September Bankruptcy Filings Jump 15.5%, Marking Fastest Growth Rate of 2025
September marked the 38th consecutive month of year-over-year growth in bankruptcy filings. With 49,197 new cases, filings rose 15.5 percent compared to September 2024. This was the sharpest monthly increase so far in 2025. The persistence of rising filings, coupled with emerging economic uncertainties, suggests the upward trajectory may continue in the months ahead.
A Closer Look by Major Chapter
By double-digit percentages, debtors filed more cases under each of the major chapters of the Bankruptcy Code than they did in September 2024.
Chapter 7 liquidation filings were up by 17.69 percent. Filings under chapter 7 have risen more steeply than under chapter 13, the other major chapter for consumer filers, in every month for the last two years. Chapter 7 debtors usually have fewer non-exempt assets than debtors who file under any other chapter and are in the most precarious financial circumstances.
Chapter 13 filings, even though lower than chapter 7, increased by a robust 11.92 percent. These debtors are usually struggling with home or auto loan payments and have a job that allows them to repay secured debt arrearages over time while retaining their property.
Chapter 11 reorganization filings rose by 13.16 percent. Although the number of monthly filings fell twice earlier this year, the trajectory upwards seems well established. Although the volume of chapter 11 filings last year reached a pre-pandemic level, recent monthly increases suggest that even more companies may seek bankruptcy reorganization this year.
Subchapter V, which is used exclusively by small businesses, experienced an extremely high increase of 33.33 percent over last September. If Congress passes pending legislation to raise the subchapter V debt limit, which would make more businesses eligible for preferential small business treatment, then filings under subchapter V may skyrocket.
Other Creditor News
- The Fed’s Verdict Is In. After much speculation and Presidential jawboning, the Federal Open Market Committee of the Federal Reserve decided to reduce interest rates by one-quarter point, down to a range of 4 to 4-1/2 percent. Eleven of the twelve FOMC members voted for the rate cut, with one dissenter favoring a one-half point reduction. Chapter 11 cases tend to be sensitive to rate cuts and, based upon the Fed’s own economic projections, the financial markets seem to be banking on two more cuts this year. Unless stated concerns about elevated inflation change the Fed’s plans, any impact on chapter 11s might initially be seen around the end of the year. Important caveat: whatever salutary effect interest rates cuts have on businesses and consumers, other emerging economic factors may present countervailing winds.
- Signs of Trouble in Auto Industry and Financing? In reporting on the recent bankruptcies of subprime auto seller and lender Tricolor Holdings and parts supplier First Brands -- as well as drops in sales, profits, and the stock price for CarMax – the Wall Street Journal declared that the “Auto Industry Is Flashing a Warning Sign on U.S. Economy” (WSJ, 9/20/25). In a potentially troubling development for the automobile lending market, Tricolor filed a chapter 7 case amid reports of a fraud investigation. The loans were securitized and sold in tranches according to quality. Many large and highly respected financial institutions purchased the securities. Some may be reminded about the 2008 financial meltdown involving allegations of “liar loans” and improper securitization of good loans with bad. The Wall Street Journal headlined its report as “Tricolor and the Subprime Debt Canary”(9/15/25), Bloomberg noted the “Subprime Auto Lender Collapse Delivers Blow to Risky Debt Market” (9/12/25), and the Financial Times said that “Auto lender’s bust raises alarms over health of US households” (9/24/25). The First Brands bankruptcy has also raised concerns about off-balance sheet liabilities that were prominent in the early 2000s. (“First Brand files for bankruptcy, threatening multibillion-dollar losses,” Financial Times, 9/29/25.)
- FICO Scores Fall: The FICO credit scoring agency released its biannual insights report. As summarized by CNN and other news outlets, the nation al average FICO score fell by two points (down to a still relatively healthy 715), with growing cohorts with higher and lower scores. FICO ascribed the decrease to “rising credit card utilization and a spike in missed payments, in part due to resumed student loan delinquency reporting.” Tommy Lee, FICO’s Senior Director of Predictive Scores and Analytics, noted that “we’re seeing a reordering of payment priorities, with auto loans now surpassing mortgages at the top and student loans at the bottom.” https://www.fico.com/en/fico-score-credit-insights; CNN.com, “Credit scores drop at fastest pace since the Great Recession” (9/15/25).
- Recent Home Buyers Carry Larger Mortgage Payments: According to the Census Bureau’s 2024 American Community Survey, recent homebuyers are paying mortgages that are about 47 percent higher than the national median ($2,225 per month versus $1,521) and are buying less valuable homes. Paying more for less arguably would mean that recent homebuyers will face additional financial difficulties. That would suggest higher chapter 13 filings when recent homebuyers hit a bump in the financial road. https://www.census.gov/library/stories/2025/09/recent-homebuyers-mortgage-payments.html
- Tariff Impact on Bankruptcy Filings: Some U.S. companies filing for chapter 11 have publicly blamed tariffs for their financial setbacks. Now Canadian clothes retailer Ssense has filed a case under Canadian insolvency law. The Ssense bankruptcy has been attributed to the repeal of the $800 de minimis exception to tariffs on goods shipped to U.S. customers. Other companies feeling the pinch, but not rumored to face bankruptcy include Lululemon and Etsy. WSJ.com, “End of DeMinimis Tariff Exemption Pushed Ssense Into Bankruptcy” (9/16/25).
Government Shutdown
The federal government “shut down” at midnight on September 30. The odds of a prolonged “shutdown” appear high, but a deal could happen on a moment’s notice if the Republicans and Democrats decide to step back from the current impasse. Past shutdowns have lasted anywhere from a few hours to multiple weeks. The scope of the shutdowns has ranged from the closure of major government operations to a paperwork exercise felt by relatively few citizens. We live in unprecedented times, however, and the Administration has threatened to use the shutdown as an opportunity to permanently eliminate thousands of positions in agencies that are unfunded and administer programs that the Administration deems “not consistent with the President’s priorities.” So predictions on how the President and Congress will handle the appropriations lapse this time around is anyone’s guess. We will keep watching as facts come into clearer focus.
Conclusion
September bankruptcy filings rose at the fastest pace of the year, and the upward spiral may still not be done. Economic news is decidedly mixed, but interest rate reductions may provide a lifeline for some struggling businesses that otherwise might have to seek bankruptcy protection. Consumers and businesses may face added uncertainty because the current federal government shutdown may affect more government activities than in the past. Early signs of possible trouble in the auto industry and subprime lending market may add more fuel to any economic fire. This is a good time to keep close watch on bankruptcy trends and the economic indicators that may influence those trends.
