Congress permanently restores $7.5 million Subchapter V cap

Congress has passed legislation that would permanently raise Subchapter V bankruptcy eligibility to $7.5 million, a move that could reopen a faster and cheaper restructuring path for more lower-middle-market companies. The bill now awaits the president’s signature after clearing both chambers on identical text.

Why it matters: - The higher debt cap would give more distressed companies access to Subchapter V, which is designed to be faster, less expensive and more flexible than a traditional Chapter 11 case. - The change is aimed at lower-middle-market businesses that are too leveraged for the current cap but too small to justify the cost of a full Chapter 11 process. - The restored threshold could expand restructuring options for companies in construction, manufacturing, transportation, professional services and healthcare.

What happened: - Congress passed the Bankruptcy Threshold Adjustment Act of 2026 (H.R. 7730). - The House approved the bill on Sept. 16. - The Senate passed the same House bill without amendment on Sept. 28 by unanimous consent. - The legislation now awaits the president’s signature. - If enacted, the law would permanently raise the Subchapter V debt eligibility limit from $3,424,000 to $7.5 million. - The bill would remove the sunset provision that applied to the earlier temporary increase.

The details: - The CARES Act temporarily raised the Subchapter V threshold to $7.5 million from 2020 to mid-2024. - When that increase expired, an estimated 1,475 businesses were excluded from Subchapter V between June 2022 and March 2026 because their debt exceeded the lower ceiling. - Newpoint Advisors Corporation said it serves companies with $5 million to $50 million in revenue. - Newpoint said those companies are often too large for informal workouts and too thinly capitalized for traditional Chapter 11. - Newpoint said it has two professionals who serve as Subchapter V trustees. - Newpoint said those professionals have been involved in more than 150 appointments. - In some cases, Newpoint said its Subchapter V trustees have become trustee in possession or financial advisers to debtors in possession to help build reorganization plans and manage cash collateral or operations.

Between the lines: - The permanent cap increase signals that Congress sees a lasting need for a simplified restructuring path in the lower middle market. - The policy shift also validates the market demand exposed when the temporary $7.5 million threshold expired. - For advisors, trustees and turnaround firms, the expanded eligibility pool could translate into more small and mid-sized distressed cases that fit Subchapter V.

What happened: - In Crave Brands LLC, a restaurant chain branded as MeatHeads, Newpoint said the company faced multiple loan defaults, an impending Article 9 UCC sale and pandemic-related revenue losses. - Newpoint said the company had a $6.5 million loan at 18% interest and a lack of trust between the debtor and secured creditor. - Newpoint said Matthew Brash was appointed as Subchapter V trustee and later expanded to trustee in possession to help develop a restructuring plan. - Newpoint said the proposed reorganization paid unsecured creditors 100% and left the guarantor and secured creditor to take ownership in exchange for releasing personal guarantors. - In Papa Turney’s Old Fashion BBQ, Newpoint said Tim Stone served as Subchapter V trustee in a case requiring structured financial oversight under a strict deadline. - Newpoint said Stone reviewed filings, helped with financial reporting, coordinated meetings and worked with the debtor on cash flow management training and weekly stakeholder calls. - Newpoint said the reorganization plan it proposed was confirmed.

What's next: - The bill becomes law if the president signs it. - Once enacted, businesses with up to $7.5 million in debt will be able to use Subchapter V without a sunset date. - Newpoint said it expects the restored threshold to support more attorneys and debtors handling small distressed situations. - Newpoint said it will continue offering turnaround, receivership, trustee and financial restructuring services for troubled companies. - Newpoint said it has recovered $2,105,000,000 in debt and saved 17,162 jobs since 2013. - Newpoint provided a LinkedIn page for more information: Newpoint Advisors Corporation.