The $7.5 Million Question: Will Congress Finally Restore Subchapter V for Small Businesses?

On March 3, 2026, a bipartisan group of six Senators — three Republicans and three Democrats — introduced S. 3977, the Bankruptcy Threshold Adjustment Act of 2026. The bill would do two things that matter enormously to small business owners and their creditors: it would permanently set the Subchapter V debt eligibility limit at $7,500,000, and it would raise the Chapter 13 debt limit to $2,750,000 as a single combined figure. No sunset provision. No expiration date. If it passes, these would be the permanent law.

If you're a small business owner in Houston and you've never heard of Subchapter V, here's what you need to know: it's the most significant pro-debtor development in bankruptcy law in decades, and for nearly two years, most of the businesses that need it most haven't been able to use it.

Subchapter V was created by the Small Business Reorganization Act of 2019 and went into effect in February 2020. It's a streamlined version of Chapter 11 bankruptcy designed specifically for small businesses. Traditional Chapter 11 is built for large corporate reorganizations — it's expensive, slow, procedurally complex, and often out of reach for a small business that needs to restructure its debts. Subchapter V strips out the complexity. There's no creditors' committee, which eliminates a major source of legal fees. The debtor doesn't have to file and get court approval of a disclosure statement, saving months of process. There are no quarterly U.S. Trustee fees. The absolute priority rule — which in traditional Chapter 11 requires all creditors to be paid in full before equity holders keep anything — doesn't apply, meaning business owners can retain their ownership stake while restructuring debt through a court-approved plan. And the plan must be filed within 90 days, keeping cases moving rather than languishing on the docket for years.

When Subchapter V launched, the original debt limit was approximately $2.7 million. Within weeks, COVID hit, and Congress raised the limit to $7.5 million as part of the CARES Act. That increase dramatically expanded the number of businesses eligible for the streamlined process. The American Bankruptcy Institute reported that Subchapter V was one of the universally celebrated success stories in modern bankruptcy law — more businesses were reorganizing, keeping their doors open, keeping employees on payroll, and paying creditors more than they would have received in a liquidation.

Then Congress let the increased limit expire on June 21, 2024. The debt ceiling dropped back to approximately $3 million (adjusted to $3,024,725, and later to $3,424,000 as of April 1, 2025). No substantive reason was given. The Bankruptcy Threshold Adjustment Extension Act had been introduced and had near-universal support — reportedly 435 House members and 99 Senators were prepared to vote in favor. But a single unnamed Senator placed a hold on the bill, blocking it from reaching a vote under the unanimous consent procedure. The bill died, and the limit reverted.

The practical impact has been devastating for businesses in the $3.4 million to $7.5 million debt range. These businesses are too large for the current Subchapter V limit but too small to afford a traditional Chapter 11. They're stuck in a no-man's land where the most effective reorganization tool available to them has been taken away. Some have been forced into Chapter 7 liquidation — complete shutdown, assets sold off, employees laid off — when a Subchapter V reorganization could have saved the business. Others have attempted traditional Chapter 11 cases that burned through their remaining cash on administrative costs and ultimately failed.

Here's a detail that illustrates the absurdity of the situation: had the $7.5 million limit been made permanent when it was first enacted in 2020, with the standard consumer price index adjustments that apply to other bankruptcy thresholds under 11 U.S.C. § 104, that limit would have increased to over $9 million by now. Instead, we're back to debating the $7.5 million number — a figure that's already been eroded by six years of inflation. Congress isn't even keeping pace with where the law would have been if they'd acted the first time.

S. 3977 addresses this directly by making the $7.5 million limit permanent with no sunset provision. It also makes a significant change to Chapter 13 that's gotten less attention but could be equally important for individual debtors. Currently, Chapter 13 has separate limits for secured and unsecured debt — $1,580,125 for secured debt and $526,700 for unsecured debt. The bill would replace those split limits with a single combined ceiling of $2,750,000. This eliminates a trap that has locked out many homeowners: someone with a $2 million mortgage and $200,000 in unsecured debt currently exceeds the secured debt limit and can't file Chapter 13, even though they have regular income and could fund a repayment plan. Under S. 3977, they'd qualify.

The political dynamics favor passage. Bankruptcy law is historically nonpartisan — the original Subchapter V was signed by one president, the debt limit increase by another, with strong bipartisan support both times. The bill's six co-sponsors split evenly across party lines, including Senator John Cornyn of Texas. Recent Supreme Court bankruptcy decisions like City of Chicago v. Fulton (2021) and Bartenwerfer v. Buckley (2022) were unanimous or near-unanimous, reinforcing that bankruptcy doesn't follow the same partisan fault lines as most legislation.

And the economic context helps. With ongoing uncertainty around tariffs, commercial real estate stress, and the possibility of a broader economic slowdown, every member of Congress represents constituents who could be the next debtor. No politician wants to be on record blocking a tool that could have saved a constituent's business when the downturn arrives.

The counterforce is the same one that's blocked every prior attempt: creditor interests that reflexively oppose any expansion of bankruptcy relief. These interests don't have a public face — there's no "National Association of Bankruptcy Debtors" advocating on the other side — but they're effective at using procedural tools like holds and sunset provisions to prevent permanent reform. The sunset provision has been particularly effective: by ensuring the higher limit always has an expiration date, opponents have forced the debate to recur every few years, each time preventing the CPI adjustments that would have automatically increased the limit.

For Houston business owners, the practical takeaway depends on your situation. If your business has debts between $3.4 million and $7.5 million and you're considering bankruptcy, S. 3977 could reopen the Subchapter V path for you — but only if and when it passes. In the meantime, the current limit is $3,424,000, and if your debts fall below that threshold, Subchapter V is available right now. For businesses above the limit, traditional Chapter 11 remains an option, though it's more expensive and complex. A bankruptcy attorney can help you evaluate whether to wait for the legislation or proceed under current law.

If your debts are below the current threshold and you're struggling, don't wait for the bill. Subchapter V, even at the reduced limit, remains the most effective small business reorganization tool in the Bankruptcy Code. It's faster, cheaper, and more debtor-friendly than traditional Chapter 11, and it gives you the best chance of keeping your business alive while restructuring your obligations.

S. 3977 is now on the Senate calendar. Whether it passes depends on whether the political dynamics of 2026 — including the prospect of economic turbulence — are enough to overcome the interests that have blocked every prior attempt. The bipartisan sponsorship and the absence of a sunset provision are encouraging signs. But as the author of the original Koley Jessen analysis put it: "We can always hope."

There's also a companion bill in the House, which means the legislation has been introduced in both chambers simultaneously — a necessary condition for rapid passage. The fact that Senator John Cornyn of Texas is a co-sponsor is particularly relevant for Houston-area business owners. Cornyn's involvement signals that the Texas business community's voice is being heard in this debate. Texas has one of the highest concentrations of small and mid-size businesses in the country, many of which were shut out of Subchapter V when the limit dropped. The economic argument for restoring the limit is strongest in states like Texas, where the gap between $3.4 million and $7.5 million captures a huge number of businesses that are too big for the current threshold but too small for traditional Chapter 11.

If you own a business with significant debt and you're wondering whether to wait for this bill or act now, here's the honest answer: don't plan your financial future around congressional action. The bill may pass, or it may not. If your business needs restructuring today, evaluate all available options under current law — the current Subchapter V limit, traditional Chapter 11, Chapter 7, out-of-court workouts, and state-law receivership. A bankruptcy attorney can help you map the options based on your actual debt levels and business viability. If S. 3977 passes while you're in the planning phase, all the better. But the worst outcome is doing nothing while waiting for a law that may not come.