Congress is poised to restore the Subchapter V debt limit to $7.5 million — permanently. Here’s what the change means for business owners, lenders, and the timing of any restructuring decision.
For the past two years, we have had a version of the same conversation with business owners more times than we can count.
A company comes to us under real financial pressure. The operations are sound. There are customers, employees, equipment, and a book of work. What has stopped working is the balance sheet — debt taken on when money was cheap, now sitting on top of higher interest costs, softer demand, or a lawsuit nobody saw coming. The business is worth saving. Everyone in the room agrees on that.
Then we run the debt numbers, and the most practical tool for saving it turns out to be unavailable.
That is about to change.
What Subchapter V actually is
Subchapter V is a streamlined version of Chapter 11 that Congress created specifically for smaller businesses. The differences from a conventional Chapter 11 are not cosmetic:
- There is usually no creditors’ committee, and no disclosure statement — two of the largest drivers of cost in a traditional case.
- The timeline is compressed. A plan is due within 90 days of filing, and cases are built to move.
- Only the debtor can propose a plan. Creditors cannot file a competing one.
- Most importantly for a family or founder-owned company: the owners can keep their equity while paying creditors out of the business’s future earnings. In a conventional Chapter 11, holding onto ownership over creditor objection is difficult and often impossible.
In short, it is a restructuring process whose cost and complexity are proportionate to the size of the business using it.
What has been broken
The catch has always been the debt ceiling.
Congress set the original limit at roughly $2.7 million in 2019, raised it to $7.5 million months later, extended it in 2022 — and then let it lapse on June 21, 2024. Since then, eligibility has been based on the lower figure.
That gap left a great many companies in an uncomfortable middle ground: too much debt to use Subchapter V, too little enterprise value to justify the expense of a conventional Chapter 11. Some pursued out-of-court workouts from a weak negotiating position. Some delayed while liquidity drained away. Some simply ran out of options. The American Bankruptcy Institute estimates that roughly 1,475 small businesses were ineligible to file under Subchapter V due to the lower threshold between June 2024 and March 2026.
What the Bankruptcy Threshold Adjustment Act would do
The legislation restores the Subchapter V debt limit to $7.5 million — and, unlike the 2022 extension, it contains no sunset date. The limit would simply be the limit.
It also raises the Chapter 13 debt limit to $2.75 million and eliminates the separate caps for secured and unsecured debt, which matters a great deal for sole proprietors and individual owners whose business and personal obligations are intertwined.
The Senate passed the bill on August 3, 2026, and the House passed it in September. Because the two versions carry different short titles, the bill returns to the Senate for what is expected to be a routine vote before it can go to the President. It is not law yet. But the direction is clear, and the earlier votes were unanimous.
Who this actually helps
When people hear “small business,” they picture a storefront. The companies most affected by this change look nothing like that.
Manufacturers. Wholesale distributors. Specialty and mechanical contractors. Staffing and professional services firms. Auto dealerships. Trucking and logistics companies. Restaurant groups and franchise operators. Family-owned businesses that grew during a decade of inexpensive credit. Any of these can carry debt above the current threshold while remaining nowhere near the scale of a large Chapter 11 case.
A few points of nuance are worth knowing, because they surprise owners in both directions:
The debt test is narrower than it sounds. Eligibility counts noncontingent, liquidated debt measured at the filing date, and it excludes what the company owes to insiders and affiliates. Unliquidated litigation claims generally do not count. A business that looks well over the line on its balance sheet may, in fact, sit comfortably under it.
Affiliated companies are measured together. That is the trap for owners who hold assets across several single-purpose entities — a common structure here in South Florida.
Real estate requires care. Subchapter V is not available to a debtor whose primary activity is owning single-asset real estate, and this legislation does not change that. But the test turns on what the business does, not what it owns. A hotel, a restaurant, a marina, an assisted living facility — those are operating businesses, and they can qualify.
Why timing matters more than usual right now
Here is the detail most likely to be overlooked: the bill applies only to cases commenced on or after the date it is enacted. A company that files a conventional Chapter 11 the week before the President signs cannot elect Subchapter V afterward.
That does not mean every business should wait. Financial distress does not pause for a floor vote. Liquidity keeps draining, vendors tighten terms, key employees leave, secured lenders exercise remedies, and customers lose confidence. Enterprise value can erode long before a business reaches the courthouse — and for some companies, protecting value requires acting now regardless of what Congress does.
The better question is not when will this pass. It is whether additional time is likely to preserve your company’s value or diminish it. Answering that requires a clear-eyed look at available liquidity, projected cash flow, lender relationships, covenant compliance, pending litigation, and customer retention — and modeling more than one outcome rather than betting on a single legislative timetable.
The part that surprises people
Perhaps the most significant consequence of this change is that many of the businesses it makes eligible will never need to use it.
When a company has a realistic, affordable path to a court-supervised restructuring, the conversations that happen outside of court tend to become far more productive. Lenders, landlords, and trade creditors evaluate their positions differently when the alternative is credible. Expanded eligibility is not only a filing option — it is leverage in a workout, and it is available the moment the law takes effect, whether or not a petition is ever filed. (For a deeper discussion on negotiating leverage, reference the prior article published in Law360 – “How Subchapter V Bill May Change Restructuring Analysis”)
What to do now
If your company is carrying between roughly $3 million and $7.5 million in debt and the capital structure no longer reflects economic reality, this is the period to get your analysis done — not after the money runs out.
Understand where your debt actually falls under the eligibility test. Model what a restructuring would look like under each scenario. Know, before the phone rings, which of your options are real.
At Agentis, we represent businesses, lenders, creditors, and fiduciaries throughout restructuring matters in Florida and nationwide. If you would like to discuss how the pending legislation could affect your situation, we would welcome the conversation.
About the Author
Robert P. “Bob” Charbonneau is a founding partner of Agentis Law whose practice focuses on bankruptcy, restructuring, and insolvency-related litigation. With decades of experience representing Chapter 11 debtors, creditors, trustees, committees, and other stakeholders, Bob helps businesses and their owners evaluate restructuring options, navigate financially distressed situations, and preserve value. He also represents and serves as a court-appointed fiduciary in matters involving troubled businesses, real estate assets, and fraud-related investigations.
This article is for general information purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Legislation described here has not yet been enacted; its final form and effective date remain subject to change.