Bankruptcy Filings Surge: What Your Business Should Do Now

Bankruptcy filings jumped 14% last year, with small business reorganizations up 46% and family farmer cases surging 130%.¹ If your company extends credit, relies on third-party suppliers or operates in agriculture, transportation or small business services, these trends could directly affect your bottom line. Here’s what’s driving the surge, which sectors are most exposed and what steps you can take now to protect your organization.

What’s Driving the Surge?

The recent surge in bankruptcy activity reflects multiple converging factors. Chapter 11 business reorganizations jumped 42% year-over-year, while the newer Subchapter V small business cases increased 46%. Perhaps most striking, Chapter 12 family farmer cases soared 130%, indicating severe stress in the agricultural sector.² Consumer Chapter 7 liquidations also rose significantly, suggesting many individuals currently lack sufficient income to pursue reorganization plans.

1. Why Are Small Businesses Turning to Subchapter V?

The Small Business Reorganization Act of 2019 created Subchapter V as a streamlined alternative to traditional Chapter 11 proceedings. These cases eliminate creditor committees, appoint trustees to work with debtors, and require plan filings within 90 days. Courts aim for confirmation hearings within 130 days of filing. The dramatic increase in Subchapter V cases demonstrates that small businesses needed this more efficient restructuring tool.

Success rates for Subchapter V cases remain high, with many debtors achieving plan confirmation and discharge. The process allows small businesses to reorganize their debts quickly and return to operations, providing a viable alternative to liquidation for companies with sustainable business models but temporary financial difficulties.

2. Why Are Older Americans Filing at Record Rates?

More older Americans are turning to bankruptcy as they face increasing financial pressures later in life. Rising living expenses, longer life expectancies, changes in employment status and limited retirement resources can make it difficult for retirees and those nearing retirement to recover from financial setbacks. Unlike younger individuals who may have years of earning potential ahead of them, older adults often have fewer opportunities to replace lost income or rebuild depleted assets.

For many, the challenge is not a single financial event but the cumulative effect of carrying debt into retirement while relying on fixed or reduced income. Credit card balances, personal loans and other ongoing financial obligations can become increasingly difficult to manage when combined with unexpected expenses or economic uncertainty. As a result, bankruptcy may provide a practical path to reorganize debt, protect assets and regain financial stability.

Student loan delinquencies are creating additional financial challenges for struggling borrowers. After a nearly five-year pause on reporting delinquent federal student loans to credit bureaus, millions of borrowers are once again seeing missed payments reflected on their credit reports. As delinquencies have returned to pre-pandemic levels, many borrowers have experienced significant declines in their credit scores, with some losing more than 100 points and others seeing drops exceeding 150 points.³ These credit impacts can increase borrowing costs, restrict access to mortgages and auto loans, and make it even more difficult for individuals already facing financial distress to regain their footing.

3. How Bad Is the Agricultural Downturn?

The 130% increase in Chapter 12 family farmer cases⁴ reflects widespread distress across agricultural operations. More than 70% of American farmers report insufficient funds to purchase necessary fertilizer and inputs for current operations.⁵ The 2019 increase in Chapter 12 debt limits expanded eligibility for family farm operations, but rising input costs and market pressures continue to squeeze margins.

Successful farmers increasingly require diversified operations to remain viable. In many regions, cattle operations currently support other agricultural activities, but this dynamic can shift quickly based on commodity prices and market conditions. The agricultural downturn affects not just farmers but also suppliers, lenders and rural communities dependent on farm income.

4. What’s Happening in Transportation?

The trucking industry experienced significant consolidation in 2025, with an estimated 5,000 to 8,000 trucking companies exiting the market through bankruptcy or voluntary closure.⁶ This “great capacity purge” follows a cyclical pattern common in transportation, but current challenges include elevated fuel costs, equipment reliability issues with certain engine manufacturers and overcapacity built during profitable pandemic years.

While industry observers expect eventual stabilization, the current shakeout affects freight rates, shipping capacity and supply chain reliability. Companies dependent on trucking services should monitor carrier financial stability and consider diversifying transportation providers to mitigate disruption risks.

5. How Is AI Affecting Bankruptcy Courts?

Artificial intelligence tools increasingly appear in bankruptcy proceedings, particularly in cases involving pro se debtors and creditors. These individuals file extensive pleadings and briefs clearly generated through AI, creating administrative burdens for courts already operating with reduced judicial resources. The proliferation of AI-generated legal documents without proper oversight raises concerns about accuracy and appropriateness of filings.

Courts report spending significant time reviewing AI-generated submissions to determine appropriate responses. While some jurisdictions experiment with AI tools for judicial use, most bankruptcy courts lack access to such technology, creating an imbalance between filers using AI and courts processing those filings manually.

What Should You Do Now?

Financial distress can create significant operational, commercial and legal challenges long before a formal filing occurs. Whether you extend trade credit to a struggling supplier, depend on a trucking company navigating the current shakeout or serve customers in vulnerable demographics, early preparation is the best defense. Consider the following steps to preserve liquidity, protect key relationships and maintain business continuity:

• Monitor industry-specific risks. Track bankruptcy trends in your sector and assess supplier financial stability, particularly in agriculture, transportation and small business services.
• Review credit policies. Evaluate customer creditworthiness more frequently, especially for aging demographics and businesses in stressed industries.
• Assess supply chain resilience. Diversify critical suppliers and transportation providers to reduce concentration risk from potential bankruptcies.
• Update contract terms. Include financial reporting requirements and early warning provisions in key vendor and customer agreements.
• Strengthen cash management. Maintain adequate liquidity buffers and monitor accounts receivable aging more closely given increased bankruptcy risks.
• Consider restructuring alternatives. Familiarize business leadership with Subchapter V and other efficient restructuring options if financial stress emerges within your organization.

For questions about bankruptcy trends and their implications for your business, please contact Ben Struby, or your regular Lathrop GPM attorney.

This legal alert summarizes a presentation from Lathrop GPM’s annual State of Litigation event, held on May 6, 2026, in Kansas City. Ben Struby was joined for this presentation by The Hon. Brian Fenimore of the Western District of Missouri Bankruptcy Court.

1. April Commercial Chapter 11 Bankruptcy Filings Increase 42 Percent from Previous Year, American Bankruptcy Institute, May 6, 2026.
2. Ibid.
3. The number of student-loan borrowers falling behind on payments surged this year — and they’re at greater risk under Trump’s collections restart, Business Insider, May 13, 2026.
4. American Bankruptcy Institute, op. cit.
5. 70% of Farmers Can’t Afford All Needed Fertilizer, Survey Shows, Farm Policy News, April 15, 2026.
6. The Great Capacity Purge: How Record Carrier Failures Are Reshaping the Freight Market in Late 2025, Luna Logistics, November 19, 2025.