Bankruptcy Threshold Adjustment Act of 2026
- Bill Number
- S. 3977
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 2
- Policy Area
- Finance and Financial Sector
- Status
- Introduced
- Latest Action
- 2026-03-04: Read the second time. Placed on Senate Legislative Calendar under General Orders. Calendar No. 347.
- Last Updated
- 2026-03-24T19:55:51Z
AI-Generated Summary
Purpose
The Bankruptcy Threshold Adjustment Act of 2026 aims to update the debt limits for eligibility in certain types of bankruptcy cases under U.S. law. Specifically, it raises the maximum debt amounts that allow small businesses and individuals to file under simplified bankruptcy procedures, making these options more accessible amid economic changes like inflation.
Key Provisions
- Small Business Bankruptcy Debt Limit (Section 2(a)):
- Amends Section 1182(1) of the Bankruptcy Code (Title 11, U.S. Code) to define a "debtor" for small business cases (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.
- At least 50% of these debts must come from the debtor's business activities.
- Excludes debts owed to affiliates (related companies) or insiders (close associates like owners or family).
- Exclusions: Does not apply to groups of affiliated debtors exceeding the limit, publicly traded corporations required to report under securities laws, or their affiliates.
- Consumer Bankruptcy Debt Limit (Section 2(b)):
- Amends Section 109(e) of the Bankruptcy Code to allow individuals with regular income (or a married couple) to file under Chapter 13 (a repayment plan for consumers) if their noncontingent, liquidated debts total less than $2,750,000 on the filing date.
- Excludes stockbrokers or commodity brokers from eligibility.
- 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
- Increases the small business debt threshold from the previous limit (historically adjusted periodically, but currently around $2.75 million before this bill) to $7,500,000, broadening eligibility for streamlined Chapter 11 proceedings designed for smaller businesses.
- Raises the Chapter 13 debt limit from the prior amount (about $2.75 million combined secured/unsecured before this) to $2,750,000, allowing more individuals or couples with higher debts to reorganize finances through a court-supervised repayment plan rather than liquidation.
- Maintains exclusions for certain high-risk or large entities to prevent abuse, but expands access overall without altering core bankruptcy processes like creditor rights or discharge rules.
Potential Impacts
- On Government Agencies: Bankruptcy courts may see an increase in filings, requiring more resources for processing cases, but the changes promote efficiency by directing more debtors to simpler tracks.
- On Citizens: Individuals and small business owners with moderate-to-high debts gain easier access to debt relief, potentially reducing financial distress, foreclosures, or business closures; however, it could indirectly affect credit availability as lenders adjust to higher eligibility thresholds.
- On International Relations: Minimal direct impact, though it may influence cross-border business bankruptcies involving U.S. affiliates by clarifying eligibility for smaller entities.
Main Stakeholders Affected
- Debtors: Small businesses and individuals with regular income facing debts up to the new limits, who can now more readily file for reorganization.
- Creditors: Banks, suppliers, and lenders, who may face more bankruptcy claims but benefit from structured repayment plans under Chapters 11 and 13.
- Bankruptcy Professionals: Attorneys, trustees (court-appointed overseers), and judges, who will handle a potentially larger volume of eligible cases.
- Affiliated Entities: Public companies and large corporate groups, explicitly excluded to protect complex or publicly accountable operations.
Notable Legal, Constitutional, or Political Implications
- Legal: Enhances uniformity in bankruptcy law by indexing thresholds to economic realities, reducing disputes over eligibility; aligns with periodic adjustments under prior laws (e.g., the 2019 Small Business Reorganization Act) without challenging debtor-creditor balances.
- Constitutional: No apparent conflicts with due process or equal protection, as it expands access equitably for eligible filers while preserving exclusions for fairness.
- Political: Bipartisan sponsorship (from senators across parties) suggests broad support for debtor relief in an inflationary economy; could set precedent for future inflation-tied adjustments, influencing fiscal policy debates on consumer protection versus creditor interests.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (5)
Sen. Durbin, Richard J. [D-IL], Sen. Cornyn, John [R-TX], Sen. Whitehouse, Sheldon [D-RI], Sen. Graham, Lindsey [R-SC], Sen. Coons, Christopher A. [D-DE]
Recent Actions
- 2026-03-04: Read the second time. Placed on Senate Legislative Calendar under General Orders. Calendar No. 347.
- 2026-03-03: Introduced in the Senate. Read the first time. Placed on Senate Legislative Calendar under Read the First Time.
- 2026-03-03: Introduced in Senate
Bill Versions
- Bankruptcy Threshold Adjustment Act of 2026 — issued 2026-03-04 — PDF (4 pages)