Bankruptcy rules for small businesses could soon change
Congress passed H.R. 7730 to permanently raise the Subchapter V debt limit to $7.5 million. It awaits signature. What it means for small business owners.
Congress has passed H.R. 7730, the Bankruptcy Threshold Adjustment Act, which would permanently raise the debt limit for small businesses filing under Subchapter V of Chapter 11 to $7.5 million, according to the American Bankruptcy Institute. The House passed the bill on September 16, 2026, and the Senate approved it by unanimous consent on September 28. It now heads to the president for signature, so it is not law yet.
If it is signed, a larger group of small businesses could use the streamlined reorganization track Congress built for small companies instead of being pushed into a standard Chapter 11 case.
For the past two years, anyone weighing a filing has been aiming at a moving target. The higher debt limit first enacted during the pandemic expired in June 2024, the threshold snapped back to a lower inflation-adjusted figure, and businesses that would have qualified in 2023 found they no longer did. Removing the expiration date would take one source of timing uncertainty off the table, but eligibility still depends on the law in effect and on the business's debts on the filing date.
This news explainer is not a substitute for advice from a bankruptcy attorney who has reviewed your debts and your filing date.
What Congress passed for Subchapter V small business bankruptcy
The change is narrow but consequential: the bill would set the debt ceiling that determines who can file under Subchapter V at $7.5 million with no expiration date, rather than writing it with a sunset that Congress has to keep renewing. The figure would still be adjusted for inflation every three years.
That sunset problem was real. The CARES Act temporarily raised the threshold to $7.5 million in non-contingent, liquidated secured and unsecured debt in 2020. Congress extended the increase once, it briefly lapsed in 2022, and Congress then restored $7.5 million until June 2024. When that sunset passed, the limit reverted to $3,024,725, the lower statutory figure as adjusted for inflation. On April 1, 2025, the regular inflation adjustment raised it to $3,424,000, which is the limit in effect today.
When the temporary $7.5 million cap expired, a business carrying debt above the restored statutory limit lost access to Subchapter V without anything changing on its own balance sheet. Removing the expiration date would take that calculation away, though an owner still has to meet every other eligibility test on the day of filing.
Subchapter V is a Chapter 11 reorganization process for eligible small business debtors that took effect on February 19, 2020.
It was created by the Small Business Reorganization Act, which was signed in 2019 and became effective the following February. What H.R. 7730 would change is how many businesses can use it.
What is Subchapter V bankruptcy?
Subchapter V is reorganization, not liquidation. The business keeps its doors open, keeps serving customers, and proposes a plan to pay creditors some portion of what it owes over a period of years. The owner generally stays in control of day-to-day operations as a "debtor in possession."
Four features separate it from the standard Chapter 11 process most people picture when they hear "Chapter 11":
- A trustee is appointed, but not to run your business. The Subchapter V trustee's job is to facilitate a consensual plan, monitor the case, and report to the court. You keep operating the company.
- No creditors' committee by default. In standard Chapter 11, a committee of unsecured creditors is typically appointed and the business pays for the committee's lawyers and financial advisors out of the estate.
- A hard plan deadline. Under 11 U.S.C. § 1189, a Subchapter V debtor must file a plan of reorganization not later than 90 days after the order for relief, and under 11 U.S.C. § 1188 the court holds a status conference not later than 60 days after the order for relief.
- The owner can keep the equity. In standard Chapter 11, the absolute priority rule generally blocks owners from retaining ownership unless unsecured creditors are paid in full or new money comes in. Subchapter V modifies the absolute priority rule, which may allow an owner to retain equity under a qualifying confirmed plan.
Ninety days sounds generous until you count backward. Your attorney needs clean financials, a complete creditor list, and a realistic cash-flow projection before the plan can be drafted, and that work typically starts weeks before the petition is filed.
What is the new Subchapter V debt limit?
If the president signs H.R. 7730, the Subchapter V debt limit becomes $7.5 million with no expiration date, adjusted for inflation every three years going forward. Until then, the limit is $3,424,000. The bill's Senate companion is S. 3977, introduced by Sens. Charles Grassley and Richard Durbin.
Timing matters. In the bill text as introduced, the amendments apply to cases commenced on or after the date of enactment. The higher cap is not retroactive: an owner who files before the bill is signed gets the old $3,424,000 limit, not $7.5 million. If your debt falls between those two figures, ask your attorney how the signing date affects your case.
Editor's note: before publication, confirm whether H.R. 7730 has been signed. If it has, insert the [PUBLIC LAW NUMBER] and [SIGNING DATE], update the copy, timeline graphic, and FAQ from "awaiting signature" to enacted, and update the eligibility citation to 11 U.S.C. § 1182(1) as amended. Confirm the effective-date language ("cases commenced on or after the date of enactment") against the final bill text on Congress.gov; it comes from the introduced version.
The eligibility test itself is straightforward to state, even if the arithmetic takes an accountant. A business qualifies if its total non-contingent, liquidated secured and unsecured debt sits at or under the cap on the date it files. Whether a particular debt counts as contingent or unliquidated is a legal classification, and counsel should review it before anyone adds up the total. Ask your attorney how debts owed to affiliates or insiders are treated in that calculation.
Two more conditions trip up more filers than the dollar figure does. Under 11 U.S.C. § 1182(1), which defines who can use Subchapter V, and the small business debtor definition at § 101(51D), not less than 50% of the debt must arise from the commercial or business activities of the debtor, and single-asset real estate cases and public reporting companies are excluded.
If you funded your company with personal credit cards and a home equity line, run the 50% test carefully with your attorney rather than assuming it is met.
How is Subchapter V different from Chapter 11 and Chapter 7?
Against standard Chapter 11. Speed and overhead are the difference. According to a federal bankruptcy court guide to the Small Business Reorganization Act, a creditors' committee is not appointed by default in a Subchapter V case, which is one of the main structural reasons it costs less than standard Chapter 11. Subchapter V debtors also are not charged the quarterly U.S. Trustee fees that standard Chapter 11 debtors pay.
Together, the 90-day plan deadline, the lower administrative overhead, and the modified priority rules can make Subchapter V more practical for an eligible small business than standard Chapter 11.
On cost, be skeptical of anyone who quotes a precise figure before reading your file. Professional fees in a contested Chapter 11 case depend on how many creditors object and how long confirmation takes. Ask two or three attorneys for a written estimate of fees through plan confirmation and compare them.
Against Chapter 7. These are opposite outcomes. Per the U.S. Courts' Bankruptcy Basics, Chapter 7 is a liquidation proceeding in which a trustee collects and sells the debtor's non-exempt assets, while Subchapter V lets the business keep operating under a confirmed plan.
If the business has no viable path to profitability, Chapter 7 may be the honest answer and the cheaper one. If the problem is a balance sheet loaded with pandemic-era debt sitting on top of an otherwise working business, that is the fact pattern Subchapter V was written for.
Personal guarantees require separate attention. A business Subchapter V filing generally does not resolve an owner's separate liability under a personal guarantee; owners should have bankruptcy counsel review each guarantee. SBA loans, equipment leases, and commercial landlord agreements often carry one. A plan can sometimes include provisions affecting guarantors, but that is a negotiation, not an entitlement, and some owners end up filing a separate personal bankruptcy. Raise guarantees in your first attorney meeting rather than your fifth.
Who should pay attention to the proposed Subchapter V change
This news matters most to a specific group of owners:
- Businesses carrying SBA loans, merchant cash advances, or equipment financing they can no longer service out of operating cash flow. Multiple merchant cash advances can create daily repayment obligations that strain operating cash flow.
- Businesses stuck in a commercial lease that no longer matches their revenue. A reorganization can address a lease the business cannot otherwise exit.
- Owners who personally guaranteed business debt and need to understand how a business filing changes, or does not change, their personal exposure.
- Companies in sectors squeezed by higher borrowing costs and softer demand, including trucking, construction subcontracting, independent retail, and professional firms whose clients have stretched their payment terms.
- Businesses whose debt sits between the current $3,424,000 limit and $7.5 million and were told they did not qualify. That answer may be different for a case filed after the bill is signed.
Bring the debt schedule and two years of financials to the first consultation; ask how many Subchapter V plans the attorney has confirmed.
Filing bankruptcy is a legal decision with consequences for your credit, your contracts, and in some cases your home. Talk to a bankruptcy attorney who has actually confirmed Subchapter V plans, and ask how many. A news summary, including this one, is not a substitute.
What to do before you call a bankruptcy attorney
A first consultation is usually more productive when you bring organized financial records and a complete creditor list. Assemble the following before your first meeting.
1. Separate business and personal money, if you have not already. Commingled accounts make the 50% business-debt test harder to prove and make every financial statement in the case harder to defend. Novo business checking has no monthly fee and no minimum balance requirement. It syncs transactions automatically to QuickBooks Online and Xero and connects with Stripe, Square, and Shopify.
Check how much transaction history is available in your accounting software before you rely on an integration for filing records.
Novo does not accept cash deposits. If your business takes in cash, keep separate records of those receipts and use an account that handles your cash-deposit needs. With Novo you can deposit a money order or cashier's check with mobile check deposit in the Novo app, transfer from another bank, or receive payouts from a payment processor.
2. Pull the core financial package. Profit and loss statements and balance sheets for the last two years plus year-to-date, the last two years of business tax returns, a current accounts receivable aging report, and recent statements for every loan, lease, and advance.
3. Build a complete debt schedule. A complete debt schedule can help an attorney assess eligibility and identify missing balances, collateral, and guarantees. Build a spreadsheet with one row per creditor using the fields below, and total the columns yourself before you send it anywhere.
Debt schedule for [Business legal name], as of [MM/DD/YYYY]
Prepared by: [Name, title] EIN: [XX-XXXXXXX]
CREDITOR NAME | CONTACT NAME / EMAIL / PHONE | MAILING ADDRESS | ACCOUNT OR LOAN # (last 4) | DEBT TYPE (term loan / SBA / MCA / equipment lease / commercial lease / credit card / trade payable / tax) | ORIGINAL AMOUNT | CURRENT BALANCE | INTEREST RATE | PAYMENT AMOUNT + FREQUENCY | SECURED? (Y/N) | COLLATERAL DESCRIPTION | PERSONAL GUARANTEE? (Y/N; identify each signer) | CONTINGENT? (Y/N) | DISPUTED? (Y/N) | DAYS PAST DUE | NOTES
1. | | | | | | | | | | | | | | |
2. | | | | | | | | | | | | | | |
3. | | | | | | | | | | | | | | |
TOTAL SECURED DEBT: $________
TOTAL UNSECURED DEBT: $________
TOTAL NON-CONTINGENT, LIQUIDATED DEBT: $________
(ask counsel which debts to exclude, including contingent,
unliquidated, and affiliate or insider debt)
PORTION ARISING FROM BUSINESS ACTIVITY: $________ (____%)Keep the file somewhere you control and share it with your attorney directly. Loan balances, account numbers, and guarantor names belong in your own spreadsheet software, not in a public chatbot or a shared link.
4. Ask counsel whether contacting creditors before filing makes sense for you. A lender may or may not agree to modify a debt, and what an informal workout costs depends on the circumstances. If you do have those conversations, document each one in writing.
5. Ask about preference rules before you change how you pay anyone. Payments made to creditors, insiders, or family members shortly before a filing can come under scrutiny in a bankruptcy case. Have a bankruptcy attorney explain how those rules apply to your situation before you move money.
Subchapter V FAQs
Does Subchapter V apply to sole proprietors?
Yes. An individual engaged in commercial or business activity can file under Subchapter V, provided total non-contingent, liquidated debt is at or under the cap and not less than 50% of that debt arises from business activity. The structure of your entity matters less than where the debt came from.
Does Subchapter V discharge personal guarantees?
No. A business filing under Subchapter V reorganizes the company's debt. Guarantees you signed personally survive unless they are dealt with separately, which may mean negotiating with the lender or filing a personal bankruptcy.
Can I keep my business after Subchapter V?
Often. Subchapter V modifies the absolute priority rule that applies in standard Chapter 11, so a qualifying plan can let the owner keep equity even when unsecured creditors are not paid in full. Ask your attorney to walk you through the plan requirements as they apply to your numbers.
Is the Subchapter V debt limit permanent now?
Not yet. H.R. 7730 passed the House on September 16, 2026, and the Senate on September 28, 2026, and now awaits the president's signature. If it is signed, the limit becomes $7.5 million with no expiration date, adjusted for inflation every three years, for cases filed on or after the date of enactment. Until then, the limit is $3,424,000. Confirm the bill's status and effective date with counsel before acting on it.
What happens if my debt is above the cap?
A business above the Subchapter V debt cap cannot elect Subchapter V and should ask bankruptcy counsel whether standard Chapter 11 or another option applies. Standard Chapter 11 brings a likely creditors' committee, quarterly U.S. Trustee fees, no 90-day plan deadline, and the absolute priority rule in full force.
How long does a Subchapter V case take?
The plan must be filed within 90 days of the order for relief. Confirmation can take additional months depending on creditor objections, and the length of plan payments is set by the confirmed plan. Ask your attorney what a realistic confirmation date looks like for a case like yours.
Will filing close my business checking account?
Ask your attorney before you file. In Chapter 11 cases, U.S. Trustee guidelines typically require debtors to open debtor-in-possession accounts at an approved bank, and account requirements after a filing vary by district and by trustee. Your attorney and your trustee can tell you what account structure they expect.
Disclosures
Novo Platform Inc. ("Novo") is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A., Member FDIC. The Novo Merchant Cash Advance is offered by Novo Funding LLC. Eligibility subject to final Novo determination.
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