What is the Subchapter V debt limit in 2026?

Every month, a small business owner walks into our Los Angeles office with a stack of past-due notices, a cash-flow forecast that no longer forecasts anything, and the same question: is there a way to restructure that will not take two years and cost more than the business is worth? For many of them, the honest answer used to be subchapter V of chapter 11 — a faster, cheaper reorganization track that Congress built in 2019 for exactly this kind of business. For many of them today, the answer has quietly changed, because the subchapter v debt limit is lower than it was eighteen months ago, and a lot of real small businesses no longer fit under it. This post walks through what the statute says today, how we got here, what Congress has proposed, and what a business owner should actually do while the law is in motion.

What does the current Subchapter V debt limit cover? 📊

Subchapter V eligibility is set by 11 U.S.C. § 1182(1): a person engaged in commercial or business activities whose aggregate noncontingent liquidated secured and unsecured debts, excluding debts owed to affiliates and insiders, are at or below the statutory cap, with at least 50% of those debts arising from business activity.

The statute at 11 U.S.C. § 1182 does most of the work. The eligibility rule is narrower than most small business owners expect. It counts aggregate noncontingent liquidated secured and unsecured debt as of the petition date; it excludes insider and affiliate debt; it requires half or more of that debt to come from the business; and it carves out single-asset real estate entities and public reporting companies entirely.

The dollar figure itself is not frozen in the statute. Under 11 U.S.C. § 104, the Judicial Conference adjusts most Bankruptcy Code dollar amounts every three years for inflation. The most recent adjustment pushed the base subchapter V figure to approximately $3.4 million. The next scheduled adjustment is in April 2028, which is relevant for anyone currently sitting near the cap and timing a filing.

Three mechanical points come up constantly in intake conversations:

• Contingent and unliquidated debts are excluded. A disputed trade claim, an unresolved wrongful-termination suit, or a guarantor obligation that has not been called is not part of the eligibility arithmetic. We have had cases where excluding one contested claim brought a business under the cap on paper, though the economics still called for a traditional chapter 11.
• Insider debt is excluded. Loans from the owner, a controlled affiliate, or a family member do not count toward the limit. They do, however, remain subject to equitable subordination and preference law.
• The 50% business-debt test is applied at the petition date. A professional whose personal mortgage dwarfs business debt will usually fail this test. A business owner who personally guaranteed every commercial lease and SBA loan will usually pass it.

How did the subchapter V debt limit end up at $3.4 million? 🗓

Congress enacted subchapter V in 2019 at a $2.7 million cap, raised the cap temporarily to $7.5 million during the pandemic, extended that temporary cap through June 21, 2024, and then let it expire. The cap reverted to the inflation-adjusted statutory figure.

The pathway matters because the next bill in front of Congress is essentially a return to the post-2020 regime. The Small Business Reorganization Act of 2019 created subchapter V with a $2,725,625 debt limit, set to adjust with inflation. In 2020, the CARES Act raised the limit to $7.5 million as a one-year emergency measure. Congress extended it twice, most recently by the Bankruptcy Threshold Adjustment and Technical Corrections Act of 2022 (Pub.L. 117-151), which sunset on June 21, 2024.

When the sunset hit, the limit snapped back to the then-adjusted statutory figure. The Judicial Conference’s periodic § 104 adjustment put the current ceiling at roughly $3.4 million. For approximately eighteen months, the Bankruptcy Code has had a smaller subchapter V on the books than it had during the entire 2020 to 2024 pandemic window.

What would S. 3977 and H.R. 7730 change about the subchapter V debt limit? 🏛

Both bills, titled the Bankruptcy Threshold Adjustment Act of 2026, would make the $7.5 million subchapter V ceiling permanent and raise the chapter 13 individual debt limit to $2.75 million aggregate. The Senate passed its version on August 4, 2026, by unanimous consent. The House passed its companion in September 2026. The legislation has not been signed into law as of this article.

The current pending bills can be tracked at S. 3977 (Senate) and H.R. 7730 (House). Both share the operative text: strike the sunset in the 2022 Act and restore the $7,500,000 aggregate noncontingent liquidated secured and unsecured debt threshold as a permanent part of section 1182, and set a single $2,750,000 debt limit for chapter 13 individual filers in place of the separate secured and unsecured caps that the Code currently prescribes.

The Senate’s own Senate Judiciary Committee announcement for the August 4 passage of S. 3977 lays out the legislative purpose in two sentences: Congress wants a quicker and cheaper restructuring route to be available to small businesses as a permanent feature of the Code, and it wants more families to have access to chapter 13’s wage-earner plans. Both goals point in the direction of broader eligibility.

Three practical implications flow from the pending text, if and when it is enacted:

• Immediate eligibility snap-back. On enactment, the cap becomes $7.5 million. Businesses that were pushed into traditional chapter 11 by the June 2024 sunset will become subchapter V eligible again. Pending chapter 11 cases filed by eligible debtors should be reviewed for conversion to subchapter V, which the courts have permitted in several published decisions where the facts fit.
• No change to the business-debt and insider-debt tests. The 50% business-debt requirement, the exclusion of insider debt, and the carve-outs for single-asset real estate and public reporting companies remain the same under both bills.
• Section 104 continues to control the dollar amount after enactment. If Congress fixes the ceiling at $7.5 million as of 2026 and the Judicial Conference’s existing adjustment schedule remains in place, the next scheduled § 104 revision would apply to the new figure. The legislative text does not freeze the number against inflation.

Who falls between the current cap and the pending one? 🚪

Most of the clients we see are mid-sized operators: a 40-seat restaurant group with a pandemic-era SBA loan, a specialty-trade construction LLC with equipment financing and accumulated withholding tax liabilities, or a professional practice with stacked MCAs. Their total noncontingent liquidated debt sits between $3.4 million and $7.5 million, which is exactly the gap the pending bills address.

The categories of debt that most often push a small business past the current cap are not exotic:

• SBA 7(a) and 504 loan balances. After five or six years of operation, principal on an original seven- or eight-figure SBA loan has not yet amortized far enough to drop below the limit. These balances are liquidated and noncontingent and count in full.
• Merchant cash advance stacks. MCA receivables purchase agreements, even when structured as true sales, are commonly treated as liquidated debt obligations by MCA funders when default and reconciliation provisions are triggered. One $400,000 position across three funders becomes $1.2 million.
• Deferred and accrued tax liabilities. Unpaid employment taxes, past-due state sales tax, and unpaid federal income tax at the entity level are noncontingent and liquidated as of the assessment date. The trust-fund portions carry separate personal exposure for the responsible person under IRC § 6672 and generally are not dischargeable even in a traditional chapter 11.
• Lease rejection damages. If a lease is being rejected, the aggregate lease obligation is partly capped under 11 U.S.C. § 502(b)(6) for allowed-claim purposes, but the noncontingent liquidated amount owed through the petition date still counts.

What should a small business do while the Subchapter V debt limit bill is pending? ⚖️

Keep the business running, pin down a current eligibility number, document contingent and insider debt carefully, prepare the plan materials that any restructuring would need, and monitor the enactment status. Do not time a filing to a bill that has not been signed.

1. Build a current eligibility schedule. List every noncontingent liquidated secured and unsecured debt as of a trial petition date. Flag affiliate and insider debt separately. The schedule is the single most important document for subchapter V planning, and it is where almost every eligibility surprise originates.
2. Document contingent and unliquidated claims. Pending litigation, personal guarantees that have not been called, performance obligations, and warranty exposures are often the difference between in and out of the cap under current law. The documentation standard is whether a reasonable creditor would list the claim as contingent or unliquidated on a schedule.
3. Prepare a 13-week cash-flow forecast and a draft plan outline. Both are useful regardless of whether the business ends up in subchapter V, traditional chapter 11, an out-of-court workout, or a quiet wind-down. The 90-day plan deadline in subchapter V punishes debtors who arrive at the courthouse without this work done.
4. Watch the legislation, do not bet on it. The Bankruptcy Threshold Adjustment Act of 2026 has passed both chambers but has not been signed. Build the plan around the current law. If enactment happens before filing, the subchapter V option opens up for larger-debt businesses; if it does not, the traditional chapter 11 preparation is already done.
5. Involve the tax advisor early. Cancellation-of-debt income, net operating loss preservation under IRC § 108 and IRC § 382, employment tax trust-fund exposures, and ongoing state tax compliance interact with every restructuring choice. Coordination between bankruptcy counsel and the CPA is where the real tax dollars are saved or lost.

Businesses outside California should not assume the mechanics transfer directly. Priority tax claims under state law vary, and the standing subchapter V trustees in each district have different practices for plan review, feasibility testing, and fee applications. The U.S. Courts Subchapter V program page is a useful starting point for the national framework; local counsel fills in the district-level details.

Frequently asked questions about the Subchapter V debt limit ❓

Q. What is the Subchapter V debt limit in 2026?

As of October 2026, the subchapter V debt limit sits at the figure set by 11 U.S.C. § 1182(1), as periodically adjusted under 11 U.S.C. § 104 — approximately $3.4 million in aggregate noncontingent, liquidated secured and unsecured debts, excluding debts owed to affiliates and insiders. The temporary $7.5 million ceiling added by Congress in 2020 and extended in 2022 expired on June 21, 2024, and the cap reverted to the statutory figure plus three-year inflation adjustments.

Q. What debts count against the subchapter V debt limit?

Section 1182(1)(A) counts total noncontingent liquidated secured and unsecured debts as of the petition date, excluding debts owed to affiliates or insiders. Contingent debts and unliquidated claims are excluded, which matters for small businesses with unresolved litigation or guarantor obligations. At least 50 percent of the debt must arise from the debtor’s commercial or business activities.

Q. Would S. 3977 and H.R. 7730 change the Subchapter V debt limit permanently?

Yes. Both bills, titled the Bankruptcy Threshold Adjustment Act of 2026, would make the $7.5 million aggregate noncontingent liquidated debt threshold permanent for subchapter V, and would also raise the chapter 13 individual debt limit to $2.75 million. The Senate passed S. 3977 on August 4, 2026 by unanimous consent; the House companion H.R. 7730 passed later in September. As of the date of this article, the legislation had not yet been signed into law.

Q. Why do many small businesses miss the current cap?

Modern small businesses often carry debts well above the current cap through a combination of SBA 7(a) and 504 loans, equipment financing, merchant cash advance stacking, deferred rent, and accumulated federal and state tax liabilities. A single commercial lease guarantee or a stacked line of MCAs can push a profitable business past the limit. These businesses are forced into traditional chapter 11, which carries higher trustee and professional costs and typically a longer timeline.

Q. What makes Subchapter V cheaper and faster than a traditional chapter 11?

Subchapter V, enacted by the Small Business Reorganization Act of 2019, dispenses with the creditors’ committee by default, places a standing subchapter V trustee in a facilitating role, requires the debtor to file a plan within 90 days, and allows a plan to be confirmed without any class of creditors voting in favor if the plan is fair and equitable. Chapter 11, by contrast, typically involves a creditors’ committee funded by the estate, no fixed plan deadline, and the absolute priority rule that often prevents owners from retaining equity without new value.

Q. Does Subchapter V apply to individual business owners?

Yes. An individual engaged in commercial or business activities, including a sole proprietor or an LLC member whose personal guarantees give rise to business debt, is eligible under section 1182(1), provided the aggregate noncontingent liquidated secured and unsecured debt is within the cap, at least 50 percent of the debt is business in nature, and the debtor is not a single-asset real estate entity or a public reporting company.

Q. When should a small business start planning for a potential Subchapter V filing?

Well before the business is out of cash. The 90-day plan deadline runs from the petition date and is strict, so pre-petition work on cash-flow projections, lease-cure analysis, tax-liability sizing, and secured-creditor dialogue is where successful cases are won or lost. In our practice, the subchapter V cases that confirm in six months are the ones where the debtor arrived with a credible budget and a draft plan, not a bankruptcy filing done in a weekend.

This article is general information, not legal or tax advice for your situation. Bankruptcy eligibility, timing, and plan structure turn on specific facts. If your business is near the subchapter V debt limit or watching the pending legislation, contact SW Accounting & Consulting Corp for a confidential review coordinated with restructuring counsel.