whose debts exceeded the Sec. 109(e) limits to chapter 7 was upheld by a district court.

The pro se debtor filed a bankruptcy case under chapter 13 to prevent a foreclosure sale of his home. The trustee filed a motion to dismiss or convert the case to chapter 7 on the basis that the debtor’s debts exceeded the Sec. 109(e) limits and the case was filed in bad faith. The bankruptcy court granted the trustee’s motion and entered an order converting the case to chapter 7.

Counsel hired by the debtor after the case was converted filed a motion to dismiss the debtor’s case for lack of jurisdiction. The motion was denied and the debtor appealed, arguing that the bankruptcy court did not have jurisdiction to convert his voluntary chapter 13 case to an involuntary chapter 7 case. According to the debtor, because his debts exceeded the Sec. 109(e) debt limits, he lacked standing as a “debtor” under Sec. 109(e) to file a case over which the bankruptcy court could assert jurisdiction.

However, a bankruptcy court has jurisdiction over any case that is filed under title 11 even if the case is filed under a chapter for which the debtor is ineligible. Although the Tenth Circuit has never considered the question of whether Sec. 109(e) confers jurisdiction, it has previously ruled that the failure of a municipal debtor to satisfy the eligibility requirements of Sec. 109(c) did not deprive the bankruptcy court of jurisdiction. Further, the district court observed that a majority of courts that have addressed whether eligibility under Sec. 109(e) is jurisdictional have determined that it is not. The statute itself does not suggest that it is jurisdictional. It never refers to “jurisdiction.” It only establishes who may be considered a debtor under chapter 13. An individual whose debts exceed the limits of Sec. 109(e) may still be a debtor, and jurisdiction is established when the case is filed.

In re Brinton, No. 16-27945, 2018 U.S. Dist. LEXIS 25868 (D. Utah Feb. 14, 2018)