Bankruptcies on the Rise and Subchapter V Debt Limit Increase Poised to be Made Permanent
Originally published on February 23, 2022 and updated on April 6, 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 expired on March 27, 2021, but was extended to March 27, 2022 when President Biden signed the COVID-19 Bankruptcy Relief Extension Act of 2021. This increase has now expired and the debt limit is once again $2,725,625.00.
On March 14, 2022, the bipartisan Bankruptcy Threshold Adjustment and Technical Corrections Act (S. 3823) was introduced to make the $7.5 million debt limit permanent. Congress has yet to take action on this bill but we are hopeful that it will be passed and signed into law shortly.
As reported in Reuters, bankruptcy filings are on the rise in 2022, with the number of new cases filed in March jumping significantly from February. Filings remain below last year’s numbers, however, according to data released by legal research firm Epiq.
The Financial Services & Restructuring Group at Levenfeld Pearlstein will continue to monitor developments and provide updates as available.