Small Business Bankruptcies Surging in 2026

Small business bankruptcy filings are rising sharply in 2026, and the numbers tell a consistent story across every major data source. For trade creditors, vendors, and anyone with receivables exposure to small businesses, the trend demands attention. 

How Much Have Small Business Bankruptcies Increased? 

Subchapter V small business bankruptcy filings jumped 67% in Q1 2026, reaching 833 filings compared to 499 in Q1 2025, according to Epiq AACER. Total commercial bankruptcies rose 14% to 8,436, while commercial Chapter 11 filings surged 37%. The trend continued into April: commercial Chapter 11 filings increased 42% year-over-year, with 644 filings versus 454 in April 2025. Zooming out, total U.S. bankruptcy filings rose 11% for all of 2025, reaching 574,314, and filings have increased every quarter since bottoming out in June 2022. 

What Is Subchapter V Bankruptcy? 

Subchapter V, created by the Small Business Reorganization Act of 2019, gives qualifying small businesses a faster and more affordable path through Chapter 11 reorganization. Cases typically close in months rather than years, cost a fraction of traditional Chapter 11, and eliminate creditors’ committees. The goal is reorganization and equity preservation, not liquidation. 

The surge in Subchapter V elections reflects both the depth of current financial stress and the growing awareness of this tool as a viable alternative to closure. As Adam Prescott of Bernstein Shur noted in March 2026 commentary on rising small business bankruptcy filings, the increase tracks directly with “the difficult economic environment many small businesses are facing.” 

What Is Driving the Increase in Small Business Bankruptcies? 

Multiple pressures are compounding at once. Prescott cited the exhaustion of COVID relief funds, rising labor and material costs, higher borrowing costs, tariffs, and shifting consumer demand. On the consumer side, household debt is approaching $18.8 trillion, delinquency rates have worsened to 4.8%, and foreclosure filings surged 26% in Q1 2026. According to ACA International’s analysis of Q1 small business bankruptcy data, this is a broad, sector-spanning increase rather than a concentration in any single industry. When consumers fall behind, small businesses absorb the shock first. 

What Does This Mean for Trade Creditors? 

A small business filing for Subchapter V places existing unsecured trade debt into a court-supervised restructuring. Payouts are often reduced and spread over a multi-year plan. The practical implication: proactive portfolio monitoring is no longer optional. 

Epiq AACER VP Michael Hunter flagged “large pockets of concentrated increases within creditor portfolios” in Q1 2026 reporting. Sectors with elevated risk include retail, food service, transportation, and construction. Early detection of customer financial deterioration, before a petition is filed, remains the most effective tool for protecting receivables and adjusting credit terms. 

Is Congress Responding to the Bankruptcy Surge? 

Yes. The Bankruptcy Threshold Adjustment Act of 2026, introduced by Sen. Chuck Grassley and Rep. Ben Cline, would permanently raise the Subchapter V debt eligibility limit to $7.5 million and increase the Chapter 13 filing cap to $2.75 million. The House companion bill recently passed the House Judiciary Committee. Whether it moves fast enough to ease the current pressure is an open question. 

Disclaimer 

This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies.  It is not meant to supersede any policy requirements.  Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation. 

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop trade credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.