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ANALYSIS: Expanded Subchapter V Access Rides Off Into the Sunset (1)

April 1, 2022, 9:01 AM

March 2022 was the busiest month for Chapter 11–Subchapter V bankruptcy filings in a year. At least 163 Subchapter V cases have been filed as of March 27, the highest total since March 2021 (approximately 220 filings).

Small business debtors rushing to file before the March 27 sunset of the temporary debt limit of $7.5 million likely contributed to this figure. Eligible debtors for Subchapter V generally must now have debts amounting to only $3,024,725 or less (as of April 1). There was a similar last–minute scramble to file in March 2021, the debt limit’s initial sunset date.

Subchapter V offers small businesses a more streamlined form of Chapter 11. It’s legally and procedurally simpler—and likely cheaper—than a traditional Chapter 11 case.

Subchapter V’s debt limit requirement was temporarily increased to $7.5 million as part of the CARES Act in March 2020, with an original sunset date of March 27, 2021. However, the sunset period was extended for another year at the very last minute by the Covid-19 Bankruptcy Relief Extension Act.

Undoubtedly, as the March 27, 2022, sunset date approached, many small business debtors above the original debt limit were faced with a dilemma: proceed with a bankruptcy filing, or risk losing out on the potential benefits of a Subchapter V case.

Sen. Chuck Grassley (R-Iowa) proposed a last minute bill in mid–March to increase the debt limit permanently. But it wasn’t acted on in enough time to beat the sunset.

While it’s possible that Congress may yet increase the Subchapter V debt limit, some small business debtors are left wondering whether the sun will rise again on expanded access to Subchapter V.

Update to second paragraph to reflect the inflationary adjustment to aggregate debt limit on April 1, 2022.

Resources for understanding bankruptcy can be found in the Bankruptcy Fundamentals Toolkit. Resources for understanding Chapter 11 are available in our Practical Guidance: Voluntary Chapter 11 suite.

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