Understanding the Chapters 7, 11, and 13 Bankruptcy Surge in 2026
In my previous post, I analyzed the staggering 76% spike in corporate bankruptcy filings this past January. But for my “word on the street” approach to economics to make sense, we have to look at the overall bankruptcy picture.
Bankruptcy isn’t a standalone legal procedure just affecting the business that files for protection. If there is something we can learn from the latest 2025 year-end data from the Administrative Office of the U.S. Courts, it is that the different chapters in bankruptcy are connected.
As a bankruptcy attorney and law professor, while I teach “how” people file for bankruptcy, “how many” and why is just as important. Here is the breakdown of the three chapters driving the 2026 Financial Reset and the bankruptcy surge that will likely continue.
By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).
Key Takeaways: Comparing Bankruptcy Filings in 2025 to 2026
- Bankruptcy Filings Continue to Rise: The current spike in filings isn’t just a trend; it’s a warning sign.
- Chapter 7: Filings increased for debtors and remain the primary tool to wipe out debt, providing debtors a fresh start.
- Chapter 11: There was a dramatic surge in Chapter 11 for large corporations and small businesses under Subchapter V.
- Chapter 13: The wage earner’s plan also increased, allowing for debtors to reorganize their debt and keep non-exempt assets.
The Big Three Chapters in Bankruptcy: A 2025 Year-End Statistical Review
While 2022 seemed to be calm based on the amount of bankruptcy filings, in 2025, we witnessed a substantial increase that is leading to 2026 potentially being a record year across all chapters.
Chapter 7 Bankruptcy: The Liquidation
Chapter 7 remains the most common bankruptcy filing. The 14.8% jump tells us that the “Consumer Effect” is accelerating. I’ve always argued the point that bankruptcy is the last option, not the first. So there is a “lag” between when debt starts to become an issue and when debtors file for bankruptcy. There are several factors that are at play, which include attorney’s fees.
For example, filings are likely to increase in the next few months. Why? Because it’s common for debtors to use their tax refunds to pay for their bankruptcy lawyer. Simultaneously, those avoiding bankruptcy may use their tax refunds as a financial lifeline, delaying filing till the end of the year.
Professor’s Note: To qualify for Chapter 7 bankruptcy, the Means Test is critical. The Means test focuses on your average income for the past six months. If your income is below the state average, you might qualify for Chapter 7 bankruptcy, as your disposable income on Schedule I (Income) and Schedule J (Expenses) also has to be taken into account.
The Means Test figures are updated twice a year. For the latest figures, read this prior article.
Chapter 13 Bankruptcy: The Wage Earner’s Plan
While Chapter 7 grew faster, Chapter 13 filings are climbing steadily. Chapter 13 bankruptcy is for the “Wage Earner,” meaning you must have proof of steady income to qualify. Because unsecured debt is also paid, generally a fraction of what is owed, Chapter 13 is also referred to as a “reorganization.”
With Chapter 13 bankruptcy, it is the key to keeping non-exempt assets such as a home or car, and it also allows a debtor to catch up on missed payments, whether facing foreclosure or a car repossession. The arrears are paid back through the bankruptcy plan, which lasts 3 to 5 years.
Chapter 11: Business Debt Reorganization
As I discussed in my prior post on the spike in corporate bankruptcies, Chapter 11 reached a 10-year high in 2025. When we see luxury stores such as Saks Fifth Avenue and Neiman Marcus file for bankruptcy, this generally results in layoffs, which indirectly fuels the growth we see in Chapters 7 and 13.
Annual breakdown of bankruptcy filings by chapter, 2021 to 2025.
| Year | Chapter 7 | Chapter 13 | Chapter 11 | Chapter 12 |
| 2025 | 356,724 (14.8%) ↑ | 207,889 (5.39%) ↑ | 9,201 (3.5%) ↑ | 315 (45.88%) ↑ |
| 2024 | 310,631 | 197,244 | 8,884 | 216 |
| 2023 | 261,277 | 183,956 | 7,456 | 139 |
| 2022 | 225,455 | 157,087 | 4,918 | 169 |
| 2021 | 288,327 | 120,002 | 4,836 | 276 |
The Bankruptcy Connection: A Vicious Cycle
When we analyze the interplay between bankruptcy chapters, a clear, unmistakable pattern emerges. The surge in business Chapter 11 filings isn’t an isolated corporate event; it is the first domino to fall.
The Corporate Trigger: When the first domino falls, corporations start to restructure, which leads to mass layoffs and shedding of non-performing assets. When corporations file for Chapter 11 to restructure their debt, the layoffs continue.
The Household Impact: These layoffs put employees in a financial vice-grip. Without a steady paycheck, disposable income vanishes instantly.
The Local Effect: When “Job Huggers” lose their grip and stop spending because they are uncertain about the economy, or file for bankruptcy, the surrounding local businesses, restaurants, dry cleaners, and small retailers see their own revenue dry up, forcing a secondary wave of small business bankruptcy to begin.
The 2026 Small Business Surge
According to recent data from Epiq AACER, Chapter 11 Subchapter V filings, which were designed specifically for small business reorganization, also saw a dramatic increase.
The January 2026 Spike: Subchapter V filings reached 255 in January 2026, representing a 68% increase compared to January 2025.
2025 Annual Growth: For the year ending in 2025, Subchapter V filings rose 11%, totaling 2,446 filings compared to 2,202 in 2024.
December Acceleration: The momentum built rapidly toward the end of the year, with December 2025 alone seeing a 36% jump in Subchapter V filings compared to the previous year.
The Professor’s Conclusion
The connections between corporate America, small businesses, and consumers are clear. Understanding this connection and seeing the trend is the difference between being caught in the cycle and being prepared for it.
In my next post, I will discuss the surge in consumer bankruptcy and what your options are as you prepare for the 2026 economic landscape.
Professor Hernandez is an attorney specializing in consumer finance and debt relief. He is the published author of Consumer Bankruptcy Law (Routledge Publishing) and teaches law and finance courses in both English and Spanish for an international university.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.
You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.
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