Quick Answer: A bipartisan Senate bill — the Bankruptcy Threshold Adjustment Act of 2026 (S. 3977) — would raise the Chapter 13 debt limit to a single combined $2,750,000, eliminating the current split between secured and unsecured debt ceilings that locks out many homeowners. It would also permanently restore the Subchapter V small business reorganization limit to $7,500,000. The bill advanced to the Senate floor in March 2026. If passed, significantly more individuals and small business owners would gain access to bankruptcy reorganization tools currently off-limits due to outdated thresholds.
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Expert Context: I filed bankruptcy in 1990 after my real estate business collapsed — and I’ve been studying how the bankruptcy system works, and fails, ever since. Congress getting bipartisan agreement on expanding bankruptcy access is unusual and meaningful. The current Chapter 13 thresholds lock out exactly the people who need a structured reorganization most: those with substantial secured debt like a large mortgage who can’t squeeze under the separate secured debt ceiling. This bill fixes that architecture problem.
Congress is moving to make Chapter 13 bankruptcy accessible to far more Americans and small business owners, with a bipartisan bill that would nearly double the current Chapter 13 debt ceiling and permanently restore the Subchapter V small business limit. The legislation advanced to the Senate floor calendar in early March 2026.
What Chapter 13 Is — and Why the Debt Limit Matters
Chapter 13 bankruptcy is a reorganization plan — you keep your assets and repay debts over a three-to-five year court-supervised plan, often at reduced amounts. Unlike Chapter 7, which liquidates assets to discharge debts, Chapter 13 lets you catch up on mortgage arrears, protect a home from foreclosure, and restructure what you owe within a structured payment plan.
The catch: there’s a debt ceiling. To qualify for Chapter 13, your total debt must fall under separate statutory limits for secured debt (mortgages, car loans) and unsecured debt (credit cards, medical bills). Those limits haven’t been meaningfully updated in years, and they now exclude people who legitimately need this tool.
Common Assumption: “The Chapter 13 debt limits only affect wealthy people. If you have a normal mortgage, you’re probably fine.”
The Reality: In high-cost housing markets — California, New York, parts of Texas and Florida — median home prices mean many middle-class homeowners carry mortgages that push them over the current $1,580,125 secured debt ceiling. They’re locked out of Chapter 13 not because of financial irresponsibility, but because housing values rose faster than Congress updated the statute. Their only option becomes Chapter 11 — the corporate reorganization process — which is dramatically more expensive and complex.
What the Bill Actually Changes
The Bankruptcy Threshold Adjustment Act of 2026 (S. 3977), introduced by Senator Chuck Grassley (R-IA) and co-sponsored by Senators Durbin (D-IL), Cornyn (R-TX), Whitehouse (D-RI), Graham (R-SC), and Coons (D-DE), makes two major structural changes to the U.S. Bankruptcy Code:
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Chapter 13 Changes
- Current: $1,580,125 secured + $526,700 unsecured — two separate ceilings
- Proposed: $2,750,000 combined — one number, no split
- A homeowner with $2M mortgage + $200K unsecured debt currently can’t file Chapter 13; under the bill, they could
- Eliminates the trap where high mortgage balances disqualify homeowners who could otherwise afford a reorganization plan
Subchapter V Changes
- Current limit: ~$3 million (pandemic-era $7.5M expired June 2024)
- Proposed: $7,500,000 — permanently set at the pandemic level
- Subchapter V is a streamlined small business Chapter 11 — faster, cheaper, designed for businesses not large corporations
- Restoring this limit helps small businesses with $3-7.5M in debt avoid full Chapter 11 complexity
The Secured/Unsecured Split Was Always Arbitrary
Here’s the structural problem the current law creates: if you have $500,000 in unsecured debt (credit cards, medical bills, personal loans) and a $1,600,000 mortgage, you exceed the secured debt limit and can’t file Chapter 13. Your only option is Chapter 11 — the corporate reorganization process — which involves quarterly fees to the U.S. Trustee, more complex reporting requirements, and attorney costs that often make it economically unworkable for individuals.
The bill eliminates this distinction entirely. A single $2,750,000 combined limit means Congress is acknowledging that the secured/unsecured split was never a rational way to determine who deserves access to Chapter 13. It was an arbitrary line that has grown more arbitrary as home values and mortgage balances have risen.
My Take: Congress Is Finally Getting This Right
I’ve watched Congress kick the bankruptcy threshold can down the road for years. The pandemic temporarily fixed the Subchapter V problem — raising the limit to $7,500,000 to help small businesses survive COVID — but let it expire in June 2024. According to the American Bankruptcy Institute, that expiration caused a measurable drop in Subchapter V filings as cases that should have used this efficient process were pushed into more expensive channels. Making the $7,500,000 limit permanent — rather than repeatedly extending it like a temporary patch — is the right structural fix.
What strikes me about this bill is the bipartisan support. Grassley and Durbin have disagreed on almost everything for years. When they’re aligned on something, it usually means there’s genuine merit that transcends partisan politics. On the House side, Cline (R-VA) and Correa (D-CA) are leading the companion bill. This isn’t a partisan play — it’s people who’ve looked at the system and agreed it’s broken in a specific, fixable way.
Bankruptcy was the best financial decision I ever made. The chapter that closed in 1990 opened every chapter that came after. The current Chapter 13 limits lock out exactly the people who need a structured reorganization — people with real assets, real debt, and no clean path forward. Raising those limits is math, not politics.
Congress expanding bankruptcy access is not a giveaway — it’s a recognition that outdated thresholds are forcing people into worse, more expensive options. A larger Chapter 13 tent serves debtors, creditors, and the courts.— Steve Rhode
Who Benefits If This Passes
- Homeowners in high-cost markets. A California homeowner with a $1.8M mortgage and $300K in credit card debt currently exceeds the secured limit and is locked out of Chapter 13. Under the bill, their $2.1M combined total fits under $2.75M — and they can reorganize rather than face foreclosure or a complicated Chapter 11 filing.
- Small business owners with personal guarantees. Many small business owners personally guarantee business loans. A failed business can leave them with $1.5-2.5M in combined personal liability — currently pushing them past the unsecured or secured limits into individual Chapter 11 territory.
- Anyone caught in the secured/unsecured split trap. The current two-limit system means someone with $1.6M in secured debt (just over the limit) and minimal unsecured debt is locked out — even if a Chapter 13 payment plan would clearly work for their situation.
- Small businesses seeking reorganization, not liquidation. The restored $7.5M Subchapter V limit means businesses with $3-7.5M in total debt can use this streamlined process rather than full Chapter 11. Subchapter V is designed to preserve viable businesses — the kind of tool that keeps employees employed and creditors paid back over time.
What This Bill Does NOT Change: The bill doesn’t alter Chapter 7 eligibility (which uses an income means test, not a debt ceiling), doesn’t change what debts can be discharged, and doesn’t affect the 3-to-5-year repayment plan requirement for Chapter 13. The automatic stay, creditor protections, and core bankruptcy mechanics remain unchanged. The bill only changes the threshold for who can access Chapter 13 and Subchapter V reorganization — not how those processes work once you’re in them.
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Status: Advanced to Senate Floor
S. 3977 was introduced on March 3, 2026, and placed on the Senate legislative calendar on March 4, 2026 (Calendar No. 347). Advancing to the Senate calendar means the bill is available for floor consideration — but this is not the same as being scheduled for a vote. The bill still needs a floor vote, House passage of the companion bill, and a presidential signature before it becomes law.
The companion House bill is being led by Representatives Cline (R-VA), Correa (D-CA), Lee (D-NV), and Neguse (D-CO). With bipartisan support in both chambers on a relatively technical, non-controversial fix, the bill has a reasonable legislative path — though nothing moves quickly in a full congressional session.
Wondering whether bankruptcy is right for your situation? The debt ceilings in this bill are high — but the real question is always what option serves your future best, regardless of where any threshold sits. Take the Find Your Path quiz to get a personalized framework for thinking through your options based on your specific numbers.
Key Takeaways
- The Bankruptcy Threshold Adjustment Act of 2026 (S. 3977) would replace Chapter 13’s split secured/unsecured limits with a single combined $2,750,000 ceiling — eliminating the trap that locks out high-mortgage homeowners
- The bill would permanently restore the Subchapter V small business reorganization limit to $7,500,000 (the pandemic-era limit expired June 2024, dropping back to ~$3M)
- Bipartisan support in both chambers — Grassley and Durbin leading in the Senate, Cline and Correa in the House
- The bill advanced to the Senate floor calendar in March 2026 but still needs a floor vote and House passage to become law
- Biggest beneficiaries: homeowners with large mortgages currently locked out of Chapter 13, small business owners with personal guarantees, and businesses with $3-7.5M seeking reorganization over liquidation
The Bottom Line
The Bankruptcy Threshold Adjustment Act of 2026 fixes a real, specific problem: Chapter 13 debt limits that haven’t kept pace with home values, and a Subchapter V small business limit that Congress temporarily fixed during COVID and then let expire. The bill’s bipartisan backing — Grassley and Durbin rarely agree — signals genuine good-government problem-solving rather than a political play. If passed, it would expand Chapter 13 access to homeowners with substantial mortgages currently forced into the far more expensive Chapter 11 process, and restore the efficient Subchapter V pathway for small businesses with $3-7.5M in debt. Whether or not this specific bill clears the congressional calendar, the underlying problem is real: outdated thresholds are denying bankruptcy access to people and businesses who legitimately need a reorganization option, not a liquidation.
Frequently Asked Questions
What is the current Chapter 13 debt limit, and how would this bill change it?
Under current law, Chapter 13 has two separate limits: $1,580,125 in secured debt (mortgages, car loans) and $526,700 in unsecured debt (credit cards, medical bills). Exceed either limit and you cannot file Chapter 13. The Bankruptcy Threshold Adjustment Act of 2026 replaces both limits with a single combined $2,750,000 ceiling — no distinction between secured and unsecured. This is a major simplification that would allow many more people, especially homeowners with large mortgages, to access Chapter 13 reorganization.
What is Subchapter V, and why does restoring the higher limit matter?
Subchapter V is a streamlined small business reorganization process created in 2019 under the Small Business Reorganization Act. It’s faster and much cheaper than full Chapter 11 because it removes many procedural requirements designed for large corporations. The pandemic temporarily raised the Subchapter V limit from roughly $3 million to $7.5 million — but that expansion expired in June 2024. Small businesses in the $3-7.5M debt range lost access to this efficient tool and were pushed into full Chapter 11 instead. The bill would make the $7.5M limit permanent.
Who would be most helped if this bill passes?
The biggest beneficiaries are homeowners in high-cost markets — California, New York, and similar areas — who carry mortgages over $1.5M and currently can’t access Chapter 13 despite having the income to support a repayment plan. Small business owners who personally guaranteed business loans that failed are another major group — their combined personal liability often falls in the $2-3.5M range, currently forcing them into individual Chapter 11. Small businesses with $3-7.5M in total debt seeking reorganization rather than liquidation would also regain access to the faster, cheaper Subchapter V process.
Does this bill make it easier to get debt discharged or reduce what you owe?
No. The bill only changes who is eligible for Chapter 13 and Subchapter V reorganization — it doesn’t change what debts can be discharged, the repayment plan requirements, or how the process works once you’re in it. Chapter 13 still requires a 3-to-5 year repayment plan approved by the court, and most secured debts must still be repaid in full. The bill removes the entry barrier, not the obligations inside the door.
Is this bill likely to pass?
It has a better-than-average shot for bankruptcy reform legislation. Bipartisan Senate leadership — Grassley and Durbin, along with Cornyn, Whitehouse, Graham, and Coons — plus bipartisan House sponsors signals broad support. The bill advanced to the Senate floor calendar within one day of introduction, which is fast. That said, congressional calendars are crowded, and good bipartisan legislation still dies in the queue. The bill is worth watching, but nothing is certain until it’s signed into law.
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