Chapter 11 is intended to enable businesses to reorganize while continuing normal operations under the control of existing management. The primary goal of chapter 11 is for companies to reorganize rather than liquidate to the benefit of owners, employees, suppliers, customers and others relying on the businesses’ ongoing survival.

But the process has become expensive.

Some would-be chapter 11 debtors opt out of the court process altogether, instead seeking out-of-court options, including consensual debt restructurings and liability management exercises (or “LMEs”). These debtors seek to renegotiate their debts to make shifts within their capital structure without the expense of a bankruptcy filing.

When companies do file chapter 11, they often do so with prepackaged or pre-negotiated plans of reorganization, which minimize both the length of the bankruptcy and the associated costs. Some prepackaged cases have concluded at such a breakneck pace that the debtors are in and out of bankruptcy in a matter of days.[1]

In recent years, many companies have also used chapter 11 to liquidate rather than file a traditional free-fall bankruptcy. It has become common for companies to file chapter 11 with the express purpose of entering into a sale transaction and then proposing a plan of liquidation that distributes the sale proceeds to secured creditors and establishes a liquidation trust to convert any remaining assets (such as causes of action) into cash for the benefit of unsecured creditors.

But it’s not just bankruptcy practice that has changed. The Bankruptcy Code has changed too.

In February 2020, the Small Business Reorganization Act of 2019 went into effect. The law was a bipartisan measure introduced for the purpose of providing small business debtors with an efficient and cost-effective process to reorganize and rehabilitate their finances.

And so, Subchapter V was born.

Subchapter V’s cost savings are achieved through various means. Most notable is the elimination of an unsecured creditors’ committee, which greatly reduces the amount of professional fees that will need to be paid by the estate. Subchapter V debtors also do not pay fees to the U.S. Trustee’s office.

It is also much easier for Subchapter V debtors to confirm a plan because: (1) no disclosure statement is required; (2) the absolute priority rule does not apply; and (3) so long as the plan does not unfairly discriminate and is fair and equitable, the debtor can cramdown a plan without acceptance from an impaired class.

Unsurprisingly, Subchapter V is incredibly popular. The U.S. Trustee’s 2025 annual report notes that Subchapter V cases increased nearly 60% over the past three fiscal years.[2] In addition, Subchapter V filings represented roughly 30% of Chapter 11 filings in 2024.[3]

However, the Subchapter is only available to companies with debts under a certain threshold. The debt threshold was initially set for $2.75 million. In March 2020, the debt limit was temporarily increased to $7.5 million in response to the financial hardships caused by the COVID-19 pandemic. That increase expired in 2024, and as of January 2026, the debt threshold was $3,424,000.

Earlier this month, Congress approved H.R. 7730, which would permanently increase the debt limit to $7.5 million.

In passing H.R. 7730, Congress considered evidence that Subchapter V is more effective for small businesses than the traditional chapter 11 process. Specifically, these businesses are more likely to survive the process if they file Subchapter V. Because creditors share in the gains from preserving a business, creditors receive as much, if not more, through Subchapter V than they would have in a traditional chapter 11.[4]

The new debt limit will open up Subchapter V relief to additional small businesses. If Subchapter V continues to be so effective, it may even help bring back the return of more traditional chapter 11 cases where debtors use the process to right-size their business and continue operations rather than for a liquidation or a stamp of approval on a pre-formulated plan.