Will Bankruptcy Filings ‘Hit the Fan’ in 2025?

U.S. bankruptcy inquiries are increasing to their greatest level since early 2020, signaling a possible surge of filings in 2025, as new tariffs and record consumer debt may drive already struggling consumers over the edge. According to a March Forbes report, business bankruptcy filings increased by over 40% between March 2023 and April 2024, impacting businesses in a wide range of industries. The effects of inflation and rising interest rates were felt by numerous big, well-known corporations.

For American companies that depend on certain goods and imports, Trump’s tariffs have increased costs, particularly on Chinese goods and other imports (such as steel and aluminum). Inflation has been exacerbated by numerous businesses passing those expenses on to customers in the form of higher prices. At a time when supply chain disruptions and robust post-pandemic demand were already driving up prices, these levies have added to the pressure. Because lower- and middle-income households are more likely to rely on credit to pay for necessities, higher costs limit their purchasing power. This ultimately raises the likelihood of delinquency and credit card usage.

By making it more costly or difficult for American manufacturers to find reasonably priced parts, tariffs have also upset global supply chains. Companies that were unable to absorb the cost increases have reduced production, raised prices, or laid off employees, all of which have an adverse effect on household stability and economic activity. Regional economies are weakened by layoffs and decreased company investment in specific industries (such as manufacturing and agriculture) which can also increase the default rates on debts such as vehicle loans and mortgages.

Total Bankruptcy Filings By Chapter — Years Ending March 31, 2021-2025

There was a +13.1% rise in bankruptcy filings over the 12-month period ending March 31, 2025, and although the rate of acceleration is comparable to that of the quarterly report released on December 31, 2024, the number of new bankruptcy cases is still far lower than it was following the Great Recession of 2007–2008.

In 2024, the Administrative Office of the U.S. Courts reported that the number of business bankruptcy filings increased by 22.1%, from 18,926 in 2023 to 23,107 by the end of 2024.

What is the Reason Behind Such a Surge?

1. The main driver is rising costs.

The majority of businesses list growing expenses due to interest rates and inflation as the main cause of their bankruptcy filings. For instance, Enviva said that historically high inflation impacted their profit margins on long-term contracts, whereas Red Lobster cited macroeconomic factors including inflation and growing salaries.

The cost of labor, energy, and raw materials increased due to inflation, which reduced company profit margins. Since many businesses had variable-rate debt, managing this debt became more expensive when interest rates rose. High interest rates and inflation put pressure on businesses from all directions, making it more difficult for them to keep their cash flow positive.

2. Long-lasting effects from COVID-19: These patterns are insignificant in comparison to 2020, when 630 businesses filed for bankruptcy and company bankruptcies reached a 10-year high. However, in many respects, the current situation is a result of the pandemic’s aftereffects—being listed as a major contributing factor in more than 79% of the big bankruptcies.

The pandemic’s lasting impact on market dynamics, however, may have been the most important contributing factor. Companies were forced to adjust to new markets as a result of the COVID-19 pandemic’s rapid acceleration of changes in consumer behavior. The speed and scope of these changes simply were too much for many big businesses to handle.

3. Competition is getting tighter: Many businesses saw a decline in profitability and market share as a result of increased industry competition. Established businesses now have to contend with more nimble rivals. Rite Aid, for example, pointed out that it must contend with online merchants such as Amazon in addition to conventional pharmacies and supermarkets.

These businesses must cut prices to draw in new clients due to increased competition, which also reduces profit margins. Companies are less equipped to handle these reduced margins when you combine that with growing expenses and high interest rates, which raises the possibility of bankruptcy.

4. Unsuccessful pivots in business: The Cornerstone Research research also emphasizes how many businesses suffered financial losses as a result of failed strategic initiatives. During the pandemic, many businesses tried to change course by launching new goods, but these attempts ultimately failed. For instance, some businesses attempted to start providing remote services without fully appreciating the financial commitment needed to implement these changes.

Many well-established businesses in the manufacturing and retail sectors struggled to innovate or change course fast enough. They were only made more vulnerable by their unwillingness to adopt new technologies or alter their business strategies. Temporary financial assistance was given by the federal government through programs like the Paycheck Protection Program. But in the end, it served as a short-term lifeline for numerous businesses that otherwise would have failed.

Total Commercial Bankruptcy Filings Rise Across U.S.

There were 733 commercial chapter 11 applications in May, an estimated 62% rise from the 453 filings in April, according to recent data from Epiq AACER. The total number of commercial filings in May was 2,695, which was 8% more than the total number of commercial filings in April 2025 (2,489). In May 2025, small business filings—which are recorded as subchapter V elections under chapter 11—rose 3% to 228 from 223 the month before.

“The sharp uptick in overall commercial chapter 11 filings in May 2025 underscores the ongoing economic pressures businesses face, from elevated borrower costs, potential tariff impacts and geopolitical uncertainty,” said Michael Hunter, VP of Epiq AACER. “Meanwhile, consumer filings continue to climb yet remain below pre-pandemic levels; however, the resumption of student loan collections and the expiration of the FHA modification programs are likely to drive further increases in filings, particularly through the end of 2025 and into 2026.”

The overall number of bankruptcy files in May was 48,218; this was a 3% drop from the 49,610 filings in April. Additionally, May’s 45,523 noncommercial submissions were 3% fewer than the 47,121 noncommercial filings in April 2025. While consumer chapter 13 filings rose 3% to 16,694 from 16,198 in April 2025, consumer chapter 7 files had a 7% decline to 28,716 from 30,823 in April 2025.

Additional Findings — National (May 2025)

• From 2,664 commercial filings in May 2024 to 2,695 in May 2025, there was a minor 1% rise in total commercial filings.
• In May 2025, there were 733 commercial chapter 11 filings, which was a 4% reduction from the 765 applications recorded in May 2024.
• In May 2025, there were 48,218 filings for bankruptcy in the U.S., up 7% from 45,025 in May 2024.
• In May 2025, there were 45,523 noncommercial bankruptcy filings, up 7% from the 42,361 noncommercial filings in May 2024.
• In May 2025, 28,716 customers filed for Chapter 7, an increase of 11% from the 25,773 who did so the previous year.
• From 16,507 chapter 13 filings in May 2024 to 16,694 in May 2025, there was a 1% rise.

“The current financial landscape presents struggling businesses and consumers with additional challenges of elevated prices, higher borrowing costs and uncertain geopolitical events,” said ABI Executive Director Amy Quackenboss. “Bankruptcy provides a proven process to a financial fresh start for distressed businesses and families.”

According to a survey by Cornerstone Research, roughly 113 public and private businesses with assets exceeding $100 million declared bankruptcy under Chapter 7 or Chapter 11. Additionally, in the first half of 2024, 16 “mega bankruptcies”—companies with assets exceeding $1 billion—took place. Since the Covid-19 epidemic, this is the most massive bankruptcies in a six-month period.

All industries saw a rise in these filings, although the manufacturing, services, and retail sectors were the most severely affected. Specifically, 29% of all bankruptcies were in the services sector, a sharp rise over the sector’s historical average of 17% between 2005 and 2023. Bankruptcies also increased in the real estate, insurance, and finance sectors.

With new tariffs, rising costs, more debt, and persistently high interest rates, many American households may hit a breaking point in 2025. By the end of 2024, bankruptcy filings in the U.S. had increased 14.2% year-over-year (YoY). Record debt buried consumers, and according to the Federal Reserve Bank of New York, at the end of 2024, the percentage of households that were 90+ days overdue on their auto loans and credit cards reached a 14-year high—and delinquencies are still rising. At $1.21 trillion, credit card balances reached a record high.