Debtor eligibility for Subchapter V and Chapter 13 expected to rise

A brief overview on these chapters

Subchapter V of Chapter 11 is considered a streamlined and cost-effective reorganization process designed for small businesses. It provides for a faster timeline and less costly process to confirmation and the ability for owners to retain equity without satisfying the absolute-priority rule.

Chapter 13 is the wage-earner’s plan for individuals or couples with regular income. It allows debtors to keep their assets, including homes and vehicles, while repaying debts over a three-to-five-year period.

Both are subject to statutory debt limits under the Bankruptcy Code that are adjusted automatically every three years for inflation or through an act of Congress.

The pending bill

A pending bill, the Bankruptcy Threshold Adjustment Act of 2026 (S. 3977 in the Senate and companion H.R. 7730 in the House) would permanently restore the higher debt ceilings that were temporarily in place during the Covid Era. The changes would apply retroactively to cases filed after June 21, 2024.

The new proposed debt limits for debtors under Subchapter V of Chapter 11 would be increased from $3,424,000.00 to $7,500,000.00.

The new proposed debt limits for debtors under Chapter 13 would be increased from $1,580,125.00 of secured debt and $526,700.00 of unsecured debt to a combined and increased debt limit of $2,750,000.00 (removing the distinction between unsecured and secured debt).

The bill is likely to pass as it enjoys bipartisan support and receives support from the American Bankruptcy Institute.

The implications

The cost effectiveness of Subchapter V is often the difference between a successful reorganization and a failed traditional Chapter 11 filing. The increased debt limit will surely result in the continued rise in Subchapter V filings for small businesses, as Subchapter V elections under Chapter 11 rose under the current debt limit by 11 percent from 2,202 in 2024 to 2,446 for 2025.

Further, the act would expand access to Chapter 13. The change would benefit higher earners who will typically have higher valued assets. These higher earners would no longer be forced into a costly Chapter 11 case and would receive the benefits of filing under Chapter 13, such as lower administrative costs and a streamlined process.

The lawyers in Chuhak & Tecson’s Financial Services practice group can advise creditors how changes in the Bankruptcy Threshold Adjustment Act of 2026 impact efforts to protect their secured interests and enforce their rights. Contact us to discuss.

Client alert authored by Edgar A. Quintero (312 849 4129), associate.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.