Bankruptcy Code’s $5 Million Examiner Threshold Needs Big Revamp

Under Section 1104(c)(2) of the Bankruptcy Code, if a debtor’s fixed, liquidated, unsecured debts exceed $5 million and a party in interest or the US Trustee requests it, the court must appoint an examiner. The idea was to ensure that large, public-interest bankruptcies always received independent oversight.

Today, however, that figure covers far more cases than Congress ever intended. Many mid-sized businesses—and even some small ones—now have unsecured debts above that level. As a result, the rule that once targeted massive, high-profile cases now routinely applies to ordinary bankruptcies, imposing costs and delays that do little to protect creditors. The Bankruptcy Code should be amended to preclude the need for examiner appointments in such ordinary cases.

Why It Matters

Bankruptcy examiners serve an important purpose. They investigate the debtor’s conduct, transactions, and financial condition—helping to uncover fraud, mismanagement, or other issues that could affect the case’s integrity. But examiner investigations are expensive and can easily cost hundreds of thousands, or even millions, of dollars in professional fees.

In cases that aren’t truly large or complex, those costs can outweigh the benefits. Every dollar spent on an unnecessary examiner is a dollar taken from creditor recoveries. Congress never intended for this safeguard to drain value from estates that are already struggling to reorganize or liquidate.

Major Financial Benchmark

When Congress enacted the Bankruptcy Reform Act in 1978, $5 million represented a major financial threshold. Adjusted for inflation, that figure would be more than $25 million in 2025 dollars, according to the US Bureau of Labor Statistics.

The broader economy has also changed dramatically. According to Federal Reserve data, total US nonfinancial corporate debt—meaning bonds and loans—was about $600 billion in 1976. By the second quarter of 2025, it had ballooned to nearly $14 trillion—about 23 times larger.

Over the same period, US GDP was about 13 times larger in 2025 than it was in 1978. In other words, corporate debt has grown more than twice as fast as the economy itself.

Given those numbers, $5 million today is roughly equivalent to what $295,000 would have been in 1978 (assuming a steady 6% annual interest rate). That’s far from what Congress intended when it defined a “large” Chapter 11 case.

What Courts Say

The US Court of Appeals for the Third Circuit’s 2024 decision in In re FTX Trading Ltd. underscored the problem. The court held that the $5 million threshold is mandatory as written—the statute leaves no room for judicial discretion, and it’s Congress’ job to make any fixes to the Bankruptcy Code.

At the same time, the court recognized that Congress originally set the threshold to cover “large cases having great public interest.” The rule was designed to safeguard public confidence in major bankruptcies, not to impose automatic investigations in every mid-sized business reorganization.

Practical Fix

The statute no longer fits today’s economic reality. Instead of ensuring oversight in massive cases where transparency is critical, it can force examiner appointments in ordinary proceedings. That wastes resources, increases administrative costs, and reduces what’s left for creditors.

It also risks diluting the value of examiners themselves. When examiners are routinely appointed in smaller cases, their work loses the distinctive importance it once carried in massive bankruptcies such as in the cases of Enron Corp. or Lehman Brothers Holdings Inc.

Congress should modernize the statute raising the threshold significantly to reflect inflation and economic growth or ensuring the threshold is automatically linked to inflation, allowing it to adjust over time without the need for additional legislation.

Either of these approaches would help ensure that examiners are appointed only where their investigations can meaningfully advance public interest as Congress intended.

The Bottom Line

The $5 million examiner threshold made perfect sense in 1978 but inflation, market expansion, and the sheer growth of corporate finance have made that number a relic. Updating it wouldn’t weaken oversight—it would strengthen it by focusing examiner appointments where they matter most: in the largest, most complex, and most consequential Chapter 11 cases.

The bankruptcy system depends on public trust, efficiency, and fairness. A $5 million threshold in 2025 undermines all three.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Kenneth Rosen practices debtor and creditors’ rights law and advises companies on practical strategies for resolution of financial distress.

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