American businesses filed 666 Chapter 11 reorganization cases in July, down 27 percent from the same month a year earlier, according to filing data compiled by Epiq AACER and released Aug. 6 by the American Bankruptcy Institute.
Chapter 11 is the chapter a company uses when it wants to stay open. Rather than liquidating and shutting the doors, the business keeps operating while it restructures what it owes, negotiates with creditors and works toward a plan that lets it come out solvent on the other side. A drop in Chapter 11 filings normally reads as a sign that fewer companies have hit that wall.
This one needs a caveat before it can be read that way. The 914 filings recorded in July 2025 included more than 300 cases stemming from a single large healthcare system’s bankruptcy. One corporate collapse can drag hundreds of affiliated entities into court as separate filings, which inflates a monthly count without telling you anything about conditions across the broader economy. Strip that event out and last July’s baseline was closer to 600 — which puts this July’s 666 roughly flat to modestly higher, not down by a quarter.
The month-over-month figure carries less of that distortion. Commercial Chapter 11 filings fell 18 percent from June’s total of 814. Overall commercial bankruptcy filings, across all chapters, were down 8 percent from a year earlier.
Underneath the corporate numbers, small businesses moved the other way. Subchapter V elections — the streamlined restructuring track available to smaller companies within Chapter 11 — totaled 234 in July, a 24 percent increase over the 188 filed in July 2025, though down 9 percent from June’s 257. That is the number worth watching. Subchapter V exists because a conventional Chapter 11 is too slow and too expensive for a company with a few million dollars of debt; the track cuts out committee requirements and lets the owner keep equity while paying creditors out of future earnings. When those elections climb while large corporate filings fall, it says the pressure has moved down-market, toward businesses without the balance sheet or the lender relationships to refinance their way out of trouble.
The consumer side points in the same direction. Total bankruptcy filings in July rose 10 percent year over year, with individual Chapter 7 filings up 4 percent from June’s 31,423 and Chapter 13 filings up 7 percent from June’s 17,887. Michael Hunter, vice president of Epiq AACER, attributed the increase to elevated interest rates, higher inflation and household debt levels approaching $18.8 trillion, describing the figures as reflecting stress from tighter credit and softer consumer demand built up over two years.
That is the split running through the data. Large companies with capital markets access are refinancing rather than restructuring. Households and small businesses that depend on bank credit and card debt are not.
The broader July economic backdrop was steadier than it had been. The 12-month inflation rate eased in June after three straight months of acceleration, and S&P Global reported on July 24 that U.S. business activity growth had reached an eight-month high, with year-ahead business confidence at an eight-month high as well. Improved sentiment among larger firms is consistent with fewer big reorganizations reaching the docket.
There is also a legislative piece moving. Amy Quackenboss, ABI’s executive director, called bankruptcy a “critical safeguard” for businesses working through financial distress and pointed to congressional efforts to permanently expand access for small businesses under Subchapter V and consumers under Chapter 13. She was referring to the Bankruptcy Threshold Adjustment Act of 2026, introduced in the Senate in March by Sen. Chuck Grassley of Iowa, which would permanently set the small-business Chapter 11 debt ceiling at $7.5 million. The threshold determines which companies can use the cheaper track at all. Set it low and a business with $4 million in debt is pushed into a full Chapter 11 it cannot afford to run, which in practice often means liquidating instead of reorganizing. Making the higher limit permanent would remove the on-again, off-again treatment that has followed the provision since it was created.
For lenders, landlords and suppliers, the practical takeaway is that the headline decline is largely an artifact of last year’s outlier month. The distress in the data is showing up in smaller cases, in more of them, and among borrowers with the least room to maneuver.
JBizNews Desk | New York
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