How Much Debt Can I Have to Qualify for Subchapter V in 2026?
Can your business still qualify under Subchapter V? The debt limit remains $3,424,000 of counted debt as of April 1, 2025. The temporary $7.5 million debt limit expired on June 21, 2024.
The limit was adjusted for inflation from $3,024,725 to $3,424,000 on April 1, 2025, and is adjusted for inflation every three years. Any case filed on or after April 1, 2025, must use that new number.
The debt limit for businesses would increase permanently to $7.5 million. Congress just passed H.R. 7730, to make it so. But the bill still needs to be signed by the President before it becomes law. Since only cases filed after the law is signed will be under the higher limit, if your business has more than the current debt limit you should get legal advice now about when to file.
Make Sure You Qualify
Not all kinds of debts count. If you owe a debt that doesn’t count, it doesn’t add to the limit. The debt amount is calculated at the time your business files its bankruptcy petition. Noncontingent, liquidated debts count towards this limit. These are amounts currently due in a specific dollar amount. A contingent debt is owed only if a future event or condition occurs. A liquidated debt is one where the amount owed is known or easily figured. In contrast, contingent and unliquidated debts are not counted. Also, debts to insiders and affiliates are not counted.
The counted amount of debt may not be what’s on your business’ balance sheet. Here are some general questions to ask about each debt. Is this debt noncontingent? Is this debt liquidated? Is the amount owed disputed? Is this debt owed to a creditor that is an insider or affiliate? If it’s a guaranty, are any co-obligors filing? What is this debt for? If you’re in doubt, count the debts and then count them again. Bring in your CPA or bankruptcy lawyer to do it with you.
For example, assume a business owes $4,000,000 in total; $300,000 of this is contingent or unliquidated; $400,000 is owed to insiders.
| Step | Amount ($) |
|---|---|
| All debts the business owes | $4,000,000 |
| Less: contingent or unliquidated debts (not counted) | $300,000 |
| Less: debts owed to insiders or affiliates (not counted) | $400,000 |
| Counted debt | $3,300,000 |
| Current Subchapter V limit | $3,424,000 |
| Room left under the limit | $124,000 |
Can that business above file with $124,000 to spare? Maybe not if new, debt-counting debts are found right before filing.
Meeting the Subchapter V debt limit may not be just about the total number. If a business wants to file Chapter 11 in Subchapter V, the bankruptcy code requires at least half of the debts be from business activity. If the business is an LLC or corporation, this usually isn’t hard to show. If the business is a sole proprietorship (read, an individual), it takes some analysis. The problem is, some businesses have significant consumer debt, and if more than half the debt is consumer rather than business you don’t qualify. So, sole proprietors should first see if at least half of the counted total debt is from the business itself. A bankruptcy lawyer may help you figure it out.
Prospective debtors need to be in business at the time of filing to qualify for Subchapter V bankruptcy. An old business or closed business may not qualify for Subchapter V. It depends on the facts. If your business is not currently in operation or has ceased operations, talk to a bankruptcy lawyer.
If the business is mainly engaged in owning a single building, it can’t file Subchapter V. Single asset real estate (or SARE) is a term of art in bankruptcy. It means a property or single project that produces almost all the business’ income. Its only real business may be running the property. But owning a business that needs a place to operate in, like a restaurant or hotel that happens to own the building, isn’t enough to exclude it. Real estate businesses that want to file under Subchapter V should consult with a bankruptcy lawyer before filing.
If your business has lots of affiliates, there might be too much counted debt to qualify for Subchapter V. If you own several businesses which are organized as LLCs, filing just one of them in bankruptcy doesn’t necessarily solve your problem. The other ones could still affect your eligibility in the filed case. Also, a company reporting publicly is not eligible.
The Timing of a U.S. Presidential Signature
If your business’s debt is somewhere between $3.424 million and $7.5 million, its status for filing under Subchapter V just might come down to the timing of a U.S. Presidential signature. Senate approval of the permanent higher debt limit happened on September 28, 2026. Although the text of the bill for the increases passed by Congress shows no signing date, there was no confirmation of the signing as of October 22, 2026.
Under the text of the bill that passed in Congress, the new debt limit of $7.5 million applies only to cases filed on or after the date the law takes effect. The bill Congress passed does nothing to reach back to that June 21, 2024 date.
Many businesses in that range are caught now in what feels like limbo. There are two paths. If your business can wait, wait for the permanent increases and file under Subchapter V if they become law. Otherwise, file a traditional Chapter 11 case now. If you wait for the permanent increases to take effect, remember that the debt amount counted is as of the date you file your bankruptcy petition. Also check the counted debt amount again in a few months.
Until the debt limit increase becomes law, being over the limit is not the end. When a business is over the Subchapter V limit and can’t file there, traditional Chapter 11 might be the answer. With it come the automatic stay, debtor-in-possession status, the chance to propose a plan, asset sales, lease tools, and more.
An individual owner over the Subchapter V debt limit might consider filing Chapter 13. There are two caps on total debts to qualify for Chapter 13. Unsecured debts must be less than $526,700. On top of that, there’s a separate cap on secured debts. If you’re under these limits, Chapter 13 might work for you. The same pending bill would combine Chapter 13’s separate secured and unsecured caps into one limit of $2,750,000.
The Debtor Who Proposes a Plan
If a business qualifies to file under Subchapter V, it’s the debtor who proposes a plan. The debtor files the plan, within 90 days of the order for relief unless the court extends that deadline. The Subchapter V case begins with a status conference within 60 days of the order for relief. A trustee is automatically appointed in every Subchapter V case and helps the parties reach an agreed plan. The owner keeps running the business, no creditors’ committee usually forms, and U.S. Trustee fees are not paid.
If creditors don’t agree to a plan and the court confirms it anyway, debtors pay their projected disposable income to the plan for three years, or up to five if the court sets it that way.
If the business has counted debt of no more than $3,424,000, Subchapter V may be open now. Over $7.5 million of counted debt, traditional Chapter 11 is generally the debtor’s option.
But being eligible to file Subchapter V is not a green light in itself. The right time to file isn’t necessarily the first moment your business becomes eligible. Analyze the business’s cash flow. Your budget must be feasible, no matter how much your heart may wish it to be different. Project what taxes will be and how to pay them. Find out what’s needed to get a plan confirmed. If you’re contemplating filing Chapter 11 to keep operating, the time to check whether filing is right isn’t after filing but before it. Make sure you’re eligible; check that you’re ready to file; and get prepared.
