Technical corrections only. The engrossed version (v2) reflects the bill having passed the Senate and updates the document type from 'A BILL' to 'AN ACT'. There are no substantive changes to the legislative text itself between v1 and v2.
Bankruptcy Threshold Adjustment Act of 2026
- Sponsor
- Sen. Grassley, Chuck [R-IA]
- Last action
- Aug 10, 2026
Bottom line
The bill expands eligibility for Chapter 13 consumer bankruptcy and Subchapter V small business bankruptcy by substantially increasing the maximum debt thresholds, making these debt restructuring options available to a wider range of debtors.
What it actually does
This bill significantly increases the debt limits for eligibility under Chapter 13 (consumer bankruptcy) and Subchapter V (small business bankruptcy) of title 11, United States Code. Specifically, it raises the maximum aggregate debt for Chapter 13 filings to less than $2,750,000 and for Subchapter V small business filings to not more than $7,500,000. These adjustments aim to expand access to these specific bankruptcy protections for individuals and small businesses facing higher debt burdens.
Proponents argue
Supporters argue that these adjustments are necessary to reflect economic realities, including inflation and increased debt levels, which have made the previous limits outdated. They contend that raising these thresholds will provide crucial relief and a viable path to reorganization for more individuals and small businesses struggling with debt, preventing liquidations and preserving economic activity. Proponents emphasize that these changes allow more debtors to utilize the structured repayment plans offered by Chapter 13 and Subchapter V, which can lead to better outcomes for both debtors and creditors compared to Chapter 7 liquidation.
Opponents contend
Critics might express concerns that expanding bankruptcy eligibility could lead to an increase in bankruptcy filings, potentially shifting more risk onto creditors and lenders. They may argue that such changes could incentivize excessive borrowing or reduce the incentive for debtors to negotiate out-of-court settlements. Some opponents might also suggest that while inflation is a factor, such significant increases could create moral hazard or place undue burdens on the credit system, potentially leading to higher interest rates or stricter lending practices.
The bill is very short and clear, making it highly accessible for any reader to understand its core provisions quickly.
Section 2(a)
Modification to Small Business Bankruptcy Debt Limit (Subchapter V)
This provision amends Section 1182(1) of the Bankruptcy Code to increase the maximum aggregate noncontingent liquidated secured and unsecured debt a small business can have to qualify for Subchapter V bankruptcy. The new limit is set at $7,500,000, excluding debts owed to affiliates or insiders. Additionally, at least 50 percent of these debts must arise from the debtor's commercial or business activities, and it clarifies exclusions for affiliated groups exceeding this limit and publicly traded corporations.
Supporters argue
Supporters argue that this increase is vital for small businesses, many of which have accumulated significant debt due to economic downturns, supply chain issues, or inflation. The higher limit allows more struggling businesses to utilize the streamlined and cost-effective Subchapter V process to reorganize and continue operations, saving jobs and contributing to local economies, rather than being forced into liquidation.
Critics contend
Opponents might contend that while some adjustment is warranted, a $7,500,000 limit is excessively high and could encourage businesses with substantial debt to seek bankruptcy protection rather than pursuing other restructuring options. They may argue it could increase the administrative burden on bankruptcy courts and potentially prolong the resolution process for creditors.
Tradeoffs
The provision balances the need to provide a viable path for small business recovery against concerns about potential moral hazard and the impact on creditor expectations and recovery timelines. It aims to prevent premature liquidations while ensuring the bankruptcy system remains efficient.
Section 2(b)
Modification to Consumer Bankruptcy Debt Limit (Chapter 13)
This provision amends Section 109(e) of the Bankruptcy Code, raising the maximum aggregate noncontingent liquidated debt an individual (or an individual and their spouse) can have to be eligible for Chapter 13 bankruptcy. The new limit is set at less than $2,750,000. This change allows individuals with higher levels of debt, who also have regular income, to propose a repayment plan under Chapter 13 rather than being forced into Chapter 7 liquidation.