On June 21, 2022, Congress made permanent the increased debt limit for small business debtors seeking to reorganize their finances under SubChapter V of Chapter 11. When passed in 2019, Congress established a debt limit of $2,725,625 for classification as a small business debtor. In response to pandemic-related distress, the CARES Act increased the limit to $7,500,000 on a temporary basis. That measure expired on March 29, 2022.

The congressional action makes permanent the $7,500,000 limit for classification as a small business debtor. While the action is a significant expansion of SubChapter V eligibility, there remain exclusions preventing single asset real estate companies and affiliates of issuers of securities from seeking SubChapter V relief.

SubChapter V is especially beneficial to small businesses because it involves lesser amounts of administrative expense and it changes the rules for plan confirmation to recognize a small business owner’s ‘sweat equity’ as a key element of the reorganization process.

MOL’s team members are well-positioned to assist business debtors and creditors in all aspects of the insolvency process.

This article is for information purposes only and is not intended to constitute legal advice.