Bankruptcy Threshold Adjustment Act of 2026: New $7.5M Debt Limit for Small Business and $2.75M for Individuals

The Bankruptcy Threshold Adjustment Act of 2026 is essentially a 'size-up' for the legal safety net known as bankruptcy. It significantly raises the debt ceilings for both small businesses and individuals, allowing more people to access streamlined, less expensive ways to reorganize their finances when they hit a wall. For small businesses, the bill bumps the eligibility limit for Subchapter V—a faster, cheaper version of Chapter 11—to $7.5 million in total debt. For individuals looking at Chapter 13 (the 'wage earner's plan'), the bill scraps the old, confusing split between secured and unsecured debt limits and replaces it with one flat $2.75 million cap.

A Bigger Safety Net for the Main Street Hustle

If you’re running a local construction firm or a small tech startup that hit a rough patch, this bill changes the math on your survival. Under Section 2, you can now carry up to $7,500,000 in debt and still qualify for the 'small business' version of bankruptcy, provided at least half of that debt is actually business-related. This is a big deal because the standard Chapter 11 process is notoriously expensive and can drag on for years, often swallowing the very company it’s meant to save. However, there is a catch: if your business is part of a larger group of companies, you have to look at your combined debt. If the whole family of businesses owes more than $7.5 million, the bill shuts the door on this easier path. It also blocks public companies that report to the SEC, keeping the 'small business' fast track reserved for entities that don't have Wall Street backing.

Simplifying the Personal Reset

For homeowners or professionals with significant debt, the changes to Chapter 13 are a major simplification. Currently, the law has separate, lower limits for 'unsecured' debt (like credit cards) and 'secured' debt (like your mortgage). If you lived in a high-cost area and your mortgage was too big, you were often forced into a more complex bankruptcy. Section 2 of this bill fixes that by setting a single aggregate limit of $2,750,000. Whether you’re a doctor with massive student loans or a homeowner in a city where property values have skyrocketed, this new limit makes it much easier to determine if you qualify for a repayment plan that lets you keep your assets while catching up on bills.

The Fine Print and Potential Hurdles

While the higher limits are generally a win for debtors, the bill creates some specific roadblocks. By excluding any 'affiliate' of a reporting corporation, the law might leave some mid-sized subsidiaries in the lurch, forcing them into the 'big league' bankruptcy courts even if they operate like a small shop. Creditors also face a new reality: more of their borrowers will now qualify for these streamlined proceedings, which often give debtors more leverage to rewrite their payment terms. The rules apply to any case filed on or after the day the Act becomes law, so for anyone currently on the edge, the timing of a filing could mean the difference between a manageable reorganization and a total liquidation.