ABI Applauds Senate Passage of 'Bankruptcy Threshold Adjustment Act of 2026'

Alexandria, Va. - The American Bankruptcy Institute (ABI) applauds the Senate's passage yesterday of S. 3977, the "Bankruptcy Threshold Adjustment Act of 2026." Sen. Charles Grassley (R-Iowa) introduced the bill with bipartisan support in March to permanently raise the debt limit back to $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11. Consistent with the recommendations of ABI's Commission on Consumer Bankruptcy, the legislation also raises the debt limit for individual chapter 13 filings to $2.75 million and removes the distinction between secured and unsecured debt for that calculation. The legislation now moves to the House of Representatives for consideration.

"ABI appreciates the swift passage by the Senate and efforts by Senator Grassley to provide greater access for struggling small businesses and families to achieve a financial fresh start," said ABI Executive Director Amy Quackenboss. "By expanding access to subchapter V and chapter 13 relief, Congress is helping more debtors pursue efficient, cost-effective reorganizations while maximizing value for all stakeholders."

Enacted as part of the "Small Business Reorganization Act of 2019," subchapter V went into effect in February 2020 with a debt limit of $2,725,625. In response to the COVID-19 pandemic, the CARES Act of 2020 and subsequent extensions increased the subchapter V debt eligibility limit to $7.5 million. This enhanced eligibility limit sunset in June 2024, however, and reverted to an adjusted $3.02 million for small businesses looking to access subchapter V. The current adjusted debt limit is $3,424,000, which ABI's Subchapter V Task Force estimates leaves many distressed small businesses without a viable restructuring option.

Additionally, individuals currently can qualify for chapter 13 only if they fall below separate unsecured and secured debt caps - currently $526,700 and $1,580,125, respectively - amounts that are adjusted for inflation every three years. According to ABI's Consumer Bankruptcy Commission Final Report, these limits no longer reflect the realities of contemporary household debt structures.

Companion legislation (H.R. 7730) was introduced by Rep. Ben Cline (R-Va.) with bipartisan cosponsors in the House of Representatives and was favorably reported out of the House Judiciary Committee on March 26.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.