In a welcome feat of bipartisanship, Congress passed a bill to
restore the Subchapter V debt limit to $7.5 million, and President
Biden signed it into law on June 21.
Subchapter V of Chapter 11 of the Bankruptcy Code, which took
effect in February 2020, creates a more streamlined and less
expensive Chapter 11 reorganization path for small business
debtors. Under the law as originally passed, to be eligible
for Subchapter V, a debtor (whether an entity or an individual) had
to be engaged in commercial activity and its total debts -- secured
and unsecured – had to be less than $2,725,625. At
least half of those debts must have come from business
activity.
In March 2020, in response to the COVID-19 pandemic, Congress
passed the CARES Act, which raised the Subchapter V debt ceiling to
$7.5 million for one year. Congress extended it to March 27,
2022. It expired at that time, with the debt ceiling
reverting to the original $2,725,625. With the new law, the
$7.5
