HR-7730-119
Ordered to be Reported (Amended) by Voice Vote.
Sponsored by Ben Cline (R-VA)
What it does
This bill would raise two debt thresholds in federal bankruptcy law. First, it would increase the maximum debt limit for small businesses seeking bankruptcy protection under Subchapter V of Chapter 11 from the current level to $7,500,000. Second, it would raise the debt ceiling for individual consumers filing under Chapter 13 from the current combined secured/unsecured limits to a single unified cap of $2,750,000. Both changes would apply to cases filed on or after the date of enactment.
Who benefits
Small business owners with debts between the current limit and $7,500,000 who would gain access to the streamlined and less expensive Subchapter V reorganization process. Individual consumers and married couples with debts between the current cap and $2,750,000 who would gain access to Chapter 13 repayment plans. Bankruptcy attorneys who may see an expanded client base. Creditors of these debtors, who may recover more through an organized reorganization than through liquidation or default. Small business employees whose employers may be able to restructure rather than close.
Who is hurt
Creditors who prefer liquidation proceedings, as reorganization may delay or reduce recoveries. Larger competing businesses that do not have access to the streamlined Subchapter V process and face higher reorganization costs. Taxpayers who fund the federal bankruptcy court system, which may see increased caseloads. Chapter 7 bankruptcy trustees whose role is reduced when debtors qualify for reorganization instead of liquidation.
Supporters argue
Supporters argue that the existing debt thresholds have not kept pace with inflation and economic conditions, effectively locking out businesses and individuals who could successfully reorganize under a structured plan. They contend that Subchapter V, created by the Small Business Reorganization Act of 2019, has proven to be a faster and cheaper path to reorganization, and that raising the cap extends those proven benefits to a broader range of struggling small businesses. They further argue that higher Chapter 13 limits give more middle-income individuals a realistic path to repay debts rather than liquidate assets.
Opponents argue
Opponents argue that raising the thresholds significantly expands access to reorganization protections for debtors who carry substantial debt loads, potentially at the expense of creditors — including small community lenders — who may face longer delays and reduced recoveries. They contend that the $7,500,000 small business cap is more than double prior permanent limits, and that extending streamlined Subchapter V protections to larger debtors may invite abuse by businesses that are not truly "small." They also argue that the unified $2,750,000 consumer cap could allow high-debt individuals to shield assets through Chapter 13 that would otherwise be available to creditors in Chapter 7 liquidation.