Mr. Speaker, S. 3823 would make modest and temporary changes to the U.S. Bankruptcy Code.
First, the bill temporarily increases debt limits for small business debtors under subchapter V of chapter 11 and for individual debtors reorganizing debt under chapter 13.
Subchapter V of the Bankruptcy Code is a lower cost reorganization bankruptcy option for small businesses. These businesses don't have deep pockets, and traditional, expensive chapter 11 reorganizations may not be feasible.
Subchapter V is a more affordable and streamlined approach, which can lead to more successful reorganizations. That means that both debtors and creditors should be better off because, hopefully, less of the debtor's estate will go toward professional fees and more will be left for the debtor's business and, ultimately, the creditors.
Subchapter V took effect in February 2020. At that time, the debt limit for those wishing to utilize this more streamlined law was just over $2.7 million. Due in part to expected trouble for small businesses, the CARES Act and later legislation temporarily increased the debt limit for subchapter V filers to $7.5 million. That temporary increase sunsetted in March of this year. This bill again extends the $7.5 million debt limit for another 2 years.
Likewise, the bill also changes the bankruptcy debt limits for chapter 13, which is a way for eligible individuals, including sole proprietors, to reorganize their debts. The bill removes the distinction between secured and unsecured debt limits under chapter 13 and increases the overall debt limit for those who wish to file for their individual protection from about $1.9 million to $2.75 million.
Like the adjustment to subchapter V, these changes to chapter 13 apply for only 2 years. Put simply, Americans are having a harder time making ends meet due to what I think we would agree are mistakes made under the Biden administration and Democrats in control of Congress.
Raising the debt limit will allow those suffering from these failed policies to adjust their debts to fit the new realities of our economy, skyrocketing energy and input costs, not enough workers, and more. A successful reorganization can leave both debtors and creditors better off.
At the same time, we just don't have certain data about some of these bankruptcy policy changes or their likely long-term effects. That is why these changes to our Bankruptcy Code should be temporary.
An additional 2 years of normal post-pandemic bankruptcy activity will give us a better understanding of the underlying policy issues and will help guide the future design of our bankruptcy system.
It is also worth noting that this bill did not go through regular order in the Judiciary Committee, so it did not benefit from robust oversight or legislative hearings. Americans are best served when Federal policy is made after careful and focused congressional deliberation, something that would have occurred in regular order.
The bill makes clarifications to small business bankruptcies that relate to eligibility, trustee responsibilities, and bankruptcy plan requirements. These would be permanent. The bill also makes accounting- related clarifications that will operate to improve the U.S. Trustee System Fund.
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