A new bill introduced in the U.S. Senate could significantly expand access to one of the most practical restructuring tools available to small and mid-sized businesses. On March 4, lawmakers introduced S. 3977, which proposes increasing the debt eligibility limit for Subchapter V of Chapter 11 bankruptcy to $7.5 million.
Subchapter V was created through the Small Business Reorganization Act of 2019 to provide a more efficient path for small businesses seeking to reorganize their debts while continuing operations. Traditional Chapter 11 cases can be expensive and time-consuming, often requiring creditor committees, complex disclosure statements, and significant administrative costs. Subchapter V simplifies many of those requirements. It allows qualifying businesses to move through the restructuring process more quickly, reduces administrative expenses, and in many cases allows owners to retain their equity while implementing a repayment plan over time.
During the COVID-19 pandemic, Congress temporarily raised the Subchapter V debt limit to $7.5 million. That increase allowed a broader range of small and mid-sized businesses to pursue restructuring rather than liquidation. When the temporary increase expired, the eligibility threshold dropped back to approximately $3 million, excluding many businesses whose debt levels fall between those two amounts.
If enacted, the proposed legislation would once again expand access to Subchapter V for businesses with more moderate debt loads. This change could be particularly important for industries such as restaurants, hospitality businesses, small real estate operators, and retail companies. These businesses often carry several million dollars in lease obligations, equipment financing, vendor debt, or secured loans tied to property. Under the current limit, many are pushed into traditional Chapter 11 proceedings, which may be too costly to sustain.
Restoring the $7.5 million threshold would allow more of these businesses to restructure efficiently, stabilize operations, and preserve jobs while working through financial distress. For business owners facing mounting financial pressure, Subchapter V may offer a practical path to reorganize and move forward.
If your business is experiencing financial pressure or carrying debt near the current eligibility threshold, this proposed increase could create new opportunities to restructure more efficiently through Subchapter V of Chapter 11. Our team is closely monitoring these developments and can help businesses evaluate whether Subchapter V restructuring may become a viable option and how to position for a successful outcome. Contact us for more information.
