The Subchapter V Debt Limit Is Rising to $7.5 Million: What It Means for Small Businesses

If your business is carrying more debt than it can comfortably manage, a faster, less expensive path to restructuring is about to open up to many more companies.

Congress has passed the Bankruptcy Threshold Adjustment Act (H.R. 7730), which permanently raises the Subchapter V debt limit from about $3.4 million to $7.5 million. Once the President signs it, thousands of small businesses that were shut out of Subchapter V will qualify again, giving owners a way to restructure their debt while keeping their business. 

Here, we break down what’s changing, why Subchapter V is such a powerful tool, and what to consider if your business is near or above the new limit.

What’s Changing With the Subchapter V Debt Limit?

Subchapter V is a streamlined version of Chapter 11 bankruptcy created specifically for small businesses. When it took effect in February 2020, only businesses with roughly $2.7 million or less in debt were eligible. 

Since then, the limit has moved up and down. In response to the COVID-19 pandemic, the CARES Act temporarily raised it to $7.5 million, and later extensions kept it there. When that temporary increase expired in 2024, the limit dropped back to roughly $3 million, and an inflation adjustment in 2025 brought it to about $3.4 million. H.R. 7730 permanently restores the $7.5 million limit and ties future increases to inflation.

For business owners and their advisors, those constant shifts made planning difficult. A permanent limit removes that uncertainty.

Small Business Bankruptcy Without Losing Your Business: Why Subchapter V Matters

For many business owners, the word “bankruptcy” suggests losing the business. Subchapter V is designed to help avoid that. Compared to a traditional Chapter 11 case, it offers several important advantages:

• You Can Keep Your Ownership: In a traditional Chapter 11 case, owners generally can’t keep their stake unless unsecured creditors are paid in full. Subchapter V doesn’t apply that rule, so owners can keep their business while restructuring its debt through a reduced payment plan, typically over 3-5 years.
• Creditors Don’t Have to Approve Your Plan: The court can approve a plan without creditor votes, as long as it’s “fair and equitable.” Generally, that means committing all of the business’s projected disposable income to creditor payments for 3-5 years, or distributing property of at least equal value.
• Lower Costs: Subchapter V cases generally don’t involve an official creditors’ committee or require a disclosure statement, two expenses that can add up quickly in a traditional Chapter 11 case.
• A Faster Process: Only the business can propose a reorganization plan, and it must do so within 90 days of filing. The quicker timeline helps preserve value and keep professional fees down.

These features make Subchapter V an excellent option for closely held businesses that don’t have the resources for a lengthy, expensive Chapter 11 case.

Subchapter V Eligibility: Above the Limit? You May Still Have Options

The new limit reflects a simple reality: many of today’s small businesses carry more than $3.4 million in debt. But some carry more than $7.5 million, too. Before ruling out Subchapter V, however, owners should know that a few provisions in the law may help them qualify:

Not All Debt Counts Toward the Limit

The $7.5 million limit applies only to debts that are noncontingent and liquidated as of the date the bankruptcy petition is filed. Contingent debt is only owed if a future event happens, and in some cases, it may be possible to negotiate terms that make some of a company’s debt contingent. Unliquidated debt is debt whose amount can’t be readily determined, such as a disputed claim or an expected litigation judgment that hasn’t been entered yet. If a portion of your business’s debt falls into either category, it may be excluded from the limit.

Debts Owed to Insiders and Affiliates Don’t Count

The limit also excludes debts owed to insiders (such as owners) and to affiliated companies. Under the right circumstances, that can open up a few options. An owner could personally pay down part of the company’s debt. Whatever the company then owes the owner is insider debt, so it doesn’t count toward the limit.

An owner could also form a new company to act as a borrower or guarantor of the existing company’s debt, then have the new company file for bankruptcy to restructure that debt through a payment plan. This may make sense if negotiations with lenders before filing are unsuccessful.

These strategies depend heavily on the specific facts of your situation and must be structured carefully. Work through them with experienced bankruptcy counsel and financial advisors before taking action.

Preparing for a Successful Subchapter V Case

Subchapter V is a legal process, but a successful case depends just as much on solid financial and operational groundwork. Owners considering it should be prepared to address a few key areas:

• A Clear Picture of Cash: A 13-week cash flow forecast shows how much cash the business expects to bring in and spend each week, giving owners, lenders, and the court a realistic view of where the business stands and how long it can operate.
• A Credible Plan: Because a Subchapter V plan is typically built around the business’s projected disposable income over 3-5 years, the financial projections behind it need to be realistic and well supported. Overly optimistic numbers can lead to a plan the business can’t sustain.
• A Fix for the Underlying Problems: Restructuring debt buys time, but it doesn’t fix the problems that created the debt. Lasting recovery usually requires a turnaround plan that addresses issues such as thin margins, rising costs, customer concentration, or operational inefficiencies.
• Clear Communication: Lenders, creditors, employees, and customers will all have questions. Clear, consistent communication throughout the process helps protect the relationships the business will depend on afterward.

Most owners work through these areas with a team that includes experienced bankruptcy counsel and financial advisors who understand both the legal process and the realities of running a business.

Why Timing Matters

The new limit will apply only to cases filed on or after the date the law takes effect—it isn’t retroactive. If your business has between roughly $3.4 million and $7.5 million in debt, the timing of any filing becomes an important strategic decision.

The earlier you assess your situation, the more options you have. With time, an owner may be able to negotiate with lenders outside of court, put the eligibility strategies above in place before filing, or decide whether Subchapter V is the right fit at all. A business that still has cash can also fund its operations (and the costs of a case) while it restructures.

Waiting until a lender calls the loan, freezes a credit line, or moves to seize assets often takes those options off the table. And because Subchapter V eligibility is based on the debt a business owes on the day it files, debt that keeps growing while an owner waits can push the business over the $7.5 million limit.

Don’t Let Debt Decide Your Business’s Future

After years of temporary extensions and shifting eligibility standards, the permanent increase in the Subchapter V debt limit may prove to be one of the most significant developments for small businesses since Subchapter V was created. For owners under financial pressure, it’s a real opportunity to restructure, protect jobs, and keep the business they’ve built.

If your business is feeling the weight of debt, rising borrowing costs, or economic pressure, now is the time to understand your options. Let’s talk them through with a free, confidential consultation–contact us today.