Small business bankruptcy filings under Subchapter V jumped 8% through November 2025, reaching 2,221 cases despite supposedly healthy economic conditions. October alone saw 248 filings—a 35% spike from the previous year. While GDP grows and unemployment holds steady, America’s smallest enterprises are collapsing under debt loads at rates not seen since the program launched in 2020.
Drowning in Red Tape and Interest Rates
Subchapter V offers distressed businesses a streamlined Chapter 11 alternative, but the eligibility threshold plummeted from $7.5 million to roughly $3 million in June 2024. Logic suggests fewer businesses would qualify, yet filings accelerated anyway. This surge reveals how desperate small operators have become—they’re filing even when they might not qualify for the very program designed to save them.
Creditors Circle Like Vultures
“Creditors are just breathing down their necks,” observes Carol Fox, a court-appointed trustee overseeing more than two dozen Southern Florida cases. Her ground-level perspective cuts through economic abstractions to reveal the human cost: entrepreneurs mixing personal and business debts, scrambling to keep doors open while collection calls multiply. Fox sees owners who’ve exhausted every option before surrendering to formal bankruptcy protection.
Perfect Storm of Economic Pressures
Multiple forces are strangling small businesses simultaneously:
- Elevated borrowing costs make expansion impossible and refinancing brutal
- Consumer spending has turned cautious, hitting discretionary purchases hardest
- Trade policy uncertainty adds another layer of operational complexity for businesses already operating on razor-thin margins
Bankruptcy analyst Michael Hunter expects this combination to drive filings even higher through 2026, with tariffs and resumed student loan payments adding fresh pressure.
Silver Lining in the Wreckage
Despite the grim filing surge, Subchapter V works when businesses qualify. Roughly 50% successfully reorganize—roughly double the success rate of traditional Chapter 11—and 86% of companies with confirmed plans were still operating as of December 2023. The program proves that with proper structure and realistic debt loads, small businesses can survive financial crisis if they can navigate the bureaucracy before drowning in debt.
