Bankruptcy filings rose by close to 12 percent between last year and March 2026, and the steady increase is expected to continue. This recent trend applies to both business and consumer cases, reversing a multi-year decline that ended in 2022.
Reasons for Increased Filings
There are multiple factors contributing to this rise in bankruptcy filings. The main drivers include:
- Inflation and Rising Cost of Living. The combination of rising inflation rates and increased costs for essentials has impacted both consumers and businesses. For individuals, re-starting student loan payments has squeezed household budgets. Tighter budgets and higher operating costs make it more difficult for borrowers to service existing debt.
- Elevated Interest Rates. Higher interest rates and borrowing costs have contributed to loan defaults and refinancing challenges, which have had a critical impact on small businesses.
- Expiration of Pandemic-Era Support. Bankruptcy filings remained artificially low during the COVID-19 pandemic, partly due to stimulus programs and SBA EIDL loan support. As those programs expire and payment becomes due, the rates of bankruptcy filings are increasing.
- Market Volatility. Commercial borrowers face continued challenges due to economic uncertainty, including supply chain disruptions, trade uncertainties, and decreased consumer demand. Many farmers have experienced financial stress due to market volatility.
When these reasons are considered alongside rising consumer debt levels and increased reliance on credit, the increase in bankruptcy filings is understandable.
Key Implications for Lenders
Considering the escalated bankruptcy filings, lenders should expect the following:
- Elevated Credit Risk and Portfolio Stress. The rise in filings signals a heightened default risk, especially with consumer lending, commercial real estate, and leveraged commercial credits.
- Additional Workout and Restructuring Activity. Lenders should expect a higher volume of loan modifications, forbearance agreements, and out-of-court restructurings. By engaging early with distressed borrowers, lenders can reduce the severity of the loss.
- Increased Bankruptcy Litigation. As filings continue to increase, lenders can expect to see more motions to lift the automatic stay and could even find themselves defending an adversary proceeding related to pre-bankruptcy transfers.
- Greater Focus on Collateral and Documentation. Lenders could experience increased scrutiny of their collateral positions and loan documentation, especially once a borrower enters bankruptcy or workout discussions. Re-evaluating collateral positions and taking the proper steps to document and secure loans can help lenders ensure enforceability and maximize recovery.
Lenders that take proactive measures focused on risk management and engage with distressed borrowers early will be better positioned to mitigate losses and capitalize on opportunities.
For questions about strategies to address increased bankruptcy filings, reach out to the Poyner Spruill Financial Services attorneys.