Small Business Bankruptcies Jump 50 Percent
Small businesses across the United States are filing for Chapter 11 bankruptcy at a sharply higher rate, highlighting the growing financial pressure facing employers in communities nationwide. New bankruptcy data shows that Subchapter V Chapter 11 filings, the bankruptcy process designed specifically for qualifying small businesses, increased by 50 percent during the first half of 2026 compared to the same period in 2025.
According to data compiled by Epiq AACER and cited by the American Bankruptcy Institute, 1,663 Subchapter V bankruptcy filings were recorded during the first six months of 2026, compared to 1,107 filings during the first half of 2025. These filings allow financially distressed small businesses to reorganize their debts while continuing operations, rather than immediately shutting their doors.
The increase suggests that many business owners are attempting to survive rather than liquidate, but the sheer volume of filings indicates that financial conditions remain difficult for many companies.
Bankruptcy Increases Extend Beyond Small Businesses
The rise in small business bankruptcies is part of a much broader trend affecting businesses and consumers throughout the economy.
Overall commercial Chapter 11 bankruptcy filings climbed 28 percent during the first half of 2026, increasing from 3,595 filings during the same period last year to 4,589 filings. Total commercial bankruptcy filings rose 13 percent year over year, reaching 17,285 cases. Meanwhile, total bankruptcy filings across the United States increased 12 percent, growing from 276,306 filings during the first half of 2025 to 310,550 during the first half of 2026.
Michael Hunter, Vice President of Epiq AACER, said the numbers point to mounting financial stress throughout the economy.
“The 50% rise in Subchapter V elections underscores the mounting challenges facing small businesses amid higher borrowing costs and softening demand, while the 12% increase in overall filings reflects broader financial pressures nationwide,” Hunter said. He also noted that rising auto delinquencies, increased foreclosure activity, growing credit card balances, and other consumer debt burdens are contributing to more bankruptcy filings by individuals.
The bankruptcy figures also reflect the cumulative impact of several years of elevated inflation. While inflation has moderated from its peak, many of the higher prices businesses absorbed never returned to previous levels. Small business owners continue to pay more for inventory, insurance, rent, utilities, transportation, labor, and financing than they did just a few years ago, even as many consumers have become more cautious with discretionary spending.
The National Federation of Independent Business reports that inflation remains one of the leading concerns among small business owners, with many continuing to raise prices simply to keep pace with rising operating costs. Against that backdrop, the American Bankruptcy Institute says higher borrowing costs, increasing expenses, and geopolitical volatility are driving more businesses to seek bankruptcy protection. For companies already operating on thin margins, those combined pressures can quickly become unsustainable, helping explain why small business Chapter 11 filings have increased by 50 percent over the past year.
FAM Editor: This is yet another legacy of the Biden inflation years. Thanks, Joe.
Financial Pressures Continue to Build
The American Bankruptcy Institute says several major factors are driving the increase in bankruptcy filings.
Amy Quackenboss, Executive Director of the American Bankruptcy Institute, said higher borrowing costs, increasing operating expenses, and geopolitical volatility are pushing more businesses and households toward bankruptcy protection.
“The increase in bankruptcy filings over the past year, particularly among small businesses, reflects ongoing financial pressures facing households and employers,” Quackenboss said. “Higher borrowing costs, increasing expenses, and geopolitical volatility are leading more debtors to turn to the bankruptcy system to restructure obligations and pursue a financial fresh start.”
The National Federation of Independent Business has also reported weakening optimism among business owners. Its Small Business Optimism Index declined during May, with inflation remaining one of the most significant concerns cited by respondents.
According to the organization, 18 percent of surveyed business owners identified inflation as their single biggest business problem, the highest reading since December 2024. A net 36 percent reported raising average selling prices, while another 34 percent planned additional price increases.
Nearly Every Industry Is Feeling the Impact
Unlike previous bankruptcy waves that tended to concentrate within a single industry, legal experts say the current increase is unusually widespread.
Business Insider reported that bankruptcy attorney Robert Stark described the current environment as affecting a “broad smattering of industries” rather than remaining concentrated in one sector. With more than three decades of bankruptcy experience, Stark said he found the breadth of industries entering bankruptcy to be “shockingly” unusual.
Historically, bankruptcies often clustered around specific economic events, such as the cryptocurrency failures during 2022. Today, however, financial distress appears to be spreading across much of the economy instead of remaining isolated within one industry.
Data from S&P Global Market Intelligence showed industrial companies experienced the highest number of large corporate bankruptcies during 2025, followed by consumer discretionary businesses and healthcare firms.
Large Corporations Are Also Filing
The financial strain is not limited to small businesses.
According to S&P Global Market Intelligence, 2025 recorded the highest number of large corporate bankruptcies since 2010. Through November alone, 717 large corporate bankruptcy filings had already surpassed the previous year’s total of 687.
Among the major companies entering bankruptcy proceedings were hospitality company Sonder, Spirit Airlines, Del Monte Foods, retailer Claire’s, and CVS Health subsidiary Omnicare. Each reported liabilities exceeding $1 billion when filing for bankruptcy protection.
The fact that billion dollar corporations and neighborhood businesses are both seeking bankruptcy protection suggests that financial pressures are extending across businesses of nearly every size.
Consumers Are Feeling the Pressure Too
Households are also experiencing rising financial stress.
During the first half of 2026, individual bankruptcy filings increased 12 percent to 293,265 cases. Individual Chapter 7 liquidations rose 15 percent to 187,572 filings, while Chapter 13 repayment plans increased 8 percent to 104,997 filings.
The American Bankruptcy Institute says many families are struggling under growing debt burdens, rising living expenses, and more expensive borrowing costs.
Taken together, the latest bankruptcy statistics paint a picture of financial stress affecting nearly every level of the American economy. Small businesses are filing for Chapter 11 protection at sharply higher rates, large corporations continue to enter bankruptcy in significant numbers, and household bankruptcy filings are also climbing. Whether these trends moderate will likely depend on future borrowing costs, inflation, consumer demand, and broader economic conditions.
