Increase in Subchapter V Debt Limit Poised to be Made Permanent

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On February 19, 2020, Congress enacted the Small Business Reorganization Act (“SBRA”) to, among other things, streamline the chapter 11 bankruptcy process for a small business. Under the SBRA, a “small business” was one with less than $2,725,625.00 in debt. Few businesses, however, were eligible to take advantage of these new provisions because their debts exceeded the cap.

In the wake of the financial crisis brought on by COVID‑19, the debt limit was increased to $7,500,000 as part of the CARES Act. The increase in the debt limit dramatically increased the number of businesses eligible for Subchapter V, but it was only temporary. It originally expired on March 27, 2021, but was extended to March 27, 2022 when President Biden signed the COVID-19 Bankruptcy Relief Extension Act of 2021.

A cursory review of chapter 11 filings over the last two years indicate that the vast majority were filed under Subchapter V. Now, according to Bloomberg News, Congress, in a rare show of bipartisanship, is poised to make the increase in the debt limitation permanent.

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