Congress Passes Law to Raise Subchapter V and Chapter 13 Debt Limits
The debt limit for subchapter V of chapter 11 has had a wild ride. Fortunately, it appears that the days of fluctuating debt limits are behind us, with the Senate’s unanimous passage of H.R. 7730. The bill now heads to the President, who is expected to sign it into law.
Subchapter V debuted effective February 19, 2020, and is designed to meet the needs of small businesses for whom a “standard” chapter 11 bankruptcy case is often too expensive and unwieldy. Subchapter V initially carried a debt limit of $2,725,623, meaning that debtors with noncontingent, liquidated debt[1] in excess of this amount were ineligible for relief under this part of the Bankruptcy Code. The subchapter V debt limit was soon raised to $7,500,000 by the CARES Act, but with a sunset provision. The sunset date was extended by a year, but eventually lapsed, dropping the limit back to $2.7 million. An automatic inflation adjustment raised the limit to $3,024,725[2] in 2022. Congress then restored the $7.5 million debt limit, but with another two-year sunset provision. It was not renewed, so two years later, the subchapter V debt limit reverted again to $3,024,725. Another inflation adjustment brought it to $3,424,000 as of April 1, 2025—and there it remained, until now.
H.R. 7730, officially named the “Bankruptcy Threshold Adjustment Act,” does away with all the back and forth. The debt limit for filing for subchapter V bankruptcy cases is permanently fixed at $7,500,000, with inflation adjustments every three years going forward.
Chapter 13 debt limits, which suffered similar (albeit slightly less dramatic) swings, are also addressed in the new bill. Currently, a debtor must have no more than $526,700 in unsecured noncontingent, liquidated debt, and no more than $1,580,125 in secured noncontingent, liquidated debt to file for chapter 13 bankruptcy relief. The bill establishes a single $2,750,000 debt limit for both secured and unsecured debt, which will also be adjusted for inflation going forward.
Miller Canfield regularly assists clients in navigating the Bankruptcy Code and protecting their rights under it. Should you have any questions or need any assistance, please feel free to contact your Miller Canfield attorney or one of the authors of this alert.
[1] The debt limits discussed here refer to how much noncontingent, liquidated debt a debtor may have and still qualify to file for bankruptcy protection. Generally speaking, a “contingent” debt is one that requires some event to happen before it is owed (e.g., a warranty claim owed only if a covered part fails). “Noncontingent” debts are those that lack such a requirement. A “liquidated” debt is one where the amount is known or can be readily determined. (E.g., the amount owed at any moment under a loan may not be stated in the note but can be quickly computed by reference to its terms.)
[2] The $3 million dollar figure is not an even dollar amount because it is adjusted for inflation every three years.
