Bankruptcy lawyers and the public take note: the debt limit for small businesses and individuals wanting to reorganize under two of the more forgiving bankruptcy chapters got smaller. As of June 21, 2024, the limit for “small business debtors” under subchapter V of the Bankruptcy Code dropped from $7.5 million to slightly over $3 million. 11 U.S.C. § 101(51D). The limit for individuals wanting to repay portions of their debts over time under chapter 13 went from $2.75 million to less than $1.9 million total. 11 U.S.C. § 109(e).

The impact of the above changes is significant. Indeed, these lower debt limits will cause some eligible businesses and individuals to pursue bankruptcy relief in a traditional chapter 11 case that is generally more expensive, and routinely more challenging, than at least subchapter V cases. The most likely consequence for a majority of small businesses and individuals needing debt relief, however, is that today’s lower subchapter V and chapter 13 debt limits will force them to sell some of their available assets (and small businesses to close down) in chapter 7, or completely forgo any form of bankruptcy relief and protection (with some small businesses ultimately dissolving). Decisions, decisions!