Subchapter V After the 2024 Debt‑Limit Reset: A Practical Guide for Los Angeles Small Businesses

Introduction — Why the 2024 Debt‑Limit Reset Matters

In June 2024 Congress allowed a temporary increase to the Subchapter V eligibility threshold to lapse, so many small and middle‑market businesses lost access to the streamlined Subchapter V Chapter 11 procedures that had been available during the pandemic-era expansions. That change immediately affected companies whose aggregate debts exceeded the restored limit but were previously able to elect Subchapter V under the higher threshold.

This article explains what changed, how the new threshold works in practice for Los Angeles‑area businesses, and sensible next steps for owners and managers weighing restructuring or alternative options.

What Changed: The Numbers and the Effective Date

Key facts you need to know:

• The temporary increase that had allowed Subchapter V filings for debtors with up to $7.5 million in aggregate debt expired on June 21, 2024; for cases filed on or after June 22, 2024 the Subchapter V debt limit reverted to the SBRA original (adjusted) level of $3,024,725 in noncontingent, liquidated debt.
• The Chapter 13 numerical thresholds reverted as well (the single $2.75M combined threshold split back into separate secured/unsecured caps).
• Congress considered legislation (S.4150) to extend the higher limits but it was not enacted before the sunset, so the statutory reversion took effect as described above.

For any business considering bankruptcy, the precise filing date and an accurate, contemporaneous calculation of aggregate debt (noncontingent, liquidated) determine Subchapter V eligibility. Courts and trustees are applying the reverted thresholds for cases commenced on or after June 22, 2024.

How This Affects Los Angeles Small Businesses — Practical Impacts

What this means in practice for LA businesses:

• Eligibility: Businesses with total noncontingent debts above $3,024,725 can no longer elect Subchapter V and must use standard Chapter 11 procedures (or other remedies). That change can materially increase restructuring costs and complexity.
• Access and timing: Many debtors rushed to file while the higher $7.5M threshold was still in force (data show a significant uptick in Subchapter V filings in early–mid 2024). If you were at or near the prior higher cap but did not file before June 22, 2024, you may now face fewer procedural advantages.
• Cost and speed: Subchapter V historically offered faster plan timelines, a single‑debtor‑friendly trustee process, reduced administrative overhead (no statutory requirement for a creditors’ committee in most cases), and often lower professional fees. Losing Subchapter V eligibility generally means longer cases and higher trustee/administrative and professional costs.
• Local practice: In the Central District of California (Los Angeles area) courts issued guidance and form updates in response to the reversion; local practitioners are adjusting strategies (e.g., earlier workout/mediation attempts, pre‑filing assignments for benefit of creditors, or targeted Chapter 11 filings designed to mimic Subchapter V efficiencies where possible).

Bottom line: if your company's debts are close to or exceed the $3,024,725 cap, expect a different filing pathway and budgeting for higher restructuring costs than Subchapter V typically offered.

Next Steps & Practical Checklist for Los Angeles Businesses

If you run a Los Angeles small business and are evaluating options today, this short checklist will help you act deliberately:

1. Confirm your aggregate debt position. Work with your CPA or bankruptcy counsel to calculate noncontingent, liquidated debts as of the likely petition date — small differences can change Subchapter V eligibility.
2. Evaluate timing. If you were within the previous $7.5M limit but have not filed, identify whether meaningful alternatives (out‑of‑court workouts, creditor forbearance, or bridge financing) exist; rushing without a plan can be costly.
3. Compare options: Subchapter V (if eligible) vs. traditional Chapter 11 vs. out‑of‑court workout vs. assignment for benefit of creditors or Chapter 7. Each has different costs, timelines, and business‑continuation consequences. Local counsel can model expected administrative and professional fees for each path.
4. Talk to experienced LA bankruptcy counsel early. A local attorney can advise on court practices in the Central District of California, trustee expectations in Subchapter V matters, and alternatives specific to Los Angeles markets. Resources and notices from the Central District and Northern District courts summarize the reversion and local procedural changes.
5. Monitor legislation. Congress may again seek to extend or amend the Subchapter V threshold (S.4150 and similar proposals have been introduced). While a legislative fix could change the landscape, it is uncertain and should not be relied on as a near‑term strategy without contingency planning.

If you want a quick next step: assemble a one‑page summary of assets, secured creditors, unsecured creditors, and fixed monthly cash flow — then schedule a consultation with a bankruptcy attorney to run eligibility and scenario modeling tailored to your Los Angeles business.