Small Businesses Find Workaround Amid Bankruptcy Debt Limit Drop

Small businesses are revising strategies to meet a bankruptcy filing eligibility limit after a higher threshold expired last year, narrowing the pool of qualifiers for faster reorganization.

After a temporary provision allowing Subchapter V bankruptcy filings for debts up to $7.5 million expired in June, bankruptcy practitioners say businesses are now trying to “creatively” reduce their debt to the reinstated $3 million threshold.

Strategies include negotiating with major lenders and revising claim classifications. If debts can’t be reduced to the maximum threshold, many businesses might consider liquidation or wait for a potential extension due to the high costs and ...