Bankruptcy Filings Rose by 8.80 Percent in April;

Total Filings Nearly Matched the Previous Month’s Blockbuster Number

Total bankruptcy filings in April reached 49,625, which nearly matched the previous month’s five-year high. There were 8.80 percent more bankruptcy filings than the previous April. The percentage increase would have been even higher, but the April 2024 filings were exceptionally robust, so the statistical change was deceptively lower. Although national economic indicators remain volatile, the overall upward trajectory of bankruptcy filings remains substantial and steady and conceivably could be poised to accelerate.

A Closer Look by Chapter

As we have seen before, nearly all of the rise in filings in April occurred in chapter 7. That means that more debtors, consumers and businesses, had to liquidate rather than reorganize a company or pay back debts from regular income. Chapter 7 case filings went up by a brisk 13.34 percent. Chapter 13 individual repayment plans also increased, but only by 1.80 percent.

Chapter 11 filings went down by 1.48 percent. But that is in comparison to the April 2024 chapter 11 total which rose by more than one-third. Also, the March increase exceeded 27 percent and large increases in monthly chapter 11 filings are often followed by smaller or negative percentage changes which are then followed by significant increases. In short, the slight drop in chapter 11 may reflect a statistical blip rather than a change in direction.

The number of Subchapter V small business case filings went down again. The 3.20 percent decline in subchapter Vs in April represented the fifth consecutive month of decreases. The downturn began after eligibility limits were revised last June, significantly reducing filing volume.

Executive Branch Happenings

Changes have been coming at break-neck speed as the Trump Administration attempts to put its stamp on the Executive Branch. Here are a few noteworthy developments that may affect financial regulators:

• Federal Budget: On May 2nd, the Trump Administration transmitted to Congress its funding proposals for “discretionary” spending in Fiscal Year 2026, which begins on October 1, 2025. Proposed budget cuts total $163 billion, or 22.6 percent below current year spending levels for non-defense discretionary activities. The so-called “skinny” budget excludes mandatory spending (e.g., social security, Medicaid, other entitlements) and proposes increases for national defense and border security. Non-defense discretionary line items constitute only about 15 percent of total annual federal spending. Here is the Administration’s budget proposal: https://www.whitehouse.gov/wp-content/uploads/2025/05/Fiscal-Year-2026-Discretionary-Budget-Request.pdf
  
  Although specific cuts were proposed for certain programs, more details will be provided later this month in another budget document. The final budget proposals may identify additional hefty reductions not specified in the “skinny” budget. Under the current proposal, the Department of Justice would incur a 7.6 percent budget cut, but the reductions so far are targeted at certain activities the Administration opposes, such as grant-making, the FBI, and the civil rights and environmental divisions. Although the Consumer Financial Protection Bureau (CFPB) is exempt from the appropriations process, the Administration is separately trying to reduce the CFPB’s funding significantly. The Administration’s budget is generally silent on funding for financial regulatory agencies, some of which fall outside the appropriations process, like the CFPB.
  
  In the past, Congress has been reluctant to enact substantial reductions to agency budgets because they represent a rather small amount of the total federal budget and may affect operations that Congress supports. But this time could be different. There will be many budget developments in the coming months that could affect the financial regulatory and enforcement landscape. We will keep watching.
• Federal Trade Commission (FTC): Mark Meador was confirmed as an FTC Commissioner. He is a well-known attorney in the Nation’s Capital who most recently served at the Federal Deposit Insurance Corporation. In a challenge to the constitutionality of the FTC statute limiting the President’s authority to remove Commissioners, President Trump fired the two Democrats who then challenged their removal. As that case moves through the courts, there is as of yet no indication whether the President plans to nominate replacements for the two vacant positions. By law, only three of the five FTC Commissioners may be from the President’s political party.

Economics that May Affect Bankruptcy

As everyone knows, the government’s tariff policy has and will continue to have a significant impact on all economic indicators, from consumer spending behavior to the bond market. There is no point rehashing the debate here. But all commentators and policy-makers, from the President on down, expect some disruption. And some of those disruptions may affect consumers' and businesses' decisions to file for bankruptcy relief.

Legal services provider LegalShield reported a “surge” in bankruptcy inquiries, which it said signal “a wave of summer bankruptcy filings.” Matt Laydon of LegalShield commented, “[w]hen you combine record debt, rising delinquencies, and prolonged financial distress, topped by price uncertainty, the risk of a summer surge in bankruptcy filings becomes very real.”

The major economic indicator in the last quarter was the measure of Gross Domestic Product, which contracted by a surprising 0.3 percent. Two major Federal Reserve reports are due later in the month. The Fed’s Federal Open Market Committee meets on May 6-7 and will issue a statement on economic conditions and a decision on whether it will change interest rates. A second report AIS watches closely is the Fed’s report on household debt and delinquencies. The report on the first calendar quarter is expected in mid-May. We will provide those data in next month’s blog.

In other important news, the U.S. Department of Education (DoEd) announced that it will resume collection of defaulted federal loan debt on May 5th after a multi-year hiatus. According DoEd, 42.7 million student loan borrowers owe $1.6 trillion in student debt with almost one-quarter of the loans in or soon-to-be in a default status. The impact on bankruptcy filings may be lessened because of the “undue hardship” standard that prevents discharge of most student loans. It is unclear if the Justice Department will continue the more lenient application of the discharge standard that was followed by the Biden Administration.

Conclusion

Bankruptcy filings continued their upward path in April. The percentage increase in overall filings was substantial but deceptively lower because the monthly filing number was compared to an exceptionally large hike in filings experienced in April 2024. As in previous months, most of the growth came from Chapter 7 liquidations by both consumers and businesses rather than business reorganizations and repayment plans. As the national economic picture comes into focus, we may obtain important indications of whether bankruptcy filing rates will continue to rise at a significant and steady clip or begin to accelerate more sharply.