On August 3, 2026, the U.S. Senate voted unanimously to pass S. 3977, the Bankruptcy Threshold Adjustment Act of 2026. The bill has had bipartisan support since it was introduced in March 2026. The bill would permanently restore the Subchapter V debt ceiling to $7.5 million for qualifying small businesses and individuals filing for reorganization under Chapter 11.

A Quick Refresher on Subchapter V

Congress created Subchapter V in February 2020 through the Small Business Reorganization Act (“Act”), giving smaller companies a leaner, less expensive path through Chapter 11 than the traditional process allows. The purpose of the Act was to reduce the cost and procedural weight that made standard Chapter 11 impractical for small businesses, without taking away the owner's ability to reorganize instead of liquidate.

Eligibility to be a debtor under the Small Business Reorganization Act was originally capped at roughly $2.7 million in debt. Then came COVID-19. The CARES Act and subsequent extensions increased the debt limit to $7.5 million so that more pandemic-strained businesses could take advantage of the streamlined process. But that expanded threshold was never made permanent, and it expired in June 2024. Since then, the limit has reverted to its original, inflation-adjusted baseline – currently just above $3.4 million.

Why the Gap Has Mattered

Plenty of small and family-owned businesses carry $3.4 million to $7.5 million in debt. Between the cost of financing, equipment, and real estate, that debt range is not hard to reach – even for a genuinely small operation. Once the temporary $7.5 million threshold lapsed, many businesses lost access to Subchapter V's faster and more affordable framework. Their only options were to absorb the expense and administrative burden of a conventional Chapter 11 case, or to forgo bankruptcy relief altogether, even when reorganization was the right move.

For many owners, that meant the tool built specifically to help them was effectively out of reach.

"I've had clients walk in with $4 million in debt and a workable plan, and the only honest answer was that a full Chapter 11 would cost them more than the reorganization was worth," says Byron Moldo, Partner and Chair of Receivership, Bankruptcy, and Creditors' Rights Services at Ervin, Cohen & Jessup LLP. "Restoring the $7.5 million ceiling puts that option back on the table for the businesses Subchapter V was created for in the first place."

Where Things Stand Now

If S. 3977 becomes law, the gap closes permanently: no sunset date, and no waiting on Congress to reauthorize a temporary fix every couple of years. A companion bill, H.R. 7730, is already moving through the House, having cleared the Judiciary Committee in March of this year. With Senate passage now secured, the path to final approval looks considerably shorter.

A permanent $7.5 million debt ceiling would considerably widen the pool of companies that can use Subchapter V. In practical terms, that means more businesses reorganizing and staying open instead of liquidating – and more jobs surviving the process.

We'll continue to track this legislation as it moves through the House and keep you updated on its progress. In the meantime, if your business is carrying debt in the $3.4–7.5 million range and considering restructuring options, now is a good time to consider what these changes could mean for you and explore all available options.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.