Small-Business Bankruptcy Filings Are Up 46% in 2026. Here’s What It Means for Businesses Carrying MCA Debt

By the Credible Law Editorial Team · Published November 3, 2026

As voters head to the polls today, one measure of small-business strain is already on the record. Small businesses electing Subchapter V, the streamlined bankruptcy track Congress created for them in 2019, did so 2,442 times in the first nine months of 2026. That is 46 percent more than the 1,672 Subchapter V elections in the same period of 2025, according to data released October 8 by Epiq AACER and the American Bankruptcy Institute.

The increase comes with inflation running above the Federal Reserve’s target and with borrowing costs higher than they were a year ago. For businesses that turned to merchant cash advances (MCAs) to cover gaps, those conditions bear directly on how long daily remittances can be sustained and on which restructuring options are realistic.

A bill that would roughly double the Subchapter V debt limit has passed both chambers of Congress without opposition. As of publication, public records showed it had not been signed into law. This article explains what the bankruptcy data show, why the economy is pushing more owners toward court, where MCA debt fits, and what the pending bill and a new Small Business Administration rule do and do not change.

1. What the Numbers Show

Epiq AACER, which tracks bankruptcy filings nationwide, reported the following for January 1 through September 30, 2026, compared with the same period in 2025:

Filing category	Jan.–Sept. 2025	Jan.–Sept. 2026	Change
Subchapter V elections	1,672	2,442	+46%
Commercial Chapter 11 filings	5,895	6,560	+11%
All commercial filings	23,789	25,467	+7%
Individual Chapter 7 filings	249,130	282,413	+13%
Total filings, all chapters	423,168	469,719	+11%

Source: Epiq AACER and the American Bankruptcy Institute, October 8, 2026.

The monthly picture is more mixed. In September alone, Subchapter V elections rose 38 percent, from 200 to 276. Commercial Chapter 11 filings fell 16 percent, from 769 to 648, and total commercial filings fell 7 percent, according to ABF Journal’s report on the Epiq data. The September 2025 comparison included 109 related filings tied to a single long-term care pharmacy services provider, which inflated that month’s baseline. The year-to-date trend is the more reliable signal, and it points up.

Subchapter V is the most direct measure of small-business distress in the data. It is available only to debtors engaged in commercial or business activity whose qualifying debts fall under the statutory cap, so large corporate cases do not distort it.

2. Why Borrowing Costs and Inflation Are Pushing Businesses to File

Epiq AACER Vice President Michael Hunter attributed the increase to rising borrowing costs, higher household expenses, growing consumer delinquencies, and a softer job market, and said he expects filings to keep rising into 2027. American Bankruptcy Institute Executive Director Amy Quackenboss pointed to persistent inflation and borrowing costs as the main pressures on debtors.

Recent government data support that view:

• Inflation: The Bureau of Economic Analysis reported on October 29 that the PCE price index rose 3.6 percent in the year through September. Core PCE, which excludes food and energy, rose 3.1 percent. Both are well above the Fed’s 2 percent target.
• Interest rates: The Federal Reserve raised its benchmark rate by a quarter point in September. On October 28 it held the target range at 3.75 percent to 4.00 percent and left the door open to another increase in December.

For a small business, that combination squeezes from two sides. Costs for inventory, labor, insurance, and rent rise with inflation, while the price of new credit stays high or climbs. A business that might have refinanced into a lower-cost bank loan two years ago may not qualify today. A business that already carries variable-rate debt pays more each month.

Economic strength in other areas does not cancel that out. Real GDP grew at a 3.4 percent annualized rate in the third quarter, according to the BEA’s advance estimate, and the Institute for Supply Management’s October manufacturing index was among its strongest readings in four years. Bankruptcy filings typically reflect the businesses that were already stretched when costs rose, not the economy as a whole.

3. Where MCA Debt Fits In

Merchant cash advances are often the financing businesses turn to when bank credit is unavailable or too slow. An MCA is usually structured as a purchase of future receivables, repaid through fixed daily or weekly debits rather than a monthly loan payment. Credible Law’s MCA calculators show how factor rates translate into effective annualized cost.

Those features interact with today’s economy in specific ways:

• Fixed remittances in a high-cost environment. When revenue softens but the daily debit stays the same, operating cash can disappear quickly. Many MCA contracts include a reconciliation clause meant to adjust payments to actual revenue. Whether the funder honors it is often central to later disputes. See Credible Law’s guide to an MCA reconciliation clause breach.
• Stacking. Businesses that take a second or third advance to cover the first can end up with several funders debiting the same account. Most MCA contracts prohibit stacking, and funders frequently sue over it. See MCA stacking lawsuit defense.
• Fast enforcement. After a default, funders may sue, start arbitration, or pursue judgment enforcement against bank accounts. Credible Law covers these paths in its guides to MCA lawsuit defense and MCA arbitration defense.

Bankruptcy changes that dynamic. Filing a petition triggers the automatic stay under 11 U.S.C. § 362, which generally halts lawsuits, collection activity, and enforcement against the debtor. In Subchapter V, the debtor must file a reorganization plan within 90 days (11 U.S.C. § 1189), no creditors’ committee is appointed unless the court orders one, and owners may keep their equity without paying unsecured creditors in full, provided the plan meets the statute’s requirements (11 U.S.C. § 1191).

MCA claims can be contested in bankruptcy. Whether an agreement is a true sale of receivables or a disguised loan affects how the funder’s claim is treated. New York courts commonly weigh the factors described in LG Funding v. United Senior Properties: reconciliation, term, and recourse. Not every MCA is a disguised loan, and the analysis is fact-specific.

One limit matters for nearly every MCA borrower. A business bankruptcy protects the business, not the owner personally. Personal guarantees generally survive the business’s filing, and funders may pursue guarantors separately unless that exposure is addressed directly. See MCA personal guarantee defense.

4. H.R. 7730: Passed, Not Yet Law, and What the $3.4 Million vs. $7.5 Million Limit Means

The Bankruptcy Threshold Adjustment Act would permanently raise the Subchapter V debt limit from $3,424,000 to $7,500,000. Its legislative history shows unusually broad support:

Date (2026)	Action
February 26	H.R. 7730 introduced by Rep. Ben Cline (R-Va.)
March 3	Senate companion S. 3977 introduced by Sen. Chuck Grassley (R-Iowa), with bipartisan cosponsors including Sen. Dick Durbin (D-Ill.)
August 3	Senate passes S. 3977 by unanimous consent
September 16	House passes H.R. 7730 by voice vote
September 28	Senate passes H.R. 7730 without amendment by unanimous consent
As of November 3	No signature or enactment shown in public records

Under Article I, Section 7 of the Constitution, once an enrolled bill is formally presented to the President, the President has 10 days, excluding Sundays, to sign or veto it. Public bill-tracking records reviewed for this article showed no presentment, signature, or public law number as of publication.

According to an analysis by the law firm ArentFox Schiff, the bill would also:

• keep the requirement that at least 50 percent of qualifying debt arise from commercial or business activity;
• continue to exclude debts owed to affiliates and insiders from the calculation;
• replace Chapter 13’s separate limits for individuals, currently $1,580,125 secured and $526,700 unsecured, with a single $2,750,000 cap; and
• apply only to cases commenced on or after the date of enactment.

That last point is the one owners most often misunderstand. The $7.5 million limit last applied temporarily under pandemic-era legislation and expired on June 21, 2024. The new bill does not reach back to that date, despite some early summaries that suggested it would. A business that files before the bill becomes law is subject to the current $3,424,000 cap.

Why the gap matters. Consider a business with $4.5 million in qualifying debt, including several MCA balances, equipment financing, and a bank line. Today it is too large for Subchapter V and would have to use traditional Chapter 11, which typically involves a creditors’ committee, a disclosure statement, and higher administrative cost. If H.R. 7730 becomes law, the same business could file under Subchapter V. Whether waiting makes sense depends on what is happening to that business in the meantime, including active levies, pending lawsuits, and deadlines. That is a judgment to make with a bankruptcy attorney, not on the strength of a pending bill.

How MCA balances count toward the limit can also be disputed. The cap applies to noncontingent, liquidated debts, and a funder’s claimed balance may include fees and default charges the business contests. Credible Law’s earlier coverage of the House vote on the Subchapter V debt limit walks through how MCA debt factors into eligibility.

5. Why the New SBA Rule Doesn’t Help Most MCA-Stacked Businesses Right Away

On October 1, the Small Business Administration’s updated lending rules, SOP 50 10 8.1, took effect. Under the prior version, debt that began as a merchant cash advance could not be refinanced with an SBA-guaranteed loan. The new rule opens a path, but a narrow one, as summarized by Grasshopper Bank and reported by Forbes:

• The MCA must first be converted into a term loan.
• That term loan must show 24 months of acceptable payment history.
• The business cannot have taken another merchant cash advance since the conversion.

For a business with an active MCA, and especially one with several stacked advances, those conditions put SBA refinancing at least two years away. The rule offers a long-term exit for businesses that can first negotiate a conversion and then stay current. It is not a solution for a business facing a default notice, a lawsuit, or a frozen account this month.

That is part of why bankruptcy, negotiated settlement, and litigation defense remain the practical options for many MCA borrowers in the near term.

6. What Owners Should Do Now

Election results will shape policy debates, but they do not change the deadlines in an MCA agreement, a lawsuit, or a bankruptcy case. For owners carrying MCA debt, the practical steps are the same regardless of how today’s races turn out:

1. Total your debts accurately. List every MCA balance, loan, line of credit, lease, tax obligation, and trade payable, and note which are disputed. This determines whether Subchapter V is available today, and whether it would be under a $7.5 million limit.
2. Collect every MCA document. That includes agreements, personal guarantees, ACH authorizations, reconciliation requests and responses, and bank statements showing remittances.
3. Identify every open deadline. A summons, an arbitration demand, or a notice of a judgment each starts its own clock. Missing one can lead to a default judgment that is hard to undo.
4. Do not stop payments or move funds without advice. Closing accounts or redirecting revenue without a plan can be treated as a breach and can create fraudulent-transfer exposure.
5. Compare all the options side by side. These include negotiated settlement, defense of a lawsuit or arbitration, conversion to a term loan, and bankruptcy. Each has different costs and consequences for personal guarantees.
6. Watch H.R. 7730’s status, but don’t plan around a date. If the bill becomes law, it will apply to cases filed from that day forward.

7. Frequently Asked Questions

Are small-business bankruptcies increasing in 2026?

Yes. Subchapter V elections, the bankruptcy option designed for small businesses, rose 46 percent in the first nine months of 2026, from 1,672 to 2,442, according to Epiq AACER and the American Bankruptcy Institute. Commercial Chapter 11 filings rose 11 percent over the same period.

What is the current Subchapter V debt limit?

The limit is $3,424,000 in qualifying debts, under the inflation adjustment that took effect April 1, 2025. H.R. 7730 would raise it to $7,500,000, but the bill had not become law as of November 3, 2026.

Has the Bankruptcy Threshold Adjustment Act been signed?

As of November 3, 2026, public records showed no signature or enactment. The House passed H.R. 7730 on September 16, and the Senate passed it without amendment on September 28.

If H.R. 7730 becomes law, will it apply to cases already filed?

No. According to legal analyses of the bill, the higher limits apply only to cases commenced on or after the date of enactment. The bill does not apply retroactively.

Does filing for bankruptcy stop MCA collections?

Filing a petition generally triggers the automatic stay under 11 U.S.C. § 362, which halts most lawsuits, collection activity, and enforcement against the debtor. The stay protects the business that files. It does not automatically protect an owner who personally guaranteed the MCA.

Can an SBA loan pay off a merchant cash advance?

Only under narrow conditions. Under SBA SOP 50 10 8.1, effective October 1, 2026, MCA-originated debt can be refinanced only after it has been converted to a term loan with 24 months of acceptable payment history, and only if the business has taken no new MCA since the conversion.

Why are interest rates and inflation affecting small businesses now?

The PCE price index rose 3.6 percent in the year through September 2026, and the Federal Reserve raised rates in September before holding at 3.75 percent to 4.00 percent in October. Higher costs and more expensive credit make it harder for businesses to refinance or absorb fixed payments.

Is Subchapter V better than traditional Chapter 11 for MCA debt?

It depends on the business. Subchapter V is generally faster and less expensive, and owners may retain equity. But it is available only to debtors under the debt limit, and the right choice depends on total debt, the funders involved, guarantee exposure, and whether the business can support a plan.

Is Credible Law a law firm?

No. Credible Law is a legal resource and attorney referral network. It connects business owners with independent attorneys and does not provide legal advice or representation.

Sources: Epiq AACER and American Bankruptcy Institute, “Small Business Subchapter V Elections Increase 46% Compared to Last Year” (Oct. 8, 2026); ABF Journal, Epiq September 2026 commercial filing data; U.S. Bureau of Economic Analysis, Personal Income and Outlays, September 2026, and GDP advance estimate, third quarter 2026 (both Oct. 29, 2026); Federal Open Market Committee decision of Oct. 28, 2026; ArentFox Schiff, analysis of H.R. 7730; H.R. 7730 and S. 3977, 119th Congress; U.S. Small Business Administration SOP 50 10 8.1 (effective Oct. 1, 2026), as summarized by Grasshopper Bank and Forbes; 11 U.S.C. §§ 362, 1182, 1189, 1191; U.S. Const. art. I, § 7.

Credible Law is a legal resource and attorney referral network, not a law firm, and does not provide legal advice. Use of this site does not create an attorney-client relationship. Attorneys in our network are independent and set their own fees and terms. Bankruptcy eligibility, legislative status, and lending rules can change. Information reflects sources reviewed as of November 3, 2026. Credible Law · 160 Thorn St, San Diego, CA · (888) 201-0441