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Bankruptcy Filings Rose by 11.45 Percent in July;<br>Chapter 11 Cases Exploded by Nearly 90 Percent

Bankruptcy Filings Rose by 11.45 Percent in July; Chapter 11 Cases Exploded by Nearly 90 Percent

Total bankruptcy filings rose by 11.45 percent in July compared to the same month last year. With 49,633 total bankruptcy cases filed in July, filings under all major chapters of the Bankruptcy Code were up compared to July 2024. Chapter 11 filings exploded by 88.39 percent after falling in June. The rise in total filings aligns with a three-year trend of year-over-year increases each month.

A Closer Look by Chapter

Let’s drill down on the filings by major chapter of the Bankruptcy Code.

The number of chapter 7 business and consumer liquidation cases increased by 11.60 percent over last July. That rate of increase is in line with chapter 7 filing trends for the entire year.

Chapter 13 individual repayment plan case filings rose by 8.81 percent, which was near the high end of chapter 13 monthly increases so far this year.

The pace of chapter 11 business reorganization and other chapter 11 filings increased dramatically after a small drop-off in new cases in June. The 88.39 percent increase was by far the largest of the year. Although chapter 11 filing rates are prone to wide fluctuations due to affiliate filings, the July increase was primarily driven by several large cases involving many affiliates, rather than a single major case.

Subchapter V small businesses also filed at an increasing rate. The number of new subchapter Vs went up substantially by 26.28 percent after falling in four of the previous six months. The July rebound was almost double the next largest increase seen in any month this year.

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If You Think the Economic Reports Are Confusing, You Are Not Alone

  • Economy “Regaining Its Swagger” or “Economic Clouds Gathering” or both? These competing headlines appeared on back-to-back days in the Wall Street Journal. On July 20th, a WSJ headline read “The U.S. Economy is Regaining Its Swagger.” The story focused on the stock market reaching record highs and a “splurge” in consumer spending. The next day, the WSJ sported a headline saying that “U.S. Leading Indicators Show Economic Clouds Gathering.” To be fair, the substance of both stories was accurate, and both articles noted that economic growth is still expected to be relatively slow and tariffs are creating a big question mark.
  • The Federal Reserve kept interest rates steady at its July meeting. In a news release and post-meeting news conference, Fed Chair Jerome Powell said that “inflation remains elevated” and “[u]ncertainty about the economic outlook remains elevated.” The Fed will study future economic data to determine whether, for example, tariffs will have a “persistent” inflationary impact. Interestingly, Fed Governors Michelle Bowman and Christopher Waller, who are candidates to succeed Chair Powell, voted to decrease interest rates by a quarter point.
  • The Conference Board shows another economic decline. This group of business leaders aggregates ten economic indicators in a “predictive tool” that is published monthly. In early July, the Conference Board’s “Leading Economic Index fell by 2.8% over the first half of 2025” which was “a substantially faster rate of decline” than over the second half of 2024. The ten indicators are more granular than most popular economic reports and include measures, such as “manufacturers’ new orders for consumer goods and materials” and ”interest rate spread” between 10-year Treasury bonds less the federal funds rate. (www.conference-board.org/topics/us-leading-indicators, 7/21/25.)
  • Three updates to the big economic reports tracked by the Federal Reserve were released last week. Two out of the three went slightly in the wrong direction. The Fed’s measure of inflation (Personal Consumption Expenditures Index) rose by 2.6 percent, which is significantly above the Fed’s target rate of two percent. The unemployment rate ticked up from 4.1 to 4.2 percent. On the other hand, the nation’s Gross Domestic Product expanded by 3.0 percent increase in the second quarter of 2025 after falling by 0.5 percent in the previous quarter.

Growth in Chapter 11 Filings

With the significant increase in July, chapter 11 filings now outpace last year’s historically high filing number. Here are a couple of emerging factors that may influence future business reorganization filings:

  • Bloomberg reported that “Tariff Uncertainty to Drive New Bankruptcy Cases Across Sectors.” Reporter Randi Love cites bankruptcy attorneys saying “[w]ith economic and regulatory shifts creating uncertainty for businesses across the US, the automotive, alternative energy, retail, and casual dining industries are especially vulnerable to financial strain due to their reliance on imported parts and materials – making them likely hot spots for bankruptcy work.” (Randi Love, Bloomberg Law, 7/7/25.) Also, according to a report in the Financial Times (citing Yale University’s Budget Lab), the effective U.S. tariff rate currently stands at about 17.3 percent, or the highest in ninety years. (“Donald Trump’s tariff blitz brings US levies to highest levels since 1930s,” FT, 7/29/25.)
  • With the high cost of reorganizing under chapter 11, out-of-court settlements with creditors may be on the rise. According to Fitch Ratings, “US Distressed Debt Exchanges Result in Higher Recoveries than Bankruptcy.” (www.fitchratings.com, 7/15/25). It is not clear, however, whether the high cost of chapter 11 will eventually make a significant impact on filing rates for business bankruptcies.

Congressional Update

It looks like Congress may have bankruptcy on its mind when it returns to work this Fall:

  • On July 15th, the House Judiciary Subcommittee the Administrative State, Regulatory Reform, and Antitrust held a hearing on several bankruptcy bills and issues, including: an increase in subchapter V debt eligibility limits; an increase in chapter 7 trustee compensation; extension of temporary bankruptcy judgeships; an increase in chapter 11 quarterly fees; venue reform; and protection of personally identifiable information in bankruptcy sales. It is uncertain whether the Judiciary Committee will mark up legislation to send to the House floor for approval after it returns from the Congressional recess in August.
  • On August 1st, the Senate passed S. 1659, the “Bankruptcy Administration Improvement Act of 2025.” The bill provides for an increase in chapter 7 trustee compensation, extension of expiring bankruptcy judgeships, and an increase in quarterly fees paid by the largest corporate debtors. The House may consider the bill as a stand-alone measure or as part of a broader package of bankruptcy reforms.

Conclusion

The robust increase in bankruptcy filing rates in July continues a long-term trend in which the number of new filings under all major consumer and business chapters is on the rise. It appeared last month that chapter 11 cases may slow in comparison to last year’s filing rate, which reached pre-pandemic filing levels. However, the almost 90 percent rise in July suggests that the acceleration in chapter 11 filings may not be over yet. National economic news paints an uncertain picture that may influence the magnitude of future consumer and business filing increases. It is probably safe to predict a significant increase for the remainder of the year. The tricky part is figuring out just how much higher the filings will go.