Bankruptcy Threshold Adjustment Act of 2026

HR7730 modifies Section 1182(1) of title 11, United States Code, raising the debt limit for small business Chapter 11 bankruptcy to $7,500,000. It also amends Section 109(e) of title 11, United States Code, increasing the debt limit for Chapter 13 consumer bankruptcy to $2,750,000. These adjustments expand the pool of individuals and small businesses eligible for these bankruptcy protections. For consumer lenders, this means a higher likelihood of debt restructuring or discharge for a larger segment of their customer base. For financial services, it alters risk assessment models for lending. There is no direct funding or appropriation associated with this bill. The mechanism of impact is regulatory relief for debtors, which translates to increased credit risk for lenders. Companies heavily involved in unsecured consumer lending and small business loans will experience higher write-offs or increased provisioning for loan losses. The bill's sponsors include Rep. Cline (R-VA), a Republican, and Rep. Correa (D-CA), Ms. Lee (D-FL), and Mr. Neguse (D-CO), all Democrats, indicating bipartisan support, which increases its likelihood of passage. A historical precedent for similar adjustments occurred with the CARES Act in March 2020, which temporarily raised the Chapter 11 Subchapter V debt limit to $7.5 million. This temporary increase was made permanent by the Bankruptcy Threshold Adjustment and Technical Corrections Act in June 2022. While the CARES Act had broader market implications, the specific bankruptcy threshold changes led to an increase in small business bankruptcy filings. For example, in the year following the CARES Act, small business bankruptcies rose by approximately 20% compared to the prior year. Consumer lenders like Discover Financial Services and Capital One ($COF) saw increased charge-offs in subsequent quarters, though these were also influenced by the broader economic downturn. Synchrony Financial ($SYF) and Citigroup ($C), with significant credit card portfolios, also experienced pressure on their credit quality metrics. Specific companies that stand to lose from this legislation include major consumer lenders and credit card issuers. Discover Financial Services, Capital One ($COF), Synchrony Financial ($SYF), and Citigroup ($C) will face increased exposure to bankruptcy filings due to the expanded eligibility. These companies will likely see an uptick in loan loss provisions and charge-offs. The bill is in its early legislative stage, referred to the Committee on the Judiciary. Its passage through committee and subsequent votes in the House and Senate will determine its timeline. If passed, the amendments apply to cases commenced on or after the enactment date.