The American Bankruptcy Institute (ABI) applauds the introduction of S. 3823, the “Bankruptcy Threshold Adjustment and Technical Corrections Act,” which would permanently set the debt limit at $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 bill also would raise the debt limit for individual chapter 13 filings to $2.75 million and remove the distinction between secured and unsecured debt for that calculation.

“There is no doubt that the effects of the COVID-19 pandemic and its aftermath continue to put a significant strain on individuals and small businesses,” said ABI Executive Director Amy Quackenboss. “By permanently setting the debt limit for subchapter V at $7.5 million and increasing the eligibility of individuals to access relief under chapter 13, the ‘Bankruptcy Threshold Adjustment and Technical Corrections Act’ provides a greater number of struggling small businesses and families with an efficient path to reorganizing their finances.”

As a direct result of the work of ABI’s Commission to Study the Reform of Chapter 11, the Small Business Reorganization Act of 2019 (SBRA) became effective on February 19, 2020, to provide Main Street business debtors with a more streamlined path for restructuring their 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 coronavirus pandemic, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act; P.L. 116-136) was enacted on March 27, 2020, increasing the debt eligibility limit for small businesses looking to file under the SBRA’s subchapter V from $2,725,625 to $7,500,000. Congress extended the limit last year with the enactment of the “COVID-19 Bankruptcy Relief Extension Act of 2021,” but the threshold is set return to $2,725,625 on March 27, 2022, without further congressional action.

Sen. Charles Grassley (R-Iowa) introduced the bipartisan S. 3823 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, remove the distinction between secured and unsecured debt, make Small Business Reorganization Act technical amendments, and make Bankruptcy Administration Improvement Act technical amendments. The legislation is co-sponsored by Senate Judiciary Chair Richard Durbin (D-Ill.) and Sens. Sheldon Whitehouse (D-R.I.) and John Cornyn (R-Texas).