Increase in Subchapter V Debt Limit Extended for Two Years 

Originally published on June 15, 2022 and updated on June 22, 2022.

On February 19, 2020, Congress enacted the Small Business Reorganization Act (“SBRA”) to, among other things, streamline the chapter 11 bankruptcy process for a small business. Under the SBRA, a “small business” was one with less than $2,725,625.00 in debt. Few businesses, however, were eligible to take advantage of these new provisions because their debts exceeded the cap.

In the wake of the financial crisis brought on by COVID 19, the debt limit was increased to $7,500,000 as part of the CARES Act. The increase in the debt limit dramatically increased the number of businesses eligible for Subchapter V, but it was only temporary. It originally set to expire on March 27, 2021, but was extended to March 27, 2022 when President Biden signed the COVID-19 Bankruptcy Relief Extension Act of 2021. The increase in the debt limit expired on March 28, 2022.

A cursory review of chapter 11 filings over the last two years indicate that the vast majority were filed under Subchapter V. On April 7, 2022, the Senate passed the Bankruptcy Threshold Adjustment and Technical Corrections Act (S. 3823, as amended)(the “Bankruptcy Corrections Act”) to extend the increase in the debt limit for two more years. It also amended the definition of a “ small business debtor” to include a debtor that is an affiliate of certain publicly traded companies, correcting a technical flaw in the CARES Act.  On June 7, 2022, the House passed the Bankruptcy Corrections Act and on June 21, 2022, President Biden signed the Bankruptcy Corrections Act into law.  The bill applies retroactively to include cases filed between March 28, 2022 and June 21, 2022..

The Financial Services & Restructuring Group at Levenfeld Pearlstein is available to answer any questions about Subchapter V.