Congress Advances Permanent $7.5 Million Subchapter V Threshold Giving More Small Businesses Access to Streamlined Chapter 11

The debt ceiling for eligibility would rise from roughly $3.4 million to $7.5 million, restoring on a permanent basis a higher limit that existed temporarily during the pandemic before lapsing in 2024. A parallel change would expand Chapter 13 eligibility for individuals. The bill has passed both houses of Congress and is waiting to be sent to the president. Before the higher limits take effect, the bill must be signed by the president, and, importantly, the new limits would apply only to cases filed on or after the date of enactment. For any business whose debts fall between the old and new thresholds, the timing of a bankruptcy filing has therefore become a threshold strategic question.

On September 16, the US House of Representatives passed H.R. 7730, the Bankruptcy Threshold Adjustment Act, by voice vote. The US Senate had earlier passed the companion measure, S. 3977, by unanimous consent on August 3. The House version of the bill was approved by the Senate on September 28 and is waiting to be sent to the president for signature. Once enacted, the legislation will permanently raise the debt eligibility ceiling for subchapter V of Chapter 11 of the Bankruptcy Code from $3,424,000 to $7,500,000 and will replace the bifurcated Chapter 13 debt limits with a single $2,750,000 combined cap, thereby significantly expanding access to streamlined restructuring tools for small and mid-sized businesses and individual debtors alike.

Why Subchapter V Matters More Than Ever

Subchapter V, created by the Small Business Reorganization Act of 2019, was designed to provide a faster, less expensive path to reorganization for small business debtors. The CARES Act temporarily raised the debt ceiling to $7,500,000 in response to the COVID-19 pandemic, and the Bankruptcy Threshold Adjustment and Technical Corrections Act of 2022 (BTATCA) extended that limit through June 21, 2024. When the BTATCA provisions sunset, the eligibility cap reverted to its lower, inflation-adjusted level, currently $3,424,000.

The impact of subchapter V on small business restructuring has been substantial. From an initial 1,361 elections in its abbreviated first year, utilization has grown steadily: 1,425 elections in 2021, 1,553 in 2022, 2,114 in 2023, 2,582 in 2024, and 2,549 in 2025. The first half of 2026 saw a dramatic acceleration, with 1,663 subchapter V elections representing a 50% increase over the 1,107 recorded in the first half of 2025. July 2026 saw 234 subchapter V elections, a 24% year-over-year increase, and August 2026 produced 302 elections, a 63% increase over August 2025, even as overall commercial Chapter 11 filings rose just 1%. This pattern indicates that smaller businesses are increasingly feeling a disproportionate amount of financial pressure, making the availability of subchapter V’s relief loom larger than ever. 

Subchapter V’s Streamlined Architecture

Subchapter V achieves its efficiency through several structural features that distinguish it from traditional Chapter 11.

No creditors’ committee or disclosure statement. Unless the court orders otherwise for cause, there is no appointment of a creditors’ committee and no requirement to prepare or seek approval of a disclosure statement, eliminating two of the most expensive and time-consuming elements of conventional Chapter 11 practice. (11 U.S.C. § 1181(b)).

A facilitative trustee. While the debtor remains in possession and continues to operate its business throughout the case, a standing trustee is appointed whose job is to help shepherd the case through subchapter V and ideally secure a consensual reorganization. (11 U.S.C. § 1183).

Accelerated timelines. The court must hold a status conference within 60 days of the order for relief, and the debtor must file its plan within 90 days. Only the debtor may file a plan, precluding competing plans that can delay traditional cases. (11 U.S.C. §§ 1188, 1189).

Modified absolute priority and equity retention. If a consensual plan cannot be achieved, the debtor may obtain confirmation over the objection of impaired classes by committing all projected disposable income over a three-to-five-year period. Critically, this “cramdown” mechanism allows existing owners to retain their equity interests — an outcome generally unavailable in traditional Chapter 11 without a “new-value” contribution or full payment of dissenting classes. (11 U.S.C. § 1191). 

The Legislation

Companion bills were introduced in both chambers of Congress in early 2026: H.R. 7730 by Representative Ben Cline (R-VA) on February 26 and S. 3977 by Senator Chuck Grassley (R-IA) on March 3 with bipartisan cosponsors. The legislation makes three principal changes to the Bankruptcy Code.

1. Permanent $7,500,000 Subchapter V Threshold. Section 2(a) of the Act amends 11 U.S.C. § 1182(1) to define an eligible subchapter V “debtor” as a person engaged in commercial or business activities with aggregate noncontingent liquidated secured and unsecured debts of not more than $7,500,000 (excluding debts owed to affiliates or insiders), of which not less than 50% arose from the debtor’s commercial or business activities. The Act retains the existing exclusions for groups of affiliated debtors exceeding $7,500,000 in the aggregate, SEC-reporting companies, and affiliates of reporting companies.
2. Unified $2,750,000 Chapter 13 Limit. Section 2(b) replaces 11 U.S.C. § 109(e) with a single combined cap: only an individual (or individual and spouse) with regular income owing noncontingent liquidated debts aggregating less than $2,750,000 may be a Chapter 13 debtor. This eliminates the current bifurcation between secured and unsecured debt for Chapter 13 eligibility, which currently stands at $526,700 (unsecured) and $1,580,125 (secured).
3. Prospective Effective Date. Section 3 provides that the amendments apply to any case commenced under Title 11 on or after the date of the Act’s enactment. The Act is not retroactive.

What the Expanded Threshold Means for Creditors

The practical consequences of the higher threshold do not run in only one direction. Subchapter V is deliberately debtor-friendly, and raising the ceiling to $7,500,000 means that lenders, trade vendors, landlords, and equipment lessors will encounter the subchapter in credits they previously assumed would be administered as conventional Chapter 11 cases. Creditors holding exposure to borrowers in the roughly $3.4 million to $7.5 million range should understand how the procedural landscape changes.

No committee means no estate-funded collective voice. In a conventional Chapter 11 case, an official committee of unsecured creditors investigates the debtor, negotiates on behalf of the class, and does so with professionals paid from the estate. In subchapter V, no committee is appointed unless the court orders otherwise for cause. (11 U.S.C. §§ 1102(a)(3), 1181(b)). Unsecured creditors who want a meaningful voice will generally have to monitor the case and fund their own counsel, which can make individual participation uneconomic for smaller claims and increases the risk that a plan is confirmed without organized opposition.

A compressed timeline shortens the diligence window. The court must convene a status conference within 60 days of the order for relief, and the debtor must file a plan within 90 days. (11 U.S.C. §§ 1188, 1189). Because no disclosure statement is required absent a court order, creditors will often receive less written information and receive it later than they would in a traditional case. (11 U.S.C. § 1181(b)). Evaluating feasibility, projections, and claim treatment on that schedule requires creditors to engage early rather than waiting for a solicitation package.

Dissent no longer blocks confirmation in the same way. Subchapter V dispenses with the requirement of at least one consenting impaired class and with the conventional absolute priority rule. (11 U.S.C. § 1181(a)). On the debtor’s request, a plan may be confirmed over the objection of every impaired class so long as it does not discriminate unfairly and is fair and equitable, which for these purposes generally means committing projected disposable income, or property of equivalent value, over three years or such longer period up to five years as the court fixes. (11 U.S.C. § 1191(b)–(c)). The practical effect is that unsecured recoveries are measured by the debtor’s projected cash flow rather than by the leverage a dissenting class would ordinarily hold, and existing equity may be retained without a new-value contribution.

Creditors cannot propose a competing plan. Only the debtor may file a plan in a subchapter V case. (11 U.S.C. § 1189(a)). Creditors therefore lose the ability to advance an alternative restructuring or a sale-based proposal, and the negotiating posture shifts accordingly. The subchapter V trustee is charged with facilitating a consensual plan rather than displacing management or conducting a routine investigation, and the trustee undertakes the investigative duties of a conventional Chapter 11 trustee only if the court so orders for cause. (11 U.S.C. §§ 1183(b)(2), 1183(b)(7)).

Some features cut in creditors’ favor. Where a plan is confirmed on a nonconsensual basis, the debtor does not receive a discharge at confirmation; discharge follows completion of plan payments, which preserves meaningful leverage over performance. (11 U.S.C. § 1192). The reduced administrative burden of subchapter V generally also leaves more value available for distribution, and the statutory emphasis on consensual resolution can produce a negotiated outcome faster and at lower cost than a contested conventional case.

Two traps deserve particular attention. First, because debts owed to affiliates and insiders are excluded from the eligibility calculation, a borrower whose total liabilities exceed $7,500,000 may nonetheless qualify once insider debt is backed out, so the headline figure understates the reach of the amendment. Second, subchapter V permits a debtor to modify the rights of a lender secured only by the debtor’s principal residence where the loan proceeds were not used primarily to acquire the property and were used primarily in the debtor’s business. (11 U.S.C. § 1190(3)). Lenders who took residential collateral to support a business loan should assess that exposure.

Takeaways for Distressed Businesses

The eligible debtor pool will more than double. The increase from $3,424,000 to $7,500,000 will bring a substantial new population of small and mid-sized businesses within subchapter V’s reach, offering them access to a restructuring process that is materially faster, less expensive, and more debtor-friendly than traditional Chapter 11.

Timing is dispositive. Because the amendments apply only to cases commenced on or after the date of enactment, a debtor with qualifying debts above $3,424,000 that files before enactment will not be eligible for subchapter V. The same debtor filing the day after enactment can elect the streamlined process. Until the Act is signed and the enactment date is fixed, that line cannot be drawn with certainty, and businesses anticipating a filing should monitor the bill’s progress and evaluate this timing dynamic with counsel.

Model the debt calculation carefully. Eligibility turns on aggregate noncontingent liquidated secured and unsecured debts, excluding debts owed to affiliates and insiders, with at least 50% arising from commercial or business activities. The affiliate-aggregation cap and SEC-reporting exclusions require careful analysis, particularly for businesses operating through related entities.

Practical steps for creditors. Lenders and trade creditors should identify which obligors would fall within the expanded threshold, tighten financial reporting and covenant packages where the credit agreement permits, confirm that liens are properly perfected before distress emerges, and reassess reliance on guarantees and other credit support that survives a subchapter V plan. Prompt attention to setoff, reclamation, and administrative-expense rights is also warranted, given how quickly these cases can move.

If you have any questions about a potential bankruptcy filing, including eligibility for subchapter V or other alternatives, please contact George Angelich, Justin Kesselman, James Britton, or any other member of the ArentFox Schiff Financial Restructuring & Bankruptcy group.

1. ^This figure comes from the definition of ‘small business debtor’ contained in Section 101(51D) of the Bankruptcy Code and is adjusted annually for inflation. The most recent updated figure was provided by notice dated January 30, 2025, and effective as of April 1, 2025. See 90 Fed. Reg. 8941 (2025).
2. ^Small Business Reorganization Act of 2019, Pub. L. No. 116-54, 133 Stat. 1079 (2019) (effective Feb. 19, 2020).
3. ^CARES Act, Pub. L. No. 116-136, div. A, tit. I, § 1113(a), 134 Stat. 281, 310–11 (2020); extended by Pub. L. No. 117-5, 135 Stat. 249 (2021). 
4. ^Bankruptcy Threshold Adjustment and Technical Corrections Act, Pub. L. No. 117-151, 136 Stat. 1298 (2022). The temporary provisions sunset on June 21, 2024.
5. ^Section 3 of the Act provides that “[t]he amendments made by this Act shall apply to any case that is commenced under title 11, United States Code, on or after the date of enactment of this Act.” Note that some published summaries erroneously described retroactive application to June 21, 2024, reflecting earlier draft language rather than the reported text.