The American Bankruptcy Institute applauded the U.S. Senate’s swift passage of the amended Bankruptcy Threshold Adjustment and Technical Corrections Act. The legislative substitute will 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 the ABI’s commission on consumer bankruptcy, the substitute 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. All provisions of the legislation will sunset two years after enactment. The legislation will now move to the House of Representatives for consideration.
Due to priorities and procedural issues, the Senate was not able to address S.3823 prior to the March 27 sunset of the $7.5 million eligibility limit for small businesses electing to file for bankruptcy under subchapter V of Chapter 11. The debt-eligibility limit returned to the original $2,725,625 threshold on March 28 that had been established under the Small Business Reorganization Act of 2019 (SBRA). In addition to providing a two-year extension of the subchapter V debt limit back to $7.5 million, the substitute bill also covers any subchapter V cases that were pending at the time of the March 27 sunset.
“ABI appreciates the swift passage by the Senate and the continued work of Senator Grassley to provide greater access for struggling small businesses and families to achieve a financial fresh start,” Amy Quackenboss, executive director of the ABI, said. “Providing an extension of the debt limit for subchapter V at $7.5 million and increasing the eligibility of individuals to access relief under chapter 13 provides a cost-effective and efficient path for more consumers and businesses to reorganize their finances.”
As a direct result of the work of the ABI’s commission to study the reform of Chapter 11, the Small Business Reorganization Act of 2019 (SBRA) became effective on Feb. 19, 2020, to provide business debtors with a more streamlined path for restructuring debts. Since then, more than 3,000 debtors have elected to file under subchapter V of Chapter 11. In response to the economic distress caused by the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act was enacted on March 27, 2020, which increased the debt eligibility limit from $2,725,625 to $7.5 million for small businesses looking to file under the SBRA’s subchapter V. Congress extended the limit last year with the enactment of the COVID-19 Bankruptcy Relief Extension Act of 2021, but the threshold returned to $2,725,625 on March 27.
S.3823 was originally introduced on March 14, aiming to make the subchapter V debt limit permanent at $7.5 million and index it to inflation, increase the Chapter 13 debt limit to $2.75 million and remove the distinction between secured and unsecured debt in that calculation, make Small Business Reorganization Act technical amendments and make Bankruptcy Administration Improvement Act technical amendments.
