Congress has passed legislation that would dramatically expand access to a streamlined bankruptcy process favoured by smaller businesses across the United States.
The Bankruptcy Threshold Adjustment Act, known as H.R. 7730, would nearly double the qualifying debt ceiling under Subchapter V of Chapter 11 from approximately $3.4 million to $7.5 million.
For companies sitting in that gap between $3,424,000 and $7.5 million in qualifying debt, timing a potential bankruptcy filing could prove to be one of the most consequential decisions management makes.
The practical advice from legal practitioners is straightforward: if a business in that debt range can afford to wait, it should, at least until the bill formally becomes law.
The $7.5 million threshold is not a new idea conjured by the current Congress; lawmakers originally set it in 2020 and subsequently extended it twice, in 2021 and again in 2022.
That legislative track record gives bankruptcy practitioners strong reason to expect the bill will clear the remaining hurdles and be signed into law without significant delay.
The limit was adjusted downward to roughly $3.4 million on June 21, 2024, effectively locking out a sizeable cohort of mid-range distressed businesses from one of the most debtor-friendly restructuring tools available.
Subchapter V is particularly attractive because a trustee is appointed to assist with the process, and the path to a confirmed reorganisation plan is generally faster and less adversarial than standard Chapter 11 proceedings.
Calculating whether a business actually qualifies requires careful attention to the specific definition of debt used under the provision, which covers noncontingent, liquidated secured and unsecured obligations while excluding any amounts owed to insiders or affiliates.
Companies should run those numbers rigorously before making any assumptions about eligibility, since the distinction between qualifying and non-qualifying debt can shift a business into or out of the threshold unexpectedly.
Experienced practitioners have used Subchapter V not only for small businesses but also to confirm plans of reorganisation for companies contending with “tens and even hundreds of millions of dollars” in total claims, illustrating the tool’s flexibility beyond its headline debt cap.
The expansion, if enacted, would open the door to a wider pool of businesses seeking an orderly restructuring without the expense and complexity that typically define larger Chapter 11 cases.