Subchapter V Bankruptcy: New $7.5M Debt Ceiling Opens the Door for Mid-Size Businesses

Effective August 1, 2026, the Small Business Reorganization Act's aggregate debt threshold for Subchapter V eligibility increases from $3,024,725 to $7,500,000. The change — enacted as part of the Bankruptcy Threshold Adjustment and Technical Corrections Act — nearly triples the pool of businesses that may access the streamlined Chapter 11 path Congress designed in 2019 for small and mid-market distressed companies.

Subchapter V was created to address a specific structural problem: traditional Chapter 11 was prohibitively expensive for smaller companies because of the absolute priority rule, the requirement to confirm over creditor objection, and the cost of unsecured creditor committees. Under Subchapter V, debtors avoid all three obstacles. There is no absolute priority rule — owners can retain equity as long as they commit all projected disposable income to the plan for three to five years. Creditor committees are formed only in exceptional circumstances. And a standing trustee — not the debtor's estate — absorbs much of the administrative burden.

The threshold increase matters because many professional service firms, regional manufacturers, and multi-location retail businesses carry aggregate debt between $3M and $7.5M. These companies previously had a binary choice: full-cost Chapter 11 (often exceeding their restructuring value) or assignment for the benefit of creditors under state law. Subchapter V now becomes viable for this middle tier.

Counsel advising distressed mid-market companies should revisit engagements paused due to the prior cap. Key eligibility analysis will focus on whether aggregate non-contingent liquidated secured and unsecured debt — excluding insider debt — falls below $7.5M on the petition date. Contingent and disputed claims generally do not count toward the ceiling unless a court makes an allowance determination pre-petition, which is rare. Single-asset real estate debtors remain ineligible regardless of the amount outstanding.