Subchapter V Eligibility After the Bankruptcy Threshold Adjustment Act: How the $7.5 Million Calculation Works

With the President’s signature on the Bankruptcy Threshold Adjustment Act on November 10, 2026, the Subchapter V debt limit is $7.5 million, permanently, for every case filed on or after that date. We covered the legislation itself in our article on the Act. This article takes up the question that now matters to business owners, lenders, and their advisors in Georgia: how do you actually determine whether a particular business qualifies?

The answer is not as simple as reading the balance sheet. Subchapter V eligibility under 11 U.S.C. § 1182(1) depends on what the business does, which debts count, which debts are excluded, how affiliated entities are treated, and what the numbers look like on the petition date. A company with $9 million in total liabilities can qualify; a company with $4 million can be excluded. Below is the calculation, step by step, as the statute now reads.

The Statutory Test in One Sentence

As amended, § 1182(1)(A) defines a Subchapter V debtor as a person engaged in commercial or business activities (including any affiliate of that person that is also a debtor, and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent, liquidated secured and unsecured debts, as of the petition date, of not more than $7,500,000, excluding debts owed to affiliates or insiders, not less than 50 percent of which arose from the commercial or business activities of the debtor. Section 1182(1)(B) then carves out three categories: members of an affiliated debtor group whose aggregate debt exceeds $7.5 million, SEC-reporting corporations, and affiliates of SEC-reporting corporations.

That one sentence contains six separate requirements. Take them in order.

Step 1: Is the Debtor “Engaged in Commercial or Business Activities”?

Subchapter V is available to corporations, limited liability companies, partnerships, and individuals, but only if the debtor is engaged in commercial or business activities. The Code does not define the phrase, and courts have generally read it broadly: an operating business plainly qualifies, and so does a sole proprietor or an individual whose debts arise from a business he or she owns or guaranteed. The harder cases involve businesses that have stopped operating before filing. Some courts have found that winding down a business, collecting receivables, defending lawsuits that arose from the business, or managing the remaining assets is itself a commercial activity; others have required something closer to an ongoing enterprise. A business owner in Georgia whose company has already closed its doors should raise this question with counsel before assuming Subchapter V is unavailable.

Step 2: Is the Debtor a Single Asset Real Estate Entity?

This is the exclusion most likely to catch Georgia real estate investors off guard. A debtor whose primary activity is the business of owning single asset real estate is not eligible for Subchapter V regardless of how little it owes. Single asset real estate is defined in 11 U.S.C. § 101(51B) as real property constituting a single property or project, other than residential real property with fewer than four units, that generates substantially all of the debtor’s gross income and on which the debtor conducts no substantial business other than operating the property and its incidental activities.

A single-purpose LLC that owns one office building, one apartment complex, or one shopping center and does nothing else is a single asset real estate debtor and cannot use Subchapter V. By contrast, a hotel operator, a self-storage business with on-site management and ancillary services, a company that owns multiple separate properties, or a business that owns the building it operates from (a restaurant that owns its real estate, for example) generally falls outside the definition. The analysis turns on what the entity actually does, and the structure of a real estate portfolio can determine which of its entities, if any, qualify.

Step 3: Which Debts Count?

The $7.5 million ceiling measures aggregate noncontingent, liquidated secured and unsecured debts as of the petition date. Each word in that phrase excludes something.

Noncontingent. A debt is contingent if the debtor’s liability depends on a future event that may or may not occur. The classic example is a guaranty: until the primary borrower defaults, the guarantor’s obligation is contingent and does not count. Once the default has occurred, the guaranty liability is generally treated as noncontingent even if the lender has not yet sued. Indemnity obligations, unmatured obligations under a lease that has not been rejected, and liability on an unresolved lawsuit where fault has not been established can also be contingent.

Liquidated. A debt is liquidated if its amount is fixed or readily ascertainable, by reference to the contract or by simple computation. A bank loan with a stated balance, a promissory note, a trade payable, and a tax assessment are liquidated. A tort claim for an unspecified sum, a claim for lost profits that has not been reduced to judgment, and a dispute over the value of services rendered are typically unliquidated. Courts generally hold that a debt can be liquidated even if the debtor disputes it; the question is whether the amount is determinable, not whether the debtor agrees to pay it. A disputed but liquidated debt therefore counts toward the limit.

Secured and unsecured. Unlike the pre-Act Chapter 13 limits, which separated secured from unsecured debt, the Subchapter V test is a single combined figure. A $4 million mortgage and $3 million in unsecured trade debt add to $7 million and qualify; add another $600,000 of equipment financing and the business is over the line.

As of the petition date. The measurement is taken on the day the petition is filed. Debts that have been paid, settled, or forgiven before filing do not count. Interest, late charges, and default-rate accruals that have attached before the petition date do. A business close to the line should obtain current payoff figures from every lender before filing rather than relying on statements from the prior quarter.

Step 4: Back Out Debts Owed to Affiliates and Insiders

Debts owed to one or more affiliates or insiders are excluded from the calculation. This is often the single largest adjustment. Many closely held Georgia businesses carry significant loans from their owners, from family members of their owners, or from sister companies, and those loans frequently appear on the balance sheet as ordinary liabilities.

“Insider” is defined in 11 U.S.C. § 101(31) and, for a corporation, includes directors, officers, persons in control, partnerships in which the debtor is a general partner, general partners of the debtor, and relatives of any of those persons. For a partnership, it includes general partners and their relatives. For an individual, it includes relatives, general partners, and entities the individual controls. “Affiliate” is defined in § 101(2) and generally covers entities that own 20 percent or more of the debtor’s voting securities, entities 20 percent or more owned by the debtor or by a common owner, and certain lessors and operators of the debtor’s property.

A manufacturing company with $9.2 million in total liabilities, of which $2.5 million is owed to its founder and $400,000 to the founder’s spouse, has $6.3 million in qualifying debt and is eligible. Properly documenting the insider loans, and being prepared to show that they are what they appear to be, is part of the eligibility analysis.

Step 5: Apply the 50 Percent Business-Debt Test

At least half of the qualifying debt must have arisen from the commercial or business activities of the debtor. For a corporation or LLC, this is rarely an issue; nearly all of an entity’s debt is business debt by definition. For an individual, it is the central question. An owner who personally guaranteed $2 million in business loans and also carries a $900,000 home mortgage and $200,000 in personal credit card and consumer debt has $3.1 million in qualifying debt, of which roughly 65 percent is business debt. That individual qualifies. Flip the ratio, with the mortgage and consumer debt exceeding the business guaranties, and the individual does not, although the new single $2.75 million Chapter 13 limit may provide a different path.

Whether a particular debt “arose from” business activity is a factual question. A guaranty of a company’s line of credit is business debt. A tax liability generated by the business is business debt. A mortgage on a personal residence is not, even if the owner used the home equity to fund the company, though some courts have looked to the purpose of the borrowing rather than the collateral.

Step 6: Aggregate Affiliated Debtors

The last step is the one that cuts against debtors. Under § 1182(1)(B)(i), no member of a group of affiliated debtors is eligible if the group’s aggregate noncontingent, liquidated debt, again excluding debts owed to affiliates and insiders, exceeds $7.5 million. The aggregation applies to affiliates that are also debtors in bankruptcy. A holding company and its three operating subsidiaries that file together are measured as a group. If the four entities together owe $8 million to outside creditors, none of them may proceed under Subchapter V, even though each individually owes far less than $7.5 million.

This rule makes structuring decisions before filing important. Sometimes only one entity in a corporate family needs bankruptcy relief, and the others can stay out. Sometimes the entities can be filed in sequence. And sometimes the debt is simply too large and a traditional Chapter 11 is the right tool. Each option has consequences for the automatic stay, for guaranties, and for creditors of the non-filing entities, and the choice should be made with the whole structure in view.

Finally, a corporation that reports to the SEC under section 13 or 15(d) of the Securities Exchange Act, and any affiliate of such a corporation, is excluded regardless of debt level.

How the Election Is Made and Challenged

Subchapter V is an election, not a default. The debtor indicates on the face of its petition that it is a small business debtor and that it elects to proceed under Subchapter V of Chapter 11. Under Federal Rule of Bankruptcy Procedure 1020, the debtor’s statement in the petition controls unless the United States Trustee or a party in interest objects. An objection must generally be filed within 30 days after the conclusion of the meeting of creditors under § 341 or within 30 days after an amendment to the statement, whichever is later. The debtor bears the burden of establishing eligibility once it is challenged.

If an objection succeeds, the case does not end. It proceeds as a traditional Chapter 11, with the creditors’ committee, disclosure statement, competing-plan, and absolute priority rules that Subchapter V was designed to avoid. Because that outcome can transform the economics of a case, a careful eligibility analysis before filing, with the debt schedule reconciled to lender payoff statements and insider loans documented, is the most important preparatory step a small business can take.

Why the Permanent Limit Changes the Analysis

Between June 2024 and November 9, 2026, the limit stood at $3,424,000, and a large group of Georgia businesses, particularly in construction, hospitality, healthcare, transportation, and light manufacturing, sat just above it. Many of those businesses either filed expensive traditional Chapter 11 cases, negotiated out of court from a position of weakness, or liquidated. For businesses in that band, the practical question has shifted from “can we afford to reorganize?” to “do we qualify?”

The Act also removes the sunset problem. Every prior increase to $7.5 million carried an expiration date, and businesses planning a filing had to consider whether the limit would still be in place when they were ready. The new figure is written directly into § 1182 with no expiration. The Act does not itself address whether the $7.5 million figure will be adjusted for inflation under 11 U.S.C. § 104 on the next three-year cycle in 2028; that is a question to watch, but it will only ever move the number up.

What Creditors Should Check

Lenders, landlords, and trade creditors in the Northern and Middle Districts of Georgia should expect to see Subchapter V elections in cases that would have been traditional Chapter 11 filings a month ago. Three items deserve early attention. First, scrutinize the eligibility statement in the petition, particularly the characterization of debts as contingent or unliquidated and the exclusion of debts as insider or affiliate obligations; an objection under Rule 1020 is the creditor’s principal tool, and the deadline is short. Second, review guaranties and credit support from non-debtor affiliates, since Subchapter V does not release them. Third, prepare to engage on the plan quickly: the debtor must file its plan within 90 days of the petition, there is no competing plan, and confirmation over objection is available if the debtor commits its projected disposable income for three to five years.

Frequently Asked Questions

Does the $7.5 million Subchapter V limit include debts owed to the owner?

No. Debts owed to insiders and affiliates, including loans from owners, officers, and their relatives, are excluded from the calculation under § 1182(1)(A).

Can a business that has already closed file Subchapter V?

Possibly. The debtor must be engaged in commercial or business activities, and courts have reached different conclusions about whether winding down a closed business satisfies that requirement. The facts of the particular wind-down matter.

Can a company that owns a single commercial building use Subchapter V?

Generally not. A debtor whose primary activity is owning single asset real estate is excluded. Entities with multiple properties, or that operate a business on the property beyond simply owning it, may qualify.

Do disputed debts count toward the $7.5 million limit?

Usually yes, if the amount is fixed or readily determinable. The test is whether a debt is noncontingent and liquidated, not whether the debtor agrees it is owed.

Does the new limit apply to a Chapter 11 case that was filed before November 10, 2026?

No. The Act applies only to cases commenced on or after November 10, 2026. A pending case is governed by the limit in effect on its petition date.

Can an individual file Subchapter V?

Yes, if the individual is engaged in commercial or business activities and at least 50 percent of his or her qualifying debt arose from that business. Sole proprietors and owners who personally guaranteed business debt are the most common examples.

Subchapter V Counsel in Atlanta

Rountree Leitman Klein & Geer represents small and mid-sized businesses and their owners in Subchapter V and Chapter 11 reorganizations in the United States Bankruptcy Courts for the Northern and Middle Districts of Georgia, and represents lenders, landlords, and trade creditors in those same cases. If your company’s debt falls anywhere near the $7.5 million threshold, or you hold exposure to a borrower who does, contact us for an eligibility analysis before a creditor forces the timing.