Key Takeaways

• The debt limit is $3,424,000, effective April 1, 2025. Only debts that are fixed in amount and not contingent count toward it.
• At least half of the debt must come from business activity.
• Individuals qualify, not just companies. A sole proprietor, or an owner who is liable on business debt, can file.
• A business whose main activity is owning a single piece of real estate cannot use Subchapter V. Neither can a public reporting company.
• Congress passed a bill in September 2026 (H.R. 7730) that would raise the limit to $7,500,000. As of October 1, 2026 it was awaiting the President’s signature. Until it becomes law, $3,424,000 controls.

The four eligibility tests

The Bankruptcy Code defines who may use Subchapter V in 11 U.S.C. § 1182(1) and § 101(51D). A debtor must meet all four tests on the day the case is filed.

• Engaged in business. The debtor must be a person or company engaged in commercial or business activities.
• Under the debt limit. Total noncontingent, liquidated debts, secured and unsecured together, must be $3,424,000 or less.
• Mostly business debt. At least 50 percent of that debt must have come from the debtor’s commercial or business activities.
• Not excluded. The debtor must not fall into one of the excluded categories listed below.

The debtor must also choose Subchapter V. It applies only when the debtor elects it in the bankruptcy petition.

What counts toward the $3,424,000

Secured debts and unsecured debts are added together. A mortgage, an equipment loan, a line of credit, trade payables, taxes and merchant cash advances all count.

Two kinds of debt do not count. A contingent debt is one that depends on a future event. The usual example is a guarantee of a loan that is not in default. An unliquidated debt is one whose amount has not been fixed, such as a disputed injury claim. Debts owed to insiders and affiliates, such as a loan from the owner, are also left out of the total.

If related companies file together, their debts are added together, and the group as a whole must be under the limit.

Individuals and sole proprietors

Subchapter V is not limited to corporations and LLCs. An individual can file if he or she is engaged in business and at least half of the debt is business debt. That often describes a sole proprietor, or an owner who signed personally for the company’s loans, leases and cash advances.

For an individual, a home mortgage and car loans count toward the $3,424,000 limit, and they are usually personal debt, not business debt. A large mortgage can push an owner below the 50 percent business-debt test, so the numbers need to be run before filing.

Who cannot file under Subchapter V

• A debtor whose primary activity is the business of owning single asset real estate.
• A member of a group of affiliated debtors whose combined debts are over $3,424,000.
• A corporation that must file reports under section 13 or 15(d) of the Securities Exchange Act of 1934.
• An affiliate of a company that issues publicly traded securities.

If the business has closed

The law requires the debtor to be “engaged in” business. Courts have not agreed on how much activity is enough when a business has stopped operating. Some have allowed a closed business that is still collecting receivables, selling assets or dealing with its creditors to use Subchapter V. Others have been stricter. If your business has closed or is winding down, this question should be reviewed before anything is filed.

If you do not qualify

A business or individual over the limit still has options.

• Traditional Chapter 11 has no debt limit.
• Individual Chapter 11 is available to owners whose debts are too large for Chapter 13.
• Chapter 13 is available to individuals with regular income whose unsecured debts are under $526,700 and whose secured debts are under $1,580,125.
• Chapter 7 closes and liquidates a business that cannot be reorganized.

Frequently Asked Questions

Does my home mortgage count toward the Subchapter V debt limit?

Yes. Secured debts count along with unsecured debts. For an individual, the mortgage counts toward the $3,424,000 limit, and it is usually treated as personal debt when the 50 percent business-debt test is applied.

Do loans from me or my family to the business count?

Debts owed to insiders and affiliates are excluded from the debt limit calculation. They are still debts in the case and must be listed.

Is the debt limit going back to $7,500,000?

The $7,500,000 limit expired on June 21, 2024. Congress passed a bill to restore it (H.R. 7730) in September 2026, and as of October 1, 2026 it was awaiting the President’s signature. Eligibility is measured on the day the case is filed, so the limit in effect on that day is the one that applies.

Can I file Subchapter V if a creditor already has a judgment against the business?

Yes. A judgment does not prevent a filing. Filing stops collection on the judgment, and the debt is dealt with in the plan.

Find out where you stand

Eligibility depends on the numbers. Send a list of the business’s debts and a short description of what the business does to msiddons@siddonslaw.com. We will tell you whether Subchapter V is available and what the alternatives are.