What passed. On August 3, 2026 the Senate passed S. 3977, the Bankruptcy Threshold Adjustment Act of 2026. The engrossed text amends section 1182(1) of title 11 to define a Subchapter V debtor as one with "aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders)," of which "not less than 50 percent" arose from the debtor's commercial or business activities. It also raises the chapter 13 ceiling to $2,750,000.1
What Subchapter V removes. Section 1181(b) switches off the creditors' committee, committee counsel, and the disclosure statement unless the court orders otherwise for cause.6 Section 1189(a) says "Only the debtor may file a plan under this subchapter."7 Section 1181(a) makes section 1129(b), the absolute priority rule, inapplicable.6
Why the number is the story. The cap counts secured and unsecured debt together. A merchant carrying a $2 million equipment note, a $900,000 line, and $600,000 of advances and trade payables sits at $3.5 million and is ineligible today. Under the bill that same file is eligible, and the creditor's leverage changes with it.
What Alternative Business Lenders Need to Know
Where does the $3,424,000 ceiling actually live in the code?
Not where most summaries put it. Since the pandemic-era version of section 1182(1) lapsed, that provision reads only "The term 'debtor' means a small business debtor," which sends you to section 101(51D). That definition sets a statutory figure of $2,000,000 and carries a footnote pointing to the section 104 adjustment machinery.4 The Judicial Conference published the current triennial adjustment in the Federal Register on February 4, 2025, and effective April 1, 2025 the number became $3,424,000.5
That matters operationally for one reason. The ceiling you are underwriting against moves on a three-year clock you do not control, and S. 3977 would replace that ladder with a flat $7,500,000 written into section 1182(1) itself.1 Sponsors in both chambers describe the change as permanent rather than a temporary restoration.3 2
What does Subchapter V actually take away from an unsecured creditor?
Four things, and they compound. Section 1181(b) provides that paragraphs (1), (2), and (4) of section 1102(a) and sections 1102(b), 1103, and 1125 do not apply unless the court orders otherwise for cause. In plain terms: no automatic unsecured creditors' committee, no committee professionals billed to the estate, and no disclosure statement.6 Section 1189(a) removes the competing plan. Section 1189(b) then gives the debtor 90 days from the order for relief to file, extendable only where "the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable."7
The fourth is the one that decides recoveries. Section 1181(a) lists section 1129(b) among the provisions that do not apply in a Subchapter V case.6 That is the absolute priority rule. Its absence is why an owner can keep equity in a reorganized company while unsecured claims go unpaid in full.
How does the cram-down work without an accepting class?
This is the detail that separates Subchapter V from ordinary chapter 11, and it is worth reading the text slowly. Section 1191(b) says that if the applicable requirements of section 1129(a) are met "other than paragraphs (8), (10), and (15)," the court "on request of the debtor, shall confirm the plan notwithstanding the requirements of such paragraphs if the plan does not discriminate unfairly, and is fair and equitable."8
Paragraph (8) is the requirement that every class accept. Paragraph (10) is the requirement that at least one impaired class accept. In a standard chapter 11 you need that one consenting impaired class before you can cram down anyone. In Subchapter V you do not. Every impaired class can vote no and the plan can still be confirmed.
What replaces the protection is section 1191(c). Secured classes keep the section 1129(b)(2)(A) treatment they would have had.8 Unsecured classes get the debtor's "projected disposable income" over three years, or up to five if the court fixes a longer period. Section 1191(d) then defines disposable income as income not reasonably necessary for the debtor's support or "for the payment of expenditures necessary for the continuation, preservation, or operation of the business."8 The business gets funded first. You are paid from what is left.
Is the filing surge real, or is it one vendor's quarterly cut?
Both numbers exist, and they should be read differently. The figure in circulation comes from Epiq AACER: 833 Subchapter V elections in the first quarter of 2026 against 499 in the first quarter of 2025, a 67 percent increase, alongside commercial chapter 11 filings of 2,422 against 1,764.11 That is a vendor's calculation on court records, and it is the only public source that isolates the Subchapter V election.
The anchor underneath it is the Administrative Office of the U.S. Courts. For the twelve months ending June 30, 2026, business filings rose 16.9 percent to 26,941 from 23,043, total filings rose 12.2 percent to 608,511 from 542,529, and chapter 11 filings totaled 10,320.9 That release was published July 28, 2026, and the underlying Table F-2 is a public file any credit team can pull and rerun without a vendor subscription.10 Anchor to the government file, attribute the Subchapter V split to Epiq.
How much of your book sits in the new band?
Here is the honest limit of the evidence. Neither the AOUSC tables nor the Epiq release breaks out which creditor types hold claims in these cases, so nobody can tell you from public data what share of Subchapter V debtors carry merchant advances, factoring facilities, or equipment paper. That number does not exist publicly, and any vendor who quotes it to you should be asked for the file.
What you can do is run the test on your own portfolio, because the statutory test is arithmetic. Section 101(51D) and the bill both count noncontingent liquidated secured and unsecured debt in the aggregate, excluding affiliate and insider debt, and require that at least half arose from business activity.4 1 Pull every obligor whose total funded debt across all lenders falls between $3.42 million and $7.5 million. That set is your exposure delta, and it is knowable today.
Is any of this good for a creditor?
Some of it, and the case deserves stating fairly. The Florida client alert that put this on the calendar reports that roughly 50 percent of Subchapter V cases reaching disposition end in a confirmed reorganization plan, against 23 to 25 percent for traditional chapter 11.12 13 A confirmed plan that pays disposable income for three to five years can beat a converted chapter 7 where general unsecured claims often recover nothing. Cheaper cases also burn less of the estate on professionals, and what is not spent on committee counsel is available to distribute.
The sponsors argue the same point from the borrower side, that a faster and more affordable process keeps "their doors open, employees on payroll, and suppliers paid."3 A surviving customer who keeps buying is worth more than a liquidation dividend. Note that the 50 percent figure comes from a law firm alert rather than an official docket study, so treat it as directionally useful rather than as a measured recovery rate.
What should you do before the House votes?
Three things, none of which require the bill to pass. Run the $3.42 million to $7.5 million screen described above and size the band. Second, check whether your documents assume protections Subchapter V removes: a covenant package that relies on committee-driven oversight or on the threat of a competing plan is worth less in this chapter, and a personal guarantee from a non-filing principal is not touched by the debtor's plan. Third, build the trustee relationship early, because in a case with no committee the Subchapter V trustee is the only neutral with a mandate to look at the debtor's numbers.
Our Opinion
The instinct in this market is to read a bankruptcy bill as a debtor-relief story and move on. That reading is wrong for this audience, because the cap is not a policy abstraction. It is a jurisdictional line that decides which set of creditor rights attaches to a given file, and the Senate just voted to move it past the middle of the small-business credit market.
We think the honest framing is that this is a fair trade with an unevenly distributed bill. Small businesses genuinely could not afford chapter 11, and a 90-day plan deadline with no disclosure statement is a real answer to that. But the cost of the discount is paid almost entirely by one class. Secured lenders keep their section 1129(b)(2)(A) treatment. Owners keep their equity because the absolute priority rule does not apply. The party that gives up the committee, the disclosure statement, the competing plan, and the accepting-class requirement is the unsecured creditor, which in this market frequently means the advance, the factoring facility on unsecured receivables, and the equipment lessor whose collateral has already depreciated past the balance.
We are not predicting a wave of strategic filings. There is no public evidence for that, and we would be inventing it. What we will say is narrower and testable: the merchant who was previously too big for the streamlined chapter and too small to fund a real chapter 11 has, under this bill, a cheap and fast option that pays you out of leftover cash flow for three years. That option has a price, and the price shows up in your recovery assumptions, not in your origination volume.
Watch the House calendar rather than the commentary. A bill out of Judiciary in March with a unanimous Senate vote in August is not a long shot, and the effective-date clause applies the change to any case commenced on or after enactment.1 There is no transition period to prepare in once it passes.
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Headlines You Don’t Want to Miss
First Guaranty Bank of Hammond, Louisiana executed a stipulation on August 5, 2026 to a consent order with the FDIC and the Louisiana Office of Financial Institutions, effective August 7, without admitting or denying the charges. Paragraph 3(a) provides that the bank "shall not extend, directly or indirectly, any additional credit to or for the benefit of any borrower whose existing credit has been classified Loss," and paragraph 3(b) extends that bar to Doubtful and Substandard credits unless the board signs a written statement explaining why withholding credit would harm the bank. Paragraph 2(a) requires a Tier 1 leverage ratio of at least 9 percent and a total risk-based ratio of at least 14 percent, and paragraph 4(a) requires charge-off or collection of all Loss assets and half the Doubtful assets within 120 days.15 14 The order traces to a joint examination as of June 30, 2025, not the September 2025 date reported in trade coverage.16 Every borrower this bank can no longer renew is a borrower who starts calling nonbanks, arriving with a classification already assigned by an examiner.
Oregon's Division of Financial Regulation has proposed Bulletin No. DFR 2026-X, which reads decades-old statutes onto a modern product. Loans with terms of 60 days or less fall under the payday chapter, ORS 725A; loans with periodic payments running longer than 60 days fall under the consumer finance chapter, ORS 725. Both reach loans under $50,000. The bulletin applies "regardless of whether the BNPL is described as a nonrecourse loan or does not include fees, interest, or other charges at the time of the initial purchase," and because ORS 725A.020(1) also covers anyone acting "as an agent, broker or facilitator," the licensing reach extends to service providers rather than stopping at the balance-sheet lender.17 The American Fintech Council has asked the state to reconsider, arguing merchant compensation is not a consumer finance charge and that a bulletin bypasses formal rulemaking.18 19 The transferable point for commercial funders is the method: a regulator defining "loan" by its ordinary dictionary meaning, then applying it to a product built to sit outside that label.
Attorney General Keith Ellison filed a settlement on August 6, 2026 with Unlock Partnership Solutions, an Arizona company that sold "home equity agreements," advancing a lump sum in exchange for a share of a home's future equity. According to the Attorney General's allegations, roughly 86 Minnesota agreements between 2021 and 2023, with advances from $30,000 to $339,500, were mortgage loans subject to the state's interest, disclosure, and licensing rules, and the pricing amounted to 100 to 140 percent of the amount advanced. Unlock denies the allegations and agreed to $944,626 in monetary and debt relief, comprising $201,050 in refunds, roughly $460,000 in debt relief, and $283,576 for further restitution, and agreed to stop lending in Minnesota unless it obtains a license.20 21 The mechanism should look familiar to anyone selling future receivables: the label on the contract did not control, the economics did.
Sources
1 GovInfo | S. 3977, Bankruptcy Threshold Adjustment Act of 2026, engrossed Senate text, passed Senate August 3, 2026
2 Bernstein Shur | Senate Passes Bill to Permanently Increase Subchapter V Debt Limit, August 5, 2026
3 U.S. Rep. Ben Cline | Reps. Cline, Correa, Lee, and Neguse Introduce the Bankruptcy Threshold Adjustment Act of 2026, March 5, 2026
4 11 U.S.C. 101(51D) | Definition of small business debtor, statutory figure and section 104 adjustment footnote
5 Federal Register | Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases, 90 FR 8941, published February 4, 2025, effective April 1, 2025
6 11 U.S.C. 1181 | Inapplicability of other sections, including 1129(b) and, absent cause, 1102(a)(1), 1102(b), 1103, and 1125
7 11 U.S.C. 1189 | Filing of the plan, debtor-only filing right and 90-day deadline
8 11 U.S.C. 1191 | Confirmation of plan, subsection (b) exception waiving 1129(a)(8) and (a)(10), subsection (c) fair and equitable test, subsection (d) disposable income
9 Administrative Office of the U.S. Courts | Bankruptcies Rise 12.2 Percent, twelve months ending June 30, 2026, published July 28, 2026
10 Administrative Office of the U.S. Courts | Bankruptcy Filings Statistics, Table F-2 source files, public and rerunnable
11 Epiq AACER | First Quarter Subchapter V Small Business Filings Increase 67% Over Previous Year, April 8, 2026
12 JD Supra | Subchapter V Surge: What Florida Trade Creditors and Lenders Need to Know, August 10, 2026
13 National Law Review | Subchapter V Surge: What Florida Trade Creditors and Lenders Need to Know
14 SEC EDGAR | First Guaranty Bancshares, Inc. Form 8-K, consent order disclosure, August 2026
15 SEC EDGAR | FDIC and Louisiana OFI Consent Order, First Guaranty Bank, Exhibit 99.1, effective August 7, 2026
16 American Banker | Louisiana bank faces unusual limits on who it can lend to
17 Oregon Division of Financial Regulation | Proposed Bulletin No. DFR 2026-X, Oregon Consumer Finance and Payday Licensing Requirements for BNPL
18 American Fintech Council | Comment Letter to Oregon DCBS on the BNPL Bulletin
19 The Fintech Times | AFC Urges Oregon to Rethink BNPL Licensing Under Payday Rules
20 FOX 9 Minneapolis-St. Paul | Minnesota AG secures nearly $1M settlement over unlawful home equity loans, August 7, 2026
21 Valley News Live | Minnesota AG Ellison secures nearly $1M settlement from Arizona fintech over unlawful mortgage lending, August 7, 2026
