House subcommittee hearing pushes restoring higher debt limits for small business and Chapter 13 eligibility

Chairman Fitzgerald convened a House Judiciary subcommittee hearing to examine reforms to U.S. bankruptcy law, focusing in part on whether debt limits that govern eligibility for streamlined restructuring procedures should be raised.

The hearing featured testimony from bankruptcy scholars and sitting judges who described subchapter V of chapter 11 as a faster, cheaper path for many small businesses and urged returning the subchapter V debt limit to $7,500,000, which had been temporarily in effect from 2020 until it lapsed in mid-2024.

The subchapter V provision, established by the Small Business Reorganization Act of 2019 (SBRA), is intended to let owner-managed ‘‘mom-and-pop’’ firms reorganize without incurring the time and cost of a full chapter 11. Douglas G. Baird, the Harry A. Bigelow Distinguished Service Professor of Law at the University of Chicago and chair of the National Bankruptcy Conference, said that the $7.5 million threshold “gives more small businesses for which it was intended, a viable and highly reliable remedy.”

Economist Edith Hotchkiss summarized empirical work showing subchapter V “more than doubles the probability of confirming a plan of reorganization,” with no evidence of reduced unsecured creditor recoveries in the samples studied. Judge Paul Black, U.S. Bankruptcy Judge for the Western District of Virginia, and Judge Michelle Harner, U.S. Bankruptcy Judge for the District of Maryland, described district-level experience in which the higher cap allowed otherwise-eligible businesses to use subchapter V’s streamlined procedures and secure confirmed plans more quickly.

Members and witnesses also discussed the chapter 13 eligibility cap (combined secured and unsecured debt) that was temporarily higher during 2020-era changes and has since reverted. Ranking Member Jerrold Nadler and witnesses noted that raising the chapter 13 cap would allow some households with meaningful, regular income but elevated housing or medical costs to access chapter 13 repayment plans rather than being forced into chapter 11 or excluded from repayment regimes entirely.

While panelists acknowledged isolated examples of alleged abuse (cited by several members), multiple witnesses and judges said existing safeguards—judicial review, trustee oversight, feasibility requirements, and confirmation standards—mitigate manipulation risks. Hotchkiss’s empirical work reported no clear “bunching” of liabilities just beneath the prior $7.5 million threshold.

Members repeatedly stressed geographic variance in what constitutes a ‘‘small’’ business, noting higher debt burdens in high-cost areas. Judge Black said that subchapter V’s timelines and trustee role materially shorten cases and make the process affordable in contexts where traditional chapter 11 costs would otherwise force liquidation.

The discussion did not produce a floor vote or formal committee action at the hearing; witnesses urged Congress to consider making the $7.5 million threshold permanent or otherwise increase subchapter V and chapter 13 caps. Several members said they plan to pursue bipartisan legislation to restore these limits.

The hearing record contains written recommendations and a bipartisan bill referenced by witnesses (the Bankruptcy Administration Improvement Act of 2025) that addresses related administration matters but not exclusively the debt caps.

Looking ahead, committee members asked staff and witnesses for follow-up data to inform markup decisions; no legislative text was adopted at the hearing.