Debt Limit Increase of Subchapter V of Chapter 11 of Bankruptcy Code Extended

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Snell & WilmerThe 2020 CARES Act, enacted in response to the COVID-19 pandemic, included what was thought to be a temporary increase in the debt limits for Subchapter V bankruptcy filings under the Small Business Reorganization Act. Specifically, the CARES Act increased the Subchapter V maximum debt limit from $2,725,625 to $7.5 million. The intent was to, essentially, allow additional small businesses with debt in excess of the previous debt limits to qualify for reorganization under the Small Business Reorganization Act. However, under the terms of the CARES Act, this temporary debt limit increase was set to expire on March 27, 2021. 

With the expiration looming, the United States House of Representatives recently passed a Senate-amended version of the “COVID-19 Bankruptcy Relief Extension Act of 2021,” which effectively extended the increased, $7.5 million debt ceiling through March 27, 2022.  The COVID-19 Bankruptcy Relief Extension Act of 2021 was originally passed by the House of Representatives with a vote of 399-14 on March 17, 2021. The bill was then amended and passed by the Senate on March 24, 2021, and the amended bill was passed again by the House of Representatives on March 26, 2021. President Biden signed the COVID-19 Bankruptcy Relief Extension Act of 2021 into law on March 27, 2021.

According to Congressman Ben Cline of Virginia, one of the authors of the COVID-19 Bankruptcy Relief Extension Act of 2021, since the enactment of the Small Business Reorganization Act, “80 percent of small business debtors have chosen to proceed under the provisions of this bill […].” As such, the increased debt limits enacted in response to the COVID-19 pandemic will be effective for at least another year. 

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