The measure awaits House approval
The U.S. Senate has unanimously approved a bill that would permanently raise the debt cap for small businesses seeking to reorganize under Subchapter V of Chapter 11, a move viewed as a major win for companies struggling with post‑pandemic financial pressures.
The measure now awaits approval by the U.S. House of Representatives.
Passed on August 3, Senate Bill 3977, the Bankruptcy Threshold Adjustment Act of 2026, restores the Subchapter V eligibility limit to $7.5 million, a threshold that had been in place temporarily during the COVID‑19 emergency. The bipartisan bill aims to ensure that small businesses and individual entrepreneurs can continue to access a faster, less costly restructuring process designed specifically for smaller enterprises.
Subchapter V was created in 2020 through the Small Business Reorganization Act to give small businesses a more efficient alternative to traditional Chapter 11, which is often too expensive and procedurally burdensome for smaller firms. The original debt limit of $2.7 million was temporarily increased to $7.5 million under the CARES Act, but that expansion expired in June 2024, dropping eligibility back to roughly $3.4 million after annual adjustments.
That lower threshold effectively shut out many businesses with debts between $3 million and $7.5 million, companies large enough to exceed the cap but too small to navigate a full Chapter 11 case without high cost and operational strain.
“Many small businesses and individuals with legitimate restructuring needs were excluded from streamlined bankruptcy options because existing debt limits no longer align with modern financing and asset values, including for many of Maine’s small businesses and family-owned companies,” said Adam Prescott, Co-Chair of Bernstein Shur’s Business, Insolvency & Restructuring Group, in a statement.
A companion bill in the House, H.R. 7730, sponsored by Rep. Ben Cline (R‑Va.), cleared the Judiciary Committee earlier this year, signaling broad congressional support for making the higher Subchapter V threshold permanent.
