Small businesses struggling with significant debt may soon have greater access to a streamlined form of Chapter 11 bankruptcy.
Congress has passed the Bankruptcy Threshold Adjustment Act of 2026, also known as H.R. 7730. The legislation would increase the debt limit for businesses seeking relief under Subchapter V of Chapter 11. If enacted, the change could make bankruptcy reorganization available to thousands of additional small and mid-sized businesses. For business owners facing serious financial pressure, that could provide another path besides closing the company or pursuing a traditional Chapter 11 case.
What Is Changing Under the Bankruptcy Threshold Adjustment Act?
The most significant change involves the amount of debt a business may have while remaining eligible for Subchapter V.
Under the legislation, the Subchapter V debt ceiling would increase to $7.5 million. The current threshold is roughly $3 million.
Congress previously allowed the higher $7.5 million threshold on a temporary basis. However, that temporary increase expired in 2024.
The new legislation would restore the $7.5 million limit. As a result, more businesses carrying substantial commercial debt could potentially qualify for the streamlined bankruptcy process.
The House of Representatives approved H.R. 7730 on September 16, 2026. The Senate then passed the same legislation without amendment on September 28.
Why Subchapter V Bankruptcy Matters to Small Businesses
Congress created Subchapter V as part of Chapter 11 to make business restructuring more practical for smaller companies.
Traditional Chapter 11 bankruptcy can become complicated and expensive. Additionally, cases may involve lengthy negotiations, extensive administrative requirements, and significant professional fees.
Subchapter V was designed to reduce some of those obstacles.
Generally, the process can provide a faster path toward reorganizing business debt. It may also give owners greater flexibility while negotiating repayment arrangements with creditors.
Therefore, the higher debt limit could be important for businesses that are too large for the current threshold but still lack the resources of major corporations.
Many modern small businesses can accumulate several million dollars in obligations through commercial loans, taxes, equipment financing, merchant cash advances, leases, and other business debts.
Consequently, a debt ceiling near $3 million can exclude businesses that would otherwise fit the profile Subchapter V was designed to serve.
A Potential Alternative to Closing a Business
One important purpose of business bankruptcy is to determine whether a financially distressed company can survive.
For some owners, the choice is not simply between paying every debt immediately or walking away from the business.
A restructuring may allow the company to address its financial obligations while continuing operations. In turn, the business may preserve jobs, customer relationships, contracts, equipment, and other valuable assets.
Chief Bankruptcy Judge Stacey Jernigan of the Northern District of Texas described Subchapter V as a “more affordable, efficient way” for qualifying businesses to address financial problems.
That distinction can become particularly important when the underlying business remains viable.
For example, a company may still have customers and revenue but face debt payments it can no longer manage. Other businesses may struggle because of temporary economic conditions, expensive financing, tax obligations, or unexpected operating costs.
In those situations, restructuring may provide an opportunity to address debt before circumstances become irreversible.
Filing Earlier May Help Preserve Business Value
The expanded threshold may also influence when financially distressed companies seek professional guidance.
Business owners frequently postpone bankruptcy discussions because they hope revenue will improve or creditors will provide additional time.
However, waiting too long can reduce the options available.
Cash reserves may disappear. Important employees may leave. Vendors may stop providing favorable terms. Meanwhile, lawsuits, collection actions, tax problems, or secured creditor disputes can become more difficult to manage.
A higher Subchapter V threshold could encourage some businesses to explore restructuring sooner.
That matters because a business typically has more restructuring options while it still has meaningful operations and assets worth preserving.
What Businesses Should Know About Subchapter V Eligibility
The proposed $7.5 million limit does not mean every business below that debt level will automatically qualify.
Subchapter V has additional eligibility requirements under federal bankruptcy law.
For example, qualifying debtors generally must engage in commercial or business activities. Additionally, at least 50% of qualifying debt must arise from those activities.
Certain businesses and situations may also be excluded.
Therefore, business owners should not determine eligibility based solely on their total debt.
Instead, an experienced bankruptcy attorney can evaluate the company’s secured debt, unsecured debt, business operations, creditor relationships, assets, and overall financial condition.
The Legislation Also Addresses Chapter 13 Debt Limits
Although the small-business changes have received significant attention, H.R. 7730 also addresses Chapter 13 bankruptcy eligibility.
The legislation would establish a $2.75 million debt limit for qualifying individuals with regular income.
That provision may expand access to Chapter 13 for individuals whose debt levels prevent them from qualifying under existing limits.
However, Chapter 13 and Subchapter V serve different purposes. Therefore, choosing the proper bankruptcy chapter depends heavily on the debtor’s financial circumstances.
Why the Higher Small Business Bankruptcy Limit Could Matter
The Bankruptcy Threshold Adjustment Act could significantly expand access to Subchapter V bankruptcy.
Most importantly, raising the debt limit to $7.5 million would better reflect the financial realities facing many modern small businesses.
A company can accumulate millions of dollars in debt without becoming a large corporation. Equipment, property, payroll, financing, taxes, and everyday operating expenses can increase quickly.
At the same time, traditional Chapter 11 may be too expensive or complicated for some businesses. Subchapter V can help fill that gap by providing qualifying businesses with a more streamlined restructuring process.
Explore Your Business Bankruptcy Options Before Problems Escalate
Financial problems do not always mean that a business must close.
Depending on the company’s debt, assets, income, and long-term prospects, bankruptcy restructuring may provide a way to reorganize obligations and continue operating.
The Bankruptcy Threshold Adjustment Act could make that opportunity available to considerably more business owners by restoring the $7.5 million Subchapter V debt threshold.
However, bankruptcy decisions are highly dependent on individual circumstances. Business owners facing mounting debt should consider reviewing their options before creditor pressure becomes more severe.
Contact The Fealy Law Firm, PC at 713-526-5220 to schedule your free consultation with an experienced bankruptcy attorney and learn which debt-relief options may be available for your business.
