The Business Bankruptcy “Big 3” and the Unanticipated Benefits of Subchapter V

The liberal bankruptcy venue rules in the United States have their defenders and advocates. Subchapter V of the Bankruptcy Code came into effect in 2020, justified as a bipartisan solution to a longstanding problem in corporate bankruptcy where restructuring under Chapter 11 was prohibitively expensive for small-business debtors. On June 21, 2024, Subchapter V’s extended debt limit of $7,500,000 in liabilities reverted back to a statutorily defined $3,024,725. In addition to the justifications offered by organizations such as the American Bankruptcy Institute (ABI) for both Subchapter V, generally, and a permanent increase to its debt limit, I argue that Subchapter V has unexpected benefits for the corporate bankruptcy system at large. Specifically, it could lead to (i) more widely distributed predictability and judicial expertise across districts; (ii) less concentration of filings by small to medium-sized debtors in the Big 3 jurisdictions (D. Del., S.D. Tex., and S.D.N.Y.), allowing those courts to more fully specialize in the most complex cases; and (iii) less concentration of Chapter 11 cases in the Big 3 in aggregate terms, even potentially for medium-sized and some large-sized debtors. Accordingly, I propose that Congress should adopt the ABI’s recommendation to make the $7,500,000 debt limit under Subchapter V permanent.