Congress Moves to Restore the $7.5 Million Subchapter V Threshold

For two years, a lapsed provision in the Bankruptcy Code has been pushing small companies toward liquidation instead of reorganization. Congress is now close to closing the gap.

The House passed its bill on Wednesday, September 16, more than doubling the current debt-eligibility limit for Subchapter V cases. The Senate passed its version unanimously in August, and both moved with bipartisan support. The American Bankruptcy Institute said Thursday that the two bills are substantively near-identical, but that both chambers still have to approve the same final text before it can go to the President. ABI's executive director framed the legislation as helping more debtors reorganize efficiently while "preserving value for all stakeholders."

What the bill does

The legislation restores the Subchapter V debt ceiling to $7.5 million, up from the current inflation-adjusted $3,424,000. The Senate version also consolidates the Chapter 13 secured and unsecured caps into a single $2.75 million limit.

This is a restoration, not an invention. Subchapter V originally opened to businesses with up to $2.7 million in debt. The CARES Act temporarily lifted the ceiling to $7.5 million in 2020, and that authority expired in 2024, reverting eligibility to the original level with inflation adjustments. The American Bankruptcy Institute estimates that roughly 1,475 companies that would have qualified as Subchapter V debtors were shut out between June 2024 and March 2026.

Why Subchapter V matters more than the name suggests

Standard Chapter 11 is a poor fit for a company with $6 million of debt. Professional fees alone can consume the value the process is meant to preserve. Subchapter V strips out much of that overhead: no court-appointed creditors' committee, no quarterly fees to the US Trustee, and no solicitation of creditor votes on the plan. Owners can shed debt without losing ownership of the company.

The adoption numbers tell the story. Subchapter V accounted for 44% of all Chapter 11 filings in 2023, the last full year before the threshold tightened. Even with the narrower eligibility since, more than 6,600 businesses filed under it between January 2024 and August 2026, with monthly filings up nearly 90% across that stretch, according to Epiq. ABI's own study found these cases confirm faster, more often, and at lower cost than standard Chapter 11, with roughly twice the confirmation rate and half the dismissal rate of other small business cases.

The threshold is not a technicality. ABI found that more than a quarter of the businesses that used Subchapter V between February 2020 and September 2023 would have been ineligible under the original $2.7 million cap. That is the population the 2024 expiration locked out, and the population this bill lets back in.

What it means if you own a business in this range

Most lower middle market operators we work with carry funded debt, trade payables, and equipment obligations totaling somewhere between $2 million and $8 million. Under the current ceiling, a meaningful share of them sit just outside the door. Four practical implications:

Negotiating leverage shifts. A credible ability to file under Subchapter V changes the tone of a conversation with a senior lender or an aggressive trade creditor. A company at $5 million of debt currently has no realistic reorganization path, and its lenders know it. At $7.5 million, the calculus for an out-of-court forbearance looks different.

Distressed sale processes get a second track. A transaction that cannot clear liens or contingent liabilities out of court may be able to run through a plan or a court-supervised sale inside a fast, low-cost case. That widens the buyer universe and usually improves price, because buyers pay more for clean title than for successor-liability risk.

Timing is not neutral. The higher limit applies on enactment and to cases filed after that date. Until the President signs, the operative ceiling remains $3,424,000. An owner weighing a filing in the next several months should be tracking the reconciliation, not assuming the outcome.

The ceiling will erode. Both versions reinstate $7.5 million but end the automatic inflation adjustment going forward. The threshold will lose real value over time, and any future increase will require new legislation. Plan around the nominal number.

One mechanical point that trips people up: eligibility is measured by aggregate noncontingent, liquidated secured and unsecured debt as of the filing date, excluding amounts owed to affiliates and insiders. Companies routinely misjudge their own position in both directions. An owner note or an intercompany balance can move a borderline company inside the line, and a disputed, unliquidated claim may not count at all.

What we're watching

The bill is not law yet. Both chambers passed without meaningful opposition, which makes enactment before year end a reasonable expectation rather than a certainty.