Owe Between $3.4 and $7.5 Million? Why the New Subchapter V Debt Limit Matters Before You Ever Think About Filing

Congress is poised to significantly expand access to Subchapter V, the streamlined Chapter 11 process designed for small business debtors. If signed into law, the Bankruptcy Threshold Adjustment Act will permanently raise the Subchapter V debt limit to $7.5 million, more than doubling the current $3,424,000 cap and potentially making the streamlined process available to thousands of additional financially distressed businesses.

Key Takeaways

• The proposed legislation would expand Subchapter V eligibility. The $7.5 million threshold would restore the higher debt limit that applied from 2020 until June 2024.
• The impact extends beyond bankruptcy filings. Access to Subchapter V can influence negotiations with lenders, landlords, and other creditors before a case is filed.
• The higher threshold could benefit more middle-market businesses. Closely held companies with secured financing and other obligations can quickly exceed the existing eligibility limit.
• Business and personal restructuring may need to be considered together. The proposed Chapter 13 changes could offer additional options for owners facing liability under personal guarantees and other business-related obligations.
• Early analysis remains critical. The greatest range of restructuring alternatives is generally available before liquidity and creditor pressure reach a crisis point.

Bankruptcy Threshold Adjustment Act Awaits President’s Signature

The Bankruptcy Threshold Adjustment Act would permanently increase the Subchapter V debt limit to $7.5 million, restoring the higher threshold that was temporarily in effect from 2020 until June 2024. The legislation would also increase the Chapter 13 debt limit to $2.75 million and eliminate the separate secured and unsecured debt limits currently used to determine eligibility.

The House passed H.R. 7730 on September 16, 2026, and the Senate approved the measure without amendment on September 28. If enacted, the legislation could materially change the restructuring options available to privately held businesses that currently fall into the gap between Subchapter V and traditional Chapter 11.

Restoring the $7.5 Million Subchapter V Debt Limit

Congress created Subchapter V through the Small Business Reorganization Act of 2019 to address a practical problem. While Chapter 11 can effectively restructure a business, the cost and complexity of a traditional Chapter 11 case can erode the benefits for a smaller business.

Subchapter V retains many of Chapter 11’s most important tools while modifying or eliminating several requirements that can make a traditional reorganization expensive and time-consuming. Among other things, Subchapter V generally does not require a separate disclosure statement, imposes an expedited timeline for proposing a plan, eliminates quarterly U.S. Trustee fees, and allows the appointment of a trustee to help develop a consensual plan.

Just as importantly, Subchapter V can provide greater flexibility in confirming a plan over creditor objections. Unlike a traditional Chapter 11 case, a Subchapter V debtor seeking nonconsensual confirmation does not have to satisfy the absolute priority rule in the same manner. This can be especially important for owners of closely held companies who want to restructure debt while retaining ownership.

Eligibility, however, has been a significant limitation. The CARES Act temporarily increased the Subchapter V debt ceiling to $7.5 million shortly after the procedure became available. Congress extended that threshold several times before allowing it to expire in June 2024. The Subchapter V debt limit subsequently returned to an inflation-adjusted $3,424,000, less than half of the prior ceiling.

H.R. 7730 would permanently restore the $7.5 million threshold. The legislation generally defines an eligible debtor as a person engaged in commercial or business activities with no more than $7.5 million in aggregate noncontingent, liquidated secured and unsecured debt, subject to additional statutory requirements and exclusions.

A Higher Subchapter V Debt Limit Could Be Significant for Middle-Market Businesses

The difference between the current threshold and $7.5 million matters because a business doesn’t have to be particularly large to accumulate several million dollars in debt. Commercial mortgages, equipment loans, revolving credit facilities, SBA loans, unpaid trade obligations, litigation claims, and other liabilities can quickly push an otherwise modest operating company above the existing eligibility ceiling. In New Jersey and New York, where real estate and operating costs can be substantial, a privately held company’s debt profile may bear little relationship to its workforce or annual revenue.

For businesses that exceed the existing limit, restructuring options can look very different. Traditional Chapter 11 remains available, but its additional procedural requirements and administrative expenses can affect whether reorganization is economically viable. Other alternatives may include an out-of-court workout, refinancing, an asset sale, an assignment for the benefit of creditors, or liquidation.

Raising the threshold to $7.5 million would not simply let more businesses file for bankruptcy. It would potentially change the leverage and options available before a bankruptcy case is ever filed.

A business that qualifies for Subchapter V may approach negotiations with lenders, landlords, and other creditors differently because a viable bankruptcy alternative exists if consensual negotiations fail. Creditors, in turn, must evaluate their recovery against the potential treatment of their claims in a Subchapter V proceeding.

Subchapter V’s Track Record Supports the Expansion

Congress is considering a higher threshold, backed by a growing body of experience with Subchapter V. In recommending permanent restoration of the $7.5 million ceiling, the House Judiciary Committee cited the procedure’s performance since its enactment. The American Bankruptcy Institute’s Subchapter V Task Force has likewise recommended maintaining the $7.5 million cap, concluding that the higher threshold provides smaller businesses with access to a restructuring mechanism that may not be economically feasible under traditional Chapter 11.

Subchapter V has also become an increasingly significant component of business bankruptcy practice, and the higher threshold is not a new experiment. Restoring it would reopen a restructuring path that many businesses already used between 2020 and 2024.

Eligibility Does Not Make Subchapter V the Right Strategy in Every Case

The increased threshold should not be viewed as making Subchapter V automatically preferable to other restructuring alternatives. Eligibility is only one part of the analysis. A debtor must still determine whether the business has sufficient going-concern value, cash flow, and prospects to support a reorganization. The company must also evaluate its secured debt, leases and executory contracts, tax liabilities, litigation exposure, guaranties, ownership structure, and creditor relationships.

Timing can be equally important. Businesses often have substantially more restructuring flexibility before liquidity is exhausted or a secured lender exercises remedies. Waiting until payroll cannot be met, critical vendors stop shipping, a landlord terminates a lease, or a lender begins foreclosure proceedings may eliminate options that were available several months earlier. For that reason, consider the potential expansion of Subchapter V as part of a broader restructuring analysis rather than simply a bankruptcy filing decision.

Chapter 13 Changes May Also Matter to Business Owners

H.R. 7730 would also increase the Chapter 13 eligibility limit to $2.75 million in aggregate noncontingent, liquidated debt, up from the current limits of $526,700 in unsecured debt and $1,580,125 in secured debt, and eliminate the separate secured and unsecured debt limits. Although Chapter 13 is an individual bankruptcy provision, the change may significantly affect owners of closely held businesses. Owners frequently guarantee corporate loans, commercial leases, lines of credit, and equipment obligations. Financial distress at the company level can therefore create substantial personal exposure even when the business operates through a separate legal entity.

The proposed increase may give some owners an additional option for addressing personal guaranties and other liabilities associated with a distressed business. The overall strategy should therefore consider the interaction between the company’s restructuring and the owner’s personal exposure.

Frequently Asked Questions

What is the current Subchapter V debt limit?

The CARES Act temporarily increased the Subchapter V debt limit to $7.5 million in 2020. Congress extended that threshold several times before it expired in June 2024, and the limit returned to an inflation-adjusted $3,424,000, where it stands today.

Where does the Bankruptcy Threshold Adjustment Act stand?

The House passed H.R. 7730 on September 16, 2026, and the Senate approved the measure without amendment on September 28. If signed into law, it would permanently restore the $7.5 million Subchapter V debt limit.

Does eligibility mean Subchapter V is the right strategy?

No. Eligibility is only one part of the analysis. A debtor must still determine whether the business has sufficient going-concern value, cash flow, and prospects to support a reorganization, and businesses often have substantially more restructuring flexibility before liquidity is exhausted or a secured lender exercises remedies.

Does the bill affect owners who personally guaranteed business debt?

H.R. 7730 would also raise the Chapter 13 eligibility limit to $2.75 million and eliminate the separate limits for secured and unsecured debt. The proposed increase may give some owners an additional option for addressing personal guaranties and other liabilities associated with a distressed business.

Conclusion: Evaluate Restructuring Options Before the Crisis Point

If enacted, the Bankruptcy Threshold Adjustment Act would expand the universe of businesses eligible for Subchapter V. Its practical significance, however, extends beyond the number of companies that may ultimately file bankruptcy.

A credible Subchapter V option can affect negotiations with secured lenders, landlords, vendors, and other stakeholders. It may provide additional leverage in an out-of-court workout, offer an alternative to a distressed sale or liquidation, or preserve an operating business when consensual negotiations fail.

For financially stressed companies, the central question is rarely whether bankruptcy is available. The more important question is which restructuring strategy is most likely to preserve value under the circumstances, and when to implement it. The proposed increase in the Subchapter V debt limit would give more businesses another option to consider in answering that question.

Businesses and owners evaluating their restructuring options, including whether the expanded Subchapter V debt limit changes their position with lenders and other creditors, should contact David Edelberg or another member of Scarinci Hollenbeck’s Bankruptcy and Creditors’ Rights group. The group advises businesses, owners, lenders, and other stakeholders on Subchapter V and traditional Chapter 11 reorganizations, out-of-court workouts, distressed asset sales, assignments for the benefit of creditors, and other insolvency alternatives. By evaluating available options early, businesses can better assess creditor exposure, preserve enterprise value, and determine whether a consensual restructuring or court-supervised process offers the most effective path forward.