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The Subchapter V debt limit can determine whether a small business gets access to a streamlined bankruptcy process or faces the added cost and complexity of a traditional Chapter 11 case. For a brief time, there was a $7.5 million threshold. That number no longer applies. The current limit is $3,424,000, and businesses anywhere near that line need to pay attention to how their debts are calculated. For some Florida businesses, the difference could shape their entire restructuring strategy.
Bankruptcy laws include multiple options for individuals and businesses looking to file for bankruptcy. Chapter 11 is meant for businesses. Under Chapter 11, Subchapter V is specifically written to assist small businesses. It’s a streamlined process that eliminates many of the time-consuming and expensive elements of the traditional bankruptcy process. Subchapter V was created by the Small Business Reorganization Act of 2019. Unlike traditional Chapter 11, Subchapter V has:
The debt limit is crucial because this is one of the eligibility requirements that a small business declaring bankruptcy must meet to use Subchapter V. Additionally, at least half of the qualifying debt must come from commercial or business activities, not personal debt. The debtor must be actively engaged in business or commercial activities. Businesses whose primary activity is owning a single piece of real estate generally do not qualify. If a business doesn’t meet the eligibility requirements, then it would need to file for bankruptcy under traditional Chapter 11 reorganization.
When the SBRA took effect in 2020, it was specifically tailored to help small businesses. The original threshold was much lower than $7.5 million. However, Congress temporarily increased it as part of COVID-Era legislation. The higher threshold was extended through the Bankruptcy Threshold Adjustment and Technical Corrections Act. The temporary $7.5 million provision ultimately expired on June 21, 2024.
After the temporary increase expired, the threshold decreased to $3,024,725. This amount has increased with inflation in accordance with Bankruptcy Code § 104. Effective April 1, 2025, the adjusted amount became $3,424,000.
The current 2026 eligibility threshold for small businesses filing under Chapter 11’s Subchapter V is $3,424,000. However, there is much more to this number than simply the total amount a business sees on its books. This total number includes secured and unsecured debt. The debt must be noncontingent and liquidated. At least 50% of the debts must have arisen from the debtor's commercial or business activities. The debtor must be engaged in commercial or business activities, subject to statutory limitations. Some debts, such as those owed by affiliates and insiders, are excluded from the total debt calculation.
Commercial lease liabilities can have a direct impact on business eligibility. If a business has a commercial lease, they need to be careful when calculating its total debt. Bankruptcy law generally allows a debtor to assume or reject an unexpired lease. The statutory formula generally looks to unpaid rent plus the greater of one year's rent or 15% of the remaining lease term, capped at three years. A business shouldn’t subtract its expected lease-rejection damages from its debt and assume it is safely under $3,424,000.
Bankruptcy courts have disagreed about how future lease obligations should be treated when determining Subchapter V eligibility. In re Macedon Consulting, the court took an approach that counted future lease obligations toward the eligibility calculation. In In re Zhang Medical P.C., the court reached a different conclusion concerning when future lease obligations are contingent or unliquidated.
How debt is classified can change how the threshold impacts a bankruptcy filing. The Subchapter V bankruptcy filing options can change based on how a company’s debts are classified. This makes it crucial for a business to accurately categorize and calculate debts.
Just because a business has qualifying debt that totals less than the $3,424,000 threshold doesn’t mean it automatically qualifies under Subchapter V bankruptcy. There are several other Bankruptcy Code requirements that must also be met.
Having qualifying debt that’s over the threshold means the business must consider other bankruptcy options outside of Subchapter V. It may still be able to file for traditional Chapter 11 bankruptcy. This option lets the business restructure debts and continue operating. There may also be options for restructuring outside of court. The right approach depends on the business's debts, assets, cash flow, and goals.
This is where the calculation deserves the most attention. If you're close to the Subchapter V debt limit, don't rely on a rough estimate from your balance sheet.
The eligibility analysis focuses on qualifying noncontingent, liquidated secured and unsecured debts. Certain affiliate and insider debts may be excluded, while lease obligations and other potentially disputed liabilities can raise more complicated questions. Because eligibility generally is determined as of the bankruptcy filing date, the timing of a filing can matter, too.
If your business is anywhere near $3,424,000, have the debt calculation reviewed before deciding whether Subchapter V is available.
There are legislators in Congress working to permanently raise the Subchapter V debt cap to 7.5 million. On March 5, 2026, Reps. Ben Cline, Lou Correa, Laurel Lee, and Joe Neguse introduced the Bankruptcy Threshold Adjustment Act of 2026. Its primary purpose is to permanently raise the small business reorganization threshold to $7.5 million. The Senate passed it unanimously. However, it isn’t enforceable law yet because it also needs to be passed in the House and then signed by the President.
Bankruptcy industry groups have advocated restoring the $7.5 million threshold. The American Bankruptcy Institute's Subchapter V Task Force recommended maintaining the higher cap.
A small business that is financially struggling shouldn’t wait to address the situation. Start by calculating the total amount of qualifying debt early on. Don’t wait until a creditor files a lawsuit or accelerates its debt collection efforts. Separate qualifying and excluded debts to know which ones will directly impact Subchapter V eligibility.
Review the terms of any commercial leases that are active. Look for terms that impact financial obligations, such as rent, early termination fees, or late payment penalties. Compare Subchapter V and Chapter 11 bankruptcy obligations. A business shouldn’t assume that one is better than the other just because it qualifies. A business that is close to the threshold may need legal advice before taking on additional obligations or waiting until its financial situation deteriorates further.
For Florida businesses, the current Subchapter V debt limit makes timing and careful planning more important than ever. A company that exceeds the $3,424,000 threshold may lose access to Subchapter V, while a company near the limit needs to know exactly which debts count before making a decision about bankruptcy. If your business is struggling with significant debt, don't wait until the numbers become unmanageable.
Wernick Law, PLLC can help you evaluate your bankruptcy options. Call 561-961-0922 or schedule a consultation online.
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