The Senate has passed legislation to make permanent two eligibility thresholds that have shaped recent restructurings for small businesses and consumers. The bill would restore the higher debt limits for small business Chapter 11 cases under Subchapter V – the focus of this alert – and for Chapter 13 consumer reorganizations. Eligibility drives access to faster, lower-cost restructuring options and influences creditor recoveries and case timelines.
What You Need to Know:
- Subchapter V, an efficient form of Chapter 11, may become available to more small businesses
- Senate passed a bill to increase the Subchapter V debt limit to $7.5 million, where it was from 2020-2024, with an increase in the Chapter 13 debt limit to $2.75 million
- Passage still subject to House and Executive approval
Why Does the Debt Limit Matter?
Subchapter V is a streamlined Chapter 11 framework created by the Small Business Reorganization Act in 2019 to reduce procedural burdens, lower costs, and speed up plan confirmation for qualifying small businesses. In 2020, Congress temporarily raised Subchapter V’s debt cap to $7.5 million and subsequently extended that cap while setting a $2.75 million aggregate secured and unsecured debt limit for Chapter 13. When those adjustments lapsed in 2024, thresholds reverted to lower levels, moving many enterprises back into traditional Chapter 11 (or not filing at all) and families out of Chapter 13.
The Bankruptcy Threshold Adjustment Act of 2026 would permanently restore Subchapter V’s $7.5 million cap and Chapter 13’s $2.75 million cap. The stated policy focus is to remove barriers to reorganization, accelerate plan processes, and preserve going-concern value for businesses while expanding consumer access to supervised repayment plans.
Practical Considerations for Small Business Stakeholders
- In a typical Subchapter V case, there are no creditor committees and administrative expenses are reduced.
- Condensed milestones can accelerate plan filing and confirmation, supporting liquidity, employee retention, and vendor confidence.
- Near-term plan paths can support accommodations from lenders and trade partners.
- Businesses near the restored cap may evaluate capital structure, claims, and timing to maintain eligibility.
- Features such as the potential to retain equity and confirmation without an accepting impaired class can affect negotiation leverage, while feasibility and fairness requirements continue to apply.
Practical Considerations for Creditors
- Anticipate accelerated diligence on valuation, collateral, cash collateral use, and adequate protection.
- Landlords can closely track small business tenants with credit risk and gain understanding of Subchapter V differences, including cure treatment.
- Early engagement may improve treatment, including structured cures, maturity extensions, pricing adjustments, or collateral enhancements in consensual plans.
- Identify borrowers with aggregate debts below $7.5 million and establish Subchapter V response playbooks for rapid filings.
- Tighten order-to-cash processes and assess reclamation and section 503(b)(9) strategies in the context of faster-moving cases.
Brief Note on Chapter 13
The bill would permanently restore Chapter 13’s $2.75 million aggregate debt cap, broadening access for households managing higher rates and living costs. The objective is to facilitate reorganization through supervised repayment plans from regular income that can support home retention and stabilized budgets.
Next Steps
Saul Ewing’s Bankruptcy & Restructuring group regularly represents debtors, creditors, and other stakeholders in bankruptcy cases across the country, including those under Subchapter V. We will be closely monitoring the status of this bill but in the meantime, feel free to contact our team with any questions.
