Subchapter V’s $7.5 Million Debt Limit Is Now Permanent
On November 10, 2026, President Trump signed the bipartisan Bankruptcy Threshold Adjustment Act (H.R. 7730) into law. The Act permanently restores the subchapter V debt eligibility limit to $7.5 million, ending more than two years in which small businesses with debts above roughly $3 million were shut out of the streamlined reorganization process. The House passed after the Senate had previously passed companion legislation, S. 3977. The Act applies to all cases filed after November 10, 2026.
How We Got Here
On February 19, 2020, Congress enacted the Small Business Reorganization Act (“SBRA”) to, among other things, streamline the chapter 11 bankruptcy process for small businesses by creating subchapter V of the Bankruptcy Code. Under the SBRA, a “small business” was one with less than $2,725,625 in debt. Few businesses, however, were able to take advantage of the new provisions because their debts exceeded the cap.
In the wake of the financial crisis brought on by COVID-19, the debt limit was increased to $7.5 million as part of the CARES Act. The increase dramatically expanded the number of businesses eligible for subchapter V, but it was only temporary. It originally expired on March 27, 2021, and was extended to March 27, 2022, by the COVID-19 Bankruptcy Relief Extension Act of 2021. After a lapse of a little under three months, the 2022 Bankruptcy Threshold Adjustment and Technical Corrections Act, signed on June 21, 2022, extended the increased limit to June 20, 2024, and applied retroactively to cases filed during the gap. Despite bipartisan support, Congress did not act again before that deadline, and on June 21, 2024, the limit reverted to the lower amount.
What the New Law Does
The Bankruptcy Threshold Adjustment Act makes the $7.5 million subchapter V debt limit permanent, meaning businesses and their advisors no longer need to plan around a looming sunset date or wonder whether eligibility will change mid-case.
The Act also reforms chapter 13 for individuals. It increases the chapter 13 debt limit to $2.75 million and eliminates the separate caps for secured and unsecured debt, so eligibility turns on a single combined figure. That change should simplify eligibility for individual debtors, including many small business owners with personal guaranty exposure.
What This Means for Businesses and Lenders
For owners of struggling businesses, subchapter V offers meaningful advantages over a traditional chapter 11 case: no creditors’ committee in most cases, no requirement that creditors vote to accept the plan, no disclosure statement, a court-appointed subchapter V trustee to facilitate a consensual deal, and the ability of owners to retain their equity without contributing new value. These features often make the process faster and less expensive. With the higher debt limit now permanent, many more businesses will be able to use subchapter V to restructure their debt while keeping their doors open and their ownership intact.
Lenders, landlords, and trade creditors should also take note. A larger universe of debtors can now confirm a plan over creditor objection under subchapter V’s more debtor-friendly standards, which may change the leverage in workout negotiations with borrowers that carry between roughly $3 million and $7.5 million in debt.
Businesses facing financial difficulty, and creditors dealing with distressed borrowers, should revisit whether subchapter V is now an available option. Please contact Harold Israel or another member of LP’s Financial Services & Restructuring Group to discuss how the new law may affect you.
For more information on the history of the subchapter V debt eligibility limit, click here.