What Does Your Business Need to Know about the Small Business Bankruptcy Debt Limit Increase?

Congress has permanently increased the debt limit for bankruptcy. It is awaiting the President’s signature. This debt limit change will give small businesses and individuals access to options that were out of reach before. It will also change the landscape for those that do business with them. 

What is the change to the bankruptcy debt limit?

The Bankruptcy Threshold Adjustment Act, H.R. 7730, eliminates previous fluctuations in the debt limit for small business bankruptcies. This 2026 legislation permanently increases the Subchapter V debt limit from $3.4 million to $7.5 million. The limit will then automatically continue to be increased in the future to account for inflation.

Subchapter V (often referred to as a “Sub 5”) is intended to help small businesses. Subchapter V offers an option for a subset of businesses and individuals when chapter 11 bankruptcy is too expensive, slow and unwieldy. In previous legislation, the debt limit for Subchapter V cases varied between $2,725,623 and $7.5 million. Provisions in the CARES Act, which initiated an increase, eventually lapsed. When the provisions lapsed, the limit reverted to $2.7 million.

Additionally, the legislation increases the limit for chapter 13 filings. Before the 2026 changes, chapter 13 distinguished between secured and unsecured debt. The Bankruptcy Threshold Act combines secured and unsecured debt with a single $2.75 million debt limit.

Why does a permanent debt limit increase matter for bankruptcies?

A permanent increase in the debt limits introduces more bankruptcy options for small businesses and individuals. In its 2025 – 2026 data, the U.S. Small Business Administration reported nearly 99.4% of United States’ businesses, and 99.3% of Iowa’s businesses are “small businesses”. Current economic pressures and persistent inflation made some options unavailable under previous limits. In short, this legislation is a game changer for many struggling businesses. 

With the increased debt limits, more small businesses will be able to:

• consider reorganization.
• preserve jobs.
• maintain going-concern value.
• maintain ownership and equity.
• offer recoveries for creditors that would be lower in a chapter 7 liquidation or basic corporate winddown.

The American Bankruptcy Institute, where Nyemaster attorney Kristina Stanger serves at the national board level, supported the legislation through recommendations from two committees:

• The Subchapter V Task Force submitted a key recommendation of permanently maintaining the filing eligibility limit of $7.5 million in aggregate liquidated debt.
• The Commission on Consumer Bankruptcy recommended increasing the chapter 13 debt limit to expand availability of relief and reduce the need for individuals to file under Chapter 11.

The pool of businesses that qualify for Subchapter V relief expands with the higher debt limit. Businesses that can at least partially pay creditors rather than shutting down entirely will benefit from the new Subchapter V debt limits. This could also be a “win” for their creditors and employees because without this option, continued operation would be too costly under a regular chapter 11 and the business would just liquidate or winddown under state corporation laws.

What happens next with the bankruptcy debt limit legislation?

The Bankruptcy Threshold Adjustment Act is awaiting President Donald Trump’s signature. The President is expected to sign the act into law. 

How will this legislation impact your specific business? What should you do different in your business relationships and contracts? How should you respond if you receive notice of a “sub-V” filing of a vendor or stakeholder? We can help you work through these questions. Contact a Nyemaster Creditor Rights and Bankruptcy attorney to discuss this legislation or other restructuring questions. Nyemaster attorneys can help you assess your options, understand the tradeoffs and make the right decision for your business.