Congress Approves Permanent Expansion of Subchapter V Debt Limit; President’s Signature Remains
Congress Approves Permanent Expansion of Subchapter V Debt Limit; President’s Signature Remains
By Michael L. Moskowitz Updated September 30, 2026
Congress has completed its approval of legislation that would permanently expand access to Subchapter V bankruptcy, bringing a significant change for lenders, trade creditors, and other businesses dealing with financially distressed borrowers and customers.
On September 28, 2026, the Senate unanimously approved H.R. 7730, the Bankruptcy Threshold Adjustment Act, following the House’s passage by voice vote on September 16. The legislation would restore the $7.5 million Subchapter V debt ceiling and permanently increase the Chapter 13 eligibility limit. The bill still requires the President’s signature before the new limits take effect.
The Senate’s action resolves the remaining congressional step described in our earlier article. Although the Senate previously approved companion legislation, the chambers needed to approve identical text before the measure could proceed to the President.
What Would Change?
The legislation would increase the Subchapter V debt ceiling from $3,424,000 to $7.5 million in aggregate noncontingent, liquidated secured and unsecured debt, excluding debts owed to affiliates or insiders. At least 50% of qualifying debt must arise from commercial or business activities, and the statutory exclusions for certain affiliated debtors, public companies and their affiliates, and single-asset real estate businesses would remain.
For Chapter 13, the bill would replace the separate eligibility limits—currently less than $526,700 in unsecured debt and less than $1,580,125 in secured debt—with a single combined limit of less than $2.75 million in noncontingent, liquidated debt. The existing limits are separate tests; they are not presently a single approximately $2.1 million cap.
Unlike the earlier temporary increases, the bill contains no sunset provision. Its amendments would apply to bankruptcy cases commenced on or after the date of enactment. Congressional passage alone does not change the eligibility limits.
Why Creditors Should Pay Attention
The expanded ceiling would allow more businesses to use a streamlined restructuring process with procedures that can materially affect creditor participation and recovery strategy.
Subchapter V generally operates on an accelerated timetable, with a plan ordinarily due within 90 days after the order for relief. A trustee is appointed in each case, but an official unsecured creditors’ committee is ordinarily absent. Creditors should therefore be prepared to review financial disclosures, evaluate proposed treatment, and participate in negotiations promptly.
For lenders and trade creditors, the practical response is early preparation: review loan and security documents, assess collateral and guarantees, scrutinize eligibility, and evaluate whether the debtor’s proposed payments are supported by realistic projections. A faster process makes timely attention especially valuable.
Expect Additional Subchapter V Filings
Subchapter V filings were already increasing under the lower debt ceiling. If enacted, the higher threshold should produce a further meaningful increase in Subchapter V filings by expanding the pool of eligible businesses. Companies with qualifying debt above $3.424 million and up to $7.5 million would gain access to this restructuring option, subject to the remaining eligibility requirements.
Some additional Subchapter V cases would likely be filings that otherwise would have proceeded under traditional Chapter 11. Others could involve businesses for which the cost of traditional reorganization previously made bankruptcy impractical. Accordingly, an increase in Subchapter V elections would not necessarily represent an equivalent increase in total business bankruptcies.
The size and timing of the increase cannot be predicted reliably. Nevertheless, the broader eligibility pool and existing filing trend support the expectation that creditors will encounter Subchapter V more frequently once the legislation becomes law.
Practice Pointer: Creditors should prepare now for the potential expansion while continuing to apply the existing eligibility limits until enactment. When a borrower or customer files, prompt review of eligibility, collateral, financial projections, and case deadlines can help protect recovery prospects.
FRB represents creditors in bankruptcy and restructuring matters. Creditors with questions about the legislation or its potential effect on their rights should contact FRB’s Creditors’ Rights & Bankruptcy attorneys.
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.