6 Developments Behind Business Bankruptcies in 2026

Main Street is struggling, and now the numbers prove it. Business bankruptcies went up a third year in a row, partly because debt that was locked in cheaply during the low-interest boom is coming due in the high-interest bust. However, interest rates are not the only reason: tight credit at banks, inflation in labor and materials, tariffs, and all the other rising costs that so many small firms could not outgrow.

Annual Business Bankruptcies Have Soared

According to court records, there were 26,941 business filings in the 12 months ending June 30, 2026. That is up 16.9 percent from 23,043 a year earlier and more than double the 12,748 four years ago. Annual business bankruptcies have soared, rising from 17,051 in calendar 2023 to 22,762 in 2024 then 24,039 in 2025, or about 41 percent in two years. That suggests a long restructuring cycle, not a mere blip.

Those who file for Chapter 11 are usually trying to restructure, not liquidate, and there were 10,320 of those petitions in the 12 months to June 2026, up from 8,408. First-half commercial Chapter 11 filings were up 28 percent over the same six months a year before. New Chapter 11s were up 37 percent in the first quarter.

Subchapter V filings were up 50 percent during the first half of 2026, reflecting how squeezed small firms are. Electing the accelerated path was 46 percent higher in April at 301 filings. The surge in Sub V also suggests that stress is spreading through small and midsize private companies in construction, manufacturing, retail, professional services, franchises and other segments.

Subchapter V can be cheaper and faster than old-fashioned Chapter 11. The debt limit is now $3,424,000, not $7.5 million. H.R. 7730 would restore the $7.5 million limit that expired but only for new cases from the enactment date. The bill passed both the House and Senate in September, but has not yet been signed into law.

Higher Borrowing Costs

The next development to watch is borrowing costs. The Fed raised rates a quarter point at its September 2026 meeting, to 3.75 to 4 percent. Cheap debt that so many companies locked in during the boom times of 2020 through 2022 is coming due now, and it has to be refinanced at much higher rates. Banks are tightening their lending standards, which gives weaker borrowers fewer refinancing options, and higher interest rates boost debt payments for highly leveraged companies.

With interest rates trending upward, the next major development to watch is inflation. Costs for labor and insurance are still climbing, and slowing demand squeezes margins and cash flow in some industries. Hardest hit have been retail chains, apparel firms, and home furnishings companies, which feel both the effects of e-commerce and cost inflation. In healthcare, labor shortages and questions about reimbursement strain budgets. Restaurants’ food and labor costs are still climbing. Owners of office properties, already reeling from low demand and high vacancies, have debt to roll over as well.

The next development to watch is tariffs. The Supreme Court ruled in February 2026 that the International Emergency Economic Powers Act (IEEPA) did not give the executive branch the power to levy tariffs. Small importers paid about $426,000 extra, on average, from March 2025 through August 2026, according to a recent estimate by the Center for American Progress (CAP). Refunds paid May through August 2026 may average about $149,000 per small importer, CAP models. However, the refunds do not come close to making up for the overall tariff burdens. Beyond tariffs, the American Bankruptcy Institute cites rising inflation, higher borrowing costs and geopolitical uncertainty as strains on businesses.

The outlook for the rest of 2026 is still hard. Business growth is still positive, but borrowing is costly and capital scarce. Business bankruptcy filings have risen for three years in a row, and the first half of 2026 had double-digit percentage growth in new cases.

Anticipate Problems Early

Do not let small debts get big. Talk to your creditors before you have any trouble making a payment. If you have a COVID-related EIDL, and you have not already, ask the SBA for a hardship plan (half payments for six months) before you become 90 days past due. If you become 120 days past due, SBA may refer the loan to the Treasury Offset Program. The best strategy is to anticipate problems early and keep enough space between you and the edge.