Senate Passes S. 3977 to Restore the $7.5 Million Subchapter V Debt Limit — What Happens If the House Acts

Published September 11, 2026  ·  CredibleLaw Editorial Team  ·  Reading time: 9 minutes

Reviewed for accuracy against primary congressional and Department of Justice sources on September 10, 2026.

The short version

On August 3, 2026, the U.S. Senate passed S. 3977, the Bankruptcy Threshold Adjustment Act of 2026, by unanimous consent and without amendment. The bill would permanently raise the debt ceiling for Subchapter V small business reorganization from $3,424,000 to $7,500,000, and raise the Chapter 13 limit to $2,750,000.

It is not law. The House companion bill, H.R. 7730, was ordered to be reported by the House Judiciary Committee on March 26, 2026 and is still waiting on a floor vote. Until the House passes the bill and the President signs it, every Chapter 11 case filed is measured against the $3,424,000 limit that has been in place since April 1, 2025.

For business owners carrying stacked merchant cash advances, that gap between $3.4 million and $7.5 million is not academic — it is often the difference between a streamlined reorganization and a traditional Chapter 11 that costs more than the business is worth. This article explains where the bill actually stands, what would change on enactment, what would not change, and how the timing rule works. For the broader picture of how bankruptcy interacts with advance obligations, see MCA bankruptcy options.

Where the bill stands as of September 11, 2026

Item	Status
Senate bill (S. 3977)	Passed August 3, 2026 — unanimous consent, without amendment
House bill (H.R. 7730)	Ordered to be reported by House Judiciary, March 26, 2026 — no floor vote
Signed into law	No
Subchapter V limit for a case filed today	$3,424,000
Limit proposed by the bill	$7,500,000
Chapter 13 limit proposed	$2,750,000, combining secured and unsecured debt
Sunset provision	None in the bill
Applies to	Cases commenced on or after the date of enactment
Next automatic inflation adjustment	April 1, 2028, under 11 U.S.C. § 104

The Senate action is verifiable in the Senate floor activity record for August 3, 2026 and on the congress.gov bill page for S. 3977. The House posture is on the congress.gov actions page for H.R. 7730.

Why the current limit locks out businesses that took advances

Subchapter V was built for small businesses that cannot absorb the cost and procedural weight of a full Chapter 11. It compresses the process: no creditors’ committee by default, no disclosure statement requirement, a standing trustee, and a plan the debtor alone can propose. The trade-off is a hard eligibility ceiling on aggregate debt.

The ceiling counts noncontingent, liquidated debts, secured and unsecured together. For a business that has taken on multiple advances alongside ordinary obligations, that total climbs faster than owners expect. A single location restaurant or trucking operation can reach the current $3,424,000 threshold through a combination of advance balances, equipment financing, an SBA or EIDL loan, unpaid rent, trade payables, and tax liabilities — without ever having borrowed at a scale anyone would describe as large. Once the total crosses the line, Subchapter V is off the table and the alternative is a conventional Chapter 11, an out-of-court workout, or nothing. The consequences of the third option are covered in MCA default legal consequences.

An important caveat on how advances are counted

Whether a particular advance balance counts toward the eligibility ceiling, and in what amount, is not a mechanical exercise. It turns on whether the obligation is noncontingent and liquidated, and on how the transaction is characterized. Courts have reached different conclusions on whether a merchant cash advance is a true purchase of future receivables or a disguised loan, with reconciliation provisions and the allocation of risk often driving the analysis. That same characterization question surfaces elsewhere in a case and in state court litigation — see merchant cash advance legal defenses for how it is argued outside bankruptcy, and merchant cash advance laws by state for how individual states now regulate these transactions. No article can resolve this for a specific agreement. It is a question for bankruptcy counsel reading the actual documents.

What S. 3977 would change — and what it would not

Would change

• The Subchapter V eligibility ceiling in 11 U.S.C. § 1182(1), raised to $7,500,000.
• The Chapter 13 eligibility ceiling in 11 U.S.C. § 109(e), raised to $2,750,000.
• The Chapter 13 test itself, replacing separate secured and unsecured caps with one combined figure.
• The permanence of the increase. The bill carries no sunset date, unlike the 2020 and 2022 versions that expired.

Would not change

• The requirement that not less than 50 percent of the debts arose from the commercial or business activities of the debtor.
• The exclusions for members of affiliated debtor groups above the threshold, corporations subject to SEC reporting requirements, and affiliates of those corporations.
• Any obligation owed to any funder. A higher eligibility ceiling changes who may use a process. It cancels nothing.
• Any right to sue. The bill creates no claim, no cause of action, and no remedy against any lender or advance provider.
• The outcome of any case. Subchapter V is a reorganization in which the debtor proposes a plan that must still satisfy the Bankruptcy Code. Eligibility is a door, not a result.

The timing rule matters more than the dollar figure

The bill text provides that the new limits apply to any case commenced on or after the date of enactment. Read plainly, that means a Chapter 11 case filed before enactment is measured against the limit in effect on its filing date, and the bill contains no mechanism to make a pending case newly eligible. Earlier commentary suggesting the increase would reach cases filed after June 2024 does not match the text that passed the Senate. The operative language is available on the official bill text page.

This cuts in both directions, and it is worth being honest about both. Filing before enactment forecloses the higher ceiling for that case. Waiting has its own cost: there is no published timetable for House floor action, and collection activity, judgment enforcement, and lien perfection all proceed on their own schedule regardless of the legislative calendar. Neither choice is free, and which risk is worse depends entirely on the specific facts — which is precisely the conversation to have with bankruptcy counsel rather than to resolve from an article.

How the threshold got here

Date	Event
August 23, 2019	Small Business Reorganization Act enacted, creating Subchapter V
February 19, 2020	Subchapter V takes effect with a debt limit of approximately $2.75 million
March 27, 2020	CARES Act temporarily raises the limit to $7,500,000
June 21, 2022	Bankruptcy Threshold Adjustment and Technical Corrections Act extends the higher limit with a two-year sunset
June 21, 2024	The extension lapses; the limit reverts to $3,024,725
April 1, 2025	Triennial inflation adjustment under 11 U.S.C. § 104 raises the limit to $3,424,000
February 26, 2026	H.R. 7730 introduced in the House by Rep. Ben Cline
March 3, 2026	S. 3977 introduced in the Senate by Sen. Chuck Grassley with five bipartisan cosponsors
March 26, 2026	House Judiciary Committee orders H.R. 7730 reported by voice vote
August 3, 2026	Senate passes S. 3977 by unanimous consent

The current $3,424,000 figure is confirmed by the U.S. Trustee Program’s Subchapter V page and by the Judicial Conference adjustment published in the Federal Register on February 4, 2025.

Three ways this ends

1. The House passes identical text

The bill goes to the President. On signature, the higher limits take effect for cases commenced on or after that date, permanently, with no sunset to expire again. This is the path the Senate’s unanimous consent vote and the committee report out of House Judiciary both point toward.

2. The House amends the bill

An amended House version returns to the Senate for agreement, which adds time and reopens negotiation. The most likely amendment risk, based on this threshold’s history, is the reinsertion of a sunset date — which would restore the higher limit temporarily rather than permanently and set up the same lapse again in a few years.

3. The House takes no floor action

Legislation does not carry over between Congresses. If no House floor vote occurs before the 119th Congress ends, the bill dies and the process starts over with reintroduction in the next Congress. This is not a hypothetical risk. A comparable effort in June 2024 had broad support in both chambers and still failed, and the higher limit lapsed as a result — which is why the current threshold is $3,424,000 rather than $7,500,000 today.

What a business in the $3.4 million to $7.5 million range can look at now

None of the following is a recommendation, and none of it substitutes for advice from a bankruptcy attorney who has reviewed the actual books, agreements, and lien filings. These are simply the categories that exist:

• Traditional Chapter 11. Available at any debt level, without the Subchapter V ceiling, but with materially higher cost and procedural burden.
• Out-of-court resolution. Negotiated restructuring or settlement of individual obligations outside any filing — the mechanics are covered in merchant cash advance settlement.
• Contesting specific obligations. Where an agreement or an enforcement mechanism is itself disputable, including confessions of judgment, which several states now restrict — see confession of judgment.
• Addressing immediate cash flow pressure. Daily debits and account restraints are separate problems that often need attention before any restructuring decision is realistic — see how to stop MCA daily withdrawals and frozen business bank account help.
• Monitoring and waiting. A defensible choice for some businesses and a costly one for others, depending on how fast the underlying situation is deteriorating.

Frequently asked questions

Has the Subchapter V debt limit gone up to $7.5 million?

No. As of September 11, 2026, the limit for a Subchapter V case is $3,424,000. S. 3977 passed the Senate on August 3, 2026, but the House has not voted on the companion bill and nothing has been signed into law. Any case filed today is measured against $3,424,000.

What is the current Subchapter V debt limit?

The U.S. Trustee Program states the applicable limit for Subchapter V cases commenced on or after June 21, 2024 is the original SBRA limit as adjusted under 11 U.S.C. section 104, which is $3,424,000. That figure took effect on April 1, 2025 as part of the triennial inflation adjustment. The next scheduled adjustment is April 1, 2028.

What exactly would S. 3977 change?

It would set the Subchapter V eligibility debt limit at $7,500,000 and the Chapter 13 eligibility limit at $2,750,000. For Chapter 13 it would also apply secured and unsecured debt toward a single combined limit rather than the current two-part test. The bill contains no sunset provision, so the higher limits would be permanent rather than temporary.

Would the higher limit apply to a case that is already filed?

Under the bill text, the new limits apply to any case commenced on or after the date of enactment. A Chapter 11 case filed before enactment would be measured against the limit in effect on its filing date. The bill does not contain a mechanism to make a pending case newly eligible.

Where is the bill right now?

S. 3977 passed the Senate by unanimous consent, without amendment, on August 3, 2026. The House companion, H.R. 7730, was ordered to be reported by the House Judiciary Committee by voice vote on March 26, 2026 and is awaiting House floor action. After that, the bill would still need to be signed by the President.

What happens if the House does not vote before the end of the year?

Legislation does not carry over between Congresses. If the House takes no floor action before the 119th Congress ends, the bill dies and would have to be reintroduced and passed again from the beginning in the next Congress. A comparable effort failed in June 2024 despite broad bipartisan support, and the higher limit lapsed as a result.

Does a merchant cash advance balance count toward the debt limit?

That depends on the facts of the specific transaction and on how the obligation is characterized, which is a contested question. Courts have reached different conclusions on whether a merchant cash advance is a true purchase of future receivables or a disguised loan, and reconciliation terms and risk allocation often drive the analysis. Eligibility also turns on whether the obligation is noncontingent and liquidated. This is a question for bankruptcy counsel reviewing the actual agreements.

Would passage of this bill reduce or eliminate a merchant cash advance obligation?

No. The bill changes an eligibility threshold and nothing else. It does not cancel any obligation, create any new claim against a funder, or change how a merchant cash advance agreement is interpreted. Subchapter V is a reorganization process in which a debtor proposes a plan; it is not an erasure of business debt.

Are there other Subchapter V eligibility requirements besides the dollar limit?

Yes. The debt limit is only one condition. Other statutory conditions include that not less than 50 percent of the debts arose from the commercial or business activities of the debtor, and that certain debtors are excluded, including members of affiliated debtor groups above the threshold, corporations subject to SEC reporting requirements, and affiliates of those corporations. Meeting the dollar limit alone does not establish eligibility.

Should a business owner wait for the House vote before doing anything?

That is a decision to make with a bankruptcy attorney on the specific facts, and it involves a trade-off in both directions. There is no guaranteed timetable for House action, and collection activity, judgments, and liens proceed on their own schedule. At the same time, filing before enactment forecloses the higher limit for that case. Both sides of that trade-off are worth reviewing with counsel before choosing.

Primary sources

• S. 3977, Bankruptcy Threshold Adjustment Act of 2026 — bill status and actions (congress.gov)
• S. 3977 — full bill text (congress.gov)
• H.R. 7730 — all information and committee actions (congress.gov)
• U.S. Senate floor activity, August 3, 2026 (senate.gov)
• Subchapter V debt limit guidance (U.S. Trustee Program, justice.gov)
• Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases, 90 Fed. Reg. (Feb. 4, 2025)

About CredibleLaw

CredibleLaw is a national legal resource and attorney referral network. CredibleLaw is not a law firm and does not provide legal advice or legal representation. Business owners weighing bankruptcy eligibility, a reorganization, or a response to advance-related collection activity can request a no-cost case review and be connected with an independent attorney licensed in the relevant jurisdiction. Start at crediblelaw.com/free-case-review or call 888-201-0441. Related reading is collected on the MCA defense resource hub.

Disclaimer

This article is provided for general informational purposes only and is not legal, financial, or tax advice. It does not create an attorney-client relationship. Bankruptcy eligibility is fact-specific and depends on the composition of a debtor’s obligations, the characterization of individual agreements, and applicable federal and state law. Pending legislation may be amended or may fail to become law, and statutory dollar amounts are subject to periodic adjustment. Statements of legislative status in this article are current as of September 11, 2026. Anyone considering a bankruptcy filing or responding to collection activity should consult a licensed bankruptcy attorney in their jurisdiction about their own circumstances.