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

Five Tests

Subchapter V has been popular with businesses, but it does not work for everybody. The new option is open only if you can pass five tests. To use this part of the law, you need to be under the debt limit, at least half of your debt has to come from business, you need to be in business, your business cannot be single asset real estate, and you need to not be in an affiliated group over the limit or a public company. To qualify, debt must be no more than $3,424,000. The limit on debt for Subchapter V was $7.5 million until June 2024, when it expired. Check the debt limit before filing.

The higher debt limit was part of the CARES Act, later extended. But the temporary change expired on June 21, 2024. The Bankruptcy Code states that the debt limit is now back to the original amount, but it is indexed for inflation. H.R. 7730 would set a $7.5 million cap, but it has not been signed yet. The bill passed the House on September 16, 2026, and the Senate on September 28, 2026. If signed, it will apply to cases filed on or after its enactment.

Only non-contingent and liquidated debts count toward the limit. Suppose you add up the amount owed, excluding any loans by affiliates or insiders. If that is under the cap, you can use Subchapter V, but it is more complicated than that. You must do the math on the day you file. The amount on your balance sheet might not be the number that counts. Check to see if a debt is disputed, unliquidated, contingent, or with an insider or another co-obligor. Any of those can matter.

You need at least half your debt to be from business activity. The source of debt plays an important role in this analysis. If you start a corporation or LLC to run a business, the loans are often from business activity. For individuals, the source of debt can become murky. If your business and personal lives overlap, check to make sure at least half of your debt comes from business activities.

Subchapter V requires the debtor to be engaged in commercial or business activities. But there are a lot of tricky scenarios, like if you just closed up shop or owned several companies. It is a good idea to analyze your case rather than assuming you qualify.

You cannot use this option if your business is only operating an apartment building or an investment property. Single asset real estate is a company that owns one property or project, and for which substantially all of the gross income is from that property. Owning a building is not enough; an operating hotel, restaurant, manufacturer, or medical practice may be beyond the exclusion. The facts are key.

There are special rules for businesses affiliated with you or operated by you, so look closely at this area. If your business is part of a group of affiliated debtors, you may not qualify for subchapter V if the combined debt exceeds the limits, even if each business individually falls below the limit. Check your ownership and affiliations to make sure the combined debt is not above the limit. This is true even if you only file one company into bankruptcy. Any public company that files reports with the SEC is excluded. So are its affiliates.

Still Be Eligible to File Under Chapter 11

If you miss the Subchapter V limit, do not despair; you may still be eligible to file under Chapter 11. You still get the same benefits of the Bankruptcy Code, like an automatic stay and debtor in possession status. Chapter 11 allows for a plan of reorganization that can sell assets, modify contracts, lease terms, and more.

Once you qualify for Subchapter V, it’s not a done deal. You need a budget, a plan for secured debt and taxes, and a feasible path to confirmation. You state your small business status and subchapter V election in the petition. The U.S. trustee or creditors may object within 30 days after the creditors meeting.

Subchapter V comes with a status conference within 60 days of filing. Only the debtor can file a plan, which must be filed within 90 days of the petition date, unless the court extends it. There are no quarterly fees to the US trustee in a Subchapter V case. A trustee is appointed in every case. Without creditor consent, the plan pays projected disposable income for three years, up to five if the court sets it.