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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

June 9, 2022

Subchapter Five Debt Limit Update: What Was Down Is Heading Back Up!

As described in our February 22, 2022, alert, the debt limit for debtors seeking relief under the streamlined procedures of Subchapter V has been the subject of a congressional roller coaster.  

In addition to the debt limit issue, our alert identified some of the features that make Subchapter V so attractive for qualifying debtors compared to a traditional “full” Chapter 11 case.

When Subchapter V originally became effective in 2019, the debt limit was approximately $2.7 million (including noncontingent, liquidated secured, and unsecured debts, but excluding debts owed to insiders). The CARES Act, enacted in March 2020 in response to the COVID-19 pandemic, raised the debt limit to $7.5 million, which was set to expire on March 27, 2021. The debt limit of $7.5 million was extended through March 27, 2022, but Congress failed to renew the law and the debt limit reverted to $2.7 million on March 27.

Just five days later, on April 1, 2022, as a result of automatic inflation adjustments applicable to the US Bankruptcy Code, the debt limit was raised to $3,024,725.

Most recently, on June 7, 2022, the House passed legislation (already passed by the Senate on April 7, 2022), raising the debt limit back to $7.5 million. The bill will now be sent to President Biden, who is expected to quickly sign the bill into law.  

While the debt limit increase is good news for debtors caught in the eligible/ineligible trap, the bad news is that the increase is again only temporary, with the provisions set to expire two years after enactment. 

Attorneys in Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area will continue to monitor developments related to the Subchapter V debt limit increase. 

Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts on an ongoing basis to keep clients and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact the author, Jeff Dove, co-chair of the Restructuring, Bankruptcy & Creditors’ Rights Practice Area, at jdove@barclaydamon.com; Janice Grubin, co-chair of the Restructuring, Bankruptcy & Creditors’ Rights Practice Area, at jgrubin@barclaydamon.com; Robert Wonneberger, partner, at rwonneberger@barclaydamon.com; or Frank Heller, partner, at fheller@barclaydamon.com.
 

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