Bankruptcy Legislation Update: House Passes Bill Preserving $7.5 Million Eligibility Threshold for Subchapter V; Legislation Ready for Biden’s Signature
The House has passed a bill that will now go to the President to sign into law that raises the eligible debt ceiling for Subchapter V of Chapter 11 to $7,500,000. Small businesses with up to $7,500,000 in noncontingent, liquidated debts will once again be eligible for relief under Subchapter V for another two years. The ceiling was previously raised to $7,500,000 as part of the CARES Act in 2020, but lapsed back to $3,024,725 as of April 1, 2022.
On June 7, 2022, the United States House of Representatives passed amended S. 3823 (previously passed by the Senate), the “Bankruptcy Threshold Adjustment and Technical Corrections Act,” which retroactively preserves the $7,500,000 debt threshold to qualify for Subchapter V of Chapter 11 of the Bankruptcy Code for an additional two years. The bill was passed by a vote of 392-21 (14 not voting), and will now head to President Biden. Subchapter V was initially added to the Bankruptcy Code in February 2020 through the Small Business Reorganization Act of 2019, as an innovative restructuring platform for small businesses with a noncontingent liquidated debt of $2,725,625 or less. However, that debt ceiling was increased in March 2020 to $7,500,000 as a COVID-19 relief measure implemented through the CARES Act, Pub. L. No. 116-136 (2020) and subsequently extended through March 27, 2022. As a result of the CARES Act’s sunset provisions, the debt limit then reverted back to $3,024,725 (a product of annual lock-step increases to account for inflation) on April 1, 2022.
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ArentFox Schiff by George Angelich, James Britton, and Justin Kesselman. Published June 9, 2022.