On August 3, 2026, the U.S. Senate unanimously passed S. 3977, the “Bankruptcy Threshold Adjustment Act of 2026.” The Act was introduced with bipartisan support in March to permanently raise the debt limit back to $7.5 million for small businesses and individuals electing to file for bankruptcy under Subchapter V of Chapter 11.
The Small Business Reorganization Act established the new Subchapter V of Chapter 11 in February 2020 for eligible small businesses and small business owners, with an original debt limit of $2,725,625. In response to the COVID-19 pandemic, the CARES Act of 2020 and various extensions temporarily increased the Subchapter V debt limit to $7.5 million. This increased eligibility limit sunset in June 2024, however, and returned to its original level, which is currently $3,424,000 based on annual adjustments.
Subchapter V offers a lifeline for struggling small businesses and individuals that found themselves unable to benefit from the standard Chapter 11 process, including due to the cost and administrative burden in Chapter 11. Subchapter V eliminated many of those barriers to create a faster, more effective, and more affordable option for eligible debtors. However, with the debt limit floating around $3 million for the past two years, many small businesses with debts between $3 million and $7.5 million found themselves excluded from Subchapter V. As a result, these debtors were required to manage through a traditional Chapter 11 case or declined to file altogether, despite needing the relief Chapter 11 could provide.
According to the Co-Chair of Bernstein Shur’s Business, Insolvency & Restructuring Group, Adam Prescott, “Many small businesses and individuals with legitimate restructuring needs found themselves 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.” The Senate’s action, according to Prescott, represents a significant step toward ensuring that bankruptcy law reflects today’s economic realities and offers opportunities for businesses to remain open, retain jobs, and provide valuable goods and services in the community.
Companion legislation (H.R. 7730) was introduced by Rep. Ben Cline (R-Va.) in the House of Representatives and was reported out of the House Judiciary Committee in March 2026.
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Subchapter V bankruptcies are more streamlined and cost-effective than traditional Chapter 11 bankruptcies. With no creditors’ committee and a focus on a quick exit, businesses are likely to spend less on attorneys and other costs than a “regular” Chapter 11 case. Whatever approach under the Bankruptcy Code one selects, the decision to declare bankruptcy is never easy. If you are a small business owner in New England considering your reorganization options, please reach out to Adam Prescott, Co-Chair of our Business Restructuring & Insolvency group, at [email protected] or (207) 228-7145, for more information about Subchapter V and whether it is the right option for your business.