How the Subchapter V Debt Cap Works: What Counts Toward the $3,424,000 Limit
- Melissa A. Youngman
- Apr 22
- 7 min read
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases before the United States Bankruptcy Court for the Middle District of Florida, including the Orlando, Jacksonville, Tampa, and Fort Myers divisions, with a primary practice footprint in Orange, Seminole, Osceola, Volusia, Lake, and Brevard counties.
The Subchapter V debt cap determines, on the petition date, whether a Central Florida small business can use Subchapter V at all. Miss the cap by a dollar and the case converts out of Subchapter V into a traditional Chapter 11, with the full weight of the absolute priority rule, the § 1125 disclosure-statement process, and a dramatically higher professional fee load. Hit the cap cleanly and the case stays on the faster, cheaper, owner-friendly Subchapter V track.
The cap sounds like a single number. It is not. It is a rule about which debts count, which do not, how contingent and unliquidated amounts are treated, how insider debt and affiliate debt are aggregated, and how a disputed claim figures into the eligibility determination. This post walks through each piece. It is intended for a business owner in Winter Park, Orlando, Maitland, Lake Mary, or anywhere else in the Middle District of Florida who is trying to decide, before the petition is filed, whether Subchapter V is actually available.
The Statutory Cap: § 1182(1)(A) and the Current $3,424,000 Figure
Subchapter V eligibility is governed by 11 U.S.C. § 1182(1)(A). The statute defines a "small business debtor" as a person or entity engaged in commercial or business activities whose aggregate non-contingent, liquidated secured and unsecured debts do not exceed a specified dollar amount as of the petition date. At least half of those debts must arise from the debtor's commercial or business activities. Certain categories of debtor are excluded outright, including public reporting companies and their affiliates, and single-asset real estate debtors.
The dollar figure in § 1182(1)(A) is inflation-adjusted every three years under 11 U.S.C. § 104. The current cap is $3,424,000. That is the number to plan around for any case filed today in the Middle District of Florida.
Why the Number Is Not $7.5 Million: SBRA, CARES, and the 2024 Sunset
Many Central Florida business owners remember a $7.5 million cap and are surprised to learn it no longer applies. The Small Business Reorganization Act of 2019 set the original cap at roughly $2,725,625, the inflation-adjusted figure then in effect. When the COVID-19 pandemic hit, the CARES Act of March 2020 temporarily raised the cap to $7,500,000. That higher cap was extended twice by Congress. It sunset on June 21, 2024, and reverted to the § 104 inflation-adjusted figure.
What matters now is the current number. A case filed today is measured against $3,424,000, not the expired $7.5 million. Whether Congress will raise the cap again is speculation; the current statute is what controls a petition filed tomorrow.
Liquidated Versus Unliquidated Debt
Only liquidated debt counts toward the § 1182(1)(A) cap. A debt is liquidated when its amount is fixed or readily ascertainable by reference to an agreement, an invoice, a judgment, or a simple arithmetic computation. A bank loan with a stated principal balance is liquidated. A trade payable for a specific invoice is liquidated. A tax assessment is liquidated.
Unliquidated debt does not count. A pending tort claim whose damages have not been determined is unliquidated. A breach-of-contract claim seeking an unspecified amount in consequential damages is unliquidated. A personal injury suit filed against the business but not yet reduced to judgment is unliquidated.
The practical consequence for eligibility is significant. A Central Florida business facing a large pending lawsuit may still qualify for Subchapter V on the petition date even if the exposure, if liquidated, would push it well over the cap. The analysis looks at what is liquidated as of the filing, not at worst-case future exposure.
Contingent Versus Non-contingent Debt
The cap also excludes contingent debt. A debt is contingent when the debtor's liability depends on the occurrence of a future event that has not yet happened as of the petition date. The clearest example is a personal guaranty of an affiliated company's loan where the primary obligor has not yet defaulted; until default, the guaranty is contingent and does not count toward the cap. Unexercised indemnity obligations are contingent. An earn-out tied to future performance is contingent.
Debt that is not contingent counts even if the payment date is years away. A ten-year term loan with scheduled maturity in 2032 is non-contingent today; the full outstanding principal is part of the § 1182(1)(A) calculation.
This rule, read alongside the liquidated-versus-unliquidated rule, means the debt cap measures present, fixed, ascertainable obligations rather than everything a business might someday owe. It is a narrower filter than many owners assume.
Debts Owed to Insiders and Affiliates
Section 1182(1)(A) excludes, from the cap calculation, debts owed to one or more affiliates or insiders. Shareholder loans, intercompany payables between related entities, and notes owed to family members who fall within the § 101(31) insider definition are all excluded from the numerator. That exclusion is important for closely held Central Florida businesses that have been partially funded by owner contributions booked as debt rather than equity.
The exclusion cuts both ways. It lets some businesses qualify for Subchapter V that would otherwise be pushed over the cap by internal capitalization choices. It also means a debtor cannot engineer eligibility by reclassifying outside debt as insider debt; the statute and the case law look at the actual character of the obligation, not at how the parties have labeled it.
Disputed Debt and the Eligibility Determination
Disputed debt presents a harder problem. A debt that is disputed in good faith, and whose amount has not been reduced to judgment or acknowledged, is often treated as unliquidated for eligibility purposes. But eligibility is decided by the bankruptcy court on the actual record, and a debt a debtor calls "disputed" in the schedules is not automatically excluded. The United States Trustee, a creditor, or any party in interest can challenge the Subchapter V election. If the court concludes the disputed amount is liquidated and non-contingent, the debtor loses the election and the case moves off the Subchapter V track.
The practical lesson is to work through the eligibility analysis in advance. A petition filed near the cap is a petition that invites challenge. Do the math carefully before the case is filed, not after.
Aggregation Across Affiliates
When related entities file together, § 1182(1)(A) aggregation applies. Debts of the debtor's affiliates, to the extent those affiliates are themselves debtors, generally count in the cap calculation. Debts of non-debtor affiliates do not. This rule matters for multi-entity business groups common in Central Florida real estate, hospitality, and medical-practice structures. A two-entity group whose combined qualifying debt crosses the cap is not eligible for Subchapter V no matter how the petitions are staggered.
What the Debt Cap Means for Central Florida Businesses
For most small and mid-size businesses in Orange, Seminole, Osceola, Lake, Volusia, and Brevard counties, the eligibility question is not close. A Winter Park professional services firm with a bank line, a few trade payables, and a modest SBA loan is well under the cap. The harder cases are growing restaurant groups, construction subcontractors with large bonded exposure, and medical practices carrying equipment financing alongside real estate debt.
Two practical points worth underscoring. First, Subchapter V is a different animal from traditional Chapter 11 on committee practice. In the Middle District of Florida, the United States Trustee appoints an unsecured creditors' committee under § 1102 only in larger, more complex Chapter 11 cases, and Subchapter V cases under §§ 1181 through 1195 generally do not have a § 1102 committee at all. The Subchapter V trustee fills a different role focused on facilitating plan confirmation. A business that qualifies for Subchapter V is therefore opting into a process without the committee overhead that a typical Chapter 11 might carry.
Second, a business that is modestly over the cap should not assume its reorganization options end there. Traditional Chapter 11 remains available and, in the right circumstances, is the correct tool. The cap is an eligibility gate for a particular procedural track, not a verdict on whether the business can reorganize at all.
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases throughout the Middle District of Florida. For more on the Subchapter V framework as a whole, see our cornerstone guide, What Is Subchapter V Bankruptcy.
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