Bankruptcy Threshold Adjustment Act of 2026
- Bill Number
- H.R. 7730
- Origin Chamber
- House
- Congress
- 119th Congress, Session 2
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2026-03-26: Ordered to be Reported (Amended) by Voice Vote.
- Last Updated
- 2026-03-27T08:06:36Z
AI-Generated Summary
Purpose
The Bankruptcy Threshold Adjustment Act of 2026 aims to update eligibility rules for certain types of bankruptcy filings by increasing debt limits. This allows more small businesses and individuals with higher debt levels to access simplified bankruptcy processes under the U.S. Bankruptcy Code (Title 11 of the United States Code), potentially making relief more accessible during economic challenges.
Key Provisions
- Small Business Bankruptcy Adjustments (Section 2(a)):
- Amends Section 1182(1) to define a qualifying "debtor" for small business reorganizations (under Subchapter V of Chapter 11) as a person or entity engaged in commercial or business activities with total noncontingent (fixed and certain) liquidated (settled amount) secured and unsecured debts of no more than $7,500,000 as of the filing date.
- Excludes debts owed to affiliates (related companies) or insiders (close associates like owners or family) from this limit.
- At least 50% of the debts must come from the debtor's business activities.
- Exclusions: Does not apply to members of affiliated debtor groups exceeding the limit, publicly reporting corporations under the Securities Exchange Act, or their affiliates. Also excludes entities whose main activity is owning single-asset real estate (like a single rental property).
- Consumer Bankruptcy Adjustments (Section 2(b)):
- Amends Section 109(e) to allow individuals with regular income (steady earnings) or married couples to file under Chapter 13 (wage earner's plan for repaying debts over time) if their total noncontingent, liquidated debts are less than $2,750,000 on the filing date.
- Excludes stockbrokers or commodity brokers (professionals handling securities or futures trading).
- Effective Date (Section 3):
- Changes apply only to bankruptcy cases filed on or after the date the Act becomes law.
Significant Changes to Existing Law
- Small Business Threshold: Raises the debt limit for Subchapter V eligibility from the prior amount (previously adjusted periodically but lower in base law) to $7,500,000, broadening access to streamlined reorganization for mid-sized businesses. Introduces clearer exclusions for affiliate debts and public companies to prevent abuse.
- Chapter 13 Threshold: Simplifies and increases the overall debt cap to a single $2,750,000 limit for individuals or couples, replacing the previous tiered structure (which separated unsecured and secured debts with lower caps, around $465,275 unsecured and $1,395,875 secured as of recent adjustments). This removes complexity in calculating eligibility.
Potential Impacts
- On Citizens: More individuals and families with moderate-to-high debt (e.g., from medical bills, mortgages, or small business failures) can pursue Chapter 13 plans to reorganize debts without losing assets, potentially reducing foreclosures and improving financial recovery.
- On Businesses: Small and mid-sized businesses facing up to $7.5 million in debt can use Subchapter V for faster, less costly reorganizations, helping them avoid full Chapter 11 liquidation and preserve jobs.
- On Government Agencies: Bankruptcy courts may see increased filings, requiring more resources for case management, but the changes promote efficiency by keeping cases out of more complex proceedings. No direct impact on international relations, as this is domestic bankruptcy law.
- Broader Economy: Could encourage entrepreneurship by easing bankruptcy access, but might raise concerns among creditors about higher risk of debt discharge.
Main Stakeholders Affected
- Debtors: Small business owners and individuals/couples with regular income and debts up to the new thresholds, who gain easier access to reorganization options.
- Creditors: Banks, lenders, and suppliers, who may face adjusted repayment terms or higher chances of partial debt forgiveness in eligible cases.
- Bankruptcy Professionals: Attorneys, trustees (court-appointed overseers), and courts, who will handle more streamlined cases but need to adapt to updated rules.
- Affiliated Entities: Public companies and their subsidiaries are explicitly excluded, protecting larger corporate structures from qualifying under small business provisions.
Notable Legal, Constitutional, or Political Implications
- Legal: Enhances clarity in debt calculations by focusing on noncontingent, liquidated amounts (debts that are definite and payable), reducing disputes over eligibility. Aligns with periodic inflation adjustments in bankruptcy law but sets fixed higher thresholds, potentially requiring future updates.
- Constitutional: No major challenges anticipated, as Congress has broad authority under Article I to regulate bankruptcies uniformly across states. The changes promote equal access to relief without favoring any group.
- Political: Sponsored by bipartisan representatives, it reflects efforts to support economic recovery post-recession or inflation. Could be seen as debtor-friendly, possibly drawing opposition from creditor advocacy groups concerned about lending risks, but it maintains exclusions to prevent large-scale abuse.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (5)
Rep. Correa, J. Luis [D-CA-46], Rep. Lee, Laurel M. [R-FL-15], Rep. Neguse, Joe [D-CO-2], Rep. Gooden, Lance [R-TX-5], Rep. Lofgren, Zoe [D-CA-18]
Recent Actions
- 2026-03-26: Ordered to be Reported (Amended) by Voice Vote.
- 2026-03-26: Committee Consideration and Mark-up Session Held
- 2026-02-26: Referred to the House Committee on the Judiciary.
- 2026-02-26: Introduced in House
- 2026-02-26: Introduced in House
Bill Versions
- Bankruptcy Threshold Adjustment Act of 2026 — issued 2026-02-26 — PDF (3 pages)