Congress Moves to Permanently Expand Subchapter V Eligibility for Small Businesses
The Legislation at a Glance
Congress is one step closer to permanently expanding access to Subchapter V of Chapter 11.
On September 16, 2026, the House of Representatives passed H.R. 7730, the “Bankruptcy Threshold Adjustment Act,” by voice vote. Representative Ben Cline (R-Va.) introduced the bipartisan legislation on February 26, 2026.
If enacted, the legislation would permanently increase the Subchapter V debt limit from the current $3.424 million to $7.5 million in aggregate noncontingent, liquidated secured and unsecured debt. Debts owed to affiliates or insiders would remain excluded from the calculation. At least 50% of the debtor’s qualifying debt must arise from commercial or business activities, and existing restrictions applicable to public companies, their affiliates, and single-asset real estate businesses would remain in place.
The legislation would also significantly expand eligibility for Chapter 13. It would establish a single debt limit of less than $2.75 million for noncontingent, liquidated debt and eliminate the current distinction between secured and unsecured debt when determining eligibility.
A Procedural Step Remains in Congress
The Senate passed companion legislation, S. 3977, by unanimous consent on August 3, 2026. Although the House and Senate bills contain identical substantive provisions, their short titles differ: the House bill is titled the “Bankruptcy Threshold Adjustment Act,” while the Senate version is titled the “Bankruptcy Threshold Adjustment Act of 2026.”
Because both chambers must approve identical text, the legislation has not yet been enacted. The Senate must approve the House-passed version, or the chambers must otherwise reconcile the technical difference, before the legislation may be enrolled and presented to the President for signature. Until that occurs, the existing debt limits remain in effect. The new limits would apply only to bankruptcy cases commenced on or after the date of enactment.
Restoring the Higher Subchapter V Threshold
Congress created Subchapter V through the Small Business Reorganization Act of 2019 to provide qualifying small businesses with a faster and generally less expensive path through Chapter 11. Among other features, Subchapter V ordinarily eliminates the appointment of an official committee of unsecured creditors, appoints a standing trustee, and permits confirmation of a nonconsensual plan without satisfying the traditional absolute priority rule.
The original Subchapter V debt ceiling was approximately $2.7 million. Congress temporarily increased that limit to $7.5 million in response to the COVID-19 pandemic and later extended the higher threshold. When the temporary increase expired on June 21, 2024, the limit reverted to the inflation-adjusted statutory amount, presently $3.424 million.
H.R. 7730 would restore the $7.5 million threshold and, importantly, make it permanent.
What the Legislation Means for Creditors
The proposed increase would substantially expand the universe of businesses eligible to elect Subchapter V. Creditors dealing with financially distressed companies carrying between $3.424 million and $7.5 million in qualifying debt should therefore be prepared for the possibility that those companies may seek relief under Subchapter V rather than proceed under traditional Chapter 11.
That distinction can materially affect a creditor’s rights and strategy. Subchapter V cases frequently move on an accelerated timetable, and a debtor generally must file a plan within 90 days after the petition date. Because a creditors’ committee is not ordinarily appointed, individual creditors may need to take a more active role in reviewing the debtor’s finances, monitoring plan negotiations, assessing proposed treatment, and asserting objections.
Creditors should also promptly evaluate whether the debtor satisfies Subchapter V’s eligibility requirements, including the amount and character of its debts, the requirement that at least 50% of its qualifying debt arise from business activities, and the statutory exclusions applicable to certain debtors.
Expect Subchapter V Filings to Increase
Subchapter V filings are already rising sharply. According to Epiq AACER, 1,663 Subchapter V elections were filed during the first half of 2026, a 50% increase over the 1,107 filings recorded during the same period in 2025. Overall commercial Chapter 11 filings increased 28% during that period. Epiq’s filing report is available here.
If the $7.5 million threshold becomes law, the number of Subchapter V filings should increase further. The higher limit will immediately make Subchapter V available to businesses that are presently above the eligibility ceiling, including many mid-sized businesses whose debt levels make traditional Chapter 11 comparatively expensive and cumbersome.
The precise increase cannot be predicted because eligibility does not necessarily result in a filing, and economic conditions will remain an important driver of bankruptcy activity. Nevertheless, the combination of an expanded debtor pool, the procedural advantages of Subchapter V, and the existing upward trend in small-business bankruptcies makes a meaningful increase highly likely. Creditors should expect to encounter Subchapter V more frequently and should be prepared to act quickly when a customer, borrower, or other counterparty seeks relief under the expanded statute.
Businesses and creditors with questions about Subchapter V, restructuring options, or how the proposed changes may affect their rights should contact FRB’s Bankruptcy and Restructuring attorneys at (516) 599-0888 or fill out the form below.
DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.