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An allowance that made it easier for businesses to declare bankruptcy is expiring on Friday, Inc. reports.
The debt limit to file for Subchapter V bankruptcy is expected to revert to $2.7 million this week, down from the $7.5 million threshold that was established in 2020 and renewed in 2022 amid the financial duress caused by the pandemic.
Subchapter V bankruptcy is named after a section in the U.S. Bankruptcy Code and offers a simpler avenue for business owners to file for bankruptcy. Filing for Subchapter V bankruptcy can be cheaper—hundreds of thousands of dollars cheaper—as compared with filing for Chapter 11. The option is also less time intensive.
“Subchapter V has become a widely used strategic tool for distressed small businesses that’s been recognized nationally by bankruptcy courts,” says Jonathan Carson, co-CEO at Stretto, a bankruptcy software provider. He adds that it gives small businesses “a better shot to survive and come back out as a profitable contributing member of our business society.”
The change comes as Subchapter V bankruptcy has been gaining in popularity as an option.
Nearly 230 small businesses filed for this form of bankruptcy last month, up 53% compared to May 2023, according to a report from Epiq, a New York City-based data provider.
