Subchapter V Eligibility: 5 Tests After the Debt Limit Reverted in 2024

The ceiling that decides who may use Subchapter V has already fallen once, and the section that created the subchapter no longer holds the number at all. 11 U.S.C. 1182(1) now defines the eligible debtor by pointing elsewhere: the term means a small business debtor. The dollar figure, and everything else that decides admission, lives in the general definitions of section 101.

Five tests come out of that definition in 11 U.S.C. 101(51D). A business must pass every one of them on the petition date. Clearing four with room to spare does nothing for the fifth.

1. The Debtor Must Be Engaged in Business, in the Present Tense

The definition begins with a person engaged in commercial or business activities. Under section 101(41), a person includes an individual, a partnership, and a corporation, so a sole proprietor stands on the same footing as a limited liability company, and so does a partnership that never registered anything with a state.

The phrase is written in the present tense. A company that stopped trading months before filing should ask counsel how the district reads that tense, since the text says nothing about how recent the activity must be. The statute supplies no calendar.

2. The Ceiling Is $3,424,000, Reached by Subtraction

On June 21, 2024, the temporary provision that had given Subchapter V its own $7.5 million ceiling expired, two years after the 2022 statute (Pub. L. 117-151) that last carried it. The subchapter fell back on the ordinary small business debtor figure, then $3,024,725. On April 1, 2025, the Judicial Conference's periodic adjustment raised that figure to $3,424,000, and it stands there now. The same number governs whether a non-electing company is a traditional small business case, which is how the two ideas came to share one door.

Congress has not left it alone. S. 3977 passed the Senate by unanimous consent on August 3, 2026, and H.R. 7730 passed the House by voice vote on September 16, 2026; the chambers passed separate bills, and as of late September 2026 neither had been enacted. Secondary reports describe the measure as restoring $7.5 million on a permanent basis. Whether any restored figure would reach a case already on file is a question only the final text could answer, and counsel should confirm the governing number during the week the petition is signed.

What counts against the ceiling is narrower than a balance sheet. The statute measures aggregate noncontingent, liquidated, secured and unsecured debts as of the petition date or the order for relief, and it excludes debts owed to affiliates or insiders. A hypothetical distributor owes $2,900,000 to outside creditors and $600,000 to its owner, who lent the company money two years earlier. Added together, the total is $3,500,000, over the line. The owner's loan is insider debt, however, and the countable figure is $2,900,000.

The disputed merchant cash advance is harder. An owner who believes a funder's balance is inflated by fees the contract never supported may assume the dispute removes the claim from the arithmetic, and it may not; the statute excludes debts that are contingent or not liquidated, and whether a contested balance remains fixed enough to count is a characterization that belongs to the court. It also depends on timing, because the petition date freezes the figures, and a judgment entered the week before filing converts an argument into a number that the arithmetic cannot ignore.

3. At Least Half the Debt Must Come From the Business

Not less than 50 percent of the countable debt must have arisen from the debtor's commercial or business activities. For a company this is rarely in doubt. For a proprietor, the household enters the ledger: the house, the car, the cards.

A hypothetical caterer owes $820,000 in total, of which $430,000 is the mortgage used to buy the family home and $390,000 is advances, equipment debt, and supplier balances. The business share is about 47.6 percent. The caterer fails the test by roughly $20,000, the amount by which business debt falls short of half. There are arguments for moving a household debt into the business column, though most of them depend on records the proprietor did not keep.

4. The Business Cannot Be a Single Building

The definition excludes a person whose primary activity is owning single asset real estate. Section 101(51B) describes that as one property or project, other than residential property with fewer than four units, that generates substantially all of the debtor's gross income and on which no substantial business is conducted beyond operating the real estate.

A landlord whose company holds one strip center and does nothing else is outside the subchapter.

5. No Public Company, No Affiliate of One, No Oversized Group

Section 101(51D)(B) removes three categories. The first is any member of a group of affiliated debtors whose combined countable debts exceed the ceiling, so affiliated companies filing together cannot each slip under the line on its own. The second is a corporation subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934. The third is any affiliate of such a corporation.

Older commentary cites section 1182(1)(B) for these exclusions. That subparagraph expired with the $7.5 million figure, and the live citation is to section 101. The distinction sounds clerical. In a contested eligibility hearing, a brief that cites a repealed subparagraph is making an argument about a statute that no longer exists.

Passing all five tests does not make a case a Subchapter V case. Section 103(i) applies the subchapter only when a qualifying debtor elects it, which on Official Form 201 is a box in item 8, and Bankruptcy Rule 1020 lets the United States trustee or a party in interest object within 30 days after the meeting of creditors concludes.

Where the Tests Leave Room for Another Route

A company that fails the ceiling still has ordinary Chapter 11, with its committees, fees, and absolute priority rule. A company that passes and needs a court to bind creditors who will not agree needs bankruptcy counsel, and the eligibility arithmetic above is the first thing that counsel will redo.

Delancey Street works on the other side of that line. It negotiates merchant cash advance and business debt by agreement, and as a company that is not a law firm it neither files petitions nor tells anyone whether they qualify; legal questions go to independently licensed attorneys. The company's first review costs nothing and stays confidential. An owner whose debts sit near the ceiling may find it useful to know what a negotiated outcome would look like before the countable total is fixed by a petition.

The ceiling moved in 2024 and again in 2025, and a bill now waits to move it once more. The definition around it has held still.