Bankruptcy Threshold Adjustment Act of 2026

Legislative bill overview

S 3977 adjusts the income thresholds and exemption limits used in bankruptcy proceedings, the first comprehensive update to these figures since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The bill modifies the means test calculations and asset exemption amounts that determine whether individuals qualify for Chapter 7 liquidation bankruptcy versus Chapter 13 repayment plans, and adjusts thresholds for "above-median income" filers.

Why is this important

Bankruptcy thresholds directly affect millions of Americans facing financial distress by determining who can discharge debts versus who must repay them. Without periodic adjustments, inflation erodes the thresholds' original intent, potentially locking lower and middle-income households into burdensome repayment plans or denying relief entirely despite genuine hardship. This 21-year gap since the last update represents a significant lag in inflation adjustment.

Potential points of contention

• Debtor access vs. creditor protection: Raising thresholds expands bankruptcy relief availability, which creditors and lending industry groups argue increases default risk and could raise borrowing costs for everyone
• Income threshold levels: Disagreement over whether proposed adjustments accurately reflect regional cost-of-living variations and whether certain income sources should be included or excluded
• Exemption amounts: Debate over homestead and personal property exemption increases, with concerns that higher exemptions could disadvantage unsecured creditors and affect bankruptcy's disciplinary function