NDAA excludes Subchapter V debt limit increase, benefiting creditors

December in Washington is dominated by last-minute negotiations on an array of must-pass bills Congress still needs to act on. Top of the list is the National Defense Authorization Act (NDAA), which funds the nation’s nearly $1 trillion annual defense budget. While predominantly focused on defense, the NDAA has become a Christmas tree for non-defense related legislation to ride along, and this year is no exception.

But this year’s tree is looking comparatively bare, a reflection of how few items this Congress can agree on and the narrow vote margins Congressional leadership has to manage.

Some of the non-defense related items that made the cut this year include reauthorization of the PROTECT Our Children Act, which cracks down on child pornography, several fentanyl-related sanctions authorities and the fulfillment of a campaign promise that President Trump made to give federal tribal recognition to the Lumbee Nation in North and South Carolina. In total, only around two dozen significant items made the cut, far lower than the usual fifty or more that have been included in years past.

One proposal that failed to make the cut was a restoration of the COVID-era increased debt limit ceiling in order to qualify for the more debtor friendly Chapter 11 Subchapter V bankruptcy process. The increased debt ceiling of $7.5 million expired last year in June, restoring the inflation-adjusted limit of about $3 million. While there are still active efforts to increase the debt ceiling, this is a major win for creditors concerned with being forced to write off hard-to-collect debt payments under an approved Subchapter V reorganization plan.

ACA Subsidy & Government Funding Showdown Update

Despite show-votes in the Senate this week, no real progress has been made on finding a pathway forward to extend the enhanced premium subsidies that millions of Americans currently rely on for their health care. That means they will almost certainly expire at the end of the year, setting up another government shutdown battle in January.

While the chances of another shutdown are higher now than they were last month, enough Republicans are concerned about their re-election prospects should the subsidies be allowed to fully sunset that it is still slightly more likely than not that a deal will be reached in January to avert a shutdown and restore, at least in part, the subsidies.