Bankruptcy filings are on the rise again, and 2026 is already shaping up to eclipse 2025. It’s not a surprise; we’ve been living in a long cycle of easy credit for years, and now the tide is receding. Attorneys, lenders and investors are all starting to get the calls from business owners who have stretched every line of credit, have cut every possible cost and still can’t make the numbers work.
Despite its stigma,
Chapter 11 bankruptcy doesn’t have to mark the end of the road. When used correctly, it’s a financial tool that can protect jobs and give companies the breathing room they need to restructure. For business owners who approach it the right way, it can be a reset button that’s a step forward in the long run.
Why More Businesses Are Considering Bankruptcy
Over the past year, we’ve seen more companies seeking financing while already in bankruptcy than at any point in the past decade. The drying up of PPP and EIDL funds has left a void. For many small businesses, those relief programs were a lifeline while waiting for a rebound that never fully arrived. Revenues are still below pre-pandemic levels, savings are gone and inflation, tariffs and higher labor costs have compressed margins. Hope for that turnaround is simply fading, and reality is knocking.
Some businesses took on additional debt simply because it was available, while others with less access to credit turned to costly merchant cash advances (MCAs) or other short-term loans that only worsened their financial problems. Access to reasonably priced capital is now off the table for companies with weak financials. Combine that with poor financial reporting and delayed decision-making, and you have the conditions for a wave of restructuring.
What To Know Before Filing
The first thing I tell business owners considering filing for Chapter 11 is that the earlier you act, the more options you have. Bankruptcy should be approached proactively, not reactively, and waiting until you’re out of cash leaves you with fewer tools to work with.
Accurate financial data is the foundation of any successful restructuring. I’m surprised how many small businesses don’t have a clear picture of their true expenses, profit margins or debt burden. Making day-to-day decisions on bad data is like flying a plane with a faulty instrument panel—let alone when bankruptcy is on the table
Next comes the choice of counsel. Not all bankruptcy attorneys are equal. You need someone with specialized experience in business reorganizations who can guide you through what makes sense for your specific situation.
Then there’s the human element. You have to be clear who’s staying and who’s leaving. Key employees, loyal customers and critical suppliers are the foundation of your business. To make things worse, competitors often see bankruptcy as a chance to poach your best talent or clients.
That’s why clear communication and planning are vital from day one. Having a solid strategy is essential. Consider starting with transparency with your lenders before you file. Lenders often know when things are shaky, but engaging with them early can reveal unexpected – and welcome—flexibility. The same goes for your employees, customers, and suppliers. You’d be surprised how much goodwill you can earn just by explaining what’s happening, what the plan is, and offering assurances.
Finally, make sure you have enough cash to get through the process. Bankruptcy isn’t cheap; small Subchapter V cases might run $30,000-$50,000, while large corporate filings can cost millions. Without the liquidity to cover those costs and keep revenue flowing, even the best restructuring plan can collapse.
The Mindset Shift
The most fundamental challenge is one of the attitudes of the owners. Filing for bankruptcy doesn’t mean you’ve failed. It’s an act of humility, one that means you’ve chosen to take responsibility for mistakes and rebuild something sustainable. Pretending the problem doesn’t exist only makes it worse.
That said, bankruptcy is serious business. Most Chapter 11 filings end in liquidation, and that should make any owner think carefully before pulling the trigger. But if you recognize the warning signs early and get ahead of the problem, your odds of a successful reorganization rise dramatically.
When I look at companies that emerge stronger from bankruptcy, they all share a few key traits: They acted early, they sought experienced attorneys who specialize only in Chapter 11, they kept their key people and customers close, and they never lost sight of why they were doing it.
In the end, bankruptcy is like surgery: No one wants it, but sometimes it’s the only way to fix what’s wrong and give the patient a chance to heal. When done with foresight, proper planning and expert guidance, it gives owners a chance to pause, reassess and rebuild. If giants like Hertz, PG&E, American Airlines and GM all used Chapter 11 to restructure and come out stronger, maybe it’s not such a bad move after all.
Source: https://www.forbes.com/councils/forbesfinancecouncil/2025/10/17/when-bankruptcy-becomes-a-strategy-turning-financial-distress-into-a-business-reset/ 
