'Bankruptcy Threshold Adjustment Act' Signed into law, Providing Greater Access to Financial Fresh Start for Small Businesses and Consumers

Alexandria, Va. - The American Bankruptcy Institute (ABI) applauds President Donald J. Trump for signing into law yesterday H.R. 7730, the "Bankruptcy Threshold Adjustment Act." The bipartisan legislation, sponsored by Rep. Ben Cline (R-Va.), permanently raises the debt limit to $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11. Consistent with the recommendations of ABI's Commission on Consumer Bankruptcy, the measure also raises the debt limit for individual chapter 13 filings to $2.75 million and removes the distinction between secured and unsecured debt for that calculation. Any bankruptcy case filed on or after Nov. 10 will be eligible for the new thresholds.

"ABI commends the President and Congress for expanding access to bankruptcy relief for small businesses and families facing financial challenges," said ABI Executive Director Amy Quackenboss. "By permanently restoring the Subchapter V debt limit to $7.5 million and increasing chapter 13 eligibility thresholds, this legislation strengthens access to affordable and effective reorganization tools, providing more entrepreneurs and consumers with the opportunity to stabilize their finances."

As a direct result of the work of ABI's Commission to Study the Reform of Chapter 11, the Small Business Reorganization Act of 2019 (SBRA) established subchapter V and went into effect in February 2020 with a debt limit of $2,725,625. In response to the COVID-19 pandemic, the CARES Act of 2020 and subsequent extensions increased the subchapter V debt eligibility limit to $7.5 million. This enhanced eligibility limit sunset in June 2024, however, and reverted to $3.02 million for small businesses looking to access subchapter V. The debt limit subsequently adjusted to $3,424,000, which ABI's Subchapter V Task Force estimated still left many distressed small businesses without a viable restructuring option.

Legislative efforts this year included H.R. 7730 and its bipartisan companion bill, S. 3977, introduced by Sens. Charles Grassley (R-Iowa) and Richard Durbin (D-Ill.), which passed the Senate by unanimous consent on Aug. 3.

"Making the $7.5 million Subchapter V debt limit permanent is an important step toward ensuring that small businesses have continued access to the efficient and affordable restructuring framework Congress created to support successful reorganizations," said former ABI President Soneet R. Kapila of KapilaMukamal, LLP (Fort Lauderdale, Fla.), who established ABI's Subchapter V Task Force in 2023. "By preserving broader eligibility, the President and Congress have reinforced a proven pathway that helps businesses protect jobs, maximize value and position themselves for long-term success."

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.