Small businesses filed for bankruptcy protection at the fastest pace in years last month. There were 302 Subchapter V elections in August 2026, a 63% jump from the 185 filed in August 2025, according to data released by Epiq AACER and the American Bankruptcy Institute on September 4.
Subchapter V is a streamlined version of Chapter 11 bankruptcy created in 2019 specifically for small businesses. It is faster, cheaper, and lets owners keep control of their company while restructuring debt under court supervision. To qualify, a business generally must have no more than roughly $3.4 million in total debts.
August’s spike was not an outlier. It extends a trend that has been building all year. In the first half of 2026, Subchapter V filings hit 1,663, a 50% increase over the same period in 2025. The first quarter alone saw an even steeper 67% year-over-year jump to 833 filings.
What is driving the numbers
“Persistent cost pressures, restrictive credit markets, and ongoing geopolitical uncertainty continue to create challenges for consumers and small businesses facing economic distress,” said Amy Quackenboss, Executive Director of the American Bankruptcy Institute.
Michael Hunter, Vice President of Epiq AACER, noted that the increase in Subchapter V elections reflects owners choosing to restructure rather than simply shut down. He said bankruptcy filings are likely to keep rising through 2026 and into 2027.
The businesses most affected tend to be small, often with fewer than 5 employees, under 10 years old, and generating less than $1 million in annual revenue. The stress is broad and sector-spanning rather than concentrated in a single industry, touching construction, retail, manufacturing, professional services, and hospitality.
A potential lifeline in Congress
The Bankruptcy Threshold Adjustment Act of 2026 would permanently raise the Subchapter V debt eligibility cap to $7.5 million, more than doubling the current limit. The bill unanimously passed the Senate on August 3 and now moves to the House. If enacted, it would open Subchapter V to thousands of additional businesses that currently have too much debt to qualify for the streamlined process.
For business owners feeling the squeeze, the practical takeaway is straightforward. Review cash flow and debt obligations now, and talk to a lawyer or financial advisor before creditors force the issue. Subchapter V filings have a 52% plan confirmation rate, well above the 23% rate for traditional Chapter 11, which means businesses that use it early tend to have better outcomes than those that wait.
With filings accelerating and borrowing costs still elevated, the second half of 2026 will test how many more small businesses reach their breaking point.
