Small business bankruptcy filings in US under Subchapter V up 81% in April 2023

There was an 81% increase in bankruptcy filings by small businesses, which is captured as subchapter V elections within chapter 11 in April 2023, with 157 filings compared to 87 in the same month previous year.

According to data provided by Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data, all chapter 11 filings increased by 32% to 277 in April 2023 from 210 in April 2022. Overall commercial filings slightly increased to 1,820 in April 2023 from 1,785 in April 2022.

The total US bankruptcy filings in April 2023 were 35,479, which is a 9% increase from the April 2022 total of 32,530. Individual bankruptcy filings were 33,659 in April 2023, registering a 10% increase from the April 2022 individual total of 30,745. Chapter 13 filings increased by 14% to 13,404 in April 2023 from 11,730 in April 2022.

The significant year-over-year increase in Subchapter V elections reflects statutory developments that took place last year. The CARES Act of 2020 established a $7.5 million debt eligibility limit which sunset in late March 2022 back to the $2,725,625 level established by the “Small Business Reorganization Act of 2019,” which led to a drop in subchapter V elections in April and May 2022. The “Bankruptcy Threshold Adjustment and Technical Corrections Act” was enacted in June 2022 to restore the debt eligibility limit for small businesses back to $7.5 million while also increasing the debt limit for individual chapter 13 filings to $2.75 million.

April’s total bankruptcy filings represented decreases in all filing categories from the previous month. Total filings were down 9% when compared to the previous month. For the first time since April and May of 2019, there were back-to-back months with more new cases filed than cases closed per month. In April 2023, 3,861 more cases opened than closed.

Subchapter V

Subchapter V is a provision of the US Bankruptcy Code that was added in 2019 as part of the Small Business Reorganization Act (SBRA) to make the bankruptcy process more efficient and less costly for small businesses with debts of up to $7.5 million. Subchapter V allows eligible small businesses to file for bankruptcy under Chapter 11 of the Bankruptcy Code while providing them with a streamlined process that is designed to facilitate reorganization and debt restructuring.

Subchapter V elections refer to the process by which a small business elects to file for bankruptcy under Subchapter V of Chapter 11 of the Bankruptcy Code instead of the traditional Chapter 11. By making this election, small businesses can benefit from the faster and more cost-effective Subchapter V bankruptcy process.

Also read: Individual insolvencies in UK shrink 9% in Q1 2023