Small business bankruptcy filings, captured as Subchapter V elections within Chapter 11, increased 81% to 157 in April from 87 in April 2022, according to data provided by Epiq Bankruptcy. All Chapter 11 filings increased 32% in April to 277 from the 210 filings in April 2022. Overall commercial filings increased slightly in April to 1,820 from 1,785 in April 2022.
According to Epiq, the year-over-year increase in Subchapter V elections reflects statutory developments that took place last year. The $7.5 million debt eligibility limit established by the CARES Act of 2020 (and renewed annually by subsequent laws) sunset in late March 2022 back to the $2,725,625 level established by the Small Business Reorganization Act of 2019, which led to a drop in Subchapter V elections in April and May 2022.
The Bankruptcy Threshold Adjustment and Technical Corrections Act was then enacted in June 2022 to restore the debt eligibility limit for small businesses back to $7.5 million while also increasing the debt limit for individual Chapter 13 filings to $2.75 million and removing the distinction between secured and unsecured debt for that calculation. The increased eligibility limits for both Subchapter V and Chapter 13 are currently set to sunset on June 21, 2024. The American Bankruptcy Institute has formed a Subchapter V task force to study small business reorganizations and make recommendations in a report to be released in April 2024.
“As small businesses employ millions of Americans and individual spending is a key driver of our economy, maintaining an established path to reorganizing debts in bankruptcy is key,” Amy Quackenboss, executive director of the ABI, said. “I look forward to the work of ABI’s Subchapter V task force in identifying ways we can improve eligibility for a financial fresh start for businesses and individuals.”
Total U.S. bankruptcy filings in April (35,479) were up 9% compared with April 2022’s total of 32,530. Individual bankruptcy filings of 33,659 in April were 10% higher than in April 2022 (30,745). The number of individual filings for Chapter 13 increased 14% to 13,404 in April from the 11,730 filings in April 2022.
April’s total bankruptcy filings represented decreases in all filing categories compared with March. Total filings were down 9% when compared to the 39,056 total filings recorded in March and total individual filings for April represented a 10% decrease from the March individual filing total of 36,881. The commercial filing total represented a 16% drop from the March commercial filing total of 1,820. All Chapter 11 filings decreased 28% from the 434 filings recorded in March. Subchapter V elections within Chapter 11 decreased 5% from 165 in March, and individual Chapter 13 filings decreased 7% from the 14,403 filings reported in March.
Epiq also reported that for the first time since April and May of 2019, 2023 has featured back-to-back months with more new cases filed than cases closed, as in April, 3,861 more cases opened than closed and in March, 4,540 more cases opened than closed.
“We have also been tracking the monthly number of new cases versus closed cases trend closely as another indicator on where the new filing market is heading,” Gregg Morin, vice president of business development and revenue for Epiq Bankruptcy, said. “The last time there were four consecutive months in a row of more new cases was back in early 2012 and the last time there was an annual positive delta was 2010.”