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May Bankruptcy Filings Continue Steady Rise Across All Chapters

May Bankruptcy Filings Continue Steady Rise Across All Chapters

With 48,238 new bankruptcy cases filed in May, the total number of bankruptcy filings went up by 7.13 percent compared to the same month last year. The growth rate is more impressive because the number of cases filed last May was very high. All chapters of the Bankruptcy Code saw increases, reflecting a steady rise in filings despite mixed economic signals and shifting market conditions.

A Closer Look by Chapter

The number of chapter 7 liquidation filings, mainly by consumers, rose by 9.94 percent last month compared to May 2024. About 63 percent of total bankruptcy filings were filed by consumers and businesses under chapter 7. The rate of increase in chapter 7 cases continued to outpace the other major chapters.

Chapter 13 cases, which are filed exclusively by individuals with a regular income, went up by a modest 2.26 percent. This is consistent with chapter 13’s moderate growth pattern seen for most of the past year.

Chapter 11 filings resumed their upward trajectory after a small decline last month. With the largest number of new filings in eleven months, chapter 11s went up by 6.81 percent. Part of the jump is attributable to mega-pharmacy Rite Aid which filed its second case in two years with 118 separate entities.

In somewhat of a turn-around, small business subchapter V filings increased by 18.27 percent. The number of subchapter Vs had fallen in each previous month during this calendar year.

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Executive Branch Happenings

Regulatory changes continue at a breakneck speed in the Nation’s Capital. Here are a few that may be of particular interest to consumer lenders:

  • Federal Budget: Late on Friday, May 30th, the Trump Administration submitted a highly anticipated Appendix to its previously proposed Fiscal Year 2026 “skinny budget.” The budget Appendix provided granular details on proposed agency appropriations but covered only discretionary expenditures and not any proposals for changes to entitlements or taxes. Under the President’s proposal, overall non-defense discretionary spending would be reduced by more than 20 percent. Only after Congress completes the appropriations and reconciliation process will we know whether Congress will adopt the Administration’s spending and revenue proposals. Of interest to the financial industry are the following proposals in the President’s FY 2026 budget:
    • United States Trustee Program (USTP): Appropriations for the bankruptcy “watchdog” agency are proposed at $201 million, a reduction of almost 20 percent. The reduction appears to be based solely on the sunset of the USTP’s fee revenue schedule which is expected to be extended or even increased by the end of the year. Congress must decide whether to base the final appropriations amount on the reduced or expected higher actual revenue amount. A 20 percent reduction would likely require some internal restructuring of the USTP and changes to its enforcement priorities.
    • Federal Trade Commission (FTC): The Administration proposes a 10 percent reduction in the FTC budget. Given previous personnel cutbacks that affected much of the Executive Branch earlier this year (e.g., early retirements, buy-outs), the FTC may already have shrunk sufficiently to accommodate the new budget.
    • Federal Reserve System (Fed), Comptroller of the Currency (OCC), and Consumer Financial Protection Agency (CFPB): These bank and lender regulators do not rely on appropriated funds. The CFPB has undergone personnel reductions that are subject to ongoing litigation, and there are proposals to vastly reduce the amount of funding it can receive from the Fed, which provides the CFPB’s funds.
  • Nomination of Director of Consumer Financial Protection Bureau (CFPB): We had been watching the nomination of attorney Jonathan McKernan to become the Director of the Consumer Financial Protection Bureau. The nomination was favorably passed out of committee and poised for the Senate floor vote on confirmation. Suddenly, the nomination was withdrawn and Mr. McKernan was soon thereafter nominated for a high-ranking position in the Treasury Department handling domestic finance matters. This occurred after the Administration sought to dismantle the agency and fire 90 percent of its workforce. BloombergLaw reports that McKernan may be named as acting Director after his confirmation to the Treasury post, or the President may nominate another official who is already in the Administration and would reliably follow White House directions. Litigation challenges to the downsizing are ongoing, but enforcement activity has been curtailed.

Economics that May Affect Bankruptcy

  • “Economy At a Glance”: The Federal Reserve posts four core measures of national economic health on an ongoing basis. The most recent data were somewhat mixed: inflation was at 2.1 percent in April, which was down from the previous month; unemployment was at 4.2 percent, which held steady from the previous month; the Federal Funds Target (interest) was at 4.25 to 4.5 percent, which remains unchanged since last Fall; and Gross Domestic Product (GDP) fell by 0.3 percent in the first quarter of this year after growing by 2.4 percent in the fourth quarter of 2025.
  • “Consumer Confidence Index”: This University of Michigan survey received a lot of attention in the bankruptcy press over the past month. Consumer sentiment registered at 50.8 in May, which was the second lowest on record and 2.4 points lower (or three percent) than in April.
  • Household Debt and Delinquency: The Federal Reserve Bank of New York issues a quarterly report on household debt and credit. A careful reading of the data shows a mixed picture but skewed by a significant jump in student loan delinquencies that had not been reported to credit reporting agencies since the pandemic began in 2020. Household debt fell for auto and credit card loans. The “flow into serious delinquency” rose for all major categories of debt captured in the report, but credit card and auto loans went up by relatively modest margins. The serious delinquency measure only went up from 2.8 percent to 2.94 percent for auto loans and from 6.86 percent to 7.04 percent for credit cards. This suggests that the acceleration of the consumer debt flow into serious delinquency may have paused.
  • Student Loans: The Wall Street Journal provided an interesting analysis of the impact of student loans on the broader economy. Among the points: about 5.6 million student loan borrowers were newly delinquent in the first quarter of this year right after the hiatus in credit reporting ended; Morgan Stanley estimates that the drag on the economy could result in a 0.1 percent drop in GDP; and the delinquencies will case a plunge in credit scores that may disqualify a large number of borrowers from home loans, auto loans, and credit cards. (WSJ, “How Student-Loan Crisis Will Show Up in the Economy,” by Justin Lahart, 5/26/25.)

Conclusion

Despite conflicting economic data that could affect both consumer and business debtors, the number of bankruptcy filings continued its upward climb in May. With a rate of increase in the single digits across all major chapters, the rise appears to be sustainable but potentially subject to more dramatic movement if interest rates, delinquency rates, and other market conditions take a turn for the better or worse. The biggest news in the May filing numbers may be that there is little news. That means lenders continue to cope with more bankruptcies each month than they did last year. We will keep watching and reporting