Should Your Small Business Wait for Congress to Raise the Bankruptcy Debt Limit? Here's How to Think About It.

The Senate just passed a bill that would let more struggling small businesses use Subchapter V — a faster, cheaper form of Chapter 11 built specifically for smaller companies. If your debt load puts you just over today's limit, you may be asking: should I wait for Congress to act?

Here's the honest answer: probably not.

What's actually on the table. Subchapter V's debt cap has been stuck at roughly $3.4 million since a COVID-era increase to $7.5 million expired in 2024. That $3.4 million number hasn't kept pace with what debt actually looks like for a small business today — equipment financing, real estate, and working capital lines add up fast, and a company that's otherwise a good fit for Subchapter V can get shut out by a figure that's simply out of date. This bill is Congress catching up to that reality: it would permanently reset the cap to $7.5 million. If you're currently just above today's line, that change could open the door to a restructuring tool that's meaningfully faster and less expensive than what's available to you now.

But it isn't law. The Senate passed it unanimously, which is a genuinely good sign. It now has to pass the House, where a companion bill has been sitting in committee since March without a floor vote, and then be signed by the President. There's no deadline forcing any of that to happen. It could pass in a month. It could stall for a year. It could die and get reintroduced next session.

The cost of waiting isn't neutral. If you're in financial distress, time is not free. Every month you wait to see what Congress does is a month of:

• Vendors and lenders getting more aggressive as your situation becomes more visible
• Cash reserves shrinking, which limits your options once you do file
• Legal and negotiating leverage eroding — a company that files early, from a position of some remaining strength, generally gets better outcomes than one that waits until there's no other choice

The practical takeaway. Don't build your plan around a bill that might pass. If you're facing real financial distress today, the right move is almost always to address it with the tools available today — not to gamble your remaining leverage on a legislative timeline you can't control. If the law changes before you've finalized anything, your plan can adjust. If it doesn't, you haven't lost anything by acting responsibly in the meantime.

If your business is anywhere near this threshold, talk to an attorney and your financial advisors now about what your options look like — not after the House votes.

The American Bankruptcy Institute (ABI) applauds the Senate’s passage yesterday of S. 3977, the “Bankruptcy Threshold Adjustment Act of 2026.” Sen. Charles Grassley (R-Iowa) introduced the bill with bipartisan support in March to permanently raise the debt limit back to $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11. Consistent with the recommendations of ABI’s Commission on Consumer Bankruptcy, the legislation also raises the debt limit for individual chapter 13 filings to $2.75 million and removes the distinction between secured and unsecured debt for that calculation. The legislation now moves to the House of Representatives for consideration.

www.abi.org/...