The Setting Of The Sun: Subchapter V Eligibility

SUNSET (photo by Marilyn Swanson)

By Donald L. Swanson

The sun has set.  Yes it has. 

The $7,500,000 eligibility limit for Subchapter V expired yesterday (March 28, 2022), without action by Congress to extend it.

Actually, the Subchapter V sun was set to set on March 27—but that’s a Sunday.  So let’s give the benefit of the doubt and say it expired on Monday, instead.

Either way, the heightened debt limit is gone.

Hopefully, Congress can pass the heightened limit anew, after its expiration.  Then, perhaps, we can be in a no-harm, no-foul mode, with no ill-effects to anyone.  But that remains to be seen.

Senate Bill 3823

Legislation to make the $7,500,000 eligibility limit permanent is, actually, pending, in the form of Senate Bill 3823.

Right now, here’s the status of action in the U.S. Senate on that Bill:

  • Senate Bill 3823 was introduced on March 14, 2022;
  • It has been “read twice and referred to the Committee on the Judiciary”; and
  • the text of and action on this Bill can be found and followed here.  

$7,500,000 Language in Bill

In looking at Senate Bill 3823 (linked above), language for extending the $7,500,000 eligibility limit is not obvious.  Indeed, “$7,500,000” doesn’t even appear in the Bill. 

Instead, the operative language in the Bill is this:

  • “CARES Act Amendment.—Section 1113(a) of the CARES Act (Public Law 116-136; 134 Stat. 310) is amended by striking paragraph (5).”

Here’s how that language works:

  1. “paragraph (5)” of “Section 1113(a) of the CARES Act” provides:
    • “(5) SUNSET.—On the date that is 1 year after the date of enactment of this Act, section 1182(1) of title 11, United States Code, is amended to read as follows: ‘‘(1) DEBTOR.—The term ‘debtor’ means a ‘small business debtor’”;
  2. a “small business debtor” is defined in §101(51D) as:
    • “a person engaged in commercial or business activities . . . that has aggregate . . . debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $2,000,000 1 . . . “ (emphasis added); and
  3. before such SUNSET became effective, “section 1182(1) of title 11” provided:
    • “debtor”— . . . means a person engaged in commercial or business activities . . . that has aggregate . . . debts as of the date of the filing of the petition . . . in an amount not more than $7,500,000 . . . “ (emphasis added).

Effect

So . . . we are now back to a $2.0 million (plus CPI adjustments for a number of years) debt limit for Subchapter V eligibility.

How does the SUNSET affect Subchapter V cases filed before the SUNSET occurred?  Probably not at all . . . but that remains to be tested.

How does the SUNSET affect future case?  The debt limit for Subchapter V eligibility is now the $2 million number.

Hypothetical

Let’s say, hypothetically:

  • a Subchapter V case is filed today, as compliant with the new/lower eligibility limit; but
  • it turns out that the debtor and its counsel miscalculated, and debtor’s total debt actually exceeds the new limit by a couple hundred dollars; and
  • Then, Congress passes Senate Bill 3823, enacting a new $7.5 million debt limit.

In this hypothetical:

  • What happens to Debtor’s Subchapter V case? 
  • Does the Subchapter V case need to be dismissed and refiled? 
  • Is Debtor’s case in a no-harm, no-foul circumstance in which Debtor is forgiven the miscalculation without further action?

Conclusion

It will be interesting to see how all of this progresses and what the fallout might be for failing to extend the $7.5 million eligibility limit before SUNSET.    

Here’s a technical question: Can the sun, once it’s set, be made to unset?

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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