S 3977: Bankruptcy Threshold Adjustment Act of 2026

S 3977 in plain English: This bill would adjust the debt thresholds that determine eligibility for certain types of bankruptcy protection. It sets a $7,500,000 limit for small business debtor eligibility and a $2,750,000 limit for Chapter 13 individual bankruptcy eligibility.

Stated purpose

This bill aims to update the debt limits that determine who qualifies for certain types of bankruptcy protection, raising the ceiling for both small business bankruptcies and individual consumer bankruptcies under Chapter 13.

Key points

• Sets the small business debtor debt ceiling at $7,500,000, excluding debts owed to affiliates or insiders
• Sets the Chapter 13 individual bankruptcy eligibility debt limit at $2,750,000
• Applies to noncontingent, liquidated secured and unsecured debts

Arguments supporters make

• Raising these thresholds updates limits that may not have kept pace with inflation and rising costs, ensuring more struggling small businesses and individuals can access affordable bankruptcy relief.
• Subchapter V and Chapter 13 are generally faster and cheaper than standard bankruptcy processes, so expanding eligibility helps more people reorganize their debts and get back on their feet without lengthy court proceedings.
• Small businesses are a major source of jobs, and giving more of them access to a simpler reorganization process may help save more businesses — and the jobs they provide — from liquidation.

Arguments opponents make

• Raising the debt limits means creditors — including small lenders and suppliers — could face larger losses when bigger debtors use these more debtor-friendly processes designed originally for smaller cases.
• Expanding access to streamlined bankruptcy may reduce the financial pressure on debtors to repay obligations, potentially making lenders more cautious or raising borrowing costs for everyone.
• The simplified processes in Subchapter V and Chapter 13 offer fewer creditor protections than standard proceedings; applying them to higher-debt cases could leave creditors with less ability to challenge or recover what they are owed.

Tradeoffs

Expanding bankruptcy eligibility gives more debtors access to simpler, cheaper relief, but it also means creditors in larger cases lose some of the protections that come with full bankruptcy proceedings — balancing debtor relief against creditor recovery.

Current status in Congress: Passed Senate.

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