Guest Commentary By Eric Van Horn, Spencer Fane
In March, Sen. Charles Grassley, R-Iowa, introduced Senate Bill 3823, the Bankruptcy Threshold Adjustment and Technical Corrections Act. Te legislation proposes amendments to Subchapter V of Chapter 11 of the U.S. Bankruptcy Code and to Chapter 13. Te bipartisan bill is initially co-sponsored by Sens. John Cornyn, R-Texas, Dick Durbin, D-Ill., and Sheldon Whitehouse, D-R.I.
Te measure proposes to make permanent the debt limit of $7.5 million provided by Section 1182(1) of the code for debtors to qualify for relief under Subchapter V (the fast- track small business bankruptcy option provided by the Small Business Reorganization Act of 2019). Te debt limit expired March 27.
Senate Bill Would Make Permanent Bankruptcy Code’s
$7.5 Million Debt Limit for Subchapter V Cases
Originally, the debt limit to qualify under Subchapter V was $2,725,625 of noncontingent, liquidated, secured and unsecured debts, excluding debts owed to affiliates or insiders. Under the Coronavirus Aid, Relief and Economic Security Act signed into law in March 2020, the limit was temporarily increased to $7.5 million for one year. Tat increase was extended for one additional year by the COVID-19 Bankruptcy Relief Extension Act of 2021 and expired March 27 without passage of the bill or other legislation to extend it.
In addition, the bill seeks to index the $7.5 million debt limit to inflation, allowing for the limit to be adjusted upwards every three years to account for changes in the Consumer Price Index for All Urban Consumers as published by the U.S. Department of Labor. Te bill does not propose adjusting the debt limit April 1, 2022, when other adjustments will be made. Among other amendments, the bill also seeks to make clear that in Subchapter V cases where a debtor ceases to be a “debtor in possession,” the Subchapter V trustee is authorized by the code to operate the debtor’s business.
For Chapter 13 cases (for individuals seeking to reorganize versus liquidate their debts and assets in Chapter 7), the bill proposes a new, increased and combined debt limit of $2.75 million for both secured and unsecured, noncontingent debts. Under current law, the debt limit for such cases is lower and
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