Back to School . . . and Back to Bankruptcy Court?

Bankruptcy and restructuring activity generally increases in the fall, as financially distressed businesses address their financial problems after kicking the can down the road through the summer. If you own a business and are feeling the pinch as you struggle to work out resolutions with your creditors, you are not alone.

Small business chapter 11 filings increased by 28% during the first half of 2026 when compared to 2025.  Personal bankruptcy filings increased by 12% during the same period, and consumer pressures have hurt the bottom line for businesses. Consumer debt levels have increased to historically high levels ($18.78 trillion of debt for Q1 2026).  Auto loan and student loan delinquencies are approaching levels not seen since the Great Recession. The Associated Press reports that defaults on student loans have surged across the U.S., reaching record levels as borrowers struggle to keep up with payments.

A variety of industries have experienced increased bankruptcy activity, including:

• Healthcare, with senior living and care facilities and rural hospitals leading the way. (Chicago-based GoHealth, Livonia-based Vanguard Surgical, rural hospitals in Alabama, Mississippi and Missouri)
• Pharmaceutical companies (BioXcel)
• Retail (Eddie Bauer, Saks Global)
• Restaurants (operators of Subway, Firehouse Subs, Popeyes)
• Commercial and residential real estate and related industries
• Spirits (Napa Valley winery Signorello Estate, Stoli Group)
• Transportation and supply chain (BFG Supply Co, Indianapolis based horticultural and agricultural supply distributor, transportation companies in Georgia, Florida and Michigan)
• Automotive (although admittedly, much of this distressed activity continues to take place outside of bankruptcy court)

The topsy-turvy world of tariffs, uncertainty in governmental policies, inflation, supply chain issues, the Iranian conflict and shaky consumer sentiment will continue to place increased pressure on businesses and the bottom line. As distressed businesses continue to borrow to address their issues, the increased debt load will only increase filings over the rest of 2026 and into 2027.

Business owners who are struggling to meet their obligations should consider their restructuring options sooner rather than later. Chapter 11 may provide the breathing room and legal tools a business needs to get back on its proverbial feet by allowing the business to file a plan that stretches out payments to creditors, while paying a percentage of its claims. Businesses should view chapter 11 bankruptcy as a viable option if:

• Aggressive creditors pursue litigation, obtain judgments or seek to levy against assets;
• The sheer number of creditors and amount of creditor debt is too much to work out consensually;
• A business has unprofitable contracts and leases that can be rejected in bankruptcy;
• A business has a experienced a dip in sales or increased costs and needs a longer runway to pay back creditors.

Kerr Russell’s Bankruptcy and Restructuring Group is experienced in chapter 11 issues and is ready to help businesses assess their options and identify the best approach to stabilize operations, restructure debt, and find a path forward. Please contact us to discuss further.