Maryland Legal Alert for Financial Services
Congress Enacts Permanent Increase to Bankruptcy Debt Thresholds for Small Businesses
Federal lawmakers have passed legislation that substantially raises the debt ceilings governing expedited bankruptcy procedures for small businesses. This change officially marks the end of a two-year period of uncertainty following the expiration of temporary pandemic-era relief measures.
The Bankruptcy Threshold Adjustment Act of 2026 received final approval from the House of Representatives in mid-September, following Senate passage by unanimous consent the previous month. The coordinated legislative effort was introduced earlier in the year with companion bills: S.3977 in the Senate and H.R. 7730 in the House.
The new law restores the Subchapter V debt limit to $7.5 million, reversing a reduction from $2.7 million that took effect in 2024. Subchapter V, a specialized component of Chapter 11 of the Bankruptcy Code, was designed to provide small commercial businesses with a streamlined reorganization path that costs less and moves faster than conventional Chapter 11 proceedings.
When Congress temporarily increased the Subchapter V threshold during the COVID-19 crisis, filings under the subchapter surged as more businesses qualified for the accelerated process. The return to a lower ceiling two years ago created immediate challenges for bankruptcy practitioners, who found themselves developing strategies to help clients satisfy the reduced limit, including negotiating debt reductions and restructuring claims.
The legislation also clarifies that at least half of a qualifying debtor's obligations must arise from commercial or business operations. It further excludes certain categories of entities, including single-asset real estate companies, publicly reporting corporations and their affiliates, and affiliated business groups whose combined debts exceed the new ceiling.
For small business owners, the return to the $7.5 million ceiling means that mid-sized commercial operations facing temporary cash-flow disruptions or market downturns can reorganize without the expense and complexity of full Chapter 11 administration. The streamlined procedures under Subchapter V include reduced reporting requirements, expedited plan confirmation timelines, and the absence of creditor committees in most cases.
The 2026 legislation establishes a higher, permanent eligibility threshold intended to reflect current small-business debt levels. The new legislation is now awaiting presidential signature to become enacted into law.
For more information about this topic, please contact Christopher R. Rahl, or Peri L. Schuster.