A federal program aimed at helping America’s smallest businesses restructure debt is seeing record use, with more than 2,200 Subchapter V bankruptcy cases filed this year—an 8% increase from 2023, according to Epiq Bankruptcy Analytics. Designed to offer a faster, cheaper alternative to traditional Chapter 11 for debtors with under $3 million in liabilities, Subchapter V has grown even after its debt limit was reduced, reflecting mounting financial pressure on small firms, according to Steven Church of Bloomberg. Trustees say struggling owners are turning to the program as creditors tighten demands. While Chapter 11 filings overall have risen only 1%, consumer bankruptcies under Chapter 13 have also increased nearly 5%, signaling broader financial strain across both households and small businesses. Church writes:
A six-year-old federal program designed to help the smallest American businesses cut debt and get a fresh start has set a record for the number of cases filed, court data show.
More than 2,200 people and small firms filed bankruptcy this year under the so-called Subchapter V rules, which make it cheaper and faster to win relief from creditors, according to data provider Epiq Bankruptcy Analytics.
“Creditors are just breathing down their necks,” said Carol Fox, a court-approved trustee who oversees more than two dozen cases filed in Southern Florida.
The number of Subchapter V cases rose faster than the overall rate for Chapter 11 bankruptcies, which businesses and wealthy individuals typically use to restructure their debts. […]
The process is mostly used by small companies, Fox said. But most individuals she works with have filed Subchapter V with business as well as consumer debts, she said.
Consumers bankruptcy cases, typically filed under the Chapter 13 rules, are also up compared to recent years when an unusually low number of individuals sought protection from creditors. So far, more than 180,000 Chapter 13 cases have been filed, or nearly 5% more than the first 11 months of last year.
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