Bankruptcy Law Update: Biden Signs Bill Preserving $7.5M Sub-Chapter V Eligibility Threshold | Arent Fox Schiff

The President signed legislation raising the eligible debt cap for Chapter 11 Sub-Chapter V to $7,500,000. Small businesses with up to $7,500,000 in unconditional and liquidated debt are eligible for relief under Subchapter V for another two years.

On June 21, 2022, President Biden signed into law amended S. 3823, the “Bankruptcy Threshold Adjustment and Technical Corrections Act.” The law had previously been passed by the U.S. House of Representatives on June 7, 2022, and by the Senate on April 7, 2022. Biden’s signing represents the successful culmination of a months-long effort to reinstate the limit. increased indebtedness for subchapter V. With this action, small business debtors can now formally avail themselves of the simplified subchapter V provisions through June 2024 as long as they hold less than $7,500,000 in unpaid debt. conditional and liquidated.[1] The law also applies retroactively to all cases commenced under Chapter 11 on or after March 27, 2022 that remain pending as of June 21, 2022.

[1] In addition to the indebtedness limit, the bill makes a number of technical changes regarding indebted affiliates and other clarifications, as well as making significant changes to eligibility under Chapter 13 by changing the definition of an eligible debtor as “a person with regular income who owes, on the date the petition is filed, non-contingent and liquidated debts of less than $2,750,000 or an individual . . . and that person’s spouse. . . who must. . . unconditional and liquidated debts totaling less than $2,750,000”. Like the Sub-Chapter V increase, the increased debt limits for Chapter 13 will also end in two years.

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