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With the rising costs of running a business, from raw materials to loans and insurance, has also come the rise in small businesses filing for bankruptcy. Business owners are struggling to reconcile the impacts of inflation while preparing for the potential end of bankruptcy provisions brought on by the COVID-19 pandemic.
Subchapter V bankruptcy filings increased by 60% in a year, from 146 filings in April 2023 to 233 in April 2024, according to a report from Law360. Most types of bankruptcy filings are rising, with Chapter 11 filings increasing by 40% year over year and total bankruptcy filings rising by 28%. As inflation and increasing interest rates continue to weigh heavily on consumers and business owners, many are having difficulty meeting their debt obligations and are seeking out options that can ease their financial burdens.
“These increases reflect the increased cost and expense pressures both individuals and businesses are experiencing,” Epiq AACER Vice President Michael Hunter said in a press release reported by Law360. “Inflation has gradually increased in the first three months of 2024 and as tax season concludes, I would expect the velocity of filings to increase as we approach the summer months.”
The number of filings could also continue to increase as small business owners try to take advantage of COVID-19-related relief measures that raised the debt cap to $7.5 million, allowing more small businesses to file for bankruptcy. This measure is set to end on June 21, reverting the debt cap back to the original limit of $2.725 million unless Congress takes further action to extend the legislation or, as an American Bankruptcy Institute task force urged, set the cap permanently to $7.5 million, with adjustments for inflation.
Since going into effect in 2020, many lawyers have become more aware of Subchapter V and how it may be beneficial to the clients they serve. One of the most useful benefits of the subchapter is the absence of an absolute priority rule, which means higher-priority claims do not need to be paid in full first before lower-priority creditors can receive any recovery. This is one of the reasons so many small businesses have looked into filing under Subchapter V due to this level of accessibility.
Despite courts becoming more familiar with this subchapter, filing for bankruptcy is a very complex matter and could benefit from the attention of professionals. The attorneys at Sader Law Firm are available to answer all questions and figure out the best course of action for you and your business. Contact Sader Law Firm at (816) 561-1818 for a free phone consultation and learn more about how bankruptcy might be the right move for you.
