The debt limits for Subchapter V and chapter 13 will expire on June 21, 2024, but a bill to extend the existing caps for two more years is being blocked by one senator.

In April, a bipartisan group of senators from the Senate Judiciary Committee (consisting of Sens. Richard Durbin (D-Ill.), Lindsey Graham (R-S.C.), Sheldon Whitehouse (D-R.I.), Charles Grassley (R-Iowa), Christopher Coons (D-Del.) and John Cornyn (R-Texas)) introduced S. 4150, the Bankruptcy Threshold Adjustment Extension Act, to push the sunset dates out to 2026. It is a one-sentence bill.

Due to its simplicity and perceived lack of opposition, the sponsors had hoped to advance the bill swiftly through the Senate via unanimous consent before sending it to the House of Representatives. However, one senator has raised an issue with the legislation by placing a hold on the bill and has steadfastly refused to remove it.

Without a viable path through the Senate, it is unlikely that the bill could be sent to President Biden’s desk before the sunset occurs, given that the House is in recess next week.

Absent a legislative fix, the debt limits will revert to the amounts in effect in early March 2020, subject to adjustment for inflation. The Subchapter V debt limit will drop from $7,500,000 to $3,024,725, and the chapter 13 threshold of $2,750,000 for both secured and unsecured debt will revert to a two-part test limiting eligibility to a maximum of $465,275 for unsecured debt and $1,395,875 for secured debt.

Debtors’ counsel with cases near filing should be mindful of the debt-limit sunsets.

If the sunset occurs, it is possible that new legislation could be introduced to reinstate the debt limits retroactively. This occurred in 2022, when the debt limits had lapsed for several weeks. Or, the Senate could attempt to include new debt limits in a broader piece of legislation that may go through committee review and to the floor for a vote. This option will take time, and prospects for either course of action are far from certain at this point.

Predictability and reliability for the bankruptcy system will erode if debtor eligibility thresholds move up and down erratically. For these and other reasons, the ABI Subchapter V Task Force has strongly recommended that Congress make the $7,500,000 debt cap permanent, subject to adjustment for inflation. To read the Task Force’s Final Report, click here.

ABI members concerned about the debt limits for Subchapter V and chapter 13 should consider contacting their senators and representatives and urging them to make bankruptcy more readily available for constituents in financial distress.