The U.S. House of Representatives has passed legislation that would permanently raise the debt limit for qualifying small businesses seeking Chapter 11 Subchapter V bankruptcy protection and individuals seeking Chapter 13 personal bankruptcy. The Bankruptcy Threshold Adjustment Act, H.R. 7730, would increase the Subchapter V debt ceiling from $3,424,000 to $7.5 million, potentially allowing more small businesses to qualify for this streamlined bankruptcy process.
The legislation passed the House by voice vote and now returns to the Senate, which previously passed companion legislation, S. 3977, on August 3, 2026. However, the proposed changes are not yet in effect.
What is the Bankruptcy Threshold Adjustment Act?
The Bankruptcy Threshold Adjustment Act is intended to permanently restore higher debt limits for Chapter 13 and Chapter 11 Subchapter V bankruptcy. Temporary provisions enacted during the COVID-19 pandemic increased the debt limits for certain bankruptcy chapters. Those provisions expired on June 21, 2024, and the lower limits currently apply.
H.R. 7730 would remove the expiration date and establish new debt limits for qualifying individuals and small businesses. For business owners, the proposed increase to the Subchapter V debt limit could be particularly important when evaluating whether bankruptcy may be an option for their company.
How Would the Bill Change Chapter 11 Subchapter V Bankruptcy?
Chapter 11 Subchapter V bankruptcy was created to provide a more streamlined reorganization process for qualifying small businesses. It allows eligible businesses to restructure their debts while continuing to operate. However, a business must meet certain eligibility requirements, including the applicable debt limit.
Under current law, Chapter 11 Subchapter V debt limit is $3,424,000. H.R. 7730 would raise the debt ceiling to $7.5 million in aggregate noncontingent, liquidated secured and unsecured debts.
The proposed legislation would also exclude debts owed to affiliates or insiders from the calculation. Unlike the temporary provisions that expired in 2024, the proposed changes would not include a sunset date. If enacted, the new debt limit would apply to bankruptcy cases commenced on or after the date of enactment.
The proposed increase could affect whether certain small businesses qualify for Chapter 11 Subchapter V bankruptcy. For example, a business with substantial secured and unsecured debt may exceed the current $3,424,000 debt limit but fall below the proposed $7.5 million limit. If the legislation becomes law, that business may need to reevaluate whether Chapter 11 Subchapter V is available.
The proposed changes would not automatically qualify every business for bankruptcy. Other eligibility requirements would still apply, including the requirement that at least half of qualifying debts arise from the debtor’s commercial or business activities.
Business owners should also understand that the proposed debt limit is not currently available. The existing $3,424,000 limit remains in effect unless and until the legislation becomes law.
What Happens Next?
The House passed H.R. 7730 by voice vote, but the legislation still has additional steps to complete before becoming law. Because the House passed its own amended version, the Senate must approve the House-amended text before the bill can be presented to the President for signature. Until both chambers approve identical language and the legislation is signed into law, the current bankruptcy debt limits remain in effect.
Small business owners considering Chapter 11 Subchapter V should continue to evaluate their options under the current law rather than relying on the proposed changes.
Contact The Lane Law Firm
If your business is struggling with debt, understanding your bankruptcy options can help you determine what steps may be available. Contact The Lane Law Firm to schedule a case evaluation to discuss whether Chapter 11 Subchapter V bankruptcy may be an option for your business.
