Lawmakers propose raising debt threshold for Subchapter V filings

The threshold for Subchapter V bankruptcy could permanently rise under a new bill introduced by Virginia Congressman Ben Cline. The Bankruptcy Threshold Adjustment Act of 2026 would raise the threshold from $3 million to $7.5 million, effectively allowing more businesses to file via a faster, cost-effective route to bankruptcy.  

Created to offer an alternative for small businesses facing liquidation, Subchapter V was established with the Small Business Reorganization Act (SBRA) of 2019 with an initial debt limit of $2.7 million. In response to the COVID-19 pandemic, the debt limit was temporarily raised to $7.5 million, which was extended twice before lapsing in June 2024.  

Subchapter V bankruptcies are more streamlined than traditional bankruptcies. With no creditors’ committee, businesses spend less on attorneys and trustees. While this allows for an easier route for small businesses to rebuild rather than completely shut down, they are often able to do so at the expense of creditors. The Subchapter V process has far less oversight on payment plans once the bankruptcy leaves the courtroom, with the task of ensuring payments are made often falling to the creditors rather than the debtors.  

Despite the debt limit resetting to $3 million, Subchapter V filings have soared as small businesses react to a tightening economy. February saw a 91% increase in filings year-over-year, according to the American Bankruptcy Institute, with 164 more filings than in February 2025.  

The bottom line: While there is no guarantee that the bill comes to fruition, the news once again shows that raising the debt limit for Subchapter V is still a topic of conversation among lawmakers even a year and a half after the raised threshold lapsed.