Congress permanently restores the $7.5 million Subchapter V debt limit: The Bankruptcy Threshold Adjustment Act

On November 10, 2026, President Trump signed into law H.R. 7730, the Bankruptcy Threshold Adjustment Act (the Act). The Act permanently raises the debt ceiling for small business bankruptcy reorganizations under Subchapter V of Chapter 11 of the Bankruptcy Code to $7.5 million. The new limit applies to bankruptcy cases filed on or after November 10, 2026.

Background

Subchapter V, created by the Small Business Reorganization Act of 2019, offers small businesses a faster, less expensive path through Chapter 11. In 2020, Congress temporarily raised the Subchapter V debt limit to $7.5 million in response to the COVID-19 pandemic, and later extended that increase. The temporary increase expired in June 2024, and the Subchapter V limit reverted to approximately $3.4 million (most recently $3,424,000 as inflation-adjusted).

Representative Ben Cline (R-VA), who sponsored the 2019 legislation creating Subchapter V, introduced H.R. 7730 on February 26, 2026. The House passed the bill by voice vote on September 16, 2026, and the Senate passed it without amendment by unanimous consent on September 28, 2026. The bipartisan, uncontested passage reflects broad consensus that the higher threshold had worked well.

Key provisions

1. Subchapter V Debt limit increased to $7.5 million

The Act amends Section 1182(1) of the Bankruptcy Code to define an eligible “debtor” as a person engaged in commercial or business activities (including an affiliate that is also a debtor) with aggregate noncontingent, liquidated secured and unsecured debts of not more than $7,500,000 as of the petition date (the date that the bankruptcy case is filed) or the date of the order for relief, excluding debts owed to affiliates or insiders, at least 50 percent of which arose from the debtor's commercial or business activities. Certain existing exclusions remain, including for persons whose primary activity is owning single asset real estate.

2. Permanent, with no sunset

Unlike the prior temporary increases, the Act contains no sunset provision. The amendments apply to any case commenced under the Bankruptcy Code on or after the date of enactment. Subchapter V bankruptcy cases filed before November 10, 2026 remain subject to the prior debt limits.

Why it matters 

Expanded access to a debtor-friendly process. Roughly doubling the Subchapter V ceiling brings a substantial number of lower middle-market businesses back within reach of the streamlined process. Key Subchapter V features include no creditors' committee by default, no U.S. Trustee quarterly fees, a standing trustee in place of a traditional examiner, a debtor-only right to propose a plan within 90 days of the petition date, and the ability to confirm a plan over creditor objections without satisfying the absolute priority rule (existing equity holders retain their equity and control of the business post-bankruptcy), so long as the plan commits the debtor's projected disposable income for three to five years and is fair and equitable. 

Lenders and secured creditors. Lenders to small and mid-sized businesses should expect more borrowers to qualify for Subchapter V. Because equity holders can retain ownership without paying creditors in full, and plans can be confirmed without an accepting impaired class, lenders have less leverage than in a traditional Chapter 11. Lenders should revisit workout strategies, monitor borrower debt levels against the new threshold, and consider whether forbearance or out-of-court restructurings now carry different risks.

Trade creditors, landlords, and contract counterparties. Vendors and landlords with distressed customers or tenants may see more Subchapter V filings and faster plan timelines. Counterparties should be prepared to act promptly on claims, objections to assumption or rejection of contracts and leases, and plan treatment.

Distressed businesses and their owners. Businesses with up to $7.5 million in qualifying debt now have a lower-cost restructuring option that may allow owners to retain their equity.

Certainty. Because the increase is permanent, businesses, lenders, and advisors can plan around a stable threshold rather than the series of temporary extensions and lapses that characterized 2020 through 2024.

Next steps

• Lenders should review loan portfolios for borrowers whose debt falls between approximately $3.4 million and $7.5 million and evaluate workout and enforcement strategies accordingly.
• Creditors should confirm that eligibility challenges in pending or newly filed cases are measured against the correct limit based on the petition date.
• Distressed businesses and individuals should consult restructuring counsel to determine whether Subchapter V is now available and advantageous.