The Subchapter V Debt Limit Problem: 6 Things to Know Before You Cross $3.4M

Why the Cap Moved Twice and Nobody Agrees on the Number

If you are carrying four advances, an equipment note, a landlord who is owed back rent, and a line of credit you stopped drawing on eighteen months ago, your total is probably somewhere between $2 million and $5 million, and where you land relative to $3,424,000 decides which bankruptcy you get. Under the cap, Subchapter V lets you keep control, skip the creditors’ committee, file the only plan on the table, and confirm it over your funders’ objections while keeping your equity. Over the cap, you get an ordinary Chapter 11 that costs more, moves slower, and applies a priority rule that can strip you of the company you are trying to save.

The confusion about the number is not your fault. The cap has moved twice since 2020 and the figure most articles still quote is the one that expired. The title above says $3.4M because that is how the number gets said out loud in a conference room; the figure that appears in the motion your funder files is $3,424,000, and dollar amounts in the Bankruptcy Code adjust every three years under 11 U.S.C. §104, so it will move again on April 1, 2028. What follows is the verified 2026 position, where each piece of it comes from, and what to do if you have already crossed the line.

1. The Real 2026 Number Is $3,424,000

For any case filed on or after April 1, 2025, a Subchapter V debtor’s aggregate noncontingent liquidated secured and unsecured debts cannot exceed $3,424,000. That figure sits in 11 U.S.C. §101(51D), and it got there through the triennial adjustment that 11 U.S.C. §104 requires off the Consumer Price Index. The increase was 13.2004 percent, published in the Federal Register on February 4, 2025, and absent an act of Congress the figure governs every case filed through March 31, 2028. At $3,431,000 in counted debt you are out, and the difference is a rounding error on one advance.

Three people will quote you three caps because the number moved twice in four years. The Small Business Reorganization Act built Subchapter V on top of the existing §101(51D) definition, whose statutory base figure is still $2,000,000. The CARES Act, Pub. L. 116-136, wrote a separate $7,500,000 threshold directly into §1182(1) in March 2020, and that language was good for one year, to March 27, 2021. Pub. L. 117-5 bought it a second year, and then the figure lapsed outright from March 27, 2022 until Pub. L. 117-151 restored it on June 21, 2022, that restoration itself sunsetting on June 21, 2024 and dropping the cap to $3,024,725 overnight. Read §1182(1) today and there is no dollar amount in it at all: it says the term “debtor” means a small business debtor, which sends you straight back to §101(51D).

There is a live bill, and it is worth knowing about without betting on it. S. 3977, the Bankruptcy Threshold Adjustment Act of 2026, was introduced on March 3, 2026 by Senators Grassley, Durbin, Cornyn, Whitehouse, Graham and Coons, and it would set the Subchapter V limit back at $7,500,000. It was placed on the Senate calendar on March 4, 2026 and it has not been enacted. A bipartisan bill on the calendar is a reason to watch the docket. It is not a reason to file a case that is ineligible on the day it is filed, because no court is going to hold your eligibility open pending a floor vote.

2. What Counts Toward the Cap

The statute counts your “aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition,” and every one of those words does work. Noncontingent means every event that fixes liability already happened before you filed, so a guaranty nobody has called is out and a lawsuit with no judgment on it is out. Liquidated means the amount is easily ascertainable rather than dependent on the future exercise of discretion. Both tests get applied claim by claim, and the court will look at your schedules and at the proofs of claim your creditors file, which is why the schedules you sign in week one become the exhibit in the eligibility fight in month three.

Three exclusions matter more than the rest. Debts owed to one or more affiliates or insiders come out by the express terms of the definition, so the $300,000 you lent the company out of your home equity and the note your brother-in-law holds are not in the arithmetic at all. At least 50 percent of what remains has to have arisen from your commercial or business activities. And §101(51D)(B) disqualifies you outright if you are a member of a group of affiliated debtors whose combined noncontingent liquidated debt exceeds the cap, if you are a corporation reporting under section 13 or 15(d) of the Securities Exchange Act of 1934, or if you are an affiliate of one. A business whose primary activity is owning single asset real estate never gets in the door.

The genuinely unsettled piece is future rent, and it can swing a mid-sized case by seven figures. In In re Macedon Consulting, Inc., 652 B.R. 480 (Bankr. E.D. Va. 2023), landlords moved to dismiss and the court held that all future amounts coming due under two unexpired leases were noncontingent and liquidated, which put the debtor over the limit. Months later, in In re Zhang Medical P.C., No. 23-10678 (Bankr. S.D.N.Y. Nov. 30, 2023), the court went the other way and held that future lease obligations should rarely if ever be counted, because they stay contingent and unliquidated until the debtor assumes or rejects. No appellate court has resolved the split, so the answer depends on your district, and your landlord’s counsel already knows which case to cite.

3. How an MCA Balance Gets Counted

Disputed and unliquidated are not the same word, and conflating them is the most common way owners talk themselves into believing they are eligible. If your funder says the balance is $412,000 and you say the agreement is a usurious loan wearing a receivables-purchase costume, the amount is still readily ascertainable, and the existence of a dispute does not lift it out of the calculation. The debtor carries the burden of proving its own eligibility, which is how the debtor in Zhang Medical ended up with roughly $9.1 million counted against it after declining to challenge most of the claims that had been filed.

There is a real MCA-specific argument, and it has worked. In In re McKenzie Contracting, LLC, No. 8:24-bk-01255-RCT (Bankr. M.D. Fla.), a Tampa underground utilities and infrastructure contractor filed Subchapter V on March 11, 2024, while the $7,500,000 cap was still in force. Funder GCM Prime LLC objected to the Subchapter V designation. The debtor’s position was that the MCA claims were contingent and unliquidated, because the agreements were purchases of future receivables under which the funder assumed the risk of nonpayment rather than fixed loans. On July 19, 2024 the court entered an order overruling the objection. The whole dispute was about which claims belonged in the count: on an unfiltered basis, before anything contingent or unliquidated came out, the scheduled debt and the claims creditors actually filed both sat above the ceiling, and stripping the advances out on that theory was what brought the counted total back inside it.

Which is where it gets uncomfortable, because your strongest settlement argument and your eligibility argument pull in opposite directions. The usury and recharacterization case that makes a funder discount a balance depends on convincing everyone the advance is a loan with a fixed payback, and a loan with a fixed payback is precisely what a court counts as noncontingent liquidated debt. Which argument you lead with, and in which forum, is a strategy decision rather than a form to fill out, and it is one reason a lot of these files get resolved through MCA settlement, which on our own numbers lands at 30-60% of the balance, before anybody files a petition at all.

4. What Ordinary Chapter 11 Costs You

Start with the committee, because it changes the room. In an ordinary Chapter 11, §1102(a)(1) says the United States trustee “shall appoint a committee of creditors holding unsecured claims,” and under §1102(b)(1) it ordinarily consists of the seven largest claim holders willing to serve. That committee retains its own counsel and its own financial advisor, and the estate pays them. In a file where the seven largest unsecured claims are four MCA funders, a landlord, and two suppliers, you have just handed your funders a funded seat across the table. Section 1181(b) turns §1102 off in Subchapter V unless the court orders otherwise for cause, and it turns off the §1125 disclosure statement requirement too.

Then the plan. Section 1189(a) gives only the debtor the right to file a plan in Subchapter V, and §1189(b) puts it on a 90-day clock from the order for relief. In ordinary Chapter 11, exclusivity expires and a funder can propose a competing plan that sells your business to somebody else. Section 1191(b) lets the court confirm your plan even though no impaired class accepted it, dispensing with §1129(a)(8) and (a)(10), and §1191(c) substitutes a projected disposable income test over three to five years for the absolute priority rule at §1129(b)(2)(B)(ii). That rule says a junior interest holder receives nothing while a senior impaired class goes unpaid, and in a small business Chapter 11 the junior interest holder is you.

Cost shows up in three places. The disclosure statement is a document you pay professionals to write and then defend. The committee’s professionals bill the estate. And quarterly United States Trustee fees, which 28 U.S.C. §1930(a)(6)(A) imposes on Chapter 11 cases “other than under subchapter V” and §1930(a)(6)(B) then sizes, run the greater of 0.4% of disbursements or $250 for any quarter with under $1,000,000 in disbursements, and 0.9% of disbursements capped at $250,000 for quarters at or above that line, with the 0.9% rate already in force rather than pending. The filing fee itself is $1,738 either way, made up of the $1,167 statutory fee plus the $571 administrative fee.

5. The Election and the 30-Day Objection Window

The election is a checkbox, which makes it easy to underestimate. Bankruptcy Rule 1020(a) requires that in a voluntary Chapter 11 case the debtor state in the petition whether it is a small business debtor and, if so, whether it elects to have Subchapter V apply; in an involuntary case the statement is due within 14 days after the order for relief. Eligibility is measured as of the petition date, so the number you file with is the number that governs. Paying an advance down in month two does not retroactively make you eligible, and neither does settling a claim after the objection has been filed.

Then the window opens. Under Rule 1020(b), the United States trustee or any party in interest may object to the debtor’s designation, and the objection must be filed within 30 days after the conclusion of the meeting of creditors held under §341(a), or within 30 days after an amendment to the designation, whichever is later. It gets litigated as a contested matter under Rule 9014, with discovery, declarations, and usually a hearing. The parties who bring these motions are the ones with the biggest number and the most to gain from a committee: your largest funder, your landlord, sometimes the United States trustee.

The timing is the part that hurts. Your §1189(b) 90-day plan deadline runs from the order for relief and does not stop while the designation gets fought over, so a debtor who loses the motion in month three lands in ordinary Chapter 11 with a committee organizing, a disclosure statement unwritten, and most of the plan period gone. Counting the debt correctly before the petition gets filed is the single most useful thing counsel does in the two weeks beforehand.

6. Staying Under the Cap Versus Manipulating It

Some of what gets whispered about as gaming the cap is just the statute applied correctly. Excluding debts owed to affiliates and insiders is not a maneuver, it is what §101(51D) instructs you to do, so the note you hold and your family’s notes come out. Classifying a genuinely contingent obligation as contingent is not a maneuver either, whether that is an unexercised guaranty of an affiliate’s obligation, an unliquidated tort claim with no judgment, or, in a district following Zhang Medical, future rent on a lease you have not assumed. Settling a disputed trade claim down to a real number on real terms before you file is a legitimate transaction that happens to lower your counted debt.

What draws fire is anything that moves value or paper around shortly before the petition. Shifting operating assets or debt into a new entity weeks before filing, paying insiders down ahead of everyone else, or splitting one business into two to sidestep the affiliated-group aggregation at §101(51D)(B)(i) all invite the same response. Transfers to insiders are recoverable as preferences for a full year under §547(b)(4)(B) instead of the usual 90 days. A transfer for less than reasonably equivalent value reaches back two years under §548 and further under state law through §544(b), which is the subject of our page on the fraudulent transfer traps in OldCo and NewCo restructurings.

And the exposure is not only that a transfer gets unwound. Understating scheduled debt to squeeze under the cap is a false oath in a bankruptcy case, and 18 U.S.C. §152 carries up to five years. A court that concludes the designation was improper can strike it, and cause exists to dismiss or convert a case under §1112(b). None of this is a reason to avoid Subchapter V, but it is a reason to have counsel build the debt schedule before you file rather than defend it afterward.

If You Are Already Over $3,424,000

Recount before you conclude anything, because the first number a bookkeeper produces is almost always the wrong one. Pull the actual payoff figure in writing from every funder, take out insider and affiliate debt, take out claims that are genuinely contingent or genuinely unliquidated, and check whether your district follows Macedon or Zhang Medical on unexpired leases. Businesses that thought they were at $4.1 million land at $3.2 million surprisingly often, and the reverse happens too. If you are modestly over, settling two positions on real terms over the next few months and then filing honestly below the cap is a legitimate sequence, which is a different thing entirely from engineering it over a weekend.

If you are meaningfully over, the exits do not all run through a courthouse. An ordinary Chapter 11 with a plan prenegotiated with your two largest creditors avoids some of what makes ordinary Chapter 11 expensive. A secured party sale under U.C.C. §9-610 can move the operating assets to a buyer with notice and a commercially reasonable process. An assignment for the benefit of creditors hands the whole company to a fiduciary assignee who sells it off under your state’s statute. And most sub-$5M businesses in this position never file at all, resolving the advances through negotiated settlement while the operating company keeps running. Each of those routes treats your personal guaranty differently, which is usually the deciding factor.

The one thing worth not doing is waiting on Congress with an operating account that a funder is about to restrain. S. 3977 would put the cap back at $7,500,000, and if it passes, a business at $4 million with stable revenue and no imminent enforcement gets a much better tool than it has today. That is a real option with real value if you have time. If a restraining notice or a UCC notification to your account debtors is days away, the calendar decides for you, and the question becomes which exit you can execute this month rather than which statute you would prefer.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.