In early March, the “Bankruptcy Threshold Adjustment Act of 2026” was introduced by Senate Judiciary Committee Chair Charles Grassley (R-Iowa) and Representative Ben Cline (R-Va.) in the House of Representatives. If passed, the threshold for small businesses that are eligible for Subchapter V bankruptcy relief would permanently rise from $3 million to $7.5 million. Even despite the current debt limit of $3 million, the number of Subchapter V filings has risen in recent months, with a 91% increase in year-over-year filings in February 2026. This much needed—and long overdue—legislative change would allow more small businesses to access and benefit from Subchapter V bankruptcy.
According to Representative Cline, “The Bankruptcy Threshold Adjustment Act will give small businesses the certainty they need to reorganize, restructure, and keep operating when challenges arise. By permanently raising the eligibility threshold, we’re ensuring more job creators can access a streamlined and affordable bankruptcy process that helps them stay open, protect paychecks, and meet their obligations. Just as importantly, this bipartisan bill maintains the integrity of our bankruptcy system by keeping it self-supporting and fair for all who rely on it.”
The Subchapter V Debt Ceiling Yo-Yo
Created as part of the “Small Business Reorganization Act of 2019,” Subchapter V went into effect in February 2020 with an initial debt limit of $2,725,625. The debt limit to qualify for filing under Subchapter V was temporarily increased to $7.5 million as part of Congress’ COVID-era relief legislation. That temporary increase was allowed to expire, however, resulting in numerous small businesses with between $3 million and $7.5 million of debt that previously would have been eligible to lose their eligibility during the past two years. This new legislation, if it passes, will allow more businesses to reorganize, keep the lights on, and return to sustained profitability by expanding the Subchapter V tent.
We Are Here to Help
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.