In February, the Small Business Reorganization Act (SBRA) became effective. The SBRA created a new subchapter under Chapter 11 of the United States Bankruptcy Code that is commonly referred to as Subchapter 5. Subchapter 5 aims to give businesses with debts that are under a certain threshold a faster and less expensive option for reorganizing under Chapter 11. Legal commentators had long lamented that Chapter 11’s high costs and complexities make it too difficult for small businesses to successfully reorganize. 

Under the SBRA, a business qualifies to file a case under Subchapter 5 if its debts are in the amount of $2,725,625 or less. Section 1113 of the CARES Act increases the debt limit from $2,725,625 in debts to $7.5 million in debts. Therefore, businesses with debts of $7.5 million or less will now qualify to file cases under Subchapter 5. This change in the debt limit applies only to cases filed after the CARES Act becomes effective and is applicable for one year after the CARES Act becomes effective. After one year, the debt limit for cases under Subchapter 5 will return to $2,725,625 absent an extension by Congress.


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