01 Jul The End of an Era?
Subchapter V of the Bankruptcy Code was created under the Small Business Reorganization Act of 2019 (SBRA), which became effective on February 19, 2020. Most corporate restructuring attorneys will tell you that Subchapter V has been tremendously successful.
Upon enactment, small business debtors with less than approximately $2.75 million in debts (adjusted periodically per 11 U.S.C. § 104) were eligible to choose Subchapter V of Chapter 11 of the Bankruptcy Code. The CARES Act subsequently raised this debt limit to $7.5 million for cases initiated on or after March 27, 2020, with extensions provided by subsequent legislation until June 21, 2024.
On June 21, 2024, the extension increasing the debt limit for Subchapter V cases expired. Therefore, for Subchapter V cases commenced on or after June 21, 2024, the debt limit reverts to the original threshold set by the SBRA, adjusted as per 11 U.S.C. § 104, or approximately $3,024,725.
This is very disappointing news because many distressed companies are no longer eligible for Subchapter V. There is hope, however. The bi-partisan 2024 Bankruptcy Threshold Adjustment and Technical Corrections Act (S. 4150) would extend the $7.5 million debt limit for another two years. The Act is stalled in Congress, but there is significant support for this proposed debt limit increase. Many small business would benefit significantly if this new legislation becomes effective.