Small Business Bankruptcy Filings Up 63% in August 2026

Published September 7, 2026 · Business Debt & Bankruptcy · Credible Law

New federal filing data released on September 4, 2026 shows small business bankruptcy filings climbing sharply while large commercial reorganizations stayed essentially flat. That divergence is the real story in the numbers, and it points directly at a group of business owners who rarely make headlines: operators carrying stacked merchant cash advance balances, daily ACH debits, and UCC liens they did not fully understand when they signed.

This article breaks down what the August data actually says, where the pending federal legislation stands as Congress returns from its August recess, and what business owners with merchant cash advance obligations should understand about how bankruptcy interacts with MCA collection. It is an educational resource, not legal advice, and not a substitute for talking with a licensed bankruptcy attorney about your specific situation.

What the August 2026 Bankruptcy Numbers Show

Epiq AACER, working with the American Bankruptcy Institute, publishes monthly bankruptcy filing data drawn from federal court records. The August 2026 release reported the following:

Filing category	August 2026	August 2025	Change
Subchapter V elections (small business)	302	185	+63%
Commercial Chapter 11 filings	623	618	+1%
Overall commercial filings	2,630	2,582	+2%
Total bankruptcy filings	52,007	47,965	+8%
Individual Chapter 7 filings	30,930	28,049	+10%
Individual Chapter 13 filings	18,335	17,226	+10%

Month over month, Subchapter V elections rose 28% from July’s 236, while overall commercial filings actually fell 7% from July’s 2,815.

August was not an isolated month. Subchapter V elections totaled 1,663 in the first half of 2026, a 50% increase over the 1,107 recorded in the first half of 2025. The first quarter alone saw 833 filings against 499 a year earlier.

One point of accuracy worth stating plainly, because several summaries have gotten it wrong: August’s 302 filings were not an all-time monthly record. February 2026 recorded 314. August was the second-strongest month of the year, which is still a significant number, and the trend line matters more than any single month.

The Gap That Actually Matters: 63% Versus 1%

Commercial Chapter 11 filings barely moved year over year. Overall commercial filings barely moved. Subchapter V jumped 63%.

That gap tells you something specific about who is under pressure. Traditional Chapter 11 is the tool of mid-market and large companies with substantial debt loads, sophisticated capital structures, and the budget for a full reorganization. Subchapter V was built in 2019 for a much smaller operator: the trucking company with six rigs, the two-location restaurant group, the specialty contractor, the regional retailer.

When Subchapter V climbs and traditional Chapter 11 does not, the distress is concentrated at the small end of the market. Filing patterns through 2026 have been notably broad rather than confined to one industry, with elevated activity across retail, food service, transportation, and construction.

Those are the same four sectors that dominate merchant cash advance funding. They are cash-intensive, they have daily or weekly receipts a funder can debit against, they were frequently declined by conventional bank lenders after 2022, and they operate on thin margins where a seasonal slowdown turns into a payment problem fast.

What Subchapter V Is, and Who Qualifies Right Now

Subchapter V of Chapter 11 was created by the Small Business Reorganization Act of 2019 and took effect on February 19, 2020. It is a streamlined version of Chapter 11 designed to make reorganization financially realistic for smaller companies.

According to the Administrative Office of the U.S. Courts and the Department of Justice U.S. Trustee Program, the core features include:

A debt ceiling. To elect Subchapter V, a debtor must be engaged in commercial or business activity with combined secured and unsecured debts of $3,424,000 or less, at least half of which arose from business activity. Debts owed to affiliates and insiders are excluded from the calculation.
No creditors’ committee by default. A committee is appointed only on a showing of cause, which removes a major cost driver.
No disclosure statement requirement. This alone cuts weeks and legal fees out of the process.
A trustee in every case. A Subchapter V trustee is appointed automatically, primarily to facilitate a consensual plan rather than to displace the owner.
The owner generally stays in control. The debtor typically remains a debtor in possession and continues running the business.
A 90-day plan deadline. Only the debtor may file a plan, and it is due within 90 days of the order for relief absent an extension.
Modified absolute priority rule. Owners can retain equity in circumstances where a traditional Chapter 11 would not permit it.

The statutory framework sits at 11 U.S.C. §§ 1181–1195.

Why the $3,424,000 figure keeps changing

The number has moved several times, which is why outdated figures circulate widely online. The original SBRA limit was roughly $2.75 million. The CARES Act raised it to $7.5 million in March 2020 for pandemic relief. That increase was extended twice and then expired on June 21, 2024, dropping the ceiling back to $3,024,725. The triennial inflation adjustment under 11 U.S.C. § 104 raised it to $3,424,000 effective April 1, 2025, where it stands today.

Where the Federal Legislation Stands as of September 2026

The Bankruptcy Threshold Adjustment Act of 2026 would permanently restore the higher limits. It is the most consequential small business bankruptcy legislation currently in play, and it is genuinely close to the finish line.

Senate: S. 3977, introduced March 3, 2026 by Senate Judiciary Committee Chairman Chuck Grassley (R-IA) with bipartisan cosponsors including Sens. Durbin, Cornyn, Whitehouse, and Coons, passed the Senate unanimously on August 3, 2026.

House: The companion bill, H.R. 7730, sponsored by Rep. Ben Cline (R-VA), was ordered reported by voice vote out of the House Judiciary Committee on March 26, 2026 and was reported with an amendment on August 27, 2026, taking a place on the Union Calendar. It awaits floor consideration.

If enacted, the legislation would:

Set the Subchapter V debt eligibility limit at $7,500,000, up from $3,424,000
Set the Chapter 13 debt limit at $2,750,000
Eliminate the separate secured and unsecured debt calculations for Chapter 13 eligibility, replacing them with a single combined figure

An important correction on retroactivity

A number of published summaries state that the higher limits would apply retroactively to cases filed after June 21, 2024. That reflects earlier draft versions. The bill text reported to the House provides that the amendments apply to any case commenced on or after the date of enactment. A business that already filed under the current ceiling would not be swept into the new limit by the legislation as reported.

If you are near the eligibility line and weighing timing, that distinction is not academic. It is the kind of detail a bankruptcy attorney should walk through with you against your actual balance sheet.

How Merchant Cash Advance Debt Fits Into This Picture

Merchant cash advances are structured as purchases of future receivables rather than loans. In practice, a funder advances a lump sum, then debits a fixed daily or weekly amount from the business bank account until a total repayment figure is reached. The cost is expressed as a factor rate rather than an annual percentage rate, which makes it difficult to compare against conventional credit.

The pattern that pushes an operator toward Subchapter V is usually not one advance. It is stacking: a second position taken to cover the first, a third to cover the second, until combined daily debits exceed what the business actually collects. At that point the owner is choosing between payroll, vendors, and the debits, and the debits win because they are automatic.

What typically follows, in rough order:

A missed or blocked ACH triggers a default under the agreement
The funder accelerates the full remaining balance and continues withdrawal attempts
A confession of judgment, where one was signed and remains enforceable in that jurisdiction, converts to a judgment quickly
The judgment supports a levy, and the business bank account is frozen
A UCC-1 financing statement filed at funding clouds the company’s assets and blocks refinancing
Personal guarantees expose the owner individually

By the time a business reaches step four or five, the combined debt frequently sits somewhere between $500,000 and $3 million, squarely inside the current Subchapter V window. Which is a reasonable explanation for why the Subchapter V line on the chart is climbing while the traditional Chapter 11 line is not.

What Bankruptcy Does and Does Not Do About MCA Collection

This is where accurate expectations matter more than optimism. The following are general principles, and how they apply to any particular case depends on the facts, the jurisdiction, and the specific agreement.

What the automatic stay generally does

Filing a bankruptcy petition triggers the automatic stay under 11 U.S.C. § 362. The stay is immediate and broad. It generally halts collection lawsuits, enforcement of judgments, levies against estate property, and continued ACH withdrawals by a funder against the debtor. A creditor that continues collecting after notice of the filing can face sanctions.

For an operator whose account is being debited daily, this is the single most significant practical effect of a filing.

What the automatic stay generally does not do

It does not erase a perfected security interest. A UCC-1 lien filed before the petition creates a secured claim that has to be dealt with through the plan. Lien treatment depends on collateral value, priority among stacked funders, and the terms of the confirmed plan. Some liens can be addressed in a reorganization; that is a case-specific analysis, not an automatic outcome.
It generally does not protect a personal guarantor. A business filing typically stays actions against the business, not against an owner who signed a personal guarantee. Courts occasionally grant limited relief extending protection to non-debtor parties, but that is the exception and requires a separate request.
It does not resolve whether the advance was a loan. Some bankruptcy courts have examined whether particular MCA agreements function as disguised loans rather than true receivable purchases, which can matter for claim treatment and for avoidance analysis. Results have varied by jurisdiction and by the specific contract language. Nobody should file on the assumption that a court will recharacterize their agreement.

State disclosure laws are not a private cause of action

Ten states now impose commercial financing disclosure obligations that reach sales-based financing. It is a common and costly misunderstanding to assume a disclosure violation makes an agreement void or gives the merchant a lawsuit. In Florida, Utah, and Texas, enforcement rests with the state regulator, and a violation does not by itself render the transaction unenforceable. Our overview of merchant cash advance laws by state covers what each statute does and does not provide.

Bankruptcy Is One Option, Not the Only One

The August data reflects businesses that reached the point of filing. Many do not need to, and filing carries real costs: professional fees, credit consequences, disclosure obligations, and the operational drag of court supervision.

Depending on the facts, other paths may be worth evaluating first or alongside a bankruptcy analysis:

Negotiated resolution. Funders holding uncollectible positions sometimes accept structured payoffs. Our guide to merchant cash advance settlement covers the mechanics and the pitfalls.
Defending the underlying action. Where a lawsuit or judgment already exists, there may be procedural and substantive arguments available, including motions to vacate default judgments within applicable deadlines. See merchant cash advance legal defenses.
Industry-specific restructuring. Equipment-heavy operators have collateral considerations that change the analysis. Our MCA debt relief resources for trucking companies address that context.
A full Subchapter V evaluation. If the numbers point toward reorganization, our overview of MCA bankruptcy options explains how advances and liens are typically treated.

Which of these fits depends on debt totals, judgment status, collateral, guarantees, cash flow, and the state you operate in. That is an analysis for a licensed attorney, not a website.

What Business Owners Should Do With This Information

If your business is carrying merchant cash advance debt heading into the fourth quarter, a few things are worth doing regardless of which direction you ultimately go:

Calculate your actual total debt figure. Combined secured and unsecured, excluding affiliates and insiders. That single number determines Subchapter V eligibility today, and it determines whether the pending legislation would change anything for you.
Pull your UCC filings. Search your Secretary of State’s records. Owners are routinely surprised by how many financing statements are on file and in what order they were perfected.
Locate every agreement. Including any confession of judgment, personal guarantee, and reconciliation provision. The reconciliation clause in particular is often overlooked and can matter.
Check for entered judgments. In your state of formation, your state of operation, and the funder’s home state. Deadlines to challenge a default judgment are short and jurisdiction-specific.
Get an analysis before a levy lands, not after. Options narrow considerably once an account is frozen.

Frequently Asked Questions

How many small businesses filed for bankruptcy in August 2026?

There were 302 Subchapter V elections within Chapter 11 in August 2026, according to Epiq AACER data released September 4, 2026. That is a 63% increase over the 185 recorded in August 2025 and a 28% increase over July 2026’s 236 filings. Overall commercial filings totaled 2,630, and total bankruptcy filings across all chapters reached 52,007.

What is Subchapter V bankruptcy?

Subchapter V is a streamlined form of Chapter 11 reorganization created by the Small Business Reorganization Act of 2019, effective February 19, 2020. It eliminates the creditors’ committee requirement and the disclosure statement, appoints a trustee to facilitate a consensual plan, requires the debtor to file a plan within 90 days, and generally allows the owner to remain in control of the business as a debtor in possession.

What is the Subchapter V debt limit in 2026?

The current limit is $3,424,000 in combined noncontingent, liquidated secured and unsecured debts as of the petition date, excluding debts owed to affiliates and insiders. At least 50% of the debt must have arisen from commercial or business activity. This figure took effect April 1, 2025 under the triennial inflation adjustment in 11 U.S.C. § 104.

Did Congress raise the Subchapter V debt limit to $7.5 million?

Not yet. The Bankruptcy Threshold Adjustment Act of 2026 would do so. S. 3977 passed the Senate unanimously on August 3, 2026. The House companion, H.R. 7730, was reported with an amendment on August 27, 2026 and is awaiting a floor vote. Until it passes the House and is signed, the operative limit remains $3,424,000.

Would the higher debt limit apply retroactively?

Under the bill text as reported to the House, no. The amendments would apply to cases commenced on or after the date of enactment. Some published summaries describe retroactive application to June 21, 2024, which reflects earlier draft language rather than the reported version.

Does filing bankruptcy stop merchant cash advance withdrawals?

Generally yes, as to the filing business. The automatic stay under 11 U.S.C. § 362 takes effect immediately upon filing and broadly halts collection activity against the debtor, including continued ACH debits, collection lawsuits, and enforcement of judgments against estate property. It does not extinguish the underlying claim, and it generally does not shield a non-filing owner who signed a personal guarantee.

Does bankruptcy remove a UCC lien filed by an MCA funder?

Not automatically. A UCC-1 financing statement perfected before the petition supports a secured claim that must be addressed through the reorganization plan. How it is treated depends on collateral value, the priority order among stacked funders, and confirmation. Whether any particular lien can be reduced, avoided, or otherwise modified is a case-specific legal question.

Does a business bankruptcy protect me from a personal guarantee?

Usually not on its own. The automatic stay generally protects the filing entity, not individual guarantors. A funder may continue pursuing an owner personally unless the court grants specific relief extending protection to non-debtor parties, which is not routine. Owners with personal guarantees should discuss individual exposure with counsel before the business files.

Why did Subchapter V filings jump 63% while commercial Chapter 11 stayed flat?

The divergence indicates that financial distress is concentrated among smaller operators rather than mid-market and large companies. Subchapter V is available only to debtors under the $3,424,000 ceiling, so a spike in that category alongside flat traditional Chapter 11 activity points to pressure on businesses at the smaller end of the commercial market, particularly in retail, food service, transportation, and construction.

Is bankruptcy the only way to deal with stacked MCA debt?

No. Depending on the situation, negotiated settlement, defense of a pending collection action, a motion to vacate a default judgment within the applicable deadline, or out-of-court restructuring may be viable. Bankruptcy is one tool among several, and which one fits depends on debt totals, judgment status, collateral, guarantees, and state law.

Staying Current

H.R. 7730 remains pending in the House, and the monthly filing data will continue to tell the story of how small business distress develops through the fourth quarter. Credible Law tracks developments affecting business borrowers on our merchant cash advance news page.

Talk Through Your Situation

Credible Law is a national legal resource and attorney referral network. It is not a law firm and does not provide legal representation or legal advice. Business owners dealing with merchant cash advance debt, frozen accounts, judgments, or UCC liens can request a free case review and be connected with attorneys who handle these matters, or reach the referral line at 888-201-0441.

Learn more about how MCA defense representation works and what to ask before retaining counsel.

Disclaimer: This article is provided for general informational purposes and does not constitute legal, financial, or tax advice. Bankruptcy eligibility, lien treatment, guarantor liability, and available defenses vary by jurisdiction and by the specific facts and documents involved. Reading this page does not create an attorney-client relationship. Consult a licensed attorney in your state regarding your circumstances.

Sources: Epiq AACER and American Bankruptcy Institute monthly filing statistics (September 4, 2026); Administrative Office of the U.S. Courts; U.S. Department of Justice, U.S. Trustee Program; Congress.gov (S. 3977, H.R. 7730); 11 U.S.C. §§ 104, 362, 1181–1195. Filing data current as of September 7, 2026.

Small Business Bankruptcy Filings Rose 63% in August 2026. Here’s What It Means for Owners Carrying MCA Debt